Agricultural Carbon Offsets: Farmers Joining the Voluntary Carbon Marketplace in 2021
Efforts to mitigate the consequences of climate change have grown more widespread, and innovation in the voluntary carbon marketplace (VCM) has soared.
That’s a good thing because it makes it easy to start reducing greenhouses gases right now through ‘voluntary’ actions.
But what’s even better is that the voluntary carbon marketplace is working to expand its reach into agricultural carbon offsets, spreading financing activities that reduce greenhouse gas (GHG) emissions through carbon offsets trading.
Here’s what we mean…
What is an Agricultural Carbon Offset?
Of all the carbon offset types — such as afforestation and conservation, renewable energy, methane capture, and various community programs — agricultural carbon offsets are best suited for farmers with an eye for sustainability and carbon dioxide (CO2) emissions mitigation.
There are a plethora of agricultural practices and land management changes that have been identified as potential sources of greenhouse gas reductions. According to the EPA,9 some of these potential options include:
- Retiring land from agricultural production
- Replanting perennial cover (such as trees or perennial grasses)
- The addition of cover crops to standard cropping systems
- The use of reduced tillage to increase the amount of soil organic matter and CO2 sequestration in the soil
- Grazing land management and biofuel substitution
- Methane capture technology and projects
In the agricultural industry, carbon offsets allow farmers to bolster their income by selling carbon credits to qualifying business owners, stakeholders, and similar environmentally-conscious individuals or companies. Many large corporations find it too difficult or cost prohibitive to retrofit their current equipment and business practices into environmentally friendly channels, so it’s often easier to establish sustainability through other efforts.
For this reason, farmers have an advantageous position for participation in VCMs. When using agricultural carbon offsets, they can charge business owners a certain amount of money per acre each year, depending on market conditions and federal regulations concerning greenhouse gas (GHG) mitigation.
The pricing might also change based on the payment structure. For example, when measured by acreage, a farmer might earn $7-$40 per acre.1 On the other hand, a company might expect to pay $10-20 per metric ton (mt) of CO2-eq.
(CO2-eq, or carbon dioxide equivalent,2 is a unit that represents the global warming potential of various GHGs that’s equivalent to a certain amount of carbon dioxide emissions.)
Whether the farmer is paying by the acre or the metric ton of emitted CO2, they might also be subject to paying fees to associates that helped them enter the VCM.
Getting Started with Agricultural Carbon Offsets
With agricultural offsets, farmers may not pocket all the money paid per acre or per metric ton of CO2-eq. This is because they often opt to work with one or both of the following professionals upon entering the VCM:
- Aggregator: This individual buys full control over the carbon offset project. They also manage the carbon credits, when they’re sold, their prices, and the project data the company shares.
- Data manager: Collaboration with these professionals is primarily for entering the marketplace. You don’t typically sell carbon credits or any real interests with a data manager.
Keep in mind that working with such experts means farmers will have to pay for them. The company collaborating with them may keep a specific percentage of the payment to cover their contractual fees, so they’ll likely earn less than the price estimates mentioned earlier. They might also lose a portion of the earnings to the expected natural loss of sequestered carbon dioxide. Ultimately, the average farmer keeps about 60% of the profits.
Selling Carbon Credits for Farmers
A farmer’s ability to sell carbon credits successfully depends on what their land has to offer. For example, some of the most common ways that producers capture or store emissions include:
- Reducing crop fertilization
- More careful manure management
- Sustainable feeding practices
- Using and producing sustainable fuels
- Adopting rotational grazing practices
Other soil-related activities, such as tilling, habitat conversions (e.g., acreage to grassland), and afforestation, are also great ways to sequester harmful GHGs on your land.
Furthermore, the crops themselves may have a lot to offer regarding capacity for selling carbon credits. For instance, agriculturalists growing corn can earn $30-43 per mt CO2-eq and have the potential to remove 0.22-0.65 mt CO2-eq per acre.3 Corn crops can even jump to $174 per mt CO2-eq, depending on fertilization practices.
Typically, farmers either contact an aggregator or data manager or get in touch with a carbon credit service provider when they’re ready to start selling. Databases like the Private Landowner Network Yellowpages are an excellent resource for those in this preparation stage.10
What to Keep in Mind When Selling Carbon Credits
One of the most important factors when learning how to sell carbon credits as a farmer is transparency. There are widespread concerns about accountability in the market for all legally bound participants, not just the companies buying into available offset programs.
These concerns focus primarily on enduring issues like additionality, which plays a vital role in the true environmental value (or waste) of your sold carbon credits.
Excessive ambiguity in organizational activities – and farmers’ lack of planning for entrance to the VCM – can ultimately harm the overall goal of GHG mitigation, thus rendering the entire offset project ineffective. Farmers can do their part by contracting with reputable organizations and ensuring project feasibility. Neglecting these tasks is a recipe for disaster.
The CCX Example: The Importance of Transparency and Feasibility Studies
Years ago, one of the primary ways to sell carbon credits was through an organization known as the Chicago Climate Exchange (CCX).4 CCX was the world’s first-ever voluntary, legally binding trading system focused on reducing GHG emissions. It was opened in 2003 and, for a short time, was the only establishment of its kind operating in North America.
CCX issued its participating farmers or aggregators Carbon Financial Instrument (CFI) contracts based on their project’s specific carbon dioxide mitigation activity, such as rangeland management.
Unfortunately, a lack of transparency and distrust for the for-profit entity operating CCX ultimately saw this trading system to its end in 2010.5 The organization failed to address its closed-door practices for too long and did not improve its information-sharing procedures appropriately.
Widespread public criticism addressed other aspects of CCX’s flawed practices, too. Numerous experts and advocates disapproved of the organization’s design and processes, especially their treatment of hot-button issues like additionality, leakage, and permanence. CCX’s opacity in their trading system ultimately led to their demise, as well as negatively impacted trust and accessibility in the VCM.
In the end, the 8,700 farmers who had enrolled with CCX and their cumulative 17.2 million acres would be left with no income from the carbon market.6 From its height to its downfall, CCX went from selling $4.70 per ton of emitted CO2 to a mere 15 cents per ton.
Frustratingly, private companies like CCX and publicly-owned organizations are the only way farmers can sell carbon credits, meaning they must exercise discernment to seek out available contracts. Secretary of Agriculture Tom Vilsack recently announced that officials are researching possibilities on a carbon bank for farmers specifically, financed through the Commodity Credit Corporation (CCC).
With such a system, farmers could sell the carbon credits directly, streamlining the process and boosting income by eliminating fees for any middlemen. In the meantime, they must exercise caution in your contractual commitments and do some background research before entering the market.
For instance, it’s best to do a project feasibility study to determine whether the land will be profitable and effective for carbon dioxide sequestration efforts at all. Usually, farmers with large plots of land (about 1,000 acres or more) can sustain contracts ranging from 50 to 100 years for the best return on investment (ROI). Aside from the amount of land a farmer has, their study should also consider:
- The appropriate carbon credit protocol
- A full evaluation of your land
- Simulations of CO2 sequestration scenarios
- Suitable business models
Once the preliminary studies are complete, they’ll need to have their documentation verified by an accredited third party. Then, their carbon credits can enter the market!
Challenges and Drawbacks of Agricultural Carbon Offsets
Although they are a powerful tool for environmental and societal change in the face of climate change, agricultural carbon offsets are a point of contention in the VCM and, more broadly, climate-related innovation within the constraints of capitalism.
A widespread concern that has long held public attention is that these offset programs may not be as effective as farmers and participating companies might have hoped. In fact, the Institute for Agriculture & Trade Policy described certain agricultural offset activities, such as storing CO2 in soil through improved management practices, as “highly questionable.”7
Worldwide, the agricultural industry accounts for about one-third of all GHG emissions.8 Experts say that no-till agriculture can only compensate for a marginal portion of the necessary soil CO2 sequestration, but they do still help.
Plus, companies have manipulated loopholes in no-till agriculture, using it to sell more of their merchandise or switching to genetically modified seeds exclusively. Over-reliance on GMO seeds to reduce tilling is counterproductive to climate efforts because it makes crops too homogenous, reducing biodiversity.
Additionally, experts are concerned that those who buy and sell agricultural carbon credits uphold an unrealistic goal.
It is impossible to ensure that sequestered carbon dioxide never escapes the soil (i.e., the concept of permanence), which is why many farmers get “insurance,” or set a certain number of carbon credits aside for when the GHGs are inevitably released. Some are afraid this will encourage a lack of innovation or meaningful change in the agricultural industry to truly address the need to slow down climate change consequences.
These are some of the most significant issues that arise in discussions surrounding the viability of agricultural carbon offsets, but they have the potential to really make a positive impact. Any effort to minimize future environmental harm and mitigate previous emissions will make a difference.
As farmers get to know the market better, exploring both support and opposition arguments can help determine whether these offsets will be beneficial to lowering their carbon footprint. When chosen with care and caution, agricultural carbon offsets can be an effective tool in the fight to reduce greenhouse gas emissions and restore the ecological balance the planet desperately needs.
1Bunge, J. (2020, December 23). Agriculture industry bets on carbon as a new cash crop. The Wall Street Journal. Retrieved June 10, 2021, from wsj.com: https://www.wsj.com/articles/agriculture-industry-bets-on-a-new-cash-crop-carbon-11608719403
2United States Environmental Protection Agency. (n.d.). Definition. https://www3.epa.gov/carbon-footprint-calculator/tool/definitions/co2e.html
3Sellars, S., Schnitkey, G., Swanson, K., & Paulson, N. (2021, April 26). What questions should farmers ask about selling carbon credits? • farmdoc daily. farmdoc daily. Retrieved June 10, 2021, from farmdocdaily.illinois.edu: https://farmdocdaily.illinois.edu/2021/04/what-questions-should-farmers-ask-about-selling-carbon-credits.html
4Chicago Climate Exchange, Inc. (2008). Soil carbon management offsets. Retrieved June 10, 2021 from extension.unl.edu: https://extension.unl.edu/statewide/saline/CCX_Soil_Carbon_Offsets.pdf
5Stumhofer, T. (2010, November 10). The Chicago climate exchange closure, a vote for robust GHG MRV? GHG and Carbon Accounting, Auditing, Management & Training | Greenhouse Gas Management Institute. Retrieved June 10, 2021, from ghginstitute.org: https://ghginstitute.org/2010/11/10/the-chicago-climate-exchange-closure-a-vote-for-robust-ghg-mrv/
6Clayton, C. (2019, November 22). Carbon credits, water quality markets rebuild for farmers. DTN Progressive Farmer. Retrieved June 10, 2021, from dtnpf.com: https://www.dtnpf.com/agriculture/web/ag/news/world-policy/article/2019/11/22/carbon-credits-water-quality-markets-2
7Carbon Market Watch, & Dufranse, G. (2020, November 24). Carbon markets and agriculture. Institute of Agriculture & Trade Policy. Retrieved June 10, 2021, from iatp.org: https://www.iatp.org/carbon-markets-and-agriculture
8González-Ramírez, J., Kling, C. L., & Valcu, A. (2012). An Overview of Carbon Offsets from Agriculture. Annual Review of Resource Economics, 4(1), 145–160. Retrieved June 10, 2021, from: https://doi.org/10.1146/annurev-resource-083110-120016
9Foucherot, C., & Bellassen, V. (2011, December). Carbon Offset Projects in the Agricultural Sector. Climate Report. CDC Climat Research. Retrieved June 10, 2021, from i4ce.org: https://www.i4ce.org/wp-core/wp-content/uploads/2015/10/11-12-Climate-Report-31-Carbon-offset-projects-in-the-agricultural-sector_CDC-Climat-Research.pdf
10Land conservation resources and tool LandCAN Conservation Connection. Land Conservation Assistance Network. (2021). Retrieved June 10, 2021, from landcan.org: https://www.landcan.org/yellowpages/.