Agricultural Carbon Markets

If we could only find a way to trap carbon gas—to capture it and keep it out of the atmosphere.

There is a way, and it’s creating a potential revenue opportunity for corn farmers. By capturing carbon in the soil through practices like reduced tillage, cover crops and nutrient management, farmers may be compensated for helping other entities offset their carbon gas emissions (carbon offsetting) or provide a low emissions feedstock for the many companies actively working to reduce their supply chain’s environmental impact (carbon insetting).

Farmers are uniquely positioned to provide a solution to the many companies, countries and organizations focused on decarbonization — and potentially earn revenue doing so. Carbon markets are poised for dramatic growth, so it’s important that farmers understand this developing market opportunity and be aware of potential positives and watchouts. (1)

Within a carbon market, carbon is traded or sold as a “credit”. One carbon credit is equivalent to one metric ton of greenhouse gas emissions. That is equivalent to 2,204.6 pounds (Figure 1).

Carbon markets are where carbon credits or low carbon feedstocks are generated, bought and sold. To enter a carbon market, a producer must work with a carbon company (third party verifier) or carbon program offered by an agriculture industry provider. The producer (seller) will be asked to supply basic on-farm data and eventually must sign a contract and implement the practice(s) outlined within the contract.

A verification process may include additional reporting, soil testing or an on-farm visit to confirm practice change and greenhouse gas reduction. Depending on the program, a producer will be paid either 1) a flat rate for practice change, 2) per ton of carbon stored, or 3) a premium per unit of grain sold. Carbon markets are made up of these key players:

• Farmers, ranchers and landowners (sellers) who implement conservation practices that sequester carbon, thereby creating carbon credits or producing a low carbon feedstock that are sold in a carbon market or sold into a low carbon supply chain.
• Third party verifiers (also called aggregators or verification bodies) facilitate the transaction between buyers and sellers. They ensure quality of data collection, adherence to special accounting rules and proper recording of outcomes.
• Buyers including private companies and/or brokers looking to purchase carbon credits or low carbon feedstocks.

There are two types of carbon markets: carbon offsetting and carbon insetting (Figure 2).

In the case of offsetting, the purchaser of the carbon credits is outside of the agricultural supply chain. A company pays a producer for the “good” they are doing on their farm to store/ reduce carbon emissions so that the company can continue to operate or “emit” the same amount of carbon in their day to day processes. The company is using the carbon credits to “offset” their total emissions. This is where the carbon market space started and to date has largely been slow to catch on within agriculture. Producers by and large have not found the value of payments per tonne of carbon stored worth the cost of implementing low-carbon management practices. Since the inception of carbon offsetting, programs offered within the agricultural industry have begun to alter their strategies to remain competitive with per acre cost-share programs.

In the case of Insetting, the purchaser of carbon credits is within the agricultural supply chain. This system focuses on doing more good rather than doing less bad within a value chain. In this case, a downstream company will pay producers to implement practices that improve and support the longevity of ecosystem services including clean water, soil, air, and wildlife habitat.

Buyer is outside of the ag industry supply chain (non-ag corporations)

• Farmers are paid for implementing specific practices across their acres.
• Carbon-buying companies pay a fixed rate per acre or per carbon credit. (1 credit = 1 metric ton of C)
• Farmer compensation is based on the amount the carbon offset eventually sells for in the market.
• Contracts can be 1-5+ years.
• Usually limited to new acres of a practice.

Buyer is within the ag industry supply chain (input suppliers, grain buyers, etc.)

• Farmers are paid for implementing specific practices across their acres.
• Contracts are typically 1-3 years
• Farmer compensation is based on the established cost-share rate for a practice change or improvement.
• Usually limited to new acres of a practice, however some programs are beginning to incorporate options for early adopters.

• Farmers are paid based on the amount of carbon sequestered. How it measures varies from program to program and can include modeling based on agronomic data, satellite imagery, soil testing or a combination.
• Contracts are typically 1-3 years
• Usually limited to new acres of a practice, however some programs are beginning to incorporate options for early adopters.

Carbon is one of the most abundant elements in the universe and a building block for all living things. Carbon circulates through the land, water, atmosphere and living organisms in what’s known as the carbon cycle. Soil organic matter is mainly composed of carbon and is in a constant state of flux. Every year as plant life grows and senesces throughout the growing season, organic matter is added to the soil. While a portion of soil organic carbon is mineralized by soil microorganisms and stored or “sequestered” into the soil, a portion of that carbon returns to the atmosphere as carbon dioxide.

The land management practices we implement to produce a crop have impacts on the carbon cycle and thus, the carbon footprint or “carbon intensity” of an operation’s annual production. The lands’ ability to store carbon is naturally different from place to place, largely due to factors like geology (soil type) and climate. For example, clay-based soils hold more organic matter and can store more carbon than sandier soils. In addition to the natural factors affecting a land areas carbon storage capacity, the combination of management practices used on that landscape can have an immense impact, whether positive (carbon sink) or negative (carbon source).

A carbon sink is an area or ecosystem that absorbs or stores more CO2 than it releases into the atmosphere. Prairies and forests are examples of natural carbon sinks, as the abundant plant life takes up far more carbon in the process of photosynthesis than is released. When we see the implementation of on-farm practices that reduce soil disturbance and maintain consistent ground cover like reduced tillage or cover crops, we see a greater potential for land to store carbon long-term. These practices, among others, have shown to greatly benefit soil health by adding soil organic matter and boosting the activity of micro and macro-organisms within the soil.

A carbon source is an area or ecosystem that releases more carbon than it stores or sequesters. A natural example would be a landscape swept by wildfire. The burning of plant material releases massive amounts of carbon into the atmosphere. In the same way, the burning of fossil fuels to drive cars, trucks or tractors releases CO2 into the atmosphere. The effectiveness of a single practice, like cover crops, can change depending on the climate, soil type and more. Making agricultural production a carbon sink can look very different from region to region.

In the last few years, the market has shifted significantly from a place of compliance, where corporations are seeking a swift path to reduced emissions, to a more sustainable supply chain that supports ecosystem services. This space has grown to more than just carbon.

• “Carbon Credit” programs
• Drivers
  • International climate/GHG protocols
  • Proposed cap and trade system
  • Energy policy
• Little impact/longevity

• Carbon ecosystem services markets
• Drivers
  • Private sector, supply chain, consumer goods companies
  • Corporate social responsibility (people, planet, profit)

Your operation’s Carbon Intensity or CI score is a measure of your operation’s GHG footprint determined by a peer reviewed modeling tool. In other words, a CI score reflects how much GHG’s are emitted into the atmosphere or stored in the ground as a result of annual production. The standard CI score for corn production in the United States is 29.1. When considering an inset or an offset program, it will be important to have an idea of your land’s potential for storing carbon. Many programs require the adoption or improvement of a practice. The amount of carbon storage gained from adopting a practice can vary from one area of the state to the other. If you are considering selling carbon credits, knowing your farm’s carbon storage potential in tonnes of carbon/acre/year will give you a leg up when negotiating terms of a contract.