Jan Kroon/Pexel
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Over the past few years, firms and organizations of various sizes and sectors of the economy, including governments, have announced commitments to address environmental or sustainability goals. Primary among them have been carbon commitments — pledges to reduce carbon emissions to a set level or become carbon neutral by a specific, future date. Such commitments have firms, organizations and governments seeking ways to achieve those reductions in a least-cost manner. Agriculture is perceived as one sector ripe with opportunities for achieving these reductions. As a result, producers and landowners are being approached with a set of choices/contracts about possible carbon payment plans or carbon markets, which can be bewildering.
Carbon markets and carbon credits are attracting firms, large and small, including Boston Consulting Group, Shopify, Barclays, JPMorgan Chase, IBM and New Belgium Brewing, among others. These firms are participating in private markets launched by companies including Indigo Ag Carbon, Nori and Producers Business Network. Private agribusinesses that have developed carbon market programs independently include Bayer and Nutrien. Public markets, yet a third alternative, include those called for by the Food and Agriculture Climate Alliance to establish a USDA-led Commodity Credit Corporation carbon bank. And in the last Congress, there was the Growing Climate Solutions Act; a bill that called for a certification program at USDA to help producers participate in carbon credit markets. There is likely to be another version of that public legislation introduced during the current Congress.
There are some common characteristics of all carbon markets; they are voluntary, incentive-based markets connecting buyers and sellers of carbon credits. Producers typically are the sellers and are paid for using animal and land management practices that create carbon credits via carbon sequestration. Practices include cover crops, crop rotation, no-till/strip-till, nutrient management, buffer strips, tree planting and livestock grazing, among others. The contracts for these credit markets have some version of data monitoring and measurement with which producers must comply. Once enrolled, producers are paid based on measured outcomes, either on a per-acre basis or by asset generated.
First and foremost, growers considering any such program or contract should keep in mind that they treat this like any other management decision. Ask yourself – how will the practices associated with this new contract (for generating carbon credits) fit into my existing production system, and how long will this commitment last?
More specifically, producers may start with these questions before deciding whether to enter the carbon market:
1) When and how much will you get paid?
2) What are you committing to do and for long do you have to do it?
3) Who sets the price for credits?
4) Will a lien get attached to your property?
5) Will you be contractually bound to maintain certain cropping or livestock management practices, and for how long?
6) Will you still own the farm data used to qualify for credits or payments?
Carbon markets are like any market, and producers would be wise to follow the old adage – caveat emptor, let the buyer beware.