Carbon is a hot commodity – literally.
And it’s become the biggest buzzword in agriculture in recent months, as the potential for paying farmers to sequester carbon through environmentally responsible land stewardship becomes more likely following U.S. re-enrollment into an international treaty on climate change and President Joe Biden’s proposed carbon market to directly pay farmers.
But why is the market for carbon so hot right now, and how can farmers get started?
The potential for carbon payments has special interest for farmers growing hemp, which reportedly gobbles carbon at a rate of 6 tons per acre, according to the European Industrial Hemp Association, and can play a key role in regenerative farming and soil remediation.
(Marijuana also sequesters carbon, but federal prohibition makes carbon farming a longer-term prospect on the horizon for high-THC cannabis cultivators.)
Nature-based solutions figure prominently in the treaty’s goal to substantially reduce greenhouse gas emissions and limit global warming to 1.5-2 degrees Celsius above pre-industrial levels by 2100.
That’s according to Chandler Van Voorhis, co-founder and managing partner of Acre Investment Management and its subsidiary Green Trees, one of the world’s largest reforestation projects, who spoke about carbon markets recently to the National Agricultural Law Center at the University of Arkansas.
Based on current policies, the Earth is on track for 3.5 degrees Celsius global warming by 2100, even taking governmental pledges into account, according to a 2020 United Nations report.
As a result, nearly 2,000 companies have made net-zero carbon commitments by 2030 or 2050.
According to Van Voorhis, there are a few to ways to accomplish that goal:
- Eliminate fossil fuels and buy renewable energy to reduce emissions going forward.
- Buy carbon offsets or invest in carbon removal to repair and “recalibrate” the atmosphere.
“Nature’s technology” is the only scalable option to effect and sequester large chunks of carbon affordably, he said.
Mainstream companies seeking carbon offsets
Thirty percent of all capital invested on Wall Street is now socially and environmentally screened, accounting for trillions of dollars, Van Voorhis said. Shareholders are driving the trend, with two-thirds of all shareholder resolutions on the environment.
United Nations envoy and the former head of the Bank of England Mark Carney has called for vast increases in voluntary carbon markets, growing carbon offset credits by a factor of 15 by 2030, and by 100 times by 2050, which would expand the market from $300 million to up to $100 billion per year.
But detractors of carbon markets call them a cover for companies that prefer buying credits to cutting their own emissions.
The entire global carbon market in 2020 was only 100 million metric tons, requiring significant expansion to meet the demand for carbon removal.
“That doesn’t happen overnight – it happens one landowner conversation at a time and one acre at a time,” Van Voorhis said.
Agriculture will play a significant role in carbon sequestration, but the three main voluntary carbon registries – the American Carbon Registry, Climate Action Reserve and Verra – are still working to develop methodologies for agricultural carbon credits.
“Agriculture has some challenges that forestry doesn’t have, such as the ease of reversing (the release of) carbon if practices like tilling are used,” Van Voorhis said.
Connecting sellers and buyers
In addition to producing commodity crops, landowners can also be paid for carbon sequestration and natural resource conservation. But it’s not a simple process, said Van Voorhis, whose Green Trees project represents 600 landowners totaling 130,000 acres.
“Not one of those landowners could go into the carbon market themselves and bear that (verification) cost,” Van Voorhis said.
Working with a project administrator helps offset the cost of working with carbon registries.
It also helps landowners manage their resources, layering in value points so they can be paid for their crops, plus the carbon being stored in their soil. Administrators identify tax credits, conservation programs and water payments for using regenerative practices to improve water retention on the property.
“The key is to optimize multiple points of income, not maximize one and sacrifice another,” Van Voorhis said.
Producers can find and compare voluntary carbon offset projects and programs by searching the registries and referencing the Carbon Offset Research and Education program, an initiative of the Greenhouse Gas Management Institute and the Stockholm Environment Institute.
By aggregating land through partnerships with landowners, project administrators catch the attention of big buyers such as Duke Energy, Shell, Microsoft and Bank of America.
“Markets happen through partnerships,” he said. “Buyers are looking for millions of metric tons, so a landowner with 100 acres generating 200 tons of carbon per year – that’s hard to get buyers’ attention.”
Making carbon transactional
Each carbon registry houses a set of standards and methodologies for project types such as reforestation or agriculture.
Some considerations include:
- Permanence – the time value in years from the point that the carbon is sequestered.
- Baseline – determining where the landowner starts counting its carbon, and how much carbon to monetize or keep in reserve. Once carbon is monetized, the landowner must guarantee the carbon is going to stay in the ground for a time period determined by the registry.
- Additionality – refers to the net impact of the project.
- Leakage – considers deductions, for instance using conventional fertilizers and controls versus biological or organic amendments.
Carbon projects manage the process on behalf of the landowners, starting with measuring the landowner’s land and calculating and converting the measurement data to carbon.
Next, a third-party verifier conducts an audit of the land, which can take six to nine months to complete, Van Voorhis said.
Once the verification is complete, the verifier sends a report to the registry. Upon approval, the registry will issue serialized tons into the project’s account.
“At that point, we have a commodity that we can then transact,” Van Voorhis said.
To meet the demand for nature-based solutions to deliver 8 billion to 10 billion metric tons of carbon per year by 2030, Van Voorhis said, it would help if the federal government would create federal carbon insurance.
Also, an effort to encourage the government to expand the definition of 45Q carbon sequestration tax credits to include biological sequestration and make them tradeable and transferrable “could have legs for agriculture,” Van Voorhis said.
Because of the complexities involved with permanence and leakage in agriculture, Van Voorhis said tax credits would be a scalable solution that “gets across a lot of the problems of navigating carbon markets,” while creating annual incentives for landowners to sequester and sell carbon.
“We’ve got to frame nature’s value proposition … and if we can do this, we can create these new income streams for agriculture and forestry in ways that will dynamically change how you manage your land, and will improve the diversity of cash flow that comes into your holdings.”
Laura Drotleff can be reached at [email protected]