Carbon as a third cash crop?
If you have already been approached by promoters of private initiatives offering compensation for the generation of agriculture carbon credits, you may have already noticed that requirements vary widely across initiatives, and carbon prices are -at best- fixed only for the duration of pilot programs.
The complexities involved in the comparison of agriculture carbon initiatives might discourage agricultural producers from properly evaluating relevant alternatives, resulting in a protracted adoption process, and even an accelerated disadoption process if initiatives fail to satisfy producers’ expectations.
In an attempt to help farmers and agricultural stakeholders navigate the complexities associated with carbon and ecosystem services programs, ISU Extension and Outreach compared 26 characteristics across 11 private voluntary programs using publicly available online information, and briefly discusses some of the risks from participating in voluntary carbon markets. The programs include two carbon and ecosystem services credit entities (Ecosystem Services Market Consortium-ESMC and Soil and Water Outcomes Fund), two carbon credit entities (Indigo and Nori), four input suppliers (Agoro Carbon Alliance, Bayer, Corteva, and Nutrien), and three data platforms (CIBO Impact, Gradable, and TruCarbon).
While all programs require additionality to generate a credit, not all programs require that farmers change their production practices. Additionality means that farmers must do something different to reduce carbon and increase ecosystem services. However, programs use a wide array of benchmarks to determine what is different. Some programs require a change of practices with respect to past practices on the same field, while some others require that practices in the field be different from common practices in the area (even if the same practices have been implemented for many years in the field under consideration).
According to the report, the emerging agriculture credits market can be currently characterized as an unarticulated patch of coexisting programs with different rules, incentives, and penalties. In its formative stage, the market is very dynamic, focused on testing protocols through small-scale pilot programs, and lacks transparency and liquidity.
An advantage of the emerging agriculture credits market over the failed carbon credit exchange from the late 2000s is that the expected farm size to participate in the carbon market is much smaller than before, likely resulting in fewer intermediaries between farmers and credit buyers.
Major systemic risks include potential bankruptcies among the least successful initiatives, carbon credit reversals, changes in the protocols to generate credits over time, and the unknown volume and stability of the demand for credits generated in the agricultural sector.
The full report is available on the Ag Decision Maker website, AgDM File A1-76, How to Grow and Sell Carbon Credits in US Agriculture.
Alejandro Plastina, extension economist, 515-294-6160, email@example.com
Oranuch Wongpiyabovorn, graduate research assistant