Skepticism regarding carbon markets reigns among farmers
Plunging into the world of carbon markets can feel like standing on the edge of an Olympic diving board.
Uncertainty, paired with healthy doses of skepticism and whataboutism, has left most farmers still waiting to make a move.
A 2021 Purdue University survey of 1,600 farmers found 36% are aware of opportunities for carbon payments, yet only 1% have signed a contract.
“While we hear a lot in the media about these markets, in terms of participation, most people are not participating at this point,” says Nathanael Thompson, a Purdue University associate professor of agricultural economics. “Most people have not bitten the bullet and actually signed the contract to participate.”
- READ MORE: How do you measure carbon?
Of the farmers aware of opportunities, 61% said the payment level offered kept them from enrolling in a carbon market program, Thompson says. Another 37% credited the legal liability of contract noncompliance as the reason for their hesitancy.
Demand for Quality
Carbon markets can be divided into two subcategories: regulatory markets and nonregulatory markets. In a regulatory market, demand for carbon offsets is driven by emissions caps imposed by a government or other regulatory agency.
“These permit caps are binding in the sense that the total level of allowable emissions from this industry, hence the total number of pollution permits that you issue, must be lower than the baseline emissions from the industry before the regulation happens,” says Carson Reeling, a Purdue University associate professor of agricultural economics. “Collectively, this industry has to get together and figure out ways that they’re going to scale back their emissions, such that the total number of emissions being generated equals the number of permits they collectively have. So, each individual polluter will have to figure out how to come into compliance with the stock of permits that they have.”
To scale back emissions, individual polluters can:
- Reduce their own emissions.
- Buy permits from others in their industry.
- Look outside their industry to those who can control carbon sequestration, such as farmers.
Meanwhile, nonregulatory markets are driven by voluntary commitments to reduce emissions. Most carbon market programs making headlines these days are nonregulatory, buoyed by the discussions surrounding sustainability and climate change.
READ MORE: Carbon markets galore
“Under these nonregulatory offset markets, we have firms, retailers, tech companies, food and agribusinesses that have all voluntarily set sustainability goals to try and satisfy consumer demand for sustainability or their shareholders’ demand for sustainability,” Reeling says.
While it’s no secret that farmers prefer voluntary programs over regulated ones, the uncertainty of demand in a nonregulated market leaves room for concern.
“While these companies may be lining up to say, ‘We’re going to be carbon neutral by this date,’ that’s a completely voluntary commitment,” Thompson says. “So while there is demand in the sense of people saying they want to buy these offsets, it’s really uncertain where that demand could be in the future, given that there’s really nothing there to hold them to those commitments. If the overall tenor of this discussion changes, those companies could not be there in the future as far as demanding these offsets.”
Permanence and Additionality
By monitoring the quality of carbon sequestration, programs may be able to sustain demand for offsets. “There are really two main components to the quality of carbon offset being generated. One of those is permanence,” Thompson says. “The person who’s buying that offset wants to know that the carbon stored in the soil is going to be there permanently. Otherwise, why would I pay you to store it for a short amount of time?”
For farmers looking at joining a carbon market program, understanding contract term length and obligations related to permanence is essential.
“As the producer, what are you going to be on the hook for if there’s a need to get back in the field, revert back to a tillage system, and release some of that carbon?” Thompson asks. “If you talk to the companies developing these markets, a lot of them would look at one of these situations and say, ‘OK, we understand there are extenuating circumstances, and you had to get in and do that tillage.’ ”
Instead of the farmer paying back sequestered carbon payments, many carbon market programs will pause payments until the carbon has been resequestered.
“That sounds great in theory,” Thompson says. “In practice, I worry about what that means, because as the producer, are you really willing to continue the practice in the absence of the payments?”
The second component of a carbon offset’s quality is rooted in the idea of additionality, or the idea that new carbon being stored is due to a new practice.
“If I’m Walmart or Apple, I want to know that I’m paying for you to store additional or new carbon,” Thompson says. “I don’t want to pay you to do something that you were already doing. If you’ve already implemented cover crops or no-till 20 years ago, you’ve revealed your hand that you were willing to do that without the payment.”
Who Should Participate?
For farmers already intending to incorporate carbon-minded practices into their management plan, an early commitment to a carbon market program may increase potential profit.
A 2014 study found soil can sequester carbon for more than 100 years, says Shalamar Armstrong, a Purdue University associate agronomy professor.
“What’s neat is that if you think about the total accumulation of carbon in the soil over that time, 50% of that occurs within the first two decades,” Armstrong says.
Farmers can use this knowledge to maximize offsets.
“I think farmers can be equipped with this framework in order to even just select which fields they enroll,” Armstrong says. “You want to enroll those fields where you had the less time in no-till or cover crop. Then you have the greater upside with more accumulation occurring because it’s a young field.”
Farmers who have recently implemented no-till and cover crop practices may also take advantage of carbon market programs. “[Programs] don’t want to pay you to do something that you are already doing. That is really counterproductive to the objective,” Thompson says.
“With that said, there’s this caveat that there are opportunities for folks to get payments who have already been doing these things. A lot of times they’ll refer to these as look-back payments. It depends on the program, whether or not they offer look-back, it depends on the program how long of a look-back they offer, but a lot of times there are opportunities to get these payments for things that have been done in the last five years or so.”
When it comes to sustainability conversations, carbon markets offer the agriculture industry a chance to be part of the solution. Thompson warns farmers to not get caught up in the allure of an additional paycheck.
“We’re giving a lot of attention to carbon markets and that’s fine, but if that’s the sole focus, it concerns me a little bit more as opposed to thinking about how these practices fit in a broader system on your farm,” Thompson says.
Reasons for Optimism
For farmers enrolled in a carbon market program, the benefits go beyond the additional paycheck.
Lukas Fricke, a sixth-generation farmer from Ulysses, Nebraska, enrolled in the 2021 Truterra carbon program after implementing strip-till practices and utilizing the Truterra sustainability tool. “I didn’t know that this carbon offering was ever going to occur when I did the practice change,” Fricke says. “I had the benefit of more bushels and better soil conservation and soil health through strip-tilling by starting that process first. The carbon credit, that was gravy on top.”
Working with a local conservation agronomist and approaching farming as a prescriptive business eased the transition.
“It’s a prescriptive situation, so you want to make sure you’re doing the right practice for the right field,” Fricke says.
A self-proclaimed early adopter, Fricke says he can understand farmers’ reluctance to jump into something so new.
“I think some of the hesitancy is that this is kind of out there, but farmers participate in being an environmental steward all the time,” Fricke says. “Farmers are always doing the right practice for the right field. So, this is an opportunity to be able to have a value add on the farm, diversify your bottom line, and at the same time, help make a positive difference in the world around us.”
Fricke hopes his early adoption can inspire others to take the plunge.
“It’s exciting that we have some first adopters to get the ball rolling, get the conversation started, and more importantly, get these practices started,” Fricke says. “I hope the value of this stuff increases because that means that we’re doing the right job. Our jobs are getting more and more valued all the time.”
Price and demand for carbon offsets will vary with the quality of an offset, meaning documented permanence and additionality may help increase farmer profits. Carbon prices are the top reason surveyed farmers are staying away from carbon market programs, Purdue’s Nathanael Thompson says. Current prices are six to eight times below what farmers anticipate needing to profitably make the switch from conventional to no-till farming.
“We have a long way to go on the price side of things in order to get widespread participation in these markets,” he says.