Agricultural Carbon Offset Market Development: Barriers & Opportunities from the Farmer Perspective

Abstract

In partnership with Carbon Yield, a company that promotes the adoption of regenerative agriculture practices, this project studies the role of agricultural carbon credit markets as a driver for farm revenue and climate change mitigation. The project specifically aims to understand the barriers to farmer participation in agricultural carbon credit markets, quantify the carbon price that would best incentivize farmer participation, and develop practical recommendations for improving the opportunity for farmers, thereby increasing participation levels and reducing greenhouse gasses (GHGs) in the atmosphere. Carbon credit (or equivalently carbon offset) markets enable buyers who desire to reduce the amount of CO2 in the atmosphere to pay suppliers to remove this carbon. This project focuses on agricultural carbon credits for carbon removal, which are generated when a farmer decides to change their farm management practices in a way that adds carbon to the soil over time. Carbon Yield is a project developer for these credits, working with farmers who are making changes to help them quantify the carbon sequestered (or stored) in the soil and then find a buyer for the resulting credits. Agricultural carbon credit markets are nascent and dynamic. This project is organized around three guiding research questions to help Carbon Yield design their approach for success: (1) What is the state of knowledge on agricultural carbon sequestration in soils as a climate change mitigation opportunity? (2) What are the barriers to farmer participation in nascent carbon offset markets, and how can Carbon Yield help overcome those barriers? (3) What characteristics currently make a farm or farmer a strong candidate for this opportunity, and how can agricultural carbon offset markets be designed to better support diverse groups of farmers? Section 4 elaborates on our research questions and metrics for impact from this project. Our methods included a review of online resources and peer-reviewed literature, a survey of 48 farmers, and an immersive experience working with growers as “data managers,” during which our team assisted a cohort of nine farmers through the process of quantifying their potential carbon credits using Nori, one of the agricultural carbon credit registries. We also interviewed each grower at the conclusion of the data management process to understand their perspectives on the experience. After working with the student team, growers had the opportunity to work with Carbon Yield to seek a buyer for their carbon credits, if desired. Section 6 provides a more detailed description of our methods. Existing research on-farm management practices suggests that practice changes do have the potential to sequester carbon in soils, though some uncertainties remain. The global food system accounts for approximately 30% of annual GHG emissions (Clark et al. 2020). Due to the loss of historic soil carbon from agricultural systems, soils also have the capacity to reduce GHGs in the atmosphere by returning carbon to the soil. The potential for soil carbon sequestration as a climate change mitigation strategy is closely connected to farm management practices. Practices including crop rotations and cover crops, no-till and reduced-till, irrigation, manure use, and nitrogen management choices can have a strong influence on soil carbon stocks. Cover crops and diversified rotations generally have the highest potential to increase carbon inputs to soil and thus soil organic carbon (SOC) levels. Reducing tillage intensity can increase SOC, though there is continued debate on the quantity of this reduction. Irrigation can increase crop productivity, but the energy demand for delivering the irrigation may often produce additional CO2 emissions. Manure use increases SOC, but does not typically result in a net GHG benefit unless the manure would not have been applied elsewhere. Nitrogen fertilizer application has been shown to increase nitrous oxide emissions and also implies embodied carbon emissions from fertilizer production, both of which make it highly debated whether nitrogen application represents a net carbon sink. Section 3 provides a detailed summary of peer-reviewed literature related to carbon sequestration in soils. As agricultural carbon credit markets continue to develop, it is critical for market participants to be aware of past injustices in the agricultural system and to build justice considerations into their strategic plans. Between 2012 and 2014, 98% of American farmland was owned and 94% was operated by white people (Horst and Marion 2019). These statistics are a result of a long history of systemic discrimination against Black, Indigenous, and People of Color (BIPOC) farmers, and our recommendations consider ways to ensure that the benefits of carbon credit markets are more justly distributed. We also consider strategies to help small farms derive benefits from carbon credit markets. In 2012, the top 7.4% of farms operated 41% of farmland and earned 80% of total agricultural sales. The bottom 80% of farms sold less than $100,000 annually, and most of these farmers relied on other streams of income (Host and Marion 2019). There is a risk that carbon credit benefits, due to economies of scale, could go mainly to the largest farms. Section 3.3 provides more detail on historic injustices and how they relate to the current market. Section 7 presents the results of our data management experience. The nine growers who participated in our data management cohort grew primarily row crops, such as corn and soybeans, but also produced wheat, hay, popcorn, and cattle. Farms were an average of 1500 acres, mostly non-organic, and operated by White male farmers with 15 to 40 or more years of farm management experience. Most had some exposure to carbon markets as a concept but had limited direct experience with the opportunity and were curious to learn more, especially about the potential for income. A subset of participants was also initially skeptical of the markets. Four of the eight participants who completed the process rated it a seven or less out of ten when asked whether they would recommend working with Carbon Yield to a friend, neighbor, or family member, while three rated the process a nine or ten. Our cohort of farmers was evenly split on the difficulty of the data collection and modeling process, but all felt that a data management partner was essential to using the Nori tool. Key findings from our experience included that results should be communicated in dollars per acre ($/acre) rather than dollars per ton of sequestered CO₂e ($/ton), that answers should be given more quickly about the likelihood of a viable project, and that the current profitability level is too low to properly cover the costs and risks of practice changes. Farmers desire a profit of $50/acre to make carbon credits worthwhile. From the data management perspective, we concluded that the process currently takes too long and that data managers need more troubleshooting resources from Nori to assist in the model-building process. Ultimately, two out of our nine participants decided to move forward with Carbon Yield to register carbon credits in the Nori marketplace at this time. Section 8 contains the full narrative of our recommendations and supporting evidence, including a discussion of the farmer survey results, which are integrated with our recommendations. We surveyed 48 farmers about interest in carbon markets with the goal of identifying a clear subset of farmers best suited to carbon markets. Our sample included farmers in a range of age groups and farm sizes, with mostly White male farmer respondents. Websites and social media were the most common primary news sources. For carbon market information, 34% of farmers most trusted agricultural extension offices, with carbon credit brokers a distant second at 23% of farmers. 51% of respondents had a mix of digital and paper records, while 22% had only paper records, and the remainder had digital records. Participation in other ecosystem service programs, especially EQIP, and pre-existing use of reduced tillage were the strongest indicators of interest in carbon market participation, though we were unable to associate any of these findings with demographic factors that would make it easy to identify candidate carbon market participants. Section 5 summarizes our recommendations, with a more detailed discussion and supporting evidence in Section 8. We organize our recommendations into five categories. First, for improvements to the Carbon Yield grower engagement process, we recommend creating a pre-feasibility study profitability screen, streamlining the process for growers who move forward with modeling to include more resources up-front and investing in soil testing to verify a subset of early projects. Second, for the Nori model-building process, we recommend continued investment in resources to enable data managers to be more independent and continued refinement of the carbon modeling tool’s user interface. Third, related to marketing, we recommend that Carbon Yield incorporate education into the feasibility process, with a focus on communication about trust, flexibility, financial security, and ease. We further recommend focusing on early adopters as suppliers and on companies with robust, evidence-based climate mitigation plans as buyers. Fourth, we recommend a target carbon credit price of $100/ton given our research on farmer profitability goals and costs to store carbon by changing practices. Finally, with respect to justice, we recommend that Carbon Yield use its premium carbon credit strategy to help BIPOC farmers tell their stories and receive high prices for their carbon credits while passing on any additional profit margin to the farmers themselves. We further recommend that Carbon Yield use farmer cooperatives to aggregate small farm projects so that small farms are not left out of the opportunity to benefit from carbon credits. In conclusion, we note that the carbon credit opportunity may differ significantly for certain types of growers, such as highly diversified or perennial farming operations, or for farmers in different regions with unique circumstances. Our project is based on the experiences of commodity row crop producers and will be transferable to farmers with similar practices. Nonetheless, we encourage readers to consider our recommendations critically and to conduct further research when forming opinions and making decisions about carbon credit markets.