Tom Hall, Senior Agronomist, Rooster Strategic Solutions
And so, it begins. Last October, Indigo Ag announced commitments from large global brands to purchase verified agricultural carbon credits. Similarly, Land O’ Lakes announced that its Trueterra unit will help farmers generate and sell carbon credits this summer. The financial incentive to growers for this “carbon farming” is $20 per ton of carbon dioxide (CO2). Is this a good deal for growers? It’s still too early to tell.
What is carbon farming? Let’s start with some basics: Carbon farming, also called “Regenerative Farming,” is basically a way to remove Greenhouse Gases (GHG) from the environment and store it in the soil. Calling it carbon farming is a bit of a misnomer, however, since other gases – particularly methane and nitrous oxide – have a much greater negative impact on the environment. But because CO2 represents 80 percent of all GHGs, the focus on carbon makes sense.
Carbon credits, or offsets, can be purchased by a company or municipality that wants to reduce their GHG footprint. A credit is one ton of a GHG that is removed from the atmosphere, or one ton of GHG that is saved from going into the atmosphere in the first place by installing and using a GHG-reduction technology.
What’s in it for the companies? Many companies today recognize the need to include sustainability as a core mission, and just as many have announced ambitious goals to reduce their GHG footprint. In reality, however, it can be very difficult – and very expensive – for a company to find efficiencies in their systems to meet these reduction goals.
Hence the carbon “credit.” Rather than changing a product line or retooling a factory to operate in a more environmentally friendly manner, a company can pay a third-party – who is already making changes to eliminate GHGs – and take “credit” for their reductions. One of the first U.S. companies to try this was Chevrolet, who purchased 40,000 carbon credits in 2016 from 23 North Dakota ranchers who pledged to adopt no-till methods on 11,000 acres of grazing land. According to Chevrolet, this equated to taking 5,000 cars off the road. Since transportation is the leading cause of GHGs, it made sense for Chevy to kick things off.
In addition to humanitarian goals, there are other, more self-serving reasons, why a company might look to buy carbon offsets. To date, there’s no federal requirement to reduce GHGs, but there are state-mandated reduction goals as well as federal tax credits for investing in GHG-reducing practices. The new Biden administration has made Climate Change a critical issue, second only to fighting Covid. And its primary focus is on limiting GHGs. Many companies, including a number of large agricultural companies, expect to see new regulations in the near future and are trying to get a handle on it now, rather than waiting to be told what to do.
What’s in it for growers? As is the case with companies, there are both altruistic and practical reasons for growers to get involved. At a high level, farmers are good neighbors. They don’t want to hurt anybody, including themselves or their families. They want the richest soils, best crops, and safest water supply possible – all of which are potential outcomes of Regenerative Farming practices. As an added bonus, better soil and healthier crops equate to higher yields and more profits.
On another level, production ag has a bullseye on its chest – and farmers are keenly aware of this. According to the EPA, agriculture is the fifth-highest producer of GHGs, at roughly 10 percent of the total. Much of this is credited to livestock operations, which generate nitrous oxide and methane that, as mentioned previously, have a much higher negative impact on the environment than CO2. For this reason alone, livestock and hog facilities will be part of any GHG conversations. But with CO2 representing the largest share of GHGs, many crop growers believe they’re in the same position as large companies – more regulation is coming, so we might as well get in front of it.
This would suggest that accepting carbon offsets from other companies should be a no-brainer for farmers. If there are practices that growers are already doing – or that could be implemented fairly easily – and a company is willing to pay them to do this, why wouldn’t they accept them?
The devil, as usual, is in the details. And the details are a long way from being finalized. What are the best farm practices to sequester GHGs? How will we quantify how much GHG an individual grower has reduced versus another? How will we verify these reductions, especially when it comes to “potential reductions” from practices designed to eliminate GHGs? Private companies are working their way through these and related issues, not knowing how any future federal regulations will affect their plans. Carbon farming, in effect, is in its infancy.
What we do know is that the push for Regenerative Farming techniques is only going to get stronger as the Biden administration finds its bearings. We’ll keep an eye on this and report out as processes and plans are developed.