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Here’s what is known about carbon markets

Sergiy Akhundov/Getty Images Vetch and oats as cover crops
COVER CROPS: Vetch and oats are used as cover crops to improve the structure and fertility of the soil. Cover crops may be used for carbon sequestering.
Ask the Expert: Carbon markets may be tinged with a bit of skepticism and a lot of questions.

There’s a lot of talk about carbon markets and agriculture these days. While carbon markets aren’t new, recent proposals in Congress and announcements by the Biden administration are raising new interests in them. 

Some companies are actively pursuing carbon trading agreements with farmers, further fueling the discussion in the agricultural community. 

As is common for any new opportunity, the talk on carbon markets may be tinged with a bit of skepticism and a lot of questions. Do carbon sequestration practices have real potential as an agricultural commodity? That’s a tough question, and the answer isn’t yet clear. 

There are answers for other questions, though, as well as resources that may be helpful for those considering carbon markets for the first time. Here are some answers to common questions:

What is a carbon market? A carbon market revolves around carbon credits generated by carbon reduction practices. In the farm setting, a producer who either lowers the farm’s carbon emissions or captures carbon through "sequestration" practices can earn carbon credits. Like other markets, a carbon market involves a transaction between a seller and a buyer. The seller sells a carbon credit to a buyer who can use the carbon credit to offset or reduce its carbon emissions.

Do carbon markets already exist?  Yes, although they may be private markets with varying names occurring in different regions. For example, Bayer Crop Sciences began its Carbon Initiative last year, paying producers for adopting carbon reduction practices that will help Bayer reach its goal of reducing its greenhouse gas emissions by 30% in 2030. 

Indigo Ag began entering into long-term carbon agreements with producers in 2019, paying $15 per ton for carbon sequestration practices. Food companies and agribusinesses including McDonald’s, Cargill and General Mills formed the Ecosystem Services Market Consortium, which will fully open its private carbon market in 2022.

Are legal agreements involved? Yes. Using a written agreement is a common practice in carbon market transactions, but the agreements can vary from market to market. Provisions might address acceptable practices, calculating and verifying carbon reductions including third-party verification, sharing data and records, pricing, costs of practices, minimum acreage, and contract period. As with other legal contracts, reviewing a carbon agreement with an attorney is a wise decision.

What is President Joe Biden considering for carbon markets? The Biden administration has expressed interest in developing a federal carbon bank that would pay producers and foresters for carbon reduction practices. USDA would administer the bank with funding from the Commodity Credit Corporation. Rumors are that the bank would begin with at least $1 billion to purchase carbon credits from producers for $20 per ton. The proposal is one of several ideas for USDA outlined in the administration’s Climate 21 Project.

What is Congress proposing for carbon markets? The bipartisan Growing Climate Solutions Act would require USDA to assess the market for carbon credits, establish a third-party verifier certification program overseen by an advisory council, establish an online website with information for producers, and regularly report to Congress on market performance, challenges for producers and barriers to market entry. 

An initial $4.1 million program allocation would be supplemented with $1 million per year for the next five years.  The Senate Agriculture, Nutrition and Forestry Committee has already passed the bill. The Rural Forest Markets Act, also a bipartisan bill, would help small-scale private forest landowners by guaranteeing financing for markets for forest carbon reduction practices.

Is there opposition to carbon markets? Yes, and skepticism also. For example, a recent letter from dozens of organizations urged Congress to "oppose carbon offset scams like the Growing Climate Solutions Act" and argued that agricultural offsets are ineffective, incompatible with sustainable agriculture, may further consolidate agriculture and will increase hazardous pollution, especially in environmental justice communities. 

The Institute for Agriculture & Trade Policy also criticizes carbon markets, claiming that emission credit prices are too low and volatile, leakages and offsets can lead to accountability and fraud issues, measurement tools are inadequate, soil carbon storage is impermanent, and the markets undermine more effective and holistic practices. 

Almost half of the farmers in the 2020 Iowa Farm and Rural Life Poll were uncertain about earning money for carbon credits, while 17% said carbon markets should not be developed.

Hall is an Ohio State University associate professor in Agricultural and Resource Law, and also director of the OSU Extension Agricultural and Resource Law Program.

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