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7 considerations before signing carbon market agreement7 considerations before signing carbon market agreement

Tom J. Bechman

March 21, 2023

2 Min Read
cover crops growing between corn residue
RENEWED INTEREST: Money flowing from the Commodity Credit Corporation’s Partnerships for Climate-Smart Commodities program may prompt those receiving grants to try locking up carbon credits with farmers raising cover crops. Courtesy of NRCS

Maybe you’re taking a wait-and-see approach before locking acres into a carbon market. If Hans Schmitz with Purdue Extension is right, you could be facing more pressure to enter a carbon agreement soon. Before you sign on the dotted line, he believes you should consider seven key factors.

“A lot of federal money is scheduled to flow out this year to companies and nonprofit groups that applied for grants through the Partnerships for Climate-Smart Commodities program,” he says. “Some of that grant money is supposed to be used to encourage farmers to sequester carbon. It’s possible that we could see another wave of people pushing carbon agreements yet this year.

“You need to think through all the ramifications before you commit and sign the agreement,” says Schmitz, who is also lead agronomist with the Conservation Cropping Systems Initiative.

Here are seven things to know about a potential carbon marketing agreement before you sign:

1. Your payment. Many markets pay per ton of carbon sequestered, Schmitz says. That can be far different than dollars per acre, the traditional type of farm payoff. It can take several acres to sequester a ton of carbon. Convert dollars per ton of carbon expected to be sequestered to dollars per acre before you sign.

2. True length of contract. If the contract is for five years and you go back to conventional farming in year six, will you be penalized? Would you be required to return all payments received? Look for phrases that require “practice continuance” even after the contract expires.

3. Reporting requirements. Find out all forms that must be completed in advance. Some contracts may ask for details about your farming operation that you would rather not share. Plus, get a handle on how much time it will take to satisfy recordkeeping requirements.

4. Additionality clauses. The Natural Resources Conservation Service Environmental Quality Incentives Program incentivizes some of the same practices that carbon markets target. If you enroll in the carbon market program, can you still take advantage of opportunities offered by NRCS or other agencies?

5. Rewards for current practices. So far, most of the time, you only get paid if you implement new practices that you weren’t doing before. This restriction alienates some growers, but those inside carbon markets insist companies only get credit if “new” carbon is sequestered.

6. Data verification. How do you prove that you are doing what you said you would do, and how do you know carbon is truly being sequestered? Some contracts may specify frequent soil testing; others may rely on frequent follow-up visits.

7. Verification method and cost. If soil tests are required, how often? Who will pull the tests? Where must samples be sent? Who will cover cost of pulling and shipping samples? “It’s very important to get all these kinds of questions answered before you sign the contract,” Schmitz says.

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