Understanding Carbon Markets

Mystified by the emerging carbon market? You’re not alone.

As concerns escalate over the long-term impacts of a changing climate, farmers are finding themselves at the center of a new opportunity – climate change mitigation. Soil health, the concept that underpins this new fascination, has moved from fashionable buzz word to planetary savior in the form of carbon removal and sequestration.

The concept is deceptively simple. Given the opportunity, organisms in soil will break down organic matter from plant growth and essentially capture the carbon dioxide those living roots have removed from the atmosphere during their growth. If this carbon dioxide can then be stored, measured and monitored, it becomes an asset with intrinsic value, almost like a secondary commodity crop, for the farmer.

Yet the simplicity stops there, replaced by an abundance of questions with far fewer answers. How do we know how much carbon has been removed? What has to happen to keep it in place? What happens if something changes? And so on.

As the only farmer-centric, retailer-driven sustainability program, Truterra is focused on shaping this evolving market to deliver maximum value to the farmers and retailers who own us. While we don’t have all the answers (nor does anyone else), we are rapidly learning which questions to ask. With that in mind, here are some of the questions farmers should be asking when considering engaging in carbon or other ecosystem services markets.

10 Questions to Ask Before Signing a Carbon Contract

What is the company’s motivation? The carbon market is becoming crowded by all manner of companies, new and old, publicly and privately held. When selecting a carbon partner, ask yourself why they are in the carbon business in the first place.

What, exactly, are they seeking to buy from you? There are carbon credits, and there are rights to future carbon credits. The same management practices that have been stockpiling carbon in soils for years to create credits will continue to create more of those in the future if those practices continue. Assume your carbon is like any other annual “crop” and make sure you know if you are selling this year’s crop, contracting for crops in a future year, or a little of both.

What will be expected of you? The journey from farm management practice to bought-and-sold carbon credit involves multiple steps including quantifying, verifying, aggregating and maintaining. These steps require time, effort and resources. Be sure you know which of these steps will be your responsibility, and thus your cost.

What counts? The carbon market is designed to encourage the reduction of current and future levels of carbon dioxide in the atmosphere by lowering carbon emissions and increasing carbon removals. While the market continues to evolve, most carbon buyers are seeking assurances that they are helping pay for practices that would not have happened without an active carbon market in place. This concept is called additionality. If you have been doing a particular practice for a long time, it may or may not qualify as additional.

What are you committing to and for how long? The nature of long-term climate change requires long-term solutions. Farmers seeking to engage in carbon markets need to determine what they must do, and for how long, to participate. Many contracts can have long tails that require recordkeeping or practice maintenance long after a carbon sale occurs, in order to document permanence and durability of the carbon reduction.

What are your recourses if something goes wrong? Farming is full of surprises and it is rare that everything goes to plan. Despite all best intentions, Mother Nature plays the last card. Many carbon market players understand there will always be circumstances outside of a farmer’s control, so make sure you get full details on what is and is not your responsibility should something go awry.

Who owns your data? Carbon markets are proving once again that there is value in farm data. Find out what happens to your data after you share it for carbon market purposes. Who owns it? What else can be done with it? Is your permission required?

When and how will you get paid? Carbon is a long game. Sometimes the money comes upfront. Sometimes it comes later. Find out when you can expect payment, and in what form, whether cash, credits toward product purchases, or cryptocurrency. Ask your tax professional about the implications as well.

Are there strings attached? Is exclusivity required? Carbon offerings can take many forms, including both outcome-based programs (you figure out what you’re going to do and the results get measured) or specific protocols (someone else tells you what to do and the results get verified.) Know which one you’re looking at, and factor in the costs of any products or practices that are required in order to participate. You also may or may not be able to qualify for multiple programs, and some farmers may be more comfortable “test driving” different practices and programs on only a portion of a particular field or farm vs. going all-in on any single carbon program or single management approach.

How transparent is the process? How flexible? Maybe you’re more hands off and are comfortable sharing data with a company in return for carbon credit incentives.  Or maybe you’re more hands on and interested in trying different management practices to see which spur more increases in soil health and productivity as well as deliver more potential carbon revenue. Whatever your style, find a carbon partner who offers you a comfortable level of transparency and opportunity for engagement.

If you’re interested in taking the next step in your sustainability journey, connect with a Truterra network provider or pre-enroll for 2024 Truterra^® sustainability programs to determine the right programs for your individual fields.
 

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Want to learn more about Truterra? Find more articles below.

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Demystifying Carbon Market Data Needs
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A clear roadmap: The new Truterra^® soil health assessment unlocks actionable insights for farmers and retailers
Breaking down active soil carbon with Dr. Jennifer Wells

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