Unveiling the Power of Carbon Credits in Agriculture

It is a troubling prediction: the number of farms globally will probably decline from 616 million in 2020 to 272 million by the end of the century.

The current agriculture system supports eight billion people. How will we fare in 2100 with less than half the farms? Any disruption, whether man-made or natural, can have a devastating impact on the fragile global food supply.  

Amidst farm consolidation, climate uncertainties, such as droughts, and regulations, the agriculture industry desperately needs more sustainable methods.

In this article, we will look at the types of sustainable agriculture projects that exist, the various ways carbon credits are used, and the importance of data in the pricing of carbon credits. 

Sustainable Agricultural Projects

With limited land resources, investments are needed to protect, restore, and improve how agricultural assets are used. Businesses and governments around the world are actively participating in sustainable projects. The types of activities that contribute to sustainable agricultural include:

• Regenerative practices. These activities aim to protect the health of farmland or ranching soil. They include no-till crop planning, which minimizes disturbance to the soil; introducing a diverse mixture of crops in monoculture crops and grasses; limiting or eliminating the use of synthetic fertilizers and pesticides; and moving cattle and other pastured animals through smaller sections of the overall land allowing grazing lands to rest and recover. 
• Growing cover crops (barley, oats, legume, radishes, and rye) that are converted into biofuel or used for livestock feed.
• Integrating trees and shrubs into crop and animal farming land (Agroforestry).
• Livestock and fertilizer management
• Grassland restoration and conservation.
• Improving biodiversity through insects, birds, and water stewardship.

Some of these regenerative agriculture practices can be seen at our NatureWorks™ farmstead, see here.

Coupled with the activities described above is the need for education. For example, General Mills, one of the largest cereal producers (and through its joint venture using the Nestle brand), found that a lack of education and qualified farm advisors were significant gaps in regenerative practices. Plus, because not all farms are alike, tailored approaches are needed. Now, General Mills includes training, 1:1 coaching, and peer-to-peer learning as part of their regenerative programs. 

While companies like General Mills, which owns no farms whatsoever, have consciously invested in sustainable agricultural projects, most farms and grazing landowners need financing and investment assistance. 

Land O’ Lakes, a North American farmer co-op of more than 1,600 dairy farmers, is well known for butter and other dairy products. Lesser known is Truterra LLC, Land O’ Lakes’ carbon farming and sustainable agriculture unit. The company recently announced it paid its U.S. farmers $5.1 million in 2022 for capturing and storing 262,000 metric tons of carbon via sustainable programs.

This is one example of a growing number of agricultural companies using carbon credits to offset the climate impact of other parts of their businesses or to sell to companies seeking to reduce their carbon footprint. 

So let us see how carbon credits work in agriculture.

Creating Carbon Credits in Agriculture

In our Carbon Credits Explained blog post, we gave an overview of carbon credits, explained the distinction between carbon credits and carbon offsets, and delved into the differences between the voluntary and regulatory markets.

In agriculture, landowners can apply for carbon credits based on the condition of their land and the sustainable programs they are implementing. The goal is to reduce the amount of carbon released and increase the amount of carbon absorbed. There are a few steps to consider. 

1. Assess your current land condition. This includes soil sample data from previous years, the types of crops or grazing, and any fertilizers and/or pesticides used. 
2. Calculate your current carbon footprint. This step can help determine sustainable activities for improving carbon absorption or reducing carbon emissions.
3. Implement the recommended activities. Monitor and record the data.
4. Work with a verification body to determine the carbon absorption or reduction change.
5. Apply for carbon credits based on the results.

Two Key Concepts in Carbon Credits: Additionality and Permanence + Co-benefits

The good news for landowners looking to carbon credits to help finance sustainable practices or developers looking to invest is that there is a lot of carbon stored in the soil compared to the atmosphere or plants. The atmosphere accounts for approximately 800 gigatons of stored carbon, while plant biomass accounts for 550 gigatons. Compare this to soil which sequesters an estimated 1,800 gigatons of carbon.

Programs that can move atmospheric carbon from the air to the soil or store carbon reserves are excellent candidates for carbon credits. But that is not the only consideration. The value or price that a landowner can receive for carbon credits is also based on the additionality and permanence of the project.

Let’s tackle additionality first with an example. If your farm has been practicing no-till farming for the last 10 years, no credits would be given for the carbon stored in your soil because of this already-established practice. But, if you began to use cover crops as part of a carbon crediting program, earning carbon credits can apply. Similarly, if you converted acres from chisel plowed to no-till, you could earn carbon credits as the soil is no longer releasing carbon as carbon dioxide into the atmosphere.

Permanence in a sustainable program ensures that carbon is not released back into the atmosphere for 10, 20, or 50 years so that the benefits of the carbon reduction/absorption are not quickly undone. Carbon credit programs often require the landowner to sign a contract on the permanence length.

A sustainable project may also have co-benefits such as supporting local farmers, increasing profitable farm income, and in the case of eliminating pesticides, a reduction in water pollution. 

The Importance of Data When Valuing Agricultural Assets

Carbon credits in agriculture are similar to that of other natural assets – one carbon credit for every 1 tonne of CO2 emission reduction – but how the carbon credit is valued is different. Herein lies the importance of data when assessing the value in terms of carbon credits of your land.

I already mentioned that it is necessary to monitor and store soil data from previous years to assess the condition of your soil. But the time carbon stays in the soil before returning to the atmosphere varies. The variation could be due to climate change, soil composition, and other factors. Therefore, continual data collection is required. 

Further, carbon credit buyers and investors want to be assured of a carbon reduction/sequestration. In other words, carbon credits in agriculture need technology and data to prove their value. 

As a government, land owner, business, or financial institution interested in monetizing agricultural assets or investing in agricultural sustainability projects, you need the value of carbon credits or “green” bond programs assessed.

Many third-party verification bodies exist that rate and value carbon credits in agriculture. These bodies must have accurate and timely data so that the carbon credit is valued accurately for both the buyer and seller.

Until now, no single system can collect and continually monitor environmental data. Laconic’s Environmental Intelligence platform, SADAR™, is the first and only comprehensive system that collects and analyzes environmental data providing the insights needed for assessing, monitoring, and analyzing the data.

Both landowners and developers have a shared interest in verified data to ensure the accurate monetary value of agricultural carbon credits. Afterall, our food supply depends on it. 

Learn more about Laconic’s Environmental Intelligence platform, SADAR, and our Natural Capital Monetization service.