Growth and Profit Potential in Carbon Sequestration

Carbon credits give farmers a chance to get paid for practices that sequester carbon in the soil or reduce greenhouse gas emissions, such as lowering fertilizer inputs.

The entire voluntary carbon market -- of which agriculture is just a small slice -- was worth an estimated $2 billion in 2021. Still, that was four times the value from 2020, according to Forest Trends' "Ecosystem Marketplace" report, released in August.

VALUE TO GROW

The growth, though, is exponential. Bloomberg's analytical arm projects carbon offsets could become a $190-billion market by 2030. Bloomberg and others project companies will move aggressively toward carbon offsets to achieve their sustainability goals, and there won't be enough supply of projects such as direct carbon capture to meet the demand. That's going to lead the price of carbon to spike to as high as $200 per metric ton for some markets.

Forestry and renewable energy are the dominant markets for voluntary carbon credits. In 2021, agriculture overall traded slightly less than 1 million metric ton (mmt) for about $8.7 million, though the average price for agricultural offsets at $8.81 per metric ton (mt) was the highest of any category. Offsets for forestry were running around $5.80 per ton.

California's compliance market in mid-October was trading at just $26.85 per mt, down more than 16% since the beginning of the year. The federal government pegs the "social cost of carbon" at $51 per mt. However, a study led by Resources for the Future puts the social cost of carbon -- the estimated economic damages of climate change -- as high as $185 per mt. That same study pegged the cost of carbon pollution to agriculture at $84 per mt.

Credits are traded on a purely voluntary basis largely because corporations have set specific goals to lower greenhouse gas emissions in their supply chains. Some companies are selling agricultural carbon credits to buyers across corporate America, including airlines and technology companies. Others are specifically looking to offset their own supply chain emissions through existing relationships with farmers, known as "carbon insets."

MANY PROGRAM OPTIONS

Every agricultural carbon credit program is unique. Some pay by acre, some pay by (metric) ton, and some pay by the practice. They have different rules, payment plans and requirements, and they are enrolling farmers based on their commodities or region of the country.

Yet, each company already in the game claims it is looking to enroll millions of acres over time. If each company hits its acreage targets, then roughly 1 in every 3 farm acres would be part of a carbon program by 2030.

Right now, there are roughly a dozen companies enrolling and paying farmers, though some of those programs are simply pilot projects.

In some cases, farm organizations are working with companies to sign up farmers for certain cropping practices, as well.

The payments in summer 2022 can range from as low as $2 an acre to as high as $40 per mt of carbon. Pricing for carbon credits is opaque in a lot of cases because there is no defined pricing platform in a voluntary carbon market.

As of now, there are no standards for carbon markets. Legislation passed by the U.S. Senate in 2021, the Growing Climate Solutions Act, allows USDA to set standards for carbon markets and create a certification program. The bill also authorizes USDA to provide technical service to producers so they can qualify for a carbon contract. That legislation, however, has been stalled in the House of Representatives for more than a year.

CARBON CREDIT PROGRAMS

While there are new players in the carbon space popping up, these are some of the major carbon programs in the U.S. already established by the end of summer 2022.

Agoro Carbon Alliance. Formerly part of the fertilizer company Yara, Agoro is working to enroll 1 million acres of crop, pasture and rangeland in the U.S. Several payment options are available based on the program selected. Agoro is offering its program in 48 states but is focusing on the Midwest. Farmers working with Agoro sign 10-year contracts. https://www.agorocarbonalliance.com/…

Bayer Carbon. Bayer has enrolled more than 2,600 farmers in 10 countries, involving 1.4 million acres. The program was offered in 17 states in 2022. Bayer Carbon pays farmers $5 to $12 an acre for on-farm conservation practices. The program uses Bayer's Climate FieldView platform. Bayer launched a new digital platform, ForGround, in August. https://bayerforground.com/…

Cargill Regenerative Agriculture. Cargill seeks to enroll 10 million acres in its RegenConnect program by 2030. The program was offered in 15 states for 2023 with a payment of $25 per acre. Cargill's program will enroll farmers for contracts as short as a single year. https://www.cargillag.com/…

CIBO. CIBO has signed up a small number of farmers in a pilot project for carbon sequestration, mainly to determine how well its software tools work. https://www.cibotechnologies.com/…

Corteva Agriscience. About 1 million acres are enrolled in Corteva's program, which it operates using its Granular program to verify practices. Credits are measured and marketed through Indigo. Corteva guarantees a minimum $20 per credit, projected to go to $30. https://www.corteva.us/…

Farmers Edge. Growers enrolled in the Smart Carbon program collect data using the company's digital platform. They are credited for practices such as reduced tillage/no-till, cover crops and reducing nitrogen use. The company conservatively estimates a payment of $10 per acre. https://www.farmersedge.ca/…

FBN Sustainability Using Gradable Technology: Part of the Farmers Business Network, once dubbed "Gradable Carbon," Farmer Business Network now calls its program FBN Sustainability using Gradable Technology. The program has a $20-per-carbon-credit floor price. Farmers can sell credits or bank them for selling later. Credits are generated through practices like cover crops, conservation tillage and nitrogen management. https://www.fbn.com/…

Indigo Ag. With more than 5 million acres enrolled, Indigo is signing up farmers in as many as 30 states. Indigo has no limit on the number of acres it looks to enroll. It's selling credits at $40 a ton, of which farmers get 75% of the market value of the credit. https://www.indigoag.com/…

Locus Ag Solutions CarbonNOW. About 320,000 acres were enrolled last year with plans to quickly reach 1.32 million acres by the end of the year. CarbonNOW is available in all 50 states. Farmers are guaranteed a minimum of $12 an acre, of which 75% is paid up front. https://locusag.com/…

Nori. Enrolled are 35,387 acres with another 10,466 acres under verification, as well as projects for another 24,000 acres. Most of Nori's projects currently are in the Midwest and Atlantic states. Nori doesn't have a specific acreage goal but does have limits on crops and practices that are part of the program. Currently, Nori's projects are paying $20 a ton. https://nori.com/…

Nutrien Carbon Program. At the end of 2021, Nutrien reported 225,000 pilot acres in three Canadian provinces and 15 states in the U.S. Nutrien's program uses several partners including other carbon programs. Nutrien looks to reach 1 million tons of carbon equivalent sequestered in the soil or in emission reductions. Payment is up to $15 per acre. https://www.nutrien.com/…

Rabobank. Growers upload data into Rabo Carbon Bank's farmer portal, create future regenerative plans and agree to have on-site soil sampling done. Minimum number of acres required. Payment info is unavailable. https://www.rabobank.com/…

Soil and Water Outcomes Fund (AgOutcomes Inc.). The Fund looks to finish 2022 with 200,000 acres enrolled in 13 states. A subsidiary of the Iowa Soybean Association, the Fund pays farmers in two yearly installments, including 50% when signing a contract. AgOutcomes pays for carbon sequestered but also pays for nitrogen and phosphorus prevented from entering waterways. https://www.theoutcomesfund.com/…

Truterra TruCarbon. Truterra, part of Land O'Lakes, did not detail its acreage enrollment but paid out $4 million in 2021 for sequestering more than 200,000 tons of carbon, which equates to $20 a ton. Payments ranged from $2 per acre to up to $25 per ton. Truterra markets its program through the Land O'Lakes cooperative network. https://www.truterraag.com/…

CONTRACT CONSIDERATIONS:

Farmers looking to sell carbon credits have a lot to think through. Dave Aiken, an agricultural law professor at the University of Nebraska Department of Agricultural Economics, says he's been fielding more questions from farmers looking into signing a carbon contract.

"They want to know which one is going to pay the most money and stuff like that. But, there are also landlord/tenant issues that have come up," Aiken says. "I want them to better understand it's kind of the wild Wild West out there, and at the moment, it's not a stable market."

Trying to provide some principles for farmers and landowners, several carbon companies got together to create the Agricultural Climate Markets Collaborative. The goal was to provide more transparency so both farmers and carbon buyers can be more confident in the market.

A key point Aiken recommends is having an attorney go over the contract with you to understand all the details, "Because there is likely going to be some fine print, and if you just sign it so you could get the money, you could end up holding the bag."

Here are a few questions Aiken and the University of Illinois farmdoc economists recommend farmers consider before signing a carbon credits contract:

-- How much will you get paid, and how will that payment come? Some companies are paying flat fees for conservation practices, while others are pegging prices of a credit to a metric ton of carbon.

-- How much is the company's cut per credit? If you are selling for $15 a ton, and the company is taking a 15% cut, then your payment is $12.75 a ton.

-- Does the payment move upward with the price of carbon, and if so, how is that price determined? Nobody wants to get locked in at $15 a ton if the price of carbon credits is going to move to $50 a ton.

-- How long are you locked in? Some companies are signing up farmers for just a year or two, while other buyers want to lock in a longer-term deal. Shorter terms make it easier down the line to potentially shift to a more profitable market, assuming you can provide some new additionality to your farm acreage.

-- What practices do you need to implement? Again, each company is different, but tillage practices, cover crops and fertilizer practices are often key considerations. Some programs could pay for retiring marginal lands, but would that be as beneficial as a Conservation Reserve Program contact?

-- Can farm tenants enroll in a contract? What happens if the land ownership changes? These are critical questions to understand concerning the length of a carbon program and who will be paid. Tenant and landowner need to be on the same page.

-- How much data needs to be reported? Who owns the data off the farm? Companies have specific software tools they want producers to use to measure the emissions from farming practices, carbon being sequestered and reductions in emissions over time. Companies also may want to send third-party verifiers to the farm. Farmers need to understand how much of their data will remain private and whether any of their information will be sold or shared.

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FOR MORE INFORMATION

-- https://www.unitedsoybean.org/…

-- Follow Chris Clayton on DTN at https://www.dtnpf.com/… or follow him on Twitter @ChrisClaytonDTN

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