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The pros and cons of government involvement in carbon credit markets

August 24, 2020

Taking  carbon dioxide from the atmosphere and storing it in the soil: for farmers, consistently struggling with low margins, it could be a much-needed additional revenue stream. Various groups are developing ways to essentially sell that stored carbon as an environmental benefit via so-called carbon credit markets.

The concept isn’t necessarily new; it has been floated in other industries with limited success, and programs have launched (and disappeared) in agriculture for a few years already. But the US federal government is now starting to make moves in the space.

It has introduced a bill proposing a certification backed by the US Department of Agriculture (USDA) for third-party carbon verifiers and so-called technical service providers. The verifiers work to measure soil carbon levels and substantiate the use of certain farming practices, while the technical service providers offer assistance to farmers and landowners wanting to engage in the market.

If passed, the bill would establish a program that allows the USDA to “provide transparency, legitimacy, and informal endorsement of third-party verifiers and technical service providers” who want to help farmers generate carbon credits.

The CEO of one of agritech’s most highly valued startups, Indigo — which operates its own carbon credit marketplace for farmers — welcomes the government’s involvement.

“The bill seeks to establish standards for how we define carbon credits and how we account for them,” David Perry told AFN

“It provides more clarity about what ag or soil-based carbon credits mean, how they get audited and approved. The more standardization and clarity there is around that the better.”

Debbie Reed, executive director of Ecosystem Services Market Consortium (ESMC) told AFN that companies “creating their own accounting or mechanisms outside of […] science-based targets” or claiming that they’ve received certification from informal bodies is problematic.

“Certifications mean nothing if they are not part of the standards,” she said, adding that ESMC’s goal is to launch a national “ecosystem services market” to sell carbon and water credits for the agriculture sector by 2022. 

‘These markets don’t need any oversight’

ESMC’s marketplace connects farmers and ranchers as producers of credits with buyers who want to offset their carbon footprints. 

The program will allow farmers to voluntarily adjust crop and livestock production systems in ways that increase soil carbon sequestration and retention, reduce greenhouse gas emissions, improve water quality, and conserve water use, among other outcomes.

The improvements that carbon credit providers are able to generate through using various practices are measured, monetized, and sold as ecosystem service credits. 

In lieu of creating a carbon credit certification, Reed believes the USDA’s time would be better spent supporting conservation practices and providing more funding to assist producers with the upfront costs of adopting them. Increasing accessibility for this funding could help more farmers become new or better players in the private markets.

“The federal government doesn’t understand these markets. These markets don’t need any oversight,” she said.

“They have existing standards and bodies that make sure the standards are transparent. The real concern is producers getting burned one too many times.”

In raising  about US government regulation of an ag carbon credit market, some draw a parallel to organic food standardization, which the Rodale Institute handed over to the USDA resulting in the passage of the 1990 Organic Foods Production Act.

“When you give something to the government, you give up some things. That’s just how it works,” the Institute’s CEO Jeff Moyer told AFN in December. “Rodale understood that and still thought it was worth doing. It meant giving up the idea of continuous improvement, links to social justice, and language that organic farmers held near and dear around soil health and animal welfare. But we ended up with a complex and robust strategy for regulating the word ‘organic’ and the industry has grown.”

Science or art?

Reed also points to a number of existing issues in the ag carbon credit market space, including potential problems around existing carbon accounting tools and unresolved aspects of the science behind it.

“The USDA’s COMET-Farm tool was developed so farmers could do very simple things like drawing a map around their farm, saying what practices they use at a high level, and running scenarios about adopting new practices and the resulting change in carbon output,” she said.

“It is a scenario builder, not something that should be used in market-based accounting. It’s not granular enough.”

The tool has popped up in a number of places. Recently, Cargill and the Iowa Soybean Association announced a new program that will pay farmers for adopting practices that sequester carbon and improve water quality. The partners are using COMET-Farm to measure carbon sequestration while the USDA’s Nutrient Tracking Tool measures water quality.

“If you are a corporation and you are trying to sell or generate carbon credits for markets, there is one set of measurements and rules about how you account for and measure carbon,” Reed said. “But if you are a corporation just trying to report annual commitments according to the science-based targets, there is a whole different set of rules. People conflate them and don’t know the difference.”

It feels like countless corporates are announcing sustainability initiatives or reporting the successful completion of carbon-related targets (examples here, here, and here, among many others on AFN.) Whether these targets were measured and tracked by an objective third-party is often difficult to suss out – as are the criteria that were used to define them in the first place.

Another problem is the ongoing debate around the science of carbon accounting.

“How well can we measure it? We can measure it with great accuracy and precision. The real problem is that it is expensive to do that with current technology,” Reed said.

“We also don’t have a good understanding of where we should be measuring – six inches? A foot? Two feet? It [can] depend on the system you use. There is a lot of evidence in particular systems that carbon is sequestered and migrates down the soil profile in both biological and physical means. So then it isn’t an accounting issue, it is a ‘how and where do we measure?’ issue.”

Cautiously optimistic 

Other ag carbon market stakeholders are taking a more optimistic, though nonetheless cautious, approach to the bill and the new framework it would create.

For Aldyen Donnelly, co-founder at Seattle-based carbon removal marketplace Nori, the government’s efforts are worth recognizing.

“We had some conversations with the staff who were drafting it. Our initial reaction is that it is really well intended,” she told AFN. “However, the understanding of what the barriers are to farmers entering these markets, and what help is needed, is misinformed.”

This isn’t a dealbreaker for Donnelly, who points to the legislation’s requirement of a multi-year study to assess the ag carbon market ecosystem. The study is due by October 2022.

“I look at the study period as an opportunity for experts to voice their recommendations, and there is a shot that the committee could get it right,” she said.

The benefit of the doubt aside, Donnelly sees some serious flaws with the bill. One area she pinpoints is its attempt to address the supposed lack of “access to reliable information about markets and […] to qualified technical assistance providers and credit protocol verifiers.” These have “limited both landowner participation and the adoption of practices to help reduce the costs of developing carbon credits,” according to a Senate explainer.

“There is no shortage of qualified verifiers in the market,” Donnelly said. “There are different routes an individual could go down to take courses to prove they have the skillset to do the verification job. The issue is that there is not enough work for them.”

The USDA already maintains a technical service provider database, she notes, which is a list of individuals who have taken USDA-approved courses related to carbon accounting. In her opinion, the list is hard to find, not user-friendly, and would benefit from a revamp.

Full carbon-sequestering steam ahead

Regardless of how government oversight pans out, the ag carbon credit genie is already out of the bottle.

“There is a lot of momentum behind this. The number of companies making announcements and commitments between November and February was really encouraging,” Perry says.

“Apple announced that it will be carbon neutral by 2030. Our expectation is that as industry leaders make those announcements, everyone has to follow.”

With regards to Indigo’s own carbon credits exchange, Perry reported a “huge shift on the demand side” and growing inquiries from farmers in recent months.

“We’ve had 21 million acres of US farmland express interest in learning more. It’s still early but I am really encouraged by the pace.”

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