The hidden link between your dinner and fighting climate change

Why we need to talk about regulatory, agricultural offsets

by Emily Turkel

If you stumble across the Isbells’ farm in the summer, it’s easy to see how green it is. Lush fields and a giant solar array hint at Mark Isbell’s commitment to sustainable rice cultivation. A chat with the man himself quickly reveals how deep that commitment runs. From water and energy use conservation to creative forms of methane reduction, Mark and his family’s rice are a testament to how America’s small, family-owned and -operated farms can implement sustainable farming practices while still making a living.

Stories like this have garnered media and even political attention, sparking ambitious plans not only to continue funding farmers like Mark through grants and conservation payments, but also to transform the carbon stored in their fields and the methane they keep out of the atmosphere into credits that can be sold on the private market — payments for sequestered soil carbon. These kinds of bold environmental partnerships between government, agriculture and industry are undoubtedly important, but questions remain about whether or not capitalizing on agricultural carbon sequestration is the right approach.

What on Earth are offsets?

In many parts of the world, farms already play an important role in regulating pollution. From New Zealand to Europe, California to South Korea, market-based systems, known as cap and trade or emissions trading, provide companies economic incentives to meet certain emissions targets.

Carbon offsets are quantified, tradable units of carbon abatement created by specific conservation projects like Mark’s sustainable rice farming. Each credit represents the right to emit a set amount of carbon. Their purpose is two-fold: to compensate entities for reducing or storing greenhouse gases, and to create a financial burden for emitters, with the overall goal of reducing emissions. Almost all cap and trade markets allow for some offsets. This means firms looking to stay compliant with shrinking emissions caps don’t necessarily need to lower their carbon dioxide emissions: they can buy carbon credits from offset projects instead.

A sign saluting Mark’s grandfather. Photo: Adam Jahiel for NRCS

Outside of cap and trade markets, carbon tax systems and other forms of capped carbon markets allow a role for offsets — offsets are used to avoid paying carbon taxes on hard-to-reduce emissions. Cement plants already operating extremely efficiently, for example, would have trouble reducing their greenhouse gas emissions further. To avoid paying a tax on those emissions, they would need to buy carbon credits from offset projects. This ensures that the product (cement) remains available to consumers in the short term, without bankrupting the producers.

Most carbon trading systems limit how many carbon offset credits can be used to comply with an emissions cap. Quebec, for example, set their offset limit at 8% of emissions. This guarantees that firms actually change their practices instead of just relying on outside offset projects, which results in greater emissions reductions in the long run. Many systems, like China’s cap and trade markets, also have geographic restrictions on projects to ensure the benefits of these offset projects are local.

Where offsets fall short

Carbon offsets deliver emissions reductions to regulated polluters and financially support environmental projects like Mark’s farm, but they aren’t without issues. When it comes to offset methodology design and pricing, there’s a fine line to walk: an offset that is too expensive is not going to sell, while a low price tag may be a symptom of unmet carbon benefits. This general principle can stifle high standards for quantifying carbon removals and ensuring those tons really have been removed.

Agricultural carbon offset projects pose their own challenges, from costs associated with soil measurement, reporting and verification (MRV), to high transaction costs, to a history of unstable carbon markets that undermine farmers’ trust. In fact, only three compliance systems to date have consistently utilized agricultural offsets: California (certain rice cultivation practices can be used as offsets), Alberta (conservation tillage practice), and Australia (which formerly had a carbon tax that could be offset with a wide variety of agricultural practices). Among these three, only Alberta has seen widespread implementation over an extended period of time.

The California cap and trade market, around since 2013, has offered non-livestock-based agricultural offsets since 2015. The most famous attempt to sell carbon offsets into the California market was by a group of rice growers in Arkansas, California and Mississippi — the “Nature’s Stewards” (Mark is a member of this group). These farmers voluntarily implemented conservation farming practices on their rice fields before the protocol for rice-based offsets was approved; the protocol inspired the push to verify and record the carbon benefits of their practices.

Unfortunately, the Arkansas project developer, the White River Irrigation District, reported issues with MRV. This meant the credits couldn’t be sold into the California compliance market and were instead sold as voluntary offsets to Microsoft. According to those who took part in the sale, farmers made less than $2 an acre for their carbon credits. This was not enough to fund practice changes — farmers also had to rely on funds from USDA programs such as the Environmental Quality Incentives Program, the Regional Conservation Partnership Program, and the Conservation Stewardship Program. Although the project was still hailed as a success, the participants are careful to praise the project as an experiment and not necessarily a scalable success story for the field as a whole.

Mark in his field. Photo: Adam Jahiel/NRCS

In Alberta, Canada, conservation tillage has been used since 2009 to create credits for the carbon market, currently priced at CA$30 a ton (~23 USD). The project developers selling these carbon credits are well established and receive one-third of credit revenue.

This market structure has encouraged no-till practices to spread across agricultural lands in Alberta, with the resulting carbon credits being used to offset difficult-to-decarbonize industrial emissions. However, even when Albertan farmers aggregate their carbon storage capabilities on a large scale and use a well-established MRV protocol, the maximum payout any enrolled farmer can expect (according to a representative from one of Alberta’s largest aggregators) is CA$5 an acre (~3.75 USD).

This translates to a high opportunity cost: the time it takes to fill out paperwork, arrange for MRV, and work with an aggregator outweighs the monetary returns. Farmers who lease land (common in Canada as well as in the US) are at an even greater disadvantage, since taking part in any carbon offsets program means taking the time to get owners onboard for every transaction.

Determining whether a project is reducing carbon emissions beyond the standard practice is another barrier. In many parts of Alberta, no-till farming is considered business-as-usual, even among farmers who don’t prioritize environmental benefits in their agricultural operations. Back in 2001, even before the practice was encouraged by Alberta’s government, nearly a third of seeded farmland was left untilled.

The government is now turning the carbon in those fields into carbon credits, but there’s a problem: the credits do not actually represent newly stored carbon. This would be like Australians paying extra for fluoride in tap water when the tap water in Australia is already fluoridated. The regulatory scheme, in other words, is paying for…nothing.

The Australian ewe survived, no thanks to Australian voters. Photo: jasper wilde/Unsplash

On top of the scientific issues that arise, emissions trading systems and carbon taxes often face massive political opposition. This was the case in Australia, where the Abbott government and subsequent Liberal administrations have been elected on firmly anti-carbon tax platforms. The existing program, the Carbon Farming Initiative (CFI), was an attempt by the Labor Party to generate offsets through a variety of agricultural, carbon-sequestering practices. Instead of opting to fix technical issues with the initiative, voters rejected the carbon pricing scheme responsible for funding the program. (The CFI still exists, but, without funds, it has been effectively gutted.) The lesson learned here extends far beyond Australia’s borders — so long as sentiments about carbon pricing continue to shift from one administration to the next and industries profit from lax laws around carbon emissions, offset markets will remain risky ventures for farmers.

Australia isn’t the only place where shifting public sentiment killed agricultural carbon offset programs. In 2003, the Chicago Climate Exchange (CCX) emerged as a voluntary emissions trading market for corporations, building a fledgling offset market around agricultural emissions and carbon sequestration. Aggregators cropped up, recruiting farmers with promises of payment for conservation practices that stored carbon.

The market was flooded with farmers and their carbon credits, but there weren’t enough buyers. As a result, many farmers never received any payment for their sequestered carbon. The biggest disappointment came in 2010 when the market collapsed — farmers were left with stranded carbon assets and no way to recoup their expenses. The failure of the CCX remains not only on farmers’ minds, but on their ledgers, impacting their decisions for years to come.

The future of agricultural offsets

To avoid repeating the errors of the past, we can’t assume the kinks in agricultural offsets will work themselves out. Farmers deserve payment for their carbon services, but regulatory compliance systems around the world are missing the mark. As it stands, emitting industries aren’t incentivized to purchase effective agricultural offsets, farmers fail to receive robust payments (if any at all) for conservation benefits, and regulatory regimes can’t change fast enough to account for shifts in the agricultural carbon-storage landscape.

This isn’t to say that there is no future in which agriculture and industry partner to sequester carbon and benefit everyone. But we have a wide variety of other choices from outside the regulatory, compliance frame — greater conservation program funding (through programs like CSP, EQIP, and the RCPP), putting carbon labels on the goods we purchase to allow us to seek out those that are carbon neutral, and supporting voluntary, personal offsetting through the agricultural sector. The solution will not be one of these, but a combination of approaches that reward farmers for their role in sequestering and minimizing society’s carbon burden.

Farmers are important allies in fighting climate change. Let’s make sure that the incentive structure in place is one that works.

[1] Many systems utilize agriculture, forestry and other land use (AFOLU) project types, but these typically take the form of afforestation, reforestation, avoided deforestation, or methane emission capture. Additionally, the EU did accept a small quantity of offset credits from Ukranian farm projects that practiced no-till, but it was a negligible amount and is no longer an acceptable form of offsetting.

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