The Opportunities and Challenges of the Agricultural Carbon Market

May 2022

By Joel Tallaksen, Ag and Energy Scientist

Over the last few years, there has been growing interest in setting up a carbon credit system to encourage farmers to increase the storage of carbon in their soils. Worldwide changes in climate are beginning to affect communities, businesses, and governments, and thus these groups are interested in solutions to reduce further climate change. Agricultural crops and soils are one of the few easily available means to remove carbon dioxide, the most common greenhouse gas, from the atmosphere. Carbon credit markets are beginning to be established which put a value on the carbon being stored in the soil and can pay farmers for their greenhouse gas reductions. This system potentially provides opportunities for farmers, but also has challenges as the new market develops and rules regarding carbon storage are set.

It is important to understand how crop production impacts the natural soil carbon cycle. In the carbon cycle (figure 1), plants take carbon dioxide from the atmosphere and incorporate it into plant biomass. Most carbon molecules contained in plant leaves and shoots end up on the soil surface at the end of the plant’s life. The leaves and shoots decompose and much of the carbon in the leaf litter returns to the atmosphere as carbon dioxide in a year or two. But, some small particles of the decomposing leaves and shoots become part of the soil organic matter. Over many years, the carbon containing particles in soil organic matter decompose further into carbon dioxide and goes into the air. Again, a small portion will remain and be converted to inorganic carbon, which is very stable and remains in the soil for a long time. The carbon in the soil inorganic carbon pool is considered sequestered or locked in place because it stays in the soil for so long. Soil stores huge amounts of carbon when you consider the massive volume of soil worldwide and the organic matter and soil inorganic carbon it holds.

Two paths have been proposed to increase the amount of carbon accumulating in the soil. The first is to increase the amount of biomass that is being produced and left on the landscape. Activities such as adding cover crops and using crops that produce more biomass can add biomass to the soil surface that will eventually become soil organic matter. The other strategy is to reduce the amount of carbon loss due to decomposition and conversion to carbon dioxide. Tillage increases the rate of decomposition and thus. using no-till or reduced tillage can promote the build-up of organic matter in the soil. Converting from annual crop production to perennial crops will also reduce the soil carbon lost because perennial crops require less tillage than annuals.

The basic concept for how a carbon credit system would work is that a farmer would identify opportunities to reduce greenhouse gas emissions in their operation. They would then work with an entity that buys and sells carbon credits to determine the terms and payments for a contracted carbon reduction. The contract would state the methods being used, the acreages or livestock number involved, and the amount of time that these measures would be followed. A certification entity would verify the potential reductions before the contract is executed. Then the carbon marketer would pay the farmer an initial amount for the reductions in greenhouse gas. The certifier would periodically verify that the farmer is meeting the contract terms in order to continue receiving payments. The marketer would sell the certified carbon credits to other businesses.

An agricultural carbon credit system would provide obvious financial opportunities to farmers who are interested changing their farm management practices. But it would also promote cropping systems that have been shown to develop healthier, more resilient soils.

One challenge in developing the credit market is to properly assign value to carbon credits. In the United States, there is no universal dollar value for carbon credits. Early efforts at monetizing agricultural carbon credits in the 2000’s failed after the market could not find buyers for the credits and they became worthless.

Another issue is accurately calculating greenhouse gas emission reductions by different farm management techniques. While scientists and others have a relatively good understanding of how and why changes in farm management alter greenhouse gas emissions, making easily applied formulas that accurately estimate a particular farm’s reductions is more difficult. Greenhouse gas reductions are sensitive to temperature, moisture, soil properties and other factors. Therefore, we are currently only capable of making general predictions about greenhouse gas reductions.

A further challenge is that best soil management practices must be maintained to retain stored carbon. Soil carbon built up over years of good management can be lost from the soil in only a couple of years of poor management. For example, a farmer receives money for 5 years’ worth of carbon credits for using no-till methods and cover crops for 5 years. They sell the farm and the new farmer uses heavy tillage and no cover crops. By year 7, the majority of carbon that was stored for those 5 years has been lost to the atmosphere. Should someone have to pay back those credits?

While these challenges will likely be overcome, it is important to remember that we are still in the early stages of developing of a carbon market. In fact, some have referred to the agricultural soil carbon markets as the new ‘black’ gold rush or said they are at the ‘wild west’ stage of development as businesses try to capitalize on them. However, the strong interest in greenhouse gas mitigation is likely to push the agricultural carbon markets to develop into a much more organized system within the next 5 to 10 years.