Farmer Opportunities in Carbon Markets
Today, more than ever, organizations and businesses want to reduce their greenhouse gas (GHG) emissions and environmental impact. See what that means for Iowa corn farmers.
Agriculture Carbon Markets
The growing interest in lessening environmental impact through carbon emissions reduction can be accomplished through both regulated and voluntary methods. Policy initiatives or regulatory bodies are needed to create a carbon tax or a regulated carbon market. On the other hand, voluntary carbon markets develop organically, have considerably less regulation and oversight, and allow private investors, governments and companies to voluntarily purchase carbon offsets to lessen their emissions.
With the increased interest and pressure in reducing GHGs, corn farmers are providing solutions to emissions challenges through practices that sequester carbon and producing the raw materials for low-carbon fuel production like ethanol.
As voluntary agricultural carbon markets develop, they present opportunities for farmers to receive payments for practices they otherwise wouldn’t. Some program incentives involve farmers adopting practices that have been shown through research to sequester carbon in the soil or reduce emissions associated with farming. These are called practice-based programs.
Before agreeing to a contract to generate carbon offsets, growers should be aware of the program requirements and discuss them with the company issuing the contract.
Three Questions Growers Should Ask About Ag Carbon Market Programs
Most programs include reduced-till, no-till, cover crops and nitrogen use practices.
In many cases, programs only allow growers implementing a new practice or expanding an existing one on additional acres to enroll in programs. This is to comply with additional requirements registries or offsets end users are looking for.
It’s important for growers to understand if they are eligible for other cost-share programs on the same acres that are paid by the carbon program. In many cases, a grower can receive a cost-share payment on those same acres but often they must be new or “additional” acres as described above. Other cost-share options for Iowa farmers include Iowa-based climate smart commodity and NRCS/USDA programs.
Other Carbon Market Program Considerations
Program payments should cover most or all of the costs associated with implementing the practice. Some growers may be willing to participate in a carbon program even if payments are lower than expected costs, knowing the practice has other benefits besides the carbon payment. Be sure to consider other cost-share programs to stack with the carbon payment.
Programs vary in how much they pay for a practice or outcome. Some make a half payment at the time a contract is executed and the second half at the end of the contract. Other payment schedules also exist.
What costs, fees or penalties are involved in the contract that reduce the net payment to the grower?
A program can be practice-based and pay for implementing the practice, or outcome-based where payments are based on a measured amount of sequestered CO2.
Considerable variation exists among programs on the length of the carbon contract and the associated renewal criteria. Some programs are year to year while others are multiple years. Farmers should be aware of the length of the contract and if renewal is automatic or requires a new application process.
What information will be used from a grower’s farm to generate the amount of carbon sequestered or to prove additionality and the corresponding payment?
Most programs require data on past practices and farm performance, including yield and soil test results. It is important to understand what historical data these companies need, how they will use it and how much work will be required to provide it. Transparency on data usage and data security are key issues. Be clear on data privacy policies and if and how the collected data will be used or shared.
Are there requirements for land ownership or control?
What is the contracting entity’s revenue stream, financial strength, payment structure and schedule?
Growers should check with their attorney before signing a carbon market contract.