1. What is a 'carbon market' and how do they work?
There are three types of carbon markets available for farmer participation.
- Carbon Credit - Inset
- Accounts for GHG reductions as grain moves through the value chain to the end user. Provides farmers with credit for a sustainably produced crop
- Payment: credit in form MT CO2e-1/acre
- Payment Provider Example: Pepsico through Precision Conservation Management (PCM)
- Carbon Credit - Offset
- Pays farmers to reduce GHG emissions on behalf of a company outside of agriculture
- Payment: credit in form of MT CO2e-1/acre
- Payment Provider Example: Microsoft through Indigo
- Carbon Intensity (CI Scoring)
- A type of inset market that is most often associated with fuel production - 45z/40b payments
- Payment: a premium per bushel of grain
- Payment Provider Example: Ethanol Producer
2. What is a ‘carbon credit or CI score premium?’
- A carbon credit certifies that someone, like a farmer, has taken action to remove/sequester carbon (cover cropping, reduced tillage, or planting a winter crop) or reduce greenhouse gas (GHG) emissions (reduced Nitrogen application). These credits or scores are often calculated by running a farmer’s practice data through different carbon credit or carbon intensity models.
- In inset or carbon intensity markets, the credit data travels with the grain to the final point of product sale, accounting for a farmer’s emissions reductions during agricultural product manufacturing (Example: emissions reductions for corn in Fritos or ethanol produced from corn).
- In an offset market, companies outside the agricultural value chain that want to offset their GHG emissions purchase credits from those implementing climate-smart practices. Many of these businesses need help from inside as well as outside of their supply chain to meet their climate-smart goals. (Example: Microsoft purchasing farmer-generated credits from Indigo)
3. Who is driving carbon markets?
Both companies and countries have made commitments to reduce their greenhouse gas emissions. Companies that utilize grain use inset credits to account for a farmer’s emissions within their value chain. For companies outside of the agricultural value chain, using agricultural offset credits is just one of the ways they are looking to reduce their environmental impact.
4. Are carbon markets regulated?
- No, carbon markets are currently unregulated. There is no USDA certification for greenhouse gas reducing practices, no regulatory system for measuring carbon capture standards, and no industry-wide voluntary standard for either certification or measurement. However, future regulation is possible.
- Currently, industry members are looking to create standards and streamline reporting.
- For inset markets, scientists and industry members are evaluating the guidance outlined in the GHG Protocol.
- For offset markets carbon programs often register their projects with carbon registries, such as Verra or Climate-Action Reserve, to provide credit buyers with quality assurance and eliminate the risk of greenwashing.
5. Can the price for carbon credits change?
- Yes, the price for carbon credits can change over the term of a contract. However, many programs have a minimum price floor.
- Payment terms also differ from program to program, with some paying a lump sum at the end of the season and others providing a deferred payment over a 5-year period for example.
- Be sure to check payment terms before signing a contract.
6. Can future legislation alter the terms of a carbon contract?
- It is unlikely. Regulations would typically only affect contracts signed after new legislation takes effect. However, if a state has a significant and legitimate public purpose for new legislation that substantially impairs contract obligations, it is possible for those obligations to be altered by later legislation.
7. Can farmers participate in other carbon capture programs?
- Carbon market contracts prohibit farmers from enrolling the same acre with multiple buyers. For example, you cannot enroll the same field in an offset, inset, and carbon intensity market in the same year. Verbal explanations about whether government programs count as carbon programs are not binding unless specified in the contract.
8. What are examples of practice requirements listed in carbon contracts?
- Examples include zero tillage, improved tillage, cover cropping, nitrogen management, pasture management, and buyer services. The specifics of these practices can vary per contract.
9. How are greenhouse gas emissions reductions and removals measured for carbon markets?
- There are currently no standardized metrics for measuring practices and carbon outcomes. Scientific models are commonly used to estimate GHG reductions and removals based on the adopted agricultural practices. For example, Precision Conservation Management (PCM) utilizes the Cool Farm Alliance – Cool Farm Tool and Field to Market to calculate carbon reductions and removals for our partners. These models can account for GHG emissions internationally. The USDA and Colorado State University developed COMET -planner, a domestic model for GHG emissions calculations. For US Biofuels, the GREET model, developed by Argonne National Laboratory, has been adopted to calculate carbon intensity associated with corn grown for ethanol production.
10. Is there an acreage minimum to participate?
- Acreage minimums vary significantly across programs. Some have no minimums, while others require at least 10 acres or more.
11. How long are farmers committed to carbon programs?
- Commitment lengths vary by program. It's essential to understand the contract length, terms, and exit clauses. Some programs have year-to-year (like PCM’s Pepsico program) contracts with annual renewal, while others require commitments of 10 to 20 years or more. Additionally, some programs account for factors like crop failures, weather, and soil conditions.
12. How can a farmer learn more?
- IL Corn offers a free program called Precision Conservation Management. PCM Specialists can help you benchmark your farm financials and use that data to help you enroll in their carbon inset or government cost-share programs. Additionally, PCM Staff has expertise in Illinois, Kentucky, and Nebraska conservation and carbon programs and can help you find the best program for your farming operation. Contact your local PCM specialist or IL Corn for more information.
