Carbon market caution

Farmers would be wise to look into, but not jump into any agreements with companies to be paid for conservation measures that remove carbon from the air.

That’s because the pay to farmers for those measures isn’t much right now, but it’s expected to increase in the next 10 years, said Brent Sohngen, a professor of natural resources and environmental economics at The Ohio State University College of Food, Agricultural, and Environmental Sciences (CFAES).

Contracts to start no-till farming or plant cover crops pay $2 to $15 per acre annually, Sohngen said. And both measures come at a cost. Cover crops can be expensive, and no-till farming can reduce yields on a corn crop, particularly in the first few years of the practice. So, the expenses or potential crop profit loss would have to be weighed against the carbon payments to farmers.

“Carbon is now a commodity, and there is great potential,” Sohngen said. “But at the current prices, I have trouble seeing a huge impact in the farming sector right now. The best option seems to be to get prepared.”

Carbon markets was the topic of a panel discussion during this year’s Farm Science Review at the Molly Caren Agricultural Center near London, Ohio. “Carbon markets: From all sides now” included Sohngen along with Peggy Hall, a CFAES agricultural and resource law field specialist, Luke Crumley, director of public policy and nutrient management for the Ohio Corn and Wheat Growers Association, and Jessica D’Ambrosio, Ohio agriculture project director for The Nature Conservancy.

“Farmers are always looking for ways to diversify their income, and carbon markets are one way of doing that,” said Ian Sheldon, a CFAES professor and the Andersons Chair of Agricultural Marketing, Trade, and Policy who moderated the Sept. 21 discussion. “Carbon markets will only work if it’s profitable for farmers to participate, and the prices they receive reflect the true benefits from companies offsetting their carbon emissions.” 

If farmers’ conservation measures lead to better water quality along with less carbon in the air, farmers should be fairly compensated for generating those environmental benefits as well as the carbon benefits, he said. Although farmers may want to wait before entering any carbon market contracts now, farmers can start figuring out how much carbon they can retain in their soil, what practices for carbon capture would work on their farm, and how much they’d have to spend, Sohngen said. That would help them evaluate future carbon contract options.

Planting trees, another conservation measure farmers can be paid for, will bring in more than cover crops or no-till farming, in the range of $55 to $110 per acre annually, Sohngen said.

Carbon markets have emerged in recent years as large international companies have vowed to offset the carbon dioxide they put out in emissions from producing and transporting products. That can be done by paying farmers and foresters to take measures that store more carbon in plants and soil. When plants grow, they take up carbon dioxide through photosynthesis, and the carbon is stored in the plant. After the plant dies, it breaks down and the carbon from that plant goes into the soil, where it can enrich the soil.

Farms and forests across the United States already remove over 770 million tons of carbon dioxide per year, or about 10% of the country’s emissions, from the atmosphere, Sohngen said.

When carbon market prices rise, more farmers will sign on to agreements, he said.

“I think it’s something that’s emerging,” Sohngen said of carbon markets. “Within a decade, I wouldn’t be surprised to see 20% to 40% of Ohio farmers involved in a contract.”

Often used terms in the carbon discussion — additionality and permanence — were identified by the panel.

“A contract for carbon would only pay you for additional carbon sequestration. If you are a farmer, the best example is conservation tillage. If you are already doing no-till, you would probably not be able to enter into a carbon contract because you are already sequestering as much carbon as you can,” Sohngen said. “Additionality means sequestering carbon in addition to what you are already doing.”

The term “permanence” addresses the amount of time carbon is sequestered.

“Permanence is how long can you really count that carbon and what you can do if you disturb the soil that would release that carbon back into the atmosphere,” D’Ambrosio said. “You want to hold that carbon for as long as possible. How long is that credit good for if you are able to generate it?”

The group also discussed the Growing Climate Solutions Act passed by the U.S. Senate.

“In a very limited way the Senate is trying to establish some kind of boundaries around these carbon markets as they exist. As we continue to dive into these markets and learn more about them, we find more questions than answers,” Crumley said. “It is not a perfect bill, though national groups are supporting the bill because it is a step forward. The role of the federal government in this particular area is really hazy so far. We do need some clarity on the rules behind these markets, but I would argue there need to be limitations on how much we can lean on the federal government for these markets to develop.”

Sohngen agrees and has concerns about government involvement with carbon markets currently being driven by the private sector. 

“Globally, $200 billion a year is what we would need in this market to get the kinds of carbon the world needs to reduce the climate change problem. If we can bring that kind of capital into the agricultural and land based sectors, I think it would be a great boost for those sectors and it would help the climate,” Sohngen said. “I have large concerns about the government getting too involved in this because they slow a lot of things down. The government in this case may be more of a barrier than a help.”

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