The search for clarity in the carbon credit market

The market for carbon is a source of debate on actual opportunities versus perceived value to the agri-food industry.

Insight on this debate was provided during the Innovative Farmers Association of Ontario conference in London last month, where a more farm-centric view on the potential for carbon offsets and insets was shared.

Why it matters: There’s uncertainty around how farmers can benefit from carbon credit systems and which ones are best.

Jamie MacKinnon of Anew was the second half of a presentation titled “Manage, Measure and Market Your Carbon.” He listed different types of carbon offsets and insets and noted how farmers can maximize value from different practices.

For instance, row crop production can provide soil carbon improvement through reduced tillage, cover crops, manure applications, soil amendments and reduced nitrogen volatilization.

With grassland and pasture management, producers can use rotational or multi-paddock grazing, avoid converting grasslands into cropland or convert degraded cropland to grasslands.

At its most basic definition, a carbon offset is a credit issued by a registry that sets the standard for reputable greenhouse gas avoidance or removal. It credits one tonne of CO2 equivalent avoided or removed using specific criteria. The purpose is to achieve a “real and verifiable” reduction in greenhouse gas emissions beyond what would have otherwise occurred.

“From there, it can be used for compliance in climate programs and to achieve emission-reduction objectives voluntarily,” said MacKinnon.

What’s important about offsets is the opportunities they create beyond the impact on climate change.

The global carbon market is now worth $270 billion, of which $50 billion is accounted for by offsets. And it’s growing.

Unfortunately, there are uncertainties about how producers can generate revenues from a carbon offset, and challenges with provincial participation.

In Ontario, the carbon offset opportunity doesn’t apply to reduced tillage, cover crops, manure application or soil amendments, but it does apply to grasslands and pasture management measures.

“When we’re talking about whether they’re offsets or insets, we’re talking about crediting these types of activities and the avoidance of greenhouse gas emissions from some and the removals from others,” said MacKinnon.

“Soil carbon improvement is about sequestering carbon in the soil and removal of CO2 from the atmosphere. That’s where the markets have a premium for offsets of this type because it provides the world with the potential to not only mitigate climate change but to achieve net zero by removing tonnes from the atmosphere.”

Insets, or Scope 3 or value-chain interventions, are different ways to access carbon markets for growers. Instead of crediting a commodity that can be sold, a grower is participating in a program where they’re partnering with an entity downstream in the supply chain.

“If you’re a dairy farmer, this might be Nestle or Danone or a consumer-packaged goods company that’s procuring dairy inputs,” said MacKinnon.

“Instead of going into the market, they’re offering an incentive for growers in their supply chain to adopt regenerative practices and crediting them so it stays in the supply chain.”

This is a much newer area with more interest among companies in the food supply chain. It maintains reductions in agriculture and will be important for the sector to demonstrate progress toward climate change.

Does it make sense for the grower? There are reasons to believe it does, said MacKinnon. Pricing may be more robust for insets than offsets, but there are also downsides.

“In today’s market, I can count on one hand the number of entities that actually pay for insets, as opposed to the tens of thousands that are buying offsets,” said MacKinnon, noting the rules are not well-defined for the former.

“As you can imagine, playing in a market with thousands of potential buyers, where you generate a commodity that can be sold, is a different proposition from locking yourself into one buyer and their program.”

Read more from Ralph Pearce on this topic in Country Guide.