Carbon Contract Reality: Why Conservation-Minded Farmers May Not Qualify for Private Carbon Programs

As the chase to capture carbon continues, it’s a possible new source of income for farmers and ranchers.

“It is certainly a new revenue source for farmers,” says Todd Janzen, president of Janzen Schroeder Agricultural Law. “So, that's a pro no matter how you look at it.”

And as agriculture could be part of the solution, it’s being met with some skepticism.

“It is a wonderful opportunity,” says Joe Outlaw, co-director, Agriculture Food Policy Center, Texas A&M University. “But it's like every opportunity, you have to understand what you're getting yourself into."

Janzen says farmers need to think about possible sacrifices that could be required to make a long-term commitment.

“The contracts are really long and companies want a long-term duration, usually five, 10 or 15 years, because otherwise, it’s not that valuable (to them).”

 Few Farmers are in the Marketplace Today

Understanding the value of entering into such a long-term contract is something more farmers are learning about. The latest Ag Economy Barometer from Purdue University found between 30% and 40% of those surveyed said they are aware of opportunities to get paid for sequestering carbon, but only a small group has actually engaged in those discussions.

“On the March survey, which was the most recent survey, just 7% of the people in our larger survey sample actually have engaged in discussions,” says Jim Mintert, director, Center for Commercial Agriculture, Purdue University. Mintert authors the monthly survey.

“A pretty small group of people have actually taken that step to have some discussions,” he adds.

Mintert says while only 7% have actually engaged in carbon contract discussions, even fewer have have actually taken the final step to seal the deal.

“Just 1% of the people in our survey said that they've signed a contract,” adds Mintert. “And I have to throw a caveat in there, because when you get down to that small percentage, you're talking about a handful of people out of our survey. So, that's a pretty small percentage.”

Mintert suspects the reason few farmers are signing contracts is they don't see sufficient financial incentives.

“Those that did respond to this suggested that the payment rates simply weren't high enough to make this very interesting at this point,” he says.

The Ag Economy Barometer found the average carbon contract payment today is less than $20 an acre, with many contracts paying less than $10 an acre.

The payment piece of the puzzle is something to which a nonprofit group is working to bring more transparency.

“Today, I think there's evidence that 25% and even less is actually going to the farmer and rancher,” says Debbie Reed, executive director, Ecosystem Services Market Consortium (ESMC). "There's not a lot of transparency in these markets currently. So, you can't always tell how many tons have been sold in any given registry, or for what protocol, for what practices, to whom and for what amount.”

Public Vs. Private Programs

ESMC is a public/private partnership, and Reed says the organization is collaborating with the entire agricultural supply chain.

“The reason we came together is because lots and lots of organizations, particularly corporate organizations, have taken on commitments to reduce their supply chain footprint from agriculture, and we do not want every organization to have to make their own investments in infrastructure, in tools and technologies to actually achieve those outcomes,” adds Reed. “And we certainly don't want farmers and ranchers to have to figure that out themselves on their own."

Reed believes openness and transparency are part of the solution in today’s carbon contract conundrum, but she also thinks the right tools and technology are also missing.

“Someone does have to pay for them,” says Reed. “But if we can bring new tools and technologies to farmers, ranchers and to the buyers – and reduce quantification costs, reduce verification costs – I think that's where we can really ensure that more money is going to the farmer and rancher.”

Today, many private groups are creating their own carbon contracts and systems, and she says moving forward, it will be a marriage of both private and public.

“I think this is the private sector effort,” she says. “The private sector, private voluntary markets, are actually leading in this effort and, I think, are far ahead of what we see in the public sector. On the other hand, there are huge public sector roles and opportunities to help here.”

A private sector that’s only willing to pay for farmers to adopt a new conservation practice on their farm, practices like no-till or planting cover crops.

“That's the way the markets work,” says Reed. “You pay for a new product. You're not going to pay tomorrow for corn you sold last year or last week. You're going to pay for new corn, and the markets are the same way. The demand is for new improvements in soil carbon, in reduced greenhouse gases, in water quality. That's a market function.”

She says the public piece may be able to reward farmers who have been conservation minded for years.

“Maybe the federal government can pay for things that have happened, or that don't qualify an existing market. Protecting existing soil carbon stocks is a perfect example,” says Reed. “Markets aren't going to pay for those protecting those stocks. They want new stocks, but we really do need to protect existing soil carbon stocks, because if we lose them, it's far more expensive to try to get them back.”

As groups like ESMC work to bring more transparency to the marketplace, today the opportunity to sequester carbon is more of a wild west scenario – with no regulation or national structure in place.

“I always warn producers, yes, this is an opportunity,” says Outlaw. “And all bets are off, because the government is not involved. Yet, when the government gets involved, it could either be really, really good, or it could go the other way.”

Outlaw says the demands for carbon sequestration are high today.

“People who are buying these credits have to have proof,” says Outlaw. “And they're going to be wanting you to provide information to prove that you've done these practices, and very specific information, not just a little bit, but quite a bit of information.”

Information from practices that Janzen says farmers are already doing to capture carbon, while other practices may be new. 

“They could do that potentially, by growing more crops in the off season,” he says. “So they're pulling carbon dioxide out of the air. If you're a livestock farmer, and you have a digester, and you're able to capture the gas from the manure that before was just going into the atmosphere, that's a very easy way to quantify carbon credit.”

The Final Say

As farmers measure their impact, Janzen says it ultimately comes down to how consumers perceive these practices.

“I think that we're going to have to see that in the long-term, because this all depends on consumer trust, ultimately, that what is being sequestered or offset is really happening," he says. "If we have different models and standards, they're going to be highly scrutinized. And if people think that it's just a gimmick, or snake oil, then ultimately, it's not going to work.”

As the effort gains steam, it’s all to participate in the environmental cryptocurrency world.

“We have the farmers who can unlock these environmental bitcoins, if you will, by undertaking certain protocols and creating this sort of fictional currency that can then be bought and sold on the open market,” adds Janzen.

It’s a carbon world where details on contracts could make or break a farmer’s quest to participate.

“You're going to have to really watch this very closely, because there's already things that are happening out there in the current, what I call private market, that's not very good,” adds Outlaw.

The effort to create change is one that could come with growing pains, as farmers and ranchers wait to see if this is truly the future of agriculture.

“It's going to be interesting to see how this evolves over time and whether or not it really turns out to be the panacea that some people think it might be,” says Mintert.

View the latest "Carbon Market" news by Farm Journal editors. 

Learn about the three biggest trends in carbon markets during the April 15 Farm Country Update. Click here to register for the free webinar featuring Robert Bonnie, USDA; Kelley Delpit, Oregon rancher; Mitchell Hora, Iowa farmer; and Kris Johnson, The Nature Conservancy.

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