Carbon credits: Pay farmers or landowners?
"Is the value of the carbon credit in the practice that creates it, or in the soil where it is stored?" Almost 15 years ago we started talking about carbon markets and it being a cash cow for farmers. Interesting question to ask - is it the farmer or the landowner that should take that cash to the bank? With all the webinars, meetings and articles about carbon markets this one needs a deep dive I think. Who do you think should get paid?
- Climate Change
- Crop Management
- Crop Marketing
- Nutrient Management
Hi, Tiffany. Wow, you sure know how to ask the tough questions! That is a really thorny one to untangle, but I believe that both the farmers who create the credits through the conservation and management practices and the non-operator landowners (NOLs) that own the farmland where the carbon is actually sequestered both stand to benefit from carbon sequestration payments. Payments for ecosystem services (PES) create opportunities for farmer lessees and NOLs to work together to jointly manage towards common goals for improving soil health, ROI and creating improved environmental outcomes through various ecosystem services.
Let's pull back on the yolk for a moment to get a 30,000 foot perspective on payments for multiple ecosystem services, before diving back down into the specifics of your carbon question. First of all, carbon is just one ecosystem service. It troubles me that so many in the business and investment communities have a nearly myopic focus on carbon at the exclusion of other ecosystem services such as reduced greenhouse gas (GHG) emissions, improved water quality, improved water use efficiency (0n irrigated acres), improved biodiversity, and reduced flood risk.
Sequestering carbon is certainly an important strategy to address climate change, but it's not a silver bullet. In fact, nitrous oxide is 298 times more potent than carbon dioxide and methane is 25 times more potent than CO2 as climate forcing gases. According to Iowa State University, 90% of Iowa's climate forcing gases occur from applying synthetic nitrogen fertilizer to our 23 million acres of row crops (2 out of every 3 acres in Iowa are in corn or soybeans). At the same time, the carbon that is sequestered in soil from conservation practices like no till and cover crops is extremely fragile. The slightest disturbance to the soil (i.e. tillage) can cause decades of carbon sequestration gains to be lost instantly.
The gains from switching to no till and cover crops are measured through various models that account for both sequestering carbon and reducing nitrous oxide emissions and typically expressed in units of tons of carbon dioxide equivalent (C02-e) that equate to removing that amount of C02 from the atmosphere. However, those gains from annual practices like no till and cover crops are considered temporary, so if a farmer stops doing those practices, the CO2-e credits aren't fully realized. That presents major problems for farmers who are renting land if they are in long-term carbon contracts.
However, when a farmer reduces the amount of nitrogen fertilizer they apply to row crops, that is considered to be a permanent reduction (for both the nitrous oxide that will no longer volatilize and the nitrate that will no longer leach through agricultural runoff). By improving their nitrogen use efficiency through the 4Rs of Nutrient Stewardship, farmers can improve their ROI by ensuring that more fertilizer is taken up by their crops and less is lost to runoff and volatilization through improved yields and reduced input costs. In addition, improving nitrogen use efficiency makes these same farmers eligible to receive payments for ecosystem services for these very same 4R practices through reducing GHG emissions and improving water quality. So it concerns me that carbon sequestration gets almost all of the attention and investment, when there is lower hanging fruit out there to help farmers improve their nutrient use efficiency AND benefit from PES. We could actually pay farmers better by stacking GHG emissions credits for nitrous oxide reductions and a water quality credit for nitrate leaching reductions on the same acres, than if we only paid farmers for just for carbon sequestration.
If we coupled that with helping farmers to identify the marginal acres within their fields on which that they are losing money and instead implement practices like prairie strips or other perennial plantings on those marginal acres, we can create still more credits for ecosystem service payments for biodiversity, carbon sequestration, water quality and reduced GHG emissions. One company that helped to pioneer this strategy of subfield scale profitability analysis found that in every field they analyzed 3-20% of the acres within the fields lost at least $300/acre at least 4 out of 5 years. By putting those acres into CRP for prairie strips, pollinator habitat or other forms of continuous CRP, farmers can go from losing $300+/acre/year to getting a $300/acre/year rental payment. That creates a huge increase in both ROI and average yields while creating opportunities for farmers to redirect that misallocated capital into the revenue producing zones within their fields to further improve yields and ROI.
Coming back to your carbon question, its problematic if a farmer doesn't own the farmland that they want to create carbon credits on, particularly if the ecosystem services market or platform that they're working with requires contracts of 10 or 20 years, or even longer in some cases. When the farmers owns their own farmland, then obviously its much easier to make those long term commitments that can result in carbon sequestration and carbon payments. But where farmers are renting ground from NOLs, in my opinion this creates an opportunity for the farmers leasing the land to initiate conversations with their non-operator landowners about jointly managing for shared values and outcomes like improving soil health and creating ecosystem services and associated credits and payments. This could help many farmers to negotiate longer term leases with their landowners.
For farmers who rent cropland, I would encourage them to also think about other PES options such as reduced GHG emissions (N20) and improved water quality (NO3) from improving their nitrogen use efficiency. Since those credits from reducing nitrogen applications are considered permanent reductions, those credits can be fully realized each and every crop year, whether or not the farmer continues to rent that same ground.
Of course for all of this to work, we need to find buyers of these credits and at least for now, most of the buyers are lining up for carbon. I hope we will see a shift in the immediate future to additional PES like water quality and reduced GHG emissions, which actually present better economic opportunities for farmers than just stand-alone carbon payments. But at least in the short term, I think we will have a lot more farmers who are willing to implement the practices and create the credits than we will have buyers of those credits. I hope that changes soon.
Thanks for that very provocative question!
Good points Sean.
This from your response stood out to me --
"We could actually pay farmers better by stacking GHG emissions credits for nitrous oxide reductions and a water quality credit for nitrate leaching reductions on the same acres, than if we only paid farmers for just for carbon sequestration."
As did the reminder on the benefits of "prairie strips and other perennial plantings" on marginal acres.....
Thanks, Paul. Please let me know if you'd like a connection to the Dr. Lisa Schulte Moore and the other ISU folks working on prairie strips. I think my next TopYield post might need to on that topic! Dr. Mike Castellano at ISU is one of the thought leaders helping me think through opportunities regarding N20 volatilization and NO3 leaching reductions separate from or in addition to carbon sequestration. He just joined the TopYield platform recently, so hopefully he will weigh in directly!
Sean: Yes, I'd like to see a post or hear an update from Dr. Lisa Schulte Moore on prairie strips...plus any perspective from growers on the TopYield.Ag Network on their perceptions and what would encourage them to adopt prairie strips ... plus the barriers.
Yes, Dr. Mike Castellano does great work and I look forward to hearing his N cycling and management perspectives on the TopYield.Ag network.
I also noticed that Dr. Sotirios Archontoulis is providing weekly N mineralization estimates by Iowa district. I plan to follow these. N mineralization is very important for adaptive N management understanding as well.