Research Note March 2021 Opportunities at the Intersection of Carbon Markets and Agriculture Increasing numbers of corporations and other organizations are making firm commitments to reduce their greenhouse gas emissions to help mitigate the pace of future climate change, some specifically targeting net-zero emissions over the next ten to twenty years. Reaching these targets will require reductions in both direct and indirect output of greenhouse gases related to their own operations as well as funding activities that will either reduce greenhouse emissions or directly capture and store carbon from the atmosphere through the purchase of carbon-credits or carbon-insets activities. The Science Based Targets initiative outlines the needed actions as primarily abatement (eliminating emissions in companies’ value chains), followed by neutralization (carbon removals within companies’ supply chains, referred to as carbon insets) and compensation (purchasing carbon offsets).1 The agricultural sector has significant potential to contribute to these neutralization and compensation climate- change mitigation efforts through operational practices that reduce the level of greenhouse gases per unit of production and/or boost the amount of carbon stored in farmland soils. Currently, market structures are quickly evolving to allow the creation, accounting, verification, marketing, sale, and transfer of Soils contain about 75% of the agricultural carbon credits. The development carbon stored on land, more of robust markets for farmland-based carbon than three times the amount credits will directly connect organizations contained in plants and animals. seeking natural climate solutions with climate change mitigating opportunities inherent in farming. Opening this new tier of climate-solution capital for farmland could help incentivize farmers to accelerate the shift to climate-positive operations and regenerative agricultural practices, and potentially create new revenue streams. The Intergovernmental Panel on Climate Change estimates that to hold warming to 1.5 Celsius above pre-industrial levels, the world will need to reach zero net emissions by 20502 and remove about 1,000 billion metric tons of carbon dioxide from the atmosphere between 2020 and 2100.3 With global soil carbon estimated to be three times that of atmospheric carbon,4 modifying agriculture practices to preserve and build soil carbon are increasingly recognized as an important tool in achieving this global goal. 1SBTi is a partnership between CDP, the United Nations Global Compact, World Resources Institute (WRI) and the World Wide Fund for Nature (WWF), https://sciencebasedtargets.org/resources/legacy/2020/09/foundations-for-net-zero-executive- summary.pdf, accessed 03/10/2021 2IPCC 2018, https://www.ipcc.ch/sr15/chapter/chapter-2/ 3IPCC, “Global Warming of 1.5°C: An IPCC Special Report on the impacts of global warming of 1.5°C above pre-industrial levels and related global greenhouse gas emission pathways” https://www.ipcc.ch/site/assets/uploads/sites/2/2019/06/ SR15_Full_Report_High_Res.pdf 4Vermeulen, S., et al., “A global agenda for collective action on soil carbon,” Nature Sustainability 2, 2019, https://www.nature.com/ articles/s41893-018-0212-z 5Ecological Society of America, https://www.esa.org/esa/wp-content/uploads/2012/12/carbonsequestrationinsoils.pdf, accessed 2/22/2021 6Griscom, B., et al., “Natural climate solutions,” PNAS 114(44), 2017, https://www.pnas.org/content/pnas/114/44/11645.full.pdf, accessed 2/24/2021 7U.S. Environmental Protection Agency, https://www.epa.gov/ghgemissions/sources-greenhouse-gas-emissions, accessed 1/19/2021 HNRG Agriculture Research Note, March 2021 1 Soils contain about 75% of the carbon stored on land, more than The rate of adoption of climate-positive regenerative agricultural three times the amount contained in plants and animals.5 practices in the U.S. is expected to gain momentum with support Studies estimate that globally, croplands have the potential to from both the public and private sector. sequester 1-2 billion tons of carbon dioxide annually.6 In The USDA Natural Resources Conservation Service has addition to the carbon storage potential of U.S. farmlands, U.S. programs that provide financial incentives to leave farmland agricultural operations contribute 10% of total annual fallow to protect sensitive lands, such as those with steep slopes greenhouse gas emissions,7 providing significant opportunities or prone to flooding, and the Biden Administration is expected to for the creation of carbon credits based on emission reductions. direct some of those payments towards producers practicing Here, we explore the current rapidly changing landscape of farming methods that retain and sequester carbon.15 agricultural carbon solutions and their markets. Concurrently, corporations and other private organizations could Agricultural Practices and Carbon Sequestration participate in developing voluntary agricultural carbon markets Opportunities as a viable option to move towards achieving their carbon- reduction goals. Regenerative agriculture practices that can reduce greenhouse gas emissions and increase the amount of carbon sequestration Current Voluntary Carbon Markets in farmland soil include conservation tillage, cover cropping, Legislated mandated programs to reduce GHG emissions, such changes in crop diversity and rotation8 and modifying fertilizer as those in the European Union, California, and New Zealand sources and application methods.9 These farming methods are were key in establishing the parameters and structures of global increasingly referred to as climate-smart agriculture and have carbon offset markets, but recent momentum is increasingly been recognized by the UN Food and Agriculture Organization being driven by voluntary initiatives taking place in the private as furthering the UN Sustainable Development Goals.10 sector. With growing public awareness and sensitivity to climate Soil carbon sequestration is the process of carbon dioxide being change, numerous major corporations, organizations, and removed from the atmosphere by plants and stored as soil nonprofit entities in the United States and globally have organic matter, and the two most widely deployed regenerative announced voluntary commitments and plans to reduce their agriculture practices, conservation tillage and cover cropping, carbon footprints. can boost the rate of carbon sequestration compared to Major firms that have communicated bold ambitions to achieve traditional agricultural practices.11 Conservation tillage and cover de-carbonization include Disney, Google parent Alphabet, cropping are already utilized on millions of acres of farmland Microsoft, and Shell.16 These corporate initiatives are closely across the U.S. and can have other more direct benefits for aligned with the Paris Climate Agreement reached in 2015 and farmers outside of their carbon impacts. Depending on the include the use of offset credits to meet targeted reductions in location, conservation tillage has the potential to reduce soil GHG emissions to accompany the key step of direct reductions erosion and runoff and can help retain soil moisture. Cover in their emissions. Consequently, the funding of carbon offset crops have the potential to prevent erosion, improve soil’s projects and the purchase of carbon credits are recognized as physical and biological resilience, supply nutrients, suppress viable avenues to achieve voluntary carbon goals. weeds and enhance soil water availability to primary crops, and this can boost crop yields while moderating input costs.12 The Since 2008, over 130 million voluntary offset credits have been Nature Conservancy estimates that each one percent of annual issued and about 40 million have been retired.17 Retired carbon cropland in the U.S. that adopts reduced tillage, cover cropping credits are those taken off the market and not traded again. The and crop rotation, translates into $226 million in societal value Climate Action Reserve provides protocols, guidelines, and tools annually, realized in increased water holding capacity, reduced to support the voluntary offset market, currently with 19 erosion and nutrient loss to the environment, and reduced GHG protocols adopted for use in the U.S., and over 400 offset emissions.13 projects registered. Climate Action Reserve’s Soil Enrichment Protocol adopted in September 2020 provides guidance on how to quantify, monitor, verify and report farming practices that In the U.S., conservation tillage is practiced on enhance soil carbon levels.18 202 million acres, 2/3 of total cropland. Participants in voluntary carbon markets are not bound to comply with the legislative requirements of California or the EU In the U.S., conservation tillage is practiced on 202 million carbon emission compliance programs, but most organizations acres, 2/3 of total cropland, while cover crops are used on just want their carbon offset projects to meet accepted standards 5% of cropland (15 million acres).14 While potentially applicable and protocols. By adhering to the program requirements in the to a wide range of both row and permanent crops, neither compliance markets to certify and validate their carbon conservation tillage nor cover crops are appropriate for all reduction efforts, and to align their efforts with broader climate farms. The applicability of either of these regenerative change mitigation efforts, participants in the voluntary carbon agricultural practices is dependent on a combination of factors