EMERGING | In a wild, wild west of carbon programming services, should producers buy in (or rather sell in) to the sales pitch?
As Canadian and U.S. carbon markets heat up, big ag companies are throwing their hats into the carbon offset program ring and looking to recruit farmers to produce those offsets.
This June, fertilizer giant Nutrien rolled out a plan to expand its pilot carbon program which began last year. With about 200,000 acres enrolled in the pilot, Nutrien is ironing out the details of how it will track and measure carbon credits.
Chemical and seed company Corteva announced its Carbon and Ecosystems Services portfolio in April, a pilot project not yet available in Canada.
Manitoba’s own Farmers Edge hung out its carbon offset shingle in May with its Smart Carbon program.
Why it matters: Big agriculture companies seem certain that sequestering carbon in farmers’ fields is the best deal for everyone, but in a quickly changing space, careful consideration is needed when looking to cash in.
All three programs hinge on recruiting farmers willing to change their agronomic practices in ways that either reduce greenhouse gas emissions or sequester carbon in the soil, and paying these farmers for their improvements.
With the cost of carbon set to rise in Canada and federal carbon offset programs and markets in the works, farmers may want to consider — should they answer big ag’s call?
The three aforementioned programs stand on similar pillars. They ask farmer recruits to switch to reduced-till or no-till on their farms and/or to manage nitrogen use (and thus nitrous oxide emission) through what are essentially the 4R principles (right place, right time, right rate, and from the right source).
Other practices like cover cropping may also be options, depending on the program.
“You’re paying farmers to be really astute managers with a focus on sustainability,” said Wade Barnes, president and CEO of Farmers Edge.
The company collects data to verify the practice and outcomes — for instance, logging data through the company’s digital tools and taking soil samples.
Which data to collect and what to do with it seems to be the hard part. Big ag companies have no shortage of digital data collection at their disposal, but companies need to match to protocols that will create evidence of carbon sequestration, while still being easy for growers to accomplish.
“The more data and the more credibility we can put behind the offsets, the more the buyers are willing to pay for it,” Barnes said.
That’s why Nutrien is “putting brute force efforts” into mapping protocols to its digital tools so they can prove sustainability outcomes and reward growers said Candace Laing, vice-president of sustainability and stakeholder relations at Nutrien.
A third party (e.g. Gold Standard’s SustainCERT) verifies the data, and then the company can put the credit on the market as offsets.
“There’s a lot of scrutiny around this,” said Barnes. “Probably more than people realize.”
There are typically two ways for farmers to sell carbon, says a report from the University of Illinois’ Department of Agricultural and Consumer Economics. Farmers can use an aggregator, which contracts with the farmer to take complete control over the project, its credits and data; or a data manager. The farmer pays the data manager to help them enter the marketplace, but doesn’t sell its interest in the project or credits.
So how does a farmer know a program like this is worth their while?
From the top, it seems carbon credit programs aren’t for the committed, regenerative agriculture farmer or the early adopter. Buyers are only looking for newly sequestered carbon said Emma Fuller, director of sustainability science at Corteva.
“There’s something not equitable about it for the folks that have been doing these practices for a long time,” Fuller said. It’s frustrating, but that’s where they’re at.
Farmers Edge’s program allows producers to retroactively claim no-till practices going back up to four years. Corteva’s pilot program asks farmers to take on new practices.
If looking at joining a program, ask how many years you’ll get credit for, said Mario Tenuta, senior industrial research chair in 4R Nutrient Stewardship and professor of applied soil ecology at the University of Manitoba.
“The question is, ‘when does the practice become the normal?’” asked Tenuta.
Also, ask if credits will be consistent or if you’ll get less credit over time, said Tenuta. For instance, will credits be estimated at first and then adjusted once verified with soil tests or will they diminish with time?
For a farmer who’s looking at adapting tillage- or nitrogen-management practices anyway, the time to get in is probably now in order to maximize eligible years in the program Tenuta added.
Another question to ask is how comprehensive the program is. For instance, if asking farmers to manage nitrogen use, what practices are at their disposal?
“The more options that the program gives to the farmer in terms of practices, probably the better for the farmer,” Tenuta said.
The flexibility may be needed as weather conditions change year to year.
Certain regions may also have more difficulty adopting practices. For instance, farmers in the Red River Valley have been slower than their western peers to adopt no-till or reduced-till practices. Heavy clay soils and spring flooding often make tillage inevitable.
Reduced tillage isn’t impossible in the Red River Valley, but more research is needed to make it practical.
“Now that farmers can potentially reap a benefit financially through a carbon offset program really warrants us to look at this really hard,” said Tenuta.
Doing the math
Lastly, the economics of joining will take some serious number-crunching and some hard questions for the carbon aggregator.
Will it require new equipment? What will it cost to buy nitrification inhibitors every year? Is there likely to be a yield reduction as the producer and the soil adjust to new practices?
“You have to be truthful and honest with that,” said Tenuta. “I would argue to be conservative.”
On the upside, fuel and labour costs might go down.
Tenuta suggests sitting down with the aggregator and getting them to crunch the numbers. Work through the farm’s current setup, what you’re willing to change, and what that will yield in credits.
What is carbon worth right now? There’s no straight answer. Corteva’s website asks farmers to “dig up to an est. $5-$20/acre/year.” That’s its American pilot.
This April, the University of Illinois reported a range of $10 to $20 per metric ton of carbon dioxide equivalent (CO2-equivalent). Most management practices the programs ask for have potential to produce between 0.03 and 0.65 metric tons of C02-eq/acre, the report shows.
“The breakeven price for many carbon sequestration practices is greater than the carbon price markets are offering (in the U.S.),” the report authors wrote. “Carbon prices need to increase to cover the cost of most carbon sequestration practices completely.”
A March 2021 report in the estimated Alberta farmers, selling credits through that province’s government-run system, got $1.73 per acre.
Tenuta noted that Canada’s current carbon pricing is $40 per metric ton CO2-eq. but will rise to $170 by 2030.
Ask if the program’s carbon price is fixed or floating with Canada’s carbon pricing and compare the price between programs, said Tenuta. The University of Illinois adds to ask of the total amount paid for the credit, how much the farmer will get and how much will go to the aggregator or data manager.
Ask how long it will take to get the money, the University of Illinois said, and if the farmer can expect any additional administrative, registration or other fees.
Consider how long you’ll be locked into a contract, Tenuta added.