The ‘Wild West’ of carbon trading and carbon farming
Carbon trading, and carbon farming in the context of carbon trading, are topics that have been puzzling me for a while, and I have tried to read my way to answer a few niggling questions. I fear there is still a very long way to go with accountancy, verification and regulation of carbon trading before farmers, who are at the sharp end of the climate risk, can reasonably be expected to venture into carbon farming.
There is also another question, to which I feel there are as yet no answers, and it is this: how much of the carbon they sequester will farmers actually need themselves to offset their food production activity?
What is carbon trading?
The concept of carbon trading as a public, international market for IPCC member countries to reduce their emissions was agreed at COP21 in Paris in 2015. The agreement was formally approved at COP26 in Glasgow in 2021. Since then, however, there have been few if any country-to-country agreements, and voluntary private markets have filled the vacuum. Those have been found variable in their credibility (see below).
A number of voluntary carbon trading systems, adhering (more or less?) to the IPCC principles, currently allow organisations or companies to purchase carbon credits against their own emissions.
Carbon credits are one side of a carbon trading system. The other side is called a “cap and trade” programme. This provides that organisations can continue to emit carbon up to a maximum, reduced periodically, and sell on the credits which are not required (because they have reduced their emissions more than predicted) to organisations or companies which need them. The system works to incentivise participating companies to be better climate actors by obliging them to live within the maximum emissions, and by reducing their emissions further to earn money by selling unneeded credits.
In theory this is a system that should lead to measurable and verifiable emission reductions from independently certified carbon removal, reduction, or avoidance projects.
What is agreed: three emission scopes, additionality, and permanence
Some broad principles agreed by IPCC members appear to be integrated in all voluntary carbon trading markets. Hence, emissions are measured under three headings: Scope 1 emissions relate to the emissions coming directly from a company’s operations (manufacturing, energy produced onsite by burning fossil fuel, etc.). Scope 2 emissions relate to indirect emissions from the generation of bought in energy consumed by the company/organisation. Scope 3 emissions are also indirect emissions but relate to the supply chain over which the company/organisation has less influence. Studies have shown that, in the service sector, Scope 3 emissions far exceed Scope 1 and 2 combined. Emissions from farming are Scope 3 emissions for food producing companies.
Additionality is another important agreed concept which features in all carbon markets. To have carbon credit value, the carbon removed by the project must be additional to what prevailed before its inception. Evidencing this can be challenging, as it requires an accurate baseline to be calculated.
Another essential aspect is permanence. To support sellable carbon credits, a project which removes additional carbon from the atmosphere must continue to do so at least at the same rate, forever. This might prove challenging for farmers who think of engaging in carbon farming.
What is not universally agreed: most accounting and measuring methodologies, including baseline calculations
Increasing environmental, social and governance (ESG) commitments, or even obligations on companies, provide an incentive to put pressure on various elements of their supply chain to account properly for their respective emissions, as it contributes to theirs. However, it is widely recognised that Scope 3 emissions – among which farming emissions for the food production chain – are the most difficult to quantify accurately, and there are no fewer than four different methods to account for emissions, which vary in their accuracy, feasibility and cost.
Hence, there is no comprehensive, agreed standard for carbon measuring and trading systems, so that the voluntary, commercial systems that exist are not exactly comparable.
How real are the carbon removal projects touted by voluntary private carbon markets?
The projects which generate carbon credits are mostly related to land use. Afforestation projects, or projects aimed at reducing deforestation are particularly important. Other examples include low carbon rice growing, solar farms and hydroelectric energy generation projects, or drained wetland rewetting.
There is no doubt that some of those projects are making a genuine difference to GHG emissions. However, a number of recent studies have discredited a disturbingly large number of them and consequently the carbon trading systems they support.
A year ago, a study carried out by the Guardian, German magazine die Zeit, and Source Material, a grouping of investigative journalists, concluded that over 90 per cent of rainforest carbon offsets by Verra, one of the largest carbon credit certifiers, were worthless, deemed not to represent genuine carbon reductions. In essence, those rainforest carbon offsets claimed carbon reductions of 94.5m tonnes, when actual reductions were estimated to only amount to 5.5m tonnes.
Companies purchasing carbon credits from Verra include Gucci, Shell, Netflix, Ben and Jerry’s, and more, all of whom make virtuous carbon claims based on this.
More recently, the Guardian teamed up with Corporate Accountability and published, in September 2023, a report showing that the majority of carbon credit selling projects are “likely junk”.
The main reasons for this were that most did not actually generate additional carbon reductions or sequestration, that their reduction claims were exaggerated, and that the baseline calculated to measure reductions was inflated in the first instance.
Last example, a Berkeley Public Policy Goldman School study of REDD+ schemes (Reducing Emissions from Deforestation and Forest Degradation). According to the study, REDD+ schemes are the types of projects “with the most credits on the voluntary carbon market—about a quarter of all credits to date. REDD+ projects pay governments, organisations, communities, and individuals in forest landscapes (primarily tropical ones in the Global South) for activities that preserve forests and avoid forest-related greenhouse gas (GHG) emissions.”
The Goldman School study found that those schemes likely generate carbon credits which vastly overstate the real climate benefits. It says “Estimates of emissions reductions were exaggerated across all quantification factors we reviewed when compared to the published literature and our independent quantitative assessment. Safeguard policies, presented as ensuring “no net harm” to forest communities, in practice have been treated as voluntary guidance.”
Organisations and companies are coming under increasing regulatory, investor and consumer pressure to reduce their climate impact. They want to be able to make claims that their products have a zero-carbon footprint, so consumers can purchase and consume guilt free, while investors are reassured of the virtuous placement of their funds. Most companies proactively work on reducing their GHG emissions, but the need to make up the gap through carbon credits creates a valuable market – estimated at around US$90bn, and predicted to grow to US$345bn by 2032 (source: Global Markets Insights).
In the absence of a regulated framework, it should not come as a surprise that some of the voluntary carbon market providers prioritise making money, including from greenwashing, over rigour in carbon measurement and reduction.
How does carbon farming fit in?
Carbon farming is one of the types of projects which, through carbon emission reductions or extraction (sequestration) carried out by farmers, can generate tradeable carbon credits.
In light of the international voluntary carbon trading experience to date, the EU Commission has rightly promised a regulated framework for carbon farming as part of the Green Deal. In part, this is to avoid the greenwashing outlined above by securing genuine, verifiably measured reductions in GHG emissions. In part, it is to ensure farmers, who are regulated through CAP and other legislation, have access to a well-structured, reputable system to measure carbon reductions and capture from their farming practices.
In 2021, the EU produced a technical handbook on the topic after a two year study. The handbook lists peatland restoration and rewetting, agroforestry and other forms of tree planting, organic matter enhancement in mineral soils as key methods to enhance the carbon capture by farmland above and below ground.
However, it also states that “result-based carbon farming remains in its infancy, with some implementation issues still to be addressed before it reaches its full potential.”
There are promising developments globally – and it seems to me Ireland is well ahead in this area – to accurately measure carbon sequestration to establish verified individual farm baselines (Farmeye comes to mind).
The AgNav toolkit was launched last year jointly by Teagasc, ICBF and Bord Bia, and recently boosted by Department of Agriculture funding. It is a promising initiative to encourage and support farmers in their climate action, capture and analyse on-farm data to ensure accurate calculations, leverage existing inter-agency data to quantify progress towards climate targets and communicate positive outcomes.
For all that, there is clearly a way to go to make this available at scale to all those farmers who could deliver and benefit from engaging in carbon farming.
Should carbon farmers prioritise their own offset needs?
Most of the farmers I know see themselves with understandable pride as food producers. Many work very hard on improving the sustainability of their systems, not only for reduced carbon emissions and increased capture, but also to reduce nutrient losses to water and increase biodiversity.
There are tensions between food production and carbon farming.
The first one is food security – the Paris Agreement recognises “the fundamental priority of safeguarding food security and ending hunger, and the particular vulnerabilities of food production systems to the adverse impacts of climate change.” Most of the actions farmers can take to reduce their carbon emissions and increase carbon storage above and below ground – tree planting, agroforestry, rewetting of drained land, increasing organic matter in soils, organic farming, etc. – impact productivity and therefore can impact food security.
But the second one, which I believe also needs some serious consideration, is that there can be no food production without some degree of carbon emissions. In the current state of carbon markets, should farmers not be encouraged to increase their carbon sequestration to first offset their own emissions? Surely, selling their carbon credit surplus would make best sense of all only once a properly regulated, credibly structured carbon market system becomes available to them?
The EU commission’s Carbon Farming project recognises remuneration is key to compensate the loss in productivity and the cost of implementation of carbon reduction measures. It points to CAP funds (static for decades but expected to fund ever increasing objectives) but adds private funds will also be needed through payments for carbon credits.
The UN and EU Institutions, in developing climate action policies, owe it to farmers who work to capture carbon, to first protect them as sustainable food producers from an unregulated commercial carbon credit industry which can too easily slip into greenwashing.
They need to make it clear to farmers that carbon farming will reduce their productivity, and restrict their and their descendants’ freedom to farm because of the commitment made to maintain permanence of additional carbon removals.
They need to ensure society understands the role of farmers in capturing carbon has a value worthy of consumer and taxpayer funded supports, just as their food production role does.
If there needs to be a level of reliance on commercially traded carbon credits to fund sequestration by farmers, the IPCC and the EU institutions need to regulate markets and provide risk management tools to protect farmers’ livelihoods, and their reputation as credible carbon actors.
But I also believe they must ensure that farmers get a chance to retain the carbon offsets they need for their own food production activity.
© Catherine Lascurettes, Cúl Dara Consultancy
