As concerns about climate change increase, consumers, investors, and in some markets, regulators are demanding that corporations seek ways to reduce their carbon footprint. As a result, companies are establishing strategies for reducing greenhouse gas (GHG) emissions. Some companies focus on indirect emission reductions, called 'offsetting', while other companies target direct emission reductions within their supply chain, often referred to as 'insetting'. Regardless of the method by which a company chooses to reduce emissions, the opportunity for agriculture to be part of the solution is substantial and is therefore growing.
However, the multiple carbon marketplaces and quantification schemes can be confusing. Navigating current agricultural carbon credit programs and understanding how they may change is critical for two reasons: 1) Agricultural products are the raw inputs in numerous products, creating abundant opportunities for carbon insetting; and 2) The scale of agriculture allows for large reductions of carbon through increased stocks of Soil Organic Carbon (SOC).
Farm-level Carbon Footprint: Emissions and Sinks
The direct GHG emissions of a typical row crop operation originate from agricultural residue decomposition, soil carbon emissions related to tillage and other practices, fuel combustion, and emissions from fertilizer application. Additionally, there are indirect emissions from manufacturing those expendable inputs (Figure 1).
Farming involves biological processes, which includes direct interaction with the soil, a major carbon sink. Farmers can reduce or sequester more carbon in the soil through conservation management practices than what they emit when working the land. Achieving a net-negative carbon balance in row crop agriculture could have enormous positive impacts on the climate, in addition to the farmers' bottom line.
Demand for Agricultural Carbon Credits
Carbon offsets can be sold to corporations committed to reducing their carbon footprint or to companies operating in industries with regulated GHG emission targets, where the regulation allows. Many programs, such as Indigo Carbon and Nori, are emerging to capture agriculture's potential role in climate mitigation.1
Examples of agricultural supply chain partners seeking ways to reduce emissions within their own supply chains through insets are Bayer Carbon Program and Agro Carbon Alliance. The carbon inset credits may reflect reductions in GHG emissions and/or increased SOC changes. Most of the current ag carbon inset programs do not include the indirect emissions related to the manufacturing of farming inputs, or the direct fuel combustion emissions.
Biofuels Industry Demand for Agricultural Carbon Credits
There could be substantial demand for agricultural carbon credits by the biofuels industry because of the industry's regulatory environment, and due to biofuels producers voluntarily setting goals for reducing emissions across their supply chain. The regulators use a carbon intensity (CI) score to measure a fuel's lifecycle greenhouse gas emissions per unit of transportation energy delivered. Since emissions from soy-based biodiesel's feedstock comprise 43% of the total CI, this presents a tremendous opportunity for reducing soy-based biodiesel CI by targeting lower CI soy feedstocks.
Almost 64% of the soybean feedstock CI comes from field-level emissions and about 31% of the emissions are from farm energy use and farm input manufacturing. In addition, SOC sequestration is typically not included in feedstock CI calculations. As shown in Figure 2, SOC sequestration can contribute significantly to lowering feedstock CI scores, and to producing net-zero or even negative CI feedstocks.
Considering the entire farm-level carbon footprint when calculating feedstock CI would send strong market signals to feedstock producers that their actions for mitigating climate change are paramount. This would also provide a means for more accurate and higher valuation of agricultural carbon credits.
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1 Disclaimer of endorsement: Reference to any specific registry or carbon program mentioned in this document does not constitute an implied or expressed recommendation or endorsement by Clean Fuels Alliance America or Terra Economics.