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Soil carbon markets: the risks, rewards, costs and complications

Australian farmers are keen to engage in carbon markets to grow their businesses and be rewarded for regenerative practices. But without a clear path to monetise soil carbon credits, how can farmers cash in on this opportunity?

The math is in. By producing carbon credits, Australian farmers could diversify risk and, if American figures are anything to go by – increase revenue per hectare by up to 50%.

Agriculture’s potential to sequester carbon is massive, but with only 2.5% of global emissions trading sources produced by agriculture, there’s an obvious market gap.

A recent AusAgritech webinar facilitated by Tenacious Ventures’ Sarah Nolet, in collaboration with Platfarm, SproutX and AgThentic, featuring four international experts provided insights on this complex issue.

Key takeaways included the difficulty and expense in getting audited and certified and fears that the risks don’t always outweigh the rewards.

Panelists included:

  • Aldyen Donnelly – Co-Founder and Director of Carbon Economics, Nori
  • Sam Duncan – CEO and Founder, FarmLab
  • David Moore – Chief Operating Officer, Green Collar
  • Matt Schmitt – Senior Director of Commercial Carbon, Cargill

“Expense is the biggest barrier,” confirmed Sam Duncan, CEO and Founder of FarmLab, an Australian agronomy software startup based in Armidale, NSW, providing streamlined soil testing services.

“It costs about $50,000 to undertake baselining as part of a soil carbon project,” Sam explained and the risk-reward is not yet proven or is often too delayed for the instigating farmer to benefit.

RELATED: Why investing in soil health makes good business sense

New technologies and hybrid models are being developed to decrease the cost of measuring carbon, known as a second crop or “digital crop”, offering farmers a diversified income – but there are some roadblocks preventing uptake.

“The reality is we’re not really doing it across Australia, with only 68 soil carbon projects accumulating carbon credits,” said Sam, as of approximately October 2020.

“It’s not a whole lot, given the Australian methodology has existed since 2012, so why is that the case?”

Sam outlined that the existing models are relatively inflexible, lack current training data (often measured using NDVI or Gamma-radiometrics, which don’t have a direct correlation with soil carbon levels) and need to be location-specific, which requires costly soil sampling to accurately map and indicate carbon levels.

Cargill’s Senior Director of Commercial Carbon, Matt Schmitt agreed it’s really hard to nail down a specific outcome to any particular farming practice on any particular field.

“But the more the farmer engages and leans into the opportunity, the more powerful the opportunity.”

RELATED: Improving carbon markets to increase farmer participation

FarmLab is working to improve the situation, using software that helps farmers manage their soil, while working with agronomists and soil testing labs to integrate data into a cloud-based system.

“Even with reduced costs, farmers still have to start considering carbon long before they enter a carbon project because there are so many unknowns,” Sam advised starting by using one paddock as a test site and building up a picture.

“Carbon won’t always improve in a straight line even if you’re doing the right thing, and climate is often the biggest factor, especially with drought,” Sam explained.

Land use decisions and extracting value

Selling carbon credits is the equivalent of selling a share, so producers also need to demonstrate permanence and integrity, added David Moore, Chief Operating Officer of Green Collar, one of Australia’s largest environmental markets investors and project developers.

“We’re starting to see a broader recognition that environmental markets and agriculture are one in the same thing – they’re not mutually exclusive.”

David said they always ask landholders, ‘What can we do to extract the most value out of the land use decisions you’re looking to undertake?’

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Green Collar learned quickly after doing work in Queensland, that carbon alone as the only measurement of an ecosystem service was not enough to incentivise land use changes that needed to happen to have consequential benefits, like water quality and improved groundcover.

“We are only pricing half the environmental benefit,” said David. “We actually need to start pricing the other ecosystem services.”

This led Green Collar to develop, ‘Reef Credits’, a whole new environmental market, that pays landholders for on-farm actions to improve water quality by reducing pollutants in the Great Barrier Reef catchments, without compromising productivity.

US farmers cashing in on carbon credits

Aldyen Donnelly, Co-Founder and Director of Carbon Economics of carbon removal marketplace Nori works with many American farmers who are already cashing in on Environment Trading Systems.

Aldyen confirms the secret is a third party that can quantify and verify carbon removals at a reasonable price before listing credits in the marketplace.

When Alyden discovered farmers would have to pay up to $80 a tonne to quantify and verify their carbon claims, her previous company funded four years of research to improve the situation.

“There’s still lots to learn,” added Alyden but the eventual plan is to set up a network of thousands of soil sample reference sites with the cost and maintenance being taken on by the private sector.

Currently, Nori uses COMET-Farm (Carbon Management Estimation Tool) to collect farm management data, that was developed by the United States Department of Agriculture (USDA) and cuts out the cost of consultants to interpret protocols.

In Australia, the Soil Carbon Research Program has already taken soil samples from 2,500 sites, which should become future reference sites.

Alyden observed, “One to two per cent of the total sites [in Australia] overlap the regions that have the greatest potential and population of projects.”

Labelling carbon-friendly products

“The average yield for an American crop producer is between $27 – $40 an acre,” said Alyden. Nori delivers producers with an extra $12 – $13 an acre for carbon removals. “That’s a pretty good deal,” she said.

“I don’t know of any culture in the world where food and fibre consumers actually pay prices sufficient to cover the full cost of producing what they eat and wear.”

RELATED: Traceability from farm to fashion, on a whole new-level

“This is a one-time in history opportunity to diversify revenues in a way that could change everything for the food and fibre industry.”

In the meantime, Nori is focused on the voluntary market, where carbon credits are voluntarily traded.

But Alyden would like to see closer scrutiny of the compliance market, where regulated companies and governments are required to surrender emissions allowances or offsets to meet set targets.

She said, many emitters are allocated free greenhouse gas allowances, simply because their emission intensity is below the industry standard benchmark.

“Farmers, complying with permanence tests, have to compete against this. I’d like to see apples compared to apples to show the more valuable commodity.”

Sam concluded, “We need another incentive outside of just carbon credits.”

“We need the government to provide more incentives and consumers pulling things off the shelves because it’s carbon-neutral or carbon positive.”

“There ought to be a cheap or no-cost mechanism to reward those already doing the right thing,” said Sam.

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