A Better Way for Farmers to Cash In on Carbon
(Bloomberg Opinion) -- There’s growing enthusiasm inside and outside the Biden administration for establishing a market that would make carbon dioxide a cash crop for U.S. farmers. The potential climate benefits are huge: U.S. farms have the capacity to sequester hundreds of millions of metric tons of C02 every year — many times the amount of carbon offset annually by the country's solar industry. And while some skeptics are still cautioning against these markets, in fact, they already exist.
The private sector has been developing agricultural carbon markets for years now. Startups including Nori, Indigo Agriculture Inc. and Soil Metrics, and non-profit enterprises including Comet-Farm and Openteam are laying down promising foundations.
So the key question isn't whether these markets are possible, but how they should be governed. And, for now, my answer is: They shouldn't. We’ve got one shot at getting this market right, and while there’s an important role for the Biden administration to play, it must be a limited one.
President Joe Biden’s climate plan calls for the establishment of a carbon bank that would pay farmers and ranchers to store CO2 in their soil. The big vision is right on — farmers should be incentivized to adopt regenerative practices that enhance their capacity to keep carbon locked away. But the strategy is flawed: The government-owned Commodity Credit Corp. would oversee the bank and receive $1 billion to purchase carbon credits from farmers at $20 per ton. Farmers do need government funding to participate in incipient carbon markets, but that $1 billion would be better invested in tax credits.
Here’s why: Establishing a carbon bank would mean establishing standard protocols for how soil carbon is measured and how credits are issued. It’s too soon for that. For the moment, the private sector shouldn't be constrained by rigid protocols that might discourage the rapid development of new technologies to measure soil carbon and collect and analyze data. Nor should the pricing of credits be limited: We’ve learned from the failures of the Chicago Climate Exchange and California’s cap-and-trade program that dictating credit pricing or even establishing a pricing floor can stymie market growth.
For the moment, it’s still expensive and cumbersome to measure carbon content in soil -- it can vary significantly from acre to acre and from field to field. A farmer can pay thousands of dollars on a 2,000-acre farm to take soil samples and have them analyzed in a laboratory — and tens of thousands more to have them certified by some offset registries. But there’s a great deal of progress on this front: Huge advances in on-the-fly core sampling and near infrared imagery from satellites are emerging to more cheaply and precisely measure soil carbon content.
And agronomists already have a clear understanding of the methods that need to be supported and scaled across U.S. farms: no-till agriculture (because tillage releases the carbon stored in soil back into the atmosphere), cover cropping (in which carbon-hungry plants are grown on fallowed land to absorb and seal CO2 into the soil), and nitrogen management (to avoid overapplication of fertilizers, which atomize into the atmosphere as nitrous oxide, a highly potent greenhouse gas).
Instead of putting $1 billion toward a carbon bank that would establish pricing and protocols for credits, Biden should put that money toward a farmer tax credit based on one designed for oil producers and power plants in 2017 to encourage the use of direct-air carbon-capture technologies. Soil remains the mother of all methods for direct air capture: plants and trees use photosynthesis to draw carbon dioxide from the atmosphere, converting it to fuel as they grow and channeling it through their roots to feed microorganisms in the soil.
In order to issue these soil-carbon tax credits to farmers, the USDA would establish the broad contours of a system that could function somewhat like USDA Organic certification, but for regenerative farming. Eventually, these protocols could be the basis for those that are used to issue soil carbon credits in a future compliance market.
In the meantime, private-sector markets are growing fast and innovating even faster — they need more time to get their footing before they're forced into a system with strict rules for issuing carbon credits. Already, Nori has paid farmers hundreds of thousands of dollars for carbon sequestration, brokering purchases from companies including Spotify Technology SA and Corteva Inc. Indigo Ag, which has received more than $1 billion in financing, has begun to broker carbon credits on more than 2 million acres of farmland with buyers including Barclays Plc and apparel maker North Face. The credits are due to be paid out to farmers by the end of this year.
While stepping out of the way of the market, the Biden USDA could provide financial support to spur farmers' transition to regenerative practices, including a tax credit and grants for equipment needed to implement new practices like no-till. Biden should also, crucially, put money toward research — in particular the expansion of the soil carbon monitoring system run by the USDA's Natural Resources Conservation Service. The system provided an independent open-source database of carbon changes over time across the agricultural landscape of the U.S, but lost its funding during budget cuts in 2013. Even allocating $10 million a year for this soil-reference network could rapidly expand a crucial database that will eventually become the foundation for precise, affordable, real-time soil carbon measurements and the backbone of a compliance market.
Boiling it all down, the best investment of federal dollars right now is in tax credits, grants and research for regenerative farming. Yes, there’s no more expedient way to convert American farmers from climate sinners to saints than paying them to do so. But, for the moment, that should be left to the private sector.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Amanda Little is a professor of journalism and science writing at Vanderbilt University. She is the author of a Bloomberg Opinion series on the fate of food after Covid-19 as well as the book "The Fate of Food: What We'll Eat in a Bigger, Hotter, Smarter World."
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