Article source: Mitch Rubin.

There’s a lot to like about ecosystem service payments to farmers. Ecosystem services are defined as “the benefits people obtain from nature,” and include food production, soil formation, biodiversity restoration, as well as climate and water regulation. Stewards of ecosystems, including farmers, should be compensated for the myriad co-benefits that result from their work.

Plus, we need to find new opportunities for farmers to diversify and increase their incomes. The cost to farm has increased dramatically due to inflation and skyrocketing fertilizer prices. Almost all farmers have off-farm jobs, and most small-scale operators (which constitute 89% of U.S. farms) are dependent on the additional income. Payments for ecosystem services have an opportunity to provide some of the revenue necessary to support farmers and help them transition to/maintain more regenerative systems.

However, the core mechanism of ecosystem service payments for farmers today is soil carbon credits. The primary purposes of soil carbon credits is twofold: 1) create a (low-cost) mechanism for corporations to offset emissions on their balance sheets, and 2) provide financial support for farmers to adopt more regenerative practices and in-turn, sequester more CO2 in the soil. But those two goals shouldn’t necessarily be achieved by the same instrument.

I am all for paying farmers for ecosystem services. And there are certain situations/approaches where it makes sense. But on the whole, there are too many issues with soil carbon credits todayto be used for corporate offsets (and some insets), which require higher standards around durability, additionality, measurement, and verification. We should be thinking more holistically about the best means for restoring our soils and providing financial opportunities to farmers, and not defaulting to soil carbon credits as a way to satisfy net-zero commitments.

Soil carbon credits

Soil carbon credits can be a good tool for both sequestering carbon dioxide and financially rewarding farmers. In the US, agricultural soils have the potential to annually store 10% of domestic greenhouse gas emissions. And depending on the price per ton and geography of the farmer, soil carbon credits have the potential to provide genuine windfalls that can make a difference on farmers’ ability to pursue regenerative operations (especially in countries such as Kenya, India, and China). Moreover, the practices that enable greater carbon storage (cover cropping, rotations, grazing, planting perennials, etc.) typically engender a host of other co-benefits over time, including soil health, water quality, biodiversity, and drought resistance.

But the promise of soil carbon credits is overshadowed by its numerous challenges today. And because of that, in most situations we shouldn’t be allowing corporations to pay farmers in order to offset their respective emissions. Some of the core issues include:

1. Scientific disagreement over soil carbon storage

Over the past few years, there has been extensive research and questioning over the foundations of soil carbon storage (including the infamous Quantas article). The main critique comes down to the durability of soil organic carbon (SOC).

Source: NOAA

The risk of reversal (CO2 released back into the atmosphere) for SOC is comparatively high, and its two main causes are a) excessive tillage from a new (or existing) farm owner, and b) the natural carbon cycle. Molecules of carbon dioxide are continuously digested by soil microbes and re-enter the atmosphere through respiration. To make matters worse, the rate of microbial respiration is expected to increase significantly in-line with soil temperatures due to global warming, releasing dangerous amounts of new carbon dioxide into the atmosphere.

While SOC is able to become stored in soil aggregates or as mineral-associated organic matter (MOAM) for long periods of time, much is also stored as particulate organic matter, which has much quicker cycling times & therefore shorter lifetimes in the soil. This variability makes it difficult to assign an offset credit.

Source: The Regeneration

In light of the variability and unknowns, some carbon credit issuers point to ton-year accounting and discounting as possible solutions, but those seem to have their own set of issues.

2. Monitoring, Reporting, and Verification (MRV)

Many of the durability issues can be resolved with highly-accurate and universally standardized MRV solutions. If we can measure the durability and variability of stored SOC more accurately, there’s greater (though still not optimal) justification to tie its storage to molecules of CO2 that have been emitted elsewhere. However, we’re not quite there yet.

There is the standard lab testing route, which provides the highest level of accuracy. But the process is costly, timely, and may not account for variabilities across an entire plot unless extensive sampling is conducted. To remedy this, many fantastic MRV companies are developing soil sampling innovations, such as Yard Stick, Haystack, Agricarbon, EarthOptics, and others.

However, those companies are still early-stage, and the vast majority of soil carbon credits in the US today are being issued using a variety of remote sensing solutions that rely on modeling ground-truthed data and satellite imagery. And the core issue with remote sensing is that it only takes shallow soil measurements (in the top 30cm), while research indicates the need for deeper measurements (30cm – 1m) to have a full grasp of the carbon storage.

Some organizations, such as The Soil Inventory Project, are in the process of using extensive ground-truthed data to build models highly specific to the variability of individual regions (which is great). But it’s all still in the early phases.

3. Lack of standard-setting

There is no singular agreed-upon protocol of certifying a soil carbon credit, and many methodologies are insufficient. CarbonPlan famously examined 14 of them, which significantly differ in terms of scientific rigor and requirements for additionality and durability. For example:

“Only 3 of 14 protocols require direct sampling as the basis for issuing soil carbon credits (which we call “empirical crediting”). Others require sampling to calibrate or parameterize models, but not to issue credits. Several protocols do not require sampling at all, relying exclusively on models to estimate soil carbon changes and issue credits. This pattern is concerning because models are imperfect analogs when it comes to soil carbon. They rely on a number of assumptions which may not be applicable in specific contexts and can lead to incorrect predictions of soil carbon outcomes. For example, models routinely make assumptions about the persistence and accrual of soil carbon over time, including that it increases linearly, that fields are in a state of equilibrium, and that proxy measurements like remote sensing can accurately conceptualize ecosystem processes. The most rigorous models still use measurements for calibration, and thus depend on high-quality sampling approaches.”

This makes it impossible to equate a soil carbon credit from Farmer A to a credit from Farmer B if different methods and certifications are used, which degrades trust in the credits themselves and thus the corporate claims pertaining to those credits. Ideally, there will eventually be 2-3 players that bring about standardization and institutional trust.

Moreover, there’s differing views on whether protocols should issue credits based on outcomes versus practices. It’s very expensive for farmers to transition to regenerative systems (and ultimately increase their SOC stocks). Requiring farmers to achieve a certain outcome is much riskier for the farmer: what if they invest capital into transitioning their farm operations but the SOC doesn’t increase as expected and results in lower carbon payments? Paying for practices is much easier to measure for and likely better for the farmer. However, it’s more difficult to understand the anticipated ex-post carbon storage solely based on practices, and outcomes are ultimately what should be tied to any credits used for offsets or insets.

4. We haven’t figured out bundling co-benefits

Treating carbon dioxide as a commodity doesn’t work for farmers and soil the same way it does for solutions like Direct Air Capture. It’s much more nuanced and complex. It requires a holistic, ecosystem-level understanding of the role of farmers, soil health, and biodiversity. And according to Farm Journal, farmers justifiably want “trust that carbon-marketplace partners intend to recognize the total value of their farm operation—and to compensate them appropriately.” This requires bundling co-benefits into the price of a cohesive ecosystem service payment, which includes carbon sequestration. Plus, such bundling has the potential to increase the revenue being awarded to farmers enough to make it more financially viable and attractive to transition to regenerative farming practices.

There is exciting work underway on designing biocredits (which are distinct from biodiversity offsets), and first attempts at bundling biodiversity and carbon benefits: Verra’s Climate Community and Biodiversity (CCB) standards, the Ecosystem Services Market Consortium (ESMC) working with corn and soy farmers in Missouri, and through corporate portfolios like CO2.com. But we haven’t put all the pieces together quite yet.

The two situations corporations should consider using soil carbon credits today

Inside the Value Chain

The first is a portion of Scope 3 insets: the emissions that result from select upstream, in-field activities, such as growing and harvesting. These would mostly fall under various components of Categories 1, 2, and 5 of the GHG Protocol’s Scope 3 accounting, and are aligned with the Science Based Target Initiative’s (SBTi) FLAG guidance:

“FLAG (Forest, Land, and Agriculture) targets cover the specific portion of emissions that are related to the land sector, including, but not limited to, emissions and removals from agricultural and forestry production ‘up to the farm gate’ (excluding energy-related emissions from processing of biomass.

It is important to note that because FLAG SBTs (science-based targets) are separate from energy/industry (non-FLAG) SBTs, FLAG abatement cannot be used to meet energy/industry abatement targets (e.g., improved forest management removals cannot be used to meet targets on fossil fuel emissions reductions). This is to ensure that companies do not account for biogenic removals in their value chains to meet energy/industry (non-FLAG) targets. Biogenic removals may be accounted for only to meet FLAG targets.”

In other words, biogenic carbon removals from soil and agroforestry can only be used as insetting purposes for a company’s associated FLAG emissions. It doesn’t seem right for say, the emissions of downstream transportation to a retailer (which is direct burning of fossil fuel) to be offset by soil storage.

Scope 3 emissions are extremely difficult to account for as is, making the threshold for select FLAG value-chain carbon removal more justified.

However, as with any carbon offset or inset, these instruments are inherently enabling companies to continue polluting. Just look at the recent findings that nine of the world’s largest food companies increased their GHG footprints by 7% on average in the past year. Even if the carbon credit can achieve close to 1:1 net-zero (which it often doesn’t), there are still plenty of other consequences from the pollution that are damaging communities and ecosystems.

Outside the Value Chain

The second option is for corporations to pay farmers for soil carbon credits outside of their emissions accounting. This is known as beyond value-chain mitigation, which avoids issues with insetting or offsetting altogether. According to SBTi’s Net-Zero standard, “companies should go beyond their near- and long-term science-based targets to further mitigate climate change by undertaking actions or making investments that support climate mitigation outside of their value chains, especially those that generate additional co-benefits for people and nature.” Given it’s outside the accounting for science-based targets (and therefore avoids the need for as strict MRV), beyond value-chain mitigation is the perfect place for soil carbon removal.

At some point in the future, the hope is companies will charge an internal carbon fee and be evaluated by their holistic ecological footprint, rather than the one predominant indicator of net-zero. And at that point, the range of co-benefits provided by beyond value-chain mitigation will make a difference in terms of corporate success, especially given regenerative agriculture has become an essential adaptation strategy for food security. But until then, the pure narrative and sustainability reporting for consumers will hopefully make a material difference for corporation action.

Alternative on-farm carbon payments

Although soil carbon credits aren’t optimal for most carbon crediting today given the aforementioned reasons, there are other promising opportunities to pay farmers for sequestering CO2: agroforestry, biochar, and enhanced rock weathering (ERW).

Diversified agroforestry has the potential to bring significant value to many farms, including a wider range of revenue streams (more crop types + timber), improvements to soil health, new habitat creation for farm-based ecosystems, and greater carbon dioxide drawdown. With agroforestry, the carbon dioxide stored within the biomass of trees (above and below ground) is easier to measure than pools of soil organic carbon. There are still hesitations for crediting, given some methodologies may also aim to include below-ground SOC calculations which run into the same issues of other soil carbon credits. And like other trees, there’s risk of reversal from disease, drought, and wildfire, which is why it follows the same SBTi FLAG guidance as soil carbon. But today’s MRV advantage over soil makes it preferable to most soil carbon credits from a corporate emission accounting perspective.

Agroforestry credits typically have a short lifecycle and permanence, whereas biochar and enhanced rock weathering offer longer permanence and greater durability. This quality makes them fit for a wider range of carbon crediting, including Scope 1, 2 and 3 offsets and insets. Biochar locks in the carbon of plant matter for hundreds of years using pyrolysis, and has a number of agronomic benefits when applied to soil, including nutrient and water retention, yield improvement, and pH increases. ERW, which also supports elements of soil health (but falls outside of FLAG guidance), is the process of sprinkling crushed up basalt or olivine minerals on soil, which reacts with rainwater to convert CO2 into a solid carbonate that is stored for thousands of years. Moreover, the $/ton for these solutions is much higher than soil carbon today, which can result in an even greater windfall for farmers. That said, it’s early days (in particular for ERW) and there is still much work being done to study potential unintended consequences.

Moving forward

Carbon credits are one part of the puzzle for farmers, but will always be a complement to additional funding opportunities for implementing regenerative systems, particularly while the market mechanisms for cohesive ecosystem service payments gain traction and MRV challenges are resolved (through R&D and commercial deployments). This includes a) policy reform through the 2023 Farm Bill, b) forward contracts to guarantee long-term revenue and decrease risk, c) favorable financing opportunities (see Steward, Mad Agriculture, Agroforestry Partners, Farmers Business Network, Foodshed Capital, and Potlikker Capital), and more.

There are so many people and organizations working on the future of soil carbon credits, which brings about both hope and worry. I’m confident the developments we need around MRV and standard setting will be reached. At the same time, the gold rush by corporations to participate in the regenerative narrative for the sake of covering up their emissions is racing ahead at a considerable pace. All the more reason why we need to approach this transition holistically and incorporate a wide range of solutions and stakeholders. Carbon tunnel vision simply won’t cut it here.

REFERENCE:

Rubin, M. 2022. Raising the flag on soil carbon credits: And how to move forward more sustainably. Mitch’s Newsletter.

Link to original article: https://mitchrubin.substack.com/p/raising-the-flag-on-soil-carbon-credits