Carbon credits are a medium of exchange traded to offset CO2 emissions. A carbon credit represents 1 ton of carbon dioxide removed from the atmosphere. Companies that don’t currently meet their greenhouse gas emission goals, whether those goals are self-imposed or governmentally required, purchase offset credits from an entity that is producing more than they need.
Farming contributes to greenhouse gas emissions, but based on what and how you are producing, you may be able to earn carbon credits that could be sold. To be able to benefit from selling carbon credits, it may require changing and/or adapting your farming practices. Farmers can make thousands of dollars a year selling carbon credits. Think of carbon credits as another prospective revenue stream that may also increase your yield of drought-resistant crops and/or manage risk in your farming processes. Potentially a win-win situation.
These carbon credits represent reductions or removals of greenhouse gas emissions, which help compensate for not yet reduced or eliminated emissions within their operations. Companies purchase them on the voluntary carbon market or the compliance market. Many of America’s largest companies have pledged to be net zero by a certain year. For most entities, it would be impossible to eliminate greenhouse gasses entirely and still do business, so instead, they purchase carbon credits in these exchanges. If they don’t achieve their stated or required goals, there can be issues with investors and/or regulators.
Selling carbon credits is a multi-step process and requires, in most cases, a commitment to a particular type of farming. One example is regenerative farming which encourages ecosystems to store CO2.
Regenerative farming methods include:
Measurements are taken at different stages of the process, but it is typically done at the start by gathering baseline information. Gathering initial data on a farm can include the following:
California, in particular, has a low carbon fuel standard with strict limits on greenhouse emissions. Big oil and gas companies must satisfy these emissions caps by paying for carbon credits. A good example of how a dairy, cattle, or hog farm can sell carbon credits is by capturing methane from manure.
If manure goes into big storage ponds, bacteria feed on it and release a gas called methane. Methane is the main ingredient in natural gas, burned in home furnaces and stoves, but it is also a greenhouse gas. Diverting manure into tanks allows for capturing most of the methane that can go into natural gas pipelines.
Also, dairy and beef operations that keep their cattle outside and allow manure to dry or cattle that graze on pasture do not release as much methane.
There are several challenges to selling carbon credits that you should be aware of before you commit:
More and more farmers are opting for changing farming processes to increase their revenue stream through the sale of carbon credits. But the decision to do so involves time, money, and a complete understanding of the steps necessary to comply with regulations – and to make the effort worthwhile. There are challenges along with opportunities. As the requirements, methods, and reporting become more standardized, it may help – or not. Work with your trusted advisors to evaluate the potential for your bottom line.
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