Carbon Credits for Farmers: FAQs

First Financial Bank
Are you a farmer who is interested in learning more about the benefits and steps to sell carbon credits? Let’s look at what these are and how it might help you earn additional income.

What Are Carbon Credits?

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 have greenhouse gas emission goals that may either be self-imposed or governmentally required. To meet those goals, they may need to purchase offset credits from another 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, 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.

Why Do Companies Buy Carbon Credits?

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. If they don’t achieve their stated or required goals, there can be issues with investors and/or regulators. Instead, they purchase carbon credits in these exchanges.

How Can Farmers Sell Carbon Credits?

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:

  • Reducing soil disturbance due to tillage.
  • Reducing and eliminating the use of pesticides and fertilizers through mob grazing and manure/compost.
  • Maximizing soil coverage through mulching.
  • Crop rotation and growing cover crops.
  • Combining livestock rearing with crops.
  • Managing peatlands.
  • Agroforestry.
  • Maintaining and enhancing soil organic carbon on mineral soils.
  • Livestock and manure management.
  • Creating grasslands and growing cover crops, where carbon is captured and stored.
  • Managing nutrients on cropland and grasslands.
  • Improving water management.

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:

  • 3-5 years of farm data about crops grown, farm practices, yields, diesel usage, fertilizer and pesticide application, etc. Setting the baseline for the farm guides what carbon farming practices are appropriate for a particular farm and measures progress to account for carbon credits.
  • Soil sampling.
  • Reporting changes to farming practices means collecting data, for example, on the amount of fertilizer, cover crops, etc.
  • An independent auditor verifies data accuracy and calculates how many carbon credits will be generated.
How Can Cattle, Dairy, And Hog Farmers Sell Carbon Credits?

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.

What are the Challenges of Selling Carbon Credits?

There are several challenges to selling carbon credits that you should be aware of before you commit:

  • The cost of changing farming practices to accommodate carbon capture.
  • Uncertainty in carbon credit volume can lead to fluctuating revenue.
  • Questions about carbon quantification methods.
  • A need for better standardization of guidelines.
  • High cost for independent verification.
  • Carbon demand uncertainty.
  • The challenge for farmers to identify the most appropriate carbon program for their specific situation.
  • Competition for carbon credits outside the farming industry.
  • The potential for violation of contract agreements if the farmer is unwilling or unable to comply with required practices.

Carbon Credits for Farmers: Reward and Risk

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.

Considering changes to your operations? Let’s talk.

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