Is it a step too far to call the fledgling agricultural carbon credits market a Wild West? Perhaps ‘a market finding its feet’ is a fairer description.
One thing is for sure, there are multiple teething problems that the practice of trading carbon credits created by sustainable farming methods must work through before it can be regarded as a transparent and free-flowing market.
One of the biggest obstacles all carbon credit trading platforms continue to face is proving the authenticity of their value. After all, what level of soil data analysis – the breadth of satellite imagery and field-level tech being used is diverse – is sufficient to demonstrate how much carbon has been captured per acre over a given timeframe, and the maximum storage capacity of that acre?
Indigo Agriculture, one of the bigger players in the space that has ambitious plans to scale its trading platform, sold its first set of credits to a cohort of buyers including the likes of JPMorgan and Barclays in October.
Senior vice-president Ben Allen told Agri Investor the company still has “a long way to go” in figuring out the maximum level of carbon that can be stored in a single acre – something that varies between soils and regions – but the approved Verra methodology it uses does allow for revisions to be made as it figures this out over the coming years.
Another issue that will need to be settled is price – how much is an ag derived carbon credit worth?
Indigo agreed a price of $20 per ton with its buyers, while a pilot platform launched by Land O’Lakes subsidiary Truterra and ag startup Nori has priced its credits at $15 per ton. “Supply and demand have no idea where each other meet. It’s a bit arbitrary at this point,” Truterra sustainability manager Nick Reinke told us.
At this early price discovery stage, farmers will pretty much take what they can get, said Reinke. Which makes his observation that some corporates are buying up credits while the demand side is calling the shots on price all the more interesting. Expectations of price increases are widespread, he said, so with the knowledge that any given acre can only store so much carbon, are first-mover farmers missing out on a higher premium at a later stage?
One set of farmers excluded from being able to monetize the carbon captured in their soil altogether, are those who have long since used sustainable farming methods – markets are so far being developed in such a way that being able to evidence a new increase in carbon captured is rewarded, while those who are long-term carbon storers miss out.
“If you’re taking farms that have been mined [where nutrients have been depleted and not properly replenished] or are in poor condition and then you’re using some of these practices like crop rotation, cover crops, natural manures and can show an increase in carbon sequestration, then there’s a benefit of credits,” Ceres Partners chief investment officer Brandon Zick told Agri Investor.
“Incentives are kind of perverse that if you’re already doing these practices and doing the right thing, then there’s not as much upside.”
The market is clearly in an early and, frankly, quite messy stage of its evolution.
If it can answer some of these questions and address its various flaws in a convincing way, there are millions of acres globally that may yet prove to be a source of additional investor income and emissions mitigation tool.