Carbon credits: Pay farmers or landowners?
Updated: Jun 16, 2022
Reprinted with permission from an article I wrote for Prairie Farmer in May 2021.
It has been often said, and rightly so, that farmers are the original conservationists. Anyone who has relied on the intricate miracle of producing crops to feed their family and the world knows that taking care of the soil is priority one. Getting paid extra to do so is just butter on the biscuit.
Climate change is getting attention, and with it, renewed interest in carbon sequestration by the public and investors. Offsetting carbon emission with carbon credits is not a new idea. Trading carbon through the Chicago Climate Exchange began in 2003 but had to close its doors in 2010 when the exchange went nine months with zero trading as prices reached between 5 and 10 cents per metric ton.
Riding the wave of the Greta Thunberg effect, a number of companies have sprung up to capitalize on the renewed demand and have sought to sign contracts with farmers that contain provisions for conservation practices. This has led to a fluid environment where there are more questions than answers.
Eric Schumacher and the managers at First Mid Ag Services are taking a hard look at the growing market for carbon sequestration. “There are still a number of unknowns that need to be answered,” Schumacher says. “What payment rates should be or could be are among the first. Current rates are hovering around $10 to $15 per acre if you sign a long-term contract. But who knows where they may ultimately end up? If possible, avoid tying up your operation with a long-term contract while this thing plays out.”
The market may change, the players may change, and ultimately, can farmers guarantee that they will be farming the contracted acres 10 years from now? Consider the ground itself, too.
“As with any change in production practice, some ground works better than others,” Schumacher says. “We anticipate ground that has some slope and is well drained will respond better to reduced tillage and cover crops.”
And who gets the payment?
Schumacher further posits, “Another question that needs answered is whether the landowner will receive compensation for carbon that is stored on their land.”
That means the core question is this: Is the value of the carbon credit in the practice that creates it, or in the soil where it is stored?
Carbon is “stored” naturally by growing plants that remove carbon from the atmosphere and use it to create its root structure. As the plant dies and decays, microorganisms consume the biomass and release carbon dioxide. Reducing tillage of the soil helps to keep the carbon dioxide in the soil rather than releasing it back into the atmosphere. Planting cover crops also helps by extending the cycle of photosynthesis and root growth later into the season, storing even more carbon.
Should the absentee landowner receive any compensation for storing carbon in their land when farmers are doing all the work?
I believe the answer is yes. Value for carbon sequestration comes from both the practice that creates it and the land in which it is stored. You can’t have one without the other. Famers who proactively share carbon credit payments with absentee landowners will be one step ahead of those who don’t. This is not a zero-sum game of us-versus-them. This is an opportunity to engage your absentee landowner in their property and your operation.
The American Farmland Trust recently published a wide-reaching survey, Understanding and Activating Non-Operator Landowners Report. It learned that 91% of the Illinois landowners who responded indicated they trust their operator to make good conservation decisions, 88% are committed to their operator’s continuation as a renter of their land, and 81% are comfortable extending the length of their operator’s lease to facilitate implementation of conservation practices on their land. Sharing carbon credit payments with landowners capitalizes on existing conservation sentiment landowners share with farmers and helps strengthen your business relationship with them.
By and large, absentee farmland owners want to do the right thing by their land and their farmer. Engaging them to be partners and sharing the benefits of carbon credits with them is a winning strategy for long-term growth.