FAQ: Agricultural Carbon Credit Projects

Teresa Koper, The Climate Trust
October 14, 2014

Carbon markets can provide a new source of income for land-stewards implementing practices that reduce greenhouse gas emissions or sequester (retain) carbon. With encouraging developments in the California cap-and-trade system and innovations in voluntary carbon market Standards, many land managers are engaging in carbon markets as an option to diversify revenue and support sustainable management. However, land managers face a myriad of questions as they weigh the opportunity and risks of integrating a carbon project on the land.

Why carbon?
When you hear the terms “carbon credits” or “carbon markets,” carbon is in reference to carbon dioxide (CO2), which is the most common greenhouse gas (GHG) emitted by human activities. Although CO2 is abundant, according to the Intergovernmental Panel on Climate Change the global warming potential of Nitrous Oxide (N2O) is over 300 times more potent of a greenhouse gas than carbon dioxide. There are six GHGs recognized by the Kyoto Protocol and every type is compared in the “apples-to-apples” terms of metric tonnes carbon dioxide equivalent (MT CO2e).

What is carbon emission reduction?
Reducing GHG emissions from our everyday activities is referred to as emission reductions. As an example, riding a bike, instead of using a vehicle that combusts gasoline would reduce carbon emissions. Other land-based carbon reduction examples include, reducing methane (CH4) from dairy operations, or limiting over-application of fertilizers in order to reduce the amount of methane that leaches into groundwater and emits into the atmosphere.

What is a carbon sequestration offset?
Carbon sequestration refers to the long-term retention of carbon in plant biomass or some other substrate, most commonly soil. The act of tilling the soil or cutting down trees/plants that store carbon in their tissues (biomass) releases stored carbon into the atmosphere at rapid rates.

What is a carbon offset?
As plants grow, they absorb CO2 from the atmosphere through photosynthesis and store it within their growing biomass (leaves and root systems), as well as soil microbes; these GHGs are then considered as stored in the soil. A “carbon offset,” is a metric ton of carbon dioxide equivalent (CO2e)—the emission of which is avoided or newly stored—that is purchased by greenhouse gas emitters to compensate for emissions occurring elsewhere. Offsets may be developed under voluntary market Standards or compliance market Standards (see “Carbon Standards” below), each of which has specific carbon accounting and eligibility rules. Carbon credits and carbon offsets are often used interchangeably.

Agricultural Project Types:
Agriculture is a relatively young sector in the carbon markets and new methodologies are being approved by the carbon Standards on an on-going basis. Because buyers want to ensure that offsets produce genuine climate benefit and are of high quality, most offset projects are developed and certified using a recognized voluntary or compliance carbon Standard.

The types of agricultural management activities that may produce carbon offsets include:

• Changes in Fertilizer Management: practice changes in the rate, timing, placement, and type of fertilizer may qualify for carbon offsets if GHG emissions are reduced
• Rice Management Systems: limiting the amount of time a field is flood-irrigated and ensuring the appropriate level of crop residue is left on the field, both affect GHG emissions
• Soil Carbon Building: practices such as composting, biochar, and grazing land/livestock management build more biomass in soils, not only improving soil qualities such as fertility and water holding capacity, but also sequestering carbon

Is a carbon project a good match for my land?
This is a complex question, and before deciding, you should consider the required commitment period; costs of developing a project and managing its obligations throughout the full project life; offset volume and price trends; potential; and your past management practices and future land management objectives. You should carefully consider how your short- and long-term management objectives will be impacted by enrolling your land in a carbon project to ensure alignment. Each program has its own rules and requirements, but some general points to consider include:

• Carbon projects require a commitment to a land management change for the long-term
• Carbon projects work best when they fit overall land management goals and result in multiple benefits
• Ensure your land can meet all eligibility requirements of the carbon Standard and project type you are considering
• Enter carbon markets with realistic expectations of carbon revenue potential and costs over the full project life

How many offsets will my project produce? How much are carbon offsets on my land worth?
The number of offsets will depend in part upon the methodology chosen, specific management practices implemented, and many other factors. Offsets are calculated as the difference between the project and a modeled baseline scenario of carbon stocks in the project absence. Baseline definition and modeling differ from Standard to Standard and are a critical component of carbon offsets because the baseline establishes the reference condition against which the project activity is compared.

Carbon revenues and project feasibility depends not just on offset volume, but also on the timing of when offsets can be verified and sold, in addition to offset price. Carbon offset prices are dynamic and can vary from compliance market to voluntary market, from project-to-project, and over time. The choice of Standard directly impacts a project’s ability to access particular markets and buyers since compliance buyers can only use offsets verified under compliance market Standards to offset their emissions. Voluntary buyers assign higher value to projects based on the perceived quality or charismatic appeal. Many are interested in projects close to their areas of operation, related to their supply chain of raw materials, or otherwise connected or proximate to their operations. Voluntary buyers also focus on projects with strong and easily communicable social or environmental outcomes beyond carbon reductions. Given these factors, projects in the voluntary market that can clearly demonstrate and measure co-benefits may be able to achieve a higher offset price than voluntary projects that are perceived as of lower quality. Compliance carbon markets are fundamentally driven by the demand for allowances and offset credits by regulated GHG emitters. In contrast to voluntary markets where buyers are price-setters and demand is inherently variable, compliance markets offer a more even playing field where offset demand and prices tend to be more predictable. Forest managers should enter with realistic expectations of price.

It is important to note that many projects do not necessarily produce offsets each year, but rather, only upon verification that may take place every 5 or 6 years, as permitted by the carbon Standard, since verification can be expensive. Deciding when to verify, and how to sell offsets (length of contractual commitment to sell, and fixed price throughout contract term to minimize risk of volatile markets, etc.), will have significant impact on the carbon offset value achieved. For voluntary markets especially, identifying a buyer early in the project and making sure that the design, volume, management practices, and timing, fit buyer needs, can be helpful.

What is the process for developing a carbon offset project?
The process of creating a carbon project can vary, but in general, the process includes:

• Assess the farm or ranch for management objectives and project feasibility
• Determine project types that apply to management objectives
• Choose the methodology/protocol for the project type
• Depending on the methodology a land appraisal may be required
• Develop a project management plan for the project area that explains management goals and practices to be employed
• Prepare and submit the project plan and documentation to the chosen carbon registry
• After the project plan is accepted and registered, hire a third-party project verifier
• Submit project verification to registry and, after reviewed and approved, receive carbon offsets verified
• Market and sell carbon offsets
• Ongoing monitoring and verification, required as per the carbon Standard requirements, throughout project life

Where can I learn more about carbon offset projects?
The Climate Trust is very interested in seeing carbon markets work to support sustainable and improved land management in Oregon and beyond. We partner with projects on a consulting basis and can also purchase carbon offsets or marketing. Additional resources of interest include:

ADDITIONAL RESOURCES
Carbon Standards and Programs of interest to carbon project developers and land-stewards

• Climate Action Reserve (CAR)
• Verified Carbon Standard (VCS)
• American Carbon Registry (ACR)
• California Air Resources Board (ARB), Compliance Offset Program

Carbon market and offset trends and prices

• Ecosystem Marketplace provides a market watch that includes, Carbon Markets, Water Markets, and Biodiversity Markets.
• California Carbon Dashboard provides market information and news from California’s cap and trade system. Note: the only current agricultural cap-and-trade approved offsets from agriculture are Livestock Projects. However, a Rice Cultivation Project protocol may be approved by the end of 2014.

Useful tools for land managers considering a carbon project

• USDA COMET Farm tool guides you through describing your farm or ranch management practices, including alternative future management scenarios.
• USDA Nutrient Tracking tool provides a way of tracking fertilizer use, including loss from the field through leaching and GHG emissions.