Nascent carbon markets offer lessons for producers, companies

In 2020, South Carolina farmers James Traywick and his son, Deaver, signed up to be part of a program that could issue them payments for sequestering carbon with Indigo Ag. The longtime conservationists already used minimum- or no-till practices and planted cereal rye as a cover crop on much of their 1,300-acre farm near Cope.

The Traywicks knew full well that they wouldn’t get credit for the things they’d been doing for years. But they wanted to do more to help their soil and their bottom line — and help the planet in the process.

In the case of the Traywicks, they added multiple cover crops beyond rye to the mix they planted, primarily daikon radish, triticale, and clover.

A couple of seasons later, and after considerable reporting on their field data, the Traywicks received about $3.50 per acre over two payment cycles. Indigo Ag, as well as other companies in this new business, will spread the payments out over several years, so a farmer could, in a given year, receive payments simultaneously that represent several previous years.

That hasn’t happened yet with the Traywicks. They expected a second payment last fall (their first payment arrived in the fall of 2022) but were informed by Indigo Ag that the next payment wouldn’t be received until this spring.

But Deaver Traywick isn't deterred. “Given that we weren’t converting our operation to no-till or something like that, we’ll never get more than $5 per acre total,” he says. “This is a nascent industry that is still learning how to cash flow.” He adds that Indigo Ag actually has to be able to sell the carbon credits that represent their farm in the marketplace before he and his father get paid.

“The payments are highly specific to soil regions and practices,” says Deaver. “Because we’re in the Southeast and only made one additionality change, we’re only credited with about 0.12 tons/acre.” One carbon credit equals a  metric ton/per acre of carbon dioxide equivalent sequestered.

Photo: Indigo

For its part, Indigo Ag hasn’t offered any comment on payments to particular farms. Company representatives say their programs have earned landowners more than $12 million in 28 states thus far and the enrolled acres have increased by more than 300%.

As it is, the Traywicks will be cutting back on the number of acres that are part of the program. They’re doing this not because of anything Indigo Ag did or didn’t, or because they don’t believe in the program, but because they find it increasingly difficult to manage multiple cover crops on all their acres, every year. For instance, Deaver mentions that they’ve had several recent cotton harvests late in the fall. As a result, the cover crops planted afterward have not become well established.

“The cover crops come with some management challenges,” Deaver says. “We’re dialing it back to about 50% of our acres using true cover crops.”

The challenges the Traywicks — as well as Indigo Ag — face are not totally unexpected.

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The protocols to measure carbon sequestration credits are relatively new; the industry only started producing credits in 2020. The most commonly used method to sequester carbon is to move to no-till or conservation tillage. As of 2020, only 30% of U.S. cropland used no-till or strip-till.

The use of cover crops, another significant way to sequester carbon, is considerably less than those using no-till or conservation tillage. But the potential sequestration benefit from cover crops is significant.

One study has estimated that if an additional 217 million acres of the five largest crops in the U.S. adopted cover crops, about 103 million metric tons of carbon dioxide equivalent (MMtC0₂e) could be sequestered annually. That potential is impressive considering from 2013-2022 the U.S. produced about 200 MMtC0₂e in required and voluntary carbon credits from agriculture, forestry, and land use projects.

There are four major carbon registries, or exchanges, operating in the U.S., generally doing three things: developing and approving protocols that set the criteria for carbon credits; conducting oversight and review of projects to see they meet standards; and operating registry systems that issue, transfer, and retire credits.

The four registries — ACR (formerly known as American Carbon Registry), Climate Action Reserve (CAR), Verra’s Verified Carbon Standard (VCS), and Gold Standard — have cumulatively issued more than 412 million credits to projects in the past two decades that were completed voluntarily or as part of a regulated compliance market.

While the carbon registries essentially create and verify the standards by which carbon credits are issued, they are working with nearly a dozen voluntary carbon offset programs that work with farmers, ranchers, and timber owners. The programs — many of them created in only the past six years — include CIBO, Truterra, Puro.earth, Nori, Pachama, Carbon by Indigo Ag, Forest Carbon Works, Agoro Carbon, Family Forest Carbon Program, Locus Ag’s CarbonNOW, Bayer Carbon Program, ESMC, and Nutrien.

According to American Farmland Trust, some of the carbon programs have minimum acreages ranging from 10 acres (Bayer) to 150 acres (IndigoAg) or 500 acres for Agoro Carbon and CarbonNOW. Generally, the information a landowner has to provide includes field boundaries, planting information, chemical and fertilizer applications, harvest data, cover crops, and tillage practices.

Carbon contracts can run from one year (Nutrien), to three to five years (Corteva and Eco-Harvest), to 10 years (Bayer Carbon Program, Nori). Contracts usually pay landowners for carbon sequestering practices based on tons sequestered or per acre based on those practices.

In an example used by AFT, cover crops sequester about 0.49 metric tons of C0₂e per acre on a typical Illinois farm. The use of no-till on the same farm would save 0.73 metric tons per acre. If the average price for a carbon credit is $20 (1 credit = 1 metric ton C0₂e). On average, farmers in Illinois would generate one credit for every two acres of cover crops — so about $10 per acre. No-till would generate one credit for every 1.3 acres, earning about $15 per acre.

Progress has been steady, if not a huge percentage of what is possible. For example, Nori has credited 20 carbon removal projects under its Cropland Protocol on more than 43,000 acres, generating 125,000 MtC0₂e.

The bulk of credits (voluntary or compliance required) issued to farming and timber have occurred in the past 10 years. Projects that involved forestry account for more than half of all credits issued, about 58%. Carbon credits from agricultural and land use projects have been significantly fewer, only about 3% of the total from 2013-2022, according to a recent USDA report.

In its report, Top 10 Things You Wanted to Know About Ag Carbon Markets, AFT says carbon markets won’t make a farmer rich and may not even fully compensate for the cost of a practice implementation.

AFT recommends making the most of existing carbon markets in three ways: Get some financial support through these markets for adopting soil health practices; Get paid for practices you’ve already done; Stack carbon markets and government programs that might help pay for conservation practices.

Some carbon markets such as Bayer or Truterra will pay for practices adopted in the recent past. IndigoAg: Market+c Source pays a premium price for the commodity produced for specific buyers.

As for stacking programs, USDA has no rule against enrolling in carbon programs as well as federal conservation programs. However, some private ag carbon programs do not allow stacking with public programs.

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