9 Questions to Ask Before Jumping into the Carbon Market

(Darrell Smith, iStock)

Corn was $3.20 per bushel when Kyle Mehmen signed his first carbon contract 18 months ago. Today, corn prices are above breakeven, which buoys his spirits.

Even so, Mehmen, general manager of MBS Family Farms, based in northeast Iowa, is still bullish on carbon and has crop acres enrolled in four different programs.

“Carbon markets pay for practices I already believe in and use — no-till and cover crops,” he explains. “They’re a risk management tool that provide an additional income stream.”  

But Mehmen is practically an anomaly. Only 1% of farmers nationally have signed a carbon contract, though 30% to 40% are aware of the opportunities, according to a recent Purdue University Ag Economy Barometer survey.

MehmenTry a Pilot Program First

The best way to evaluate opportunities in the carbon marketplace is “based on your location, land ownership, current practices and viability of new practices,” advises Matt Seiwert, senior analyst for accounting firm K•Coe Isom.

“We recommend testing the market or specific program with a smaller acreage amount prior to signing up a large-acre amount,” he adds.

One of the ongoing issues is the unknowns in the industry, says Pro Farmer Washington Analyst Jim Wiesemeyer. “We don’t know how to measure carbon consistently at this time, at least there’s no consensus yet,” he says. “If it’s going to be based on scientific evidence, there’s still a lot of conjecture.”

Wiesemeyer tells farmers who want to give the marketplace a try to consider participating in a pilot program. Most have a low-threshold acreage requirement to participate, 250 acres or less, and a defined time frame for participation.

He draws an analogy to the Conservation Reserve Program. “You can make the case it really started as a pilot project, which gives you an idea of how important these projects are,” he says.

Here are answers to some of the common questions farmers are asking about the carbon marketplace:

1 How much money can I expect to make?

Many carbon contracts today pay farmers an average of $10 to $20 per acre, according to program details collected in the Farm Journal Carbon Innovation Center.

“With the ’right practices,‘ you could bank an average of 1 metric ton of CO2 per acre,” says Steve Cubbage, a precision ag consultant and vice president of services for Farmobile. ”Payments range from $2 to $3 per metric ton to $30 to $40 per metric ton.”

To create and sell a carbon credit, a farmer must demonstrate a sequestration of 1 metric ton of CO2, or its equivalent on the farm, explains Todd Janzen, president of Janzen Schroeder Agricultural Law, Indianapolis, Ind. A metric ton is 2,205 lb., the approximate weight of two 5'x5' round bales of hay.

“If you already no-till, strip-till or use cover crops, there’s probably a program out there for you,” Mehmen says. “Look for low-hanging fruit.”

Farmers skeptical of lower-paying programs need to remember the value of scale.

“A little number times a big number becomes a bigger number,” Mehmen says. “If it’s $20 an acre times 1,000 acres that’s $20,000. If it’s $20 an acre times 10,000 acres it’s $200,000. Either way, both are worth working for.”

You can expect to share more information about your agronomic practices for carbon programs offering bigger financial rewards, he adds.

“They require more documentation, such as specific dates of your nitrogen applications, how much nitrogen you put on, whether you used a stabilizer, whether you use manure, etc.,” Mehmen explains.

There are a few “easy buttons” in the marketplace, he adds. For example, some of the major players have simpler registration forms, compared with others, that take less time to complete.

“They don’t offer the most dollars per acre, but they offer a good return for the effort,” Mehmen says. Carbon Pulse

2. When do I get paid for participating in a carbon program?

The lag time between program implementation and payment is a common deterrent for farmers who want to participate.

“After you’ve submitted your data, you can probably plan on it being about a year before you get a check,” Mehmen says.

The reasons for the delay vary. “The companies have to go out to the marketplace and sell the credits, so you might be in a queue, or there might be carbon credits ahead of you that need to be sold, or there might be some certification work the company has to do,” he says.

3. Do companies offering farmers carbon contracts make a lot of money?

It’s hard to say. More openness and transparency are needed in the industry, says Debbie Reed, executive director of the Ecosystems Services Market Consortium (ESMC), a public-private partnership of 62 companies and organizations working in the carbon arena.

“The way those markets are working right now is there are so many people in the middle working on quantification, working on verification, working on protocol development, and those are very expensive things to do,” she says. “If we can bring new tools and technologies to farmers, ranchers and buyers — and reduce quantification and verification costs — that‘s where we can really ensure more money is going to the farmer and rancher.”

4. My data is in a shoebox, so how do I participate?

First off, you’re not alone. Research by Trust In Food shows 50% of farmers still rely on paper and pencil for record keeping, while most carbon market programs are software based.

“Unlike selling corn, selling a carbon crop requires data, and pocket notebooks and paper napkins don’t count,” Cubbage says. “When multibillion-dollar companies are writing checks for carbon credits, they will want proof and transparency for what they are paying. Data will be that proof.”

The Mehmen family has talked for years about monetizing their data.” This is the first time I’ve actually been able to do that — to get paid for having kept my data accurately and accessible,” Mehmen says.

5. I’m not keen on sharing my data. How concerned should I be about that?

Individual data, unlike aggregated data, is usually of little value to a company.

“You want to see a contract with start and end dates for when your data will be used — and that it’s only used to calculate the amount of carbon sequestered,” Mehmen advises. “If you don’t understand the contract, seek legal counsel.”

6. Can I get paid for conservation practices I’m already using?

Cattle Cover CropsEvery carbon program has a different set of requirements. Most are focused on changes you can make in the years ahead, rather than rewarding you for what you’ve already done.

“The demand is for new improvements in soil carbon, in reduced greenhouse gases, in water quality,“ Reed explains. ”That’s a market function.”

7. How long should I expect my ground to be tied up?

In some cases, companies only require a one- or two-year commitment. Other companies want five, 10 or 15 years because otherwise it’s not valuable to them, Janzen says.

“There’s an investment in time and resources to learn about these markets, and not every farmer is going to want to invest the effort,” Mehmen adds.
He believes the carbon industry will eventually look similar to the seed industry — a lot of brands but only a handful of major players.

8. How do I transition to no-till or other conservation practices when I don’t have the equipment or money to pay for it?

Mehmen says one way around that roadblock is to pay a local farmer to no-till 200 acres of soybeans on your farm, which can get you started in many of the current programs.

Check out USDA-NRCS programs, such as the Conservation Stewardship Program or Environmental Quality Incentives Program, which help cost-share expenses.

Financial and technical support are also available from a variety of organizations as diverse as America’s Farmland Trust, the Environmental Defense Fund, Ducks Unlimited and The Nature Conservancy.

9. Besides money, is there any other reason to give these carbon markets a try?

Mark Heckman, who farms near Atalissa, Iowa, says his primary interest in signing up for a pilot program two years ago was to gain information to help build a plan for his farm’s future. He was especially interested in the carbon verification offered by a company.

“This is about increasing our sustainability, making sure our operation continues on to the next generation — that we’re doing things better and improving our operation from within,” he says. How Carbon Markets Work

 

Visit Farm Journal's Carbon Innovation Center

 

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