A commentary by Katelyn Walley-Stoll, Farm Business Management Specialist

I recently attended the National Extension Risk Management Education Conference in Omaha, NE (doesn't sound exciting, but I promise that it was!). In the midst of topics related to financial analysis, succession planning, and sound farm practices were several outstanding speakers sharing research-based information on one hot topic - Carbon Credits.

Interestingly enough, we're not seeing a huge pick-up here in New York, but I am getting a lot of questions on the topic. As with any new program or initiative, there are always those early adopters that jump right in and can either see a really big payoff or troubleshoot all of the frustrations for the rest of us. However, even more so with this topic, it does seem like there are some pretty big issues at play, and the "opportunity cost" of being an early adopter might be higher than expected.

First, some background information from Iowa State University: "A carbon credit is a tradable asset (similar to a certificate or permit) that represents the right to release or emit carbon into the atmosphere. Carbon credits are created when entities (compared to a set baseline) reduce their carbon emissions or sequester carbon." So, companies can pay people to sequester carbon on their behalf (or pay a third-party aggregator). Farmers, and their carbon sequestering agricultural practices are one of their primary targets/partners. These transactions take place on the voluntary market.

For some, selling carbon credits can be a helpful and efficient way to boost/diversify farm income. Especially since most of the practices that are used to sequester carbon also provide added soil health and additional benefits to the farmstead. Now, here are some key considerations and questions that you should consider before jumping right in.

1. Additionality.  Most companies will only pay for newly adopted carbon-sequestering practices. For farms that are already implementing practices like no-till, cover cropping, creating permanent pasture in marginal crop production fields, or reducing fertilizer applications - additionality means they won't qualify for selling carbon credits. Unfortunately, the hope of future carbon credits prevents some farms from implementing these soil-saving, best management practices while leaving behind those who have already done the work. Some companies will offer a one-time "look back" which will pay for practices adopted within the past 2-5 years.
2. Complexity of Payments. Every carbon market entity handles payments for carbon credits differently. Some will offer portions of the payment up front, after the first growing season, or within their annual lease agreements. However, others might hold portions of payment for 5+ years to ensure continued compliance. Another consideration is the type of payment. While some will simply mail a check, others might offer stock, purchase credits, "tokens", or even cryptocurrency.
3. 3.Stacking. Usually, fields that are enrolled in a carbon credit program will not be eligible for other government programs or other environmental credit markets. So, if you enter into a contract selling carbon credits, and another program comes along offering payment for adopted practices, you won't be able to use those fields in the new program for a certain length of time (set in your contract). Those new programs might offer even more incentive or fit your farming practices better.
4. Permanence. Carbon Credit contracts can last anywhere from 1 to 10 or even 20 years. Over the length of the contract, the implemented practice will likely need to stay in place or there may be penalties and fees involved. This is an important consideration as it might take a much needed tool out of your toolbox - lost for decades like your 10mm socket. If you, for example, have an herbicide resistant weed pop up in a no-till field, how will you manage the growing weed pressure without tillage? It's not impossible, but it does bring up some interesting management decisions. What if your farm changes production or diversifies into new crops? What about your succession plan and future farm ownership?
5. Data Management. When selling credits, a lot of sensitive farm data will be collected. This will include things like contact information, historical cropping practices, yields, and values. It's important to clarify how your data will be protected and how it will be handled. In some situations, companies may want to share, use, or sell your data to other entities.
6. Determining Payments. In addition to how you'll get paid, there are some complexities with how much you'll be paid. What type of process will be used to submit soil samples or prove that carbon has been sequestered - and to measure that carbon? Some companies will have a price floor, some will pay market value, some will spread payments out over a period of time. Will you be paid a set per-acre rate, or will that vary by the amount of carbon you sequestered?

I think that it's safe to say that we all see the challenges of climate change in our work every day. Sequestering carbon, and implementing best management practices in field crops production systems, will benefit soil health, farm production, and the environment as a whole. Yet, as with most things nowadays, it's important to utilize technical advisors and SOUND LEGAL COUNSEL when considering entering the Carbon Credit Market. The starting contracts that are out there are drafted by the purchasing companies and will always put their interests first - having someone on "your side" to ask questions, challenge clauses, and clarify details will be key before locking into a multi-year contract agreement.

This information is for educational purposes only and is not a substitute for sound legal counsel. Cornell Cooperative Extension is dedicated to providing research-based information to our agricultural producers. Every effort has been made to provide correct, complete, and up-to-date recommendations. Changes occur constantly and human errors are possible.