Aug 18, 2021
Soil carbon is gaining popularity as a credit, but it is also facing many challenges even in key markets like Australia and the US.
In 2005, when Louisa and Michael Kiely began talking to farmers about soil carbon in New South Wales in Australia, they were met with incredulity.
More than 20 years later, Carbon Farmers of Australia—the advisory they founded—has licensed projects spanning 750,000 hectares with a 3,700 sq km project in South Australia.
“We persevered and are now dealing in Paris Agreement-compliant credits,” Louisa said. “Things have changed. Carbon trading now has a gold-rush feel to it.”
In a landmark deal earlier this year, Australian-owned Wilmot Cattle Co. announced the sale of $500,000 worth of soil carbon credits to Microsoft, which has pledged to become carbon negative by 2030.
Soil carbon sequestration involves removing carbon from the atmosphere and storing it in soil. The process relies primarily on land management practices like preventing overgrazing and tilling, better water management practices and composting.
A number of factors, however, impede the popularity of soil carbon as a credit. And compared to the soaring popularity of forestry and household credits, it’s hard to find registered soil carbon credits on popular standards like Verra and Gold Standard.
Climate change policy has played a huge part in Australian elections and domestic policy over the last 15 years. The Carbon Farming Initiative Act 2011 encouraged Australian farmers to earn credits by changing land use practices to store carbon and reduce greenhouse gas emissions. The Australian government invested $9.6 million in its Soil Carbon Research Programme that concluded in 2012.
In 2011, the Gillard administration passed the Clean Energy Act through which a carbon pricing mechanism came into effect. This was repealed in 2014 by the Abbott administration, which introduced the voluntary Emissions Reduction Fund in its place. A large part of the trading under the ERF comprises soil carbon credits. The Morrison administration, in its 2021–22 budget, promised to deliver $233.6 million in new funding to improve and protect Australia’s soil.
Louise Edmonds, a soil carbon project developer based in West Australia and CEO of Carbonsync, said that while policies and leadership in Australia have changed, the framework is still very much in place.
Similarly in the US, the White House has been talking of making American soil the “next frontier of carbon innovation”. In his first address before Congress in April, US President Joe Biden spoke of paying farmers to grow cover crops to reduce carbon.
Nori, a Seattle-based carbon marketplace, said that the Biden administration’s focus on carbon removal within the agricultural space has resulted in increased interest in soil carbon projects over the last few months.
“Despite the growing interest, farmers implementing these practices is still a tiny fraction,” said Radhika Moolgavkar, head of supply and methodology at Nori.
Farmers are a powerful group worldwide and while involving those who till the soil is essential, it might not be the most enticing proposition for corporates, according to market experts.
Neil Havermale, a US-based independent soil carbon consultant, said that it’s difficult to bring farmers onboard a market that is often vague and confusing. There are doubts about how lucrative carbon farming will be.
In October 2020, rigorous protocols for soil enrichment carbon credits were approved and published by two of the world’s leading offset standard-setting bodies, Verra and the Climate Action Reserve.
Verra on Aug. 10 announced the proposed Methodology for Biochar Utilization in Soil and Non-Soil Applications. The methodology will be posted for public consultation.
“These protocols unlock the industry’s potential to become an immediate part of the climate solution both by drawing down and sequestering carbon, and reducing greenhouse gas emissions, through practice changes supported by technology and data advancements,” said a spokesperson from Indigo Ag, a Boston-based agri-tech company that develops soil carbon programs.
Soil carbon projects are predominantly based in Australia and the US.
“It’s not feasible in countries in Asia and Europe where land holdings are smaller. You need larger farms. Farm sizes in the US are often 2,000 to 3,000 hectares,” Havermale said.
Carbonsync’s Edmonds said that Australia provides a similar advantage with farm sizes ranging from 1,000 hectares to 20,000 hectares.
“Scale adds to feasibility in soil carbon projects,” Edmonds said. “There are big costs involved in these projects. When costs are involved for projects less than 1,000 hectares, the viability of the project is marginal. But, when you go above 1,000 hectares, it becomes a good investment.”
Meanwhile, the voluntary market for agricultural carbon credits has been ineffective so far in incentivizing soil carbon’s specific and unique opportunities at scale.
“It has instead been made up of small projects, with a strong buyer-supplier relationship, but which have not been able to scale to the market size of forest management or industrial emissions reduction projects,” Indigo Ag’s spokesperson said. “This has left a gaping hole in the voluntary market for natural climate solutions such as agriculture. If we can scale up the potential of soil enrichment across the globe, we will be able to crack the opportunity of this industry wide open, benefiting the soil, the atmosphere, the ecosystem, the economy, and local communities, all at the same time.”
Soil carbon projects require long-term commitment and the initial costs of project initiation can be substantial. The combination is often unfeasible.
In Australia, key costs include registration of projects, detailed feasibility studies, development of farm management plans, costs of testing as well as auditing expenses. Edmonds said soil sampling across a 1,000-hectare farm can cost up to A$15,000 (US$11,000). There are no subsidies and farmers or project developers have to bear these costs.
Projects can require more than two decades of commitment to be effective, unlike a Household Devices project that can take three to five years for the entire project to run its course.
“In forestry projects, you just plant trees. But you need to think of soil projects as an infrastructure project like building a bridge to get from one side of the river to the other. It will take 25 years to get to the other side. And every day you must maintain the bridge,” Edmonds said.
Like with other carbon credits, the prices of soil carbon credits have been rising consistently.
“Interest in agriculture-based carbon credits has accelerated over the last year, and credit price is tied to quality of credits. We expect prices to continue increasing in the years ahead,” said the Indigo Ag spokesperson.
Credits generated through the Carbon by Indigo program were sold at $20/credit when the program first launched. Today, the sale price has increased to $27/credit. Growers receive 75% of the credit sale price (meaning $15 for credits generated in 2021). These numbers reflect prices in the US market where Indigo Ag is based.
The lack of transparency and standardization that hinders carbon markets globally affects the market for soil credits as well. Having standardized carbon market, making credits accessible to buyers, and addressing the right stakeholders are key to the development of soil carbon markets.