Carbon Credits

Surging demand for carbon offsets could boost farm cashflow.

FARMING stands on the threshold of a vibrant new income stream as corporations compete for carbon credits. But credits need measuring, reporting and verifying for bottom lines to benefit.

The good news is farms don’t just emit carbon, by using fuel for cultivations and manufactured inputs like fertiliser. They also capture and store carbon. As farms get better at balancing that process the more credits they can offer to meet the net zero ambitions of consumers, investors and regulators.

So, keeping track of your carbon balance, recording it and certifying it, is key. Farm productivity could benefit too, since reduced carbon emissions generally align with reduced costs, and carbon efficient farming generally improves soil quality, helping sustain outputs.

“Farmers are doing a lot of great work already, but if you haven’t measured your baseline you’re missing the opportunity to quantify your improvements and cash in over the longer term,” notes Johnny Campbell, natural capital broker at Savills in Cirencester.

Last year global carbon certificate trading was worth $2bn and is growing fast, adds Thomas Gent, UK manager of Agreena, a company that helps farmers get paid for carbon mitigation by using regenerative farming practices, then monetising the farm’s carbon credentials. He farms 800ha near Peterborough and started regenerative practices 15 years ago.

How it works

In general terms arable fields sequester up to 3t/ha of carbon a year. Inputs like fertiliser and diesel typically cause emissions equivalent to 1t/ha of carbon. That typically leaves 2t/ha of carbon credits. Measuring and monetising those is Agreena’s speciality.

The business already delivers a carbon service to over 600,000ha of mainly arable farming in 14 European countries, using a digital platform to help pinpoint their carbon balance. Agreena Carbon certificates are ISO 14064-2 certified, and undergoing accreditation for Verra’s Verified Carbon Standard, the world’s most widely used greenhouse gas crediting program, recognised by 80% of the world’s carbon traders. All Agreena Carbon certificates are third-party verified and validated by internationally recognised DNV.

The process involves hours not days to set up, notes Richard Davey, a South Oxfordshire farmer who made the switch two years ago. Field info is uploaded, much like any other system, including farming practices for the past five years, and actuals entered through the season, including cultivations, inputs and yield.

Farms can choose whether to sell their certificates, hold them to account for their own emissions or apply them towards their crops, or ask Agreena to sell them on their behalf. For farmers preferring immediate cash in-hand Agreena can pay farmers shortly after certificate issuance.

Scenario planning is possible, with planned cultivation strategies showing the credit-earning potential. There are no prescriptions, no minimum criteria, no need to enter all fields, and in the first year sign-up costs are available on a discounted basis “You’re not locked in, you can leave, or plough if you need to,” notes Mr Davey. “The scheme is simple and flexible, which gives everyone more confidence.”

Rising values

Certificates are currently worth between £25 and £50/t, with the UK at the premium end of the market compared to much of Europe, where there is less awareness of carbon trading.

So when should a farmer sell? Think of it like another crop, Mr Gent advises. “You’re effectively harvesting carbon certificates, just like harvesting wheat, but you don’t need a shed to store them, so they can be kept for much longer, if desired.”

“There’s an imbalance in the market, where more people want credits than are producing them, so maybe hold onto credits, as the price is likely to rise,” Mr Gent says. He believes, and according to research, that £100/t-plus is feasible in the future.

Caution urged

Mr Campbell is keen to manage expectations. Farmers might want to hold certificates incase they need to offset their own production. “Selling now, at maybe £25/t of carbon, could be a mistake. It would be a shame if you have to buy certificates back to meet the future requirements of a supply chain for your own farm’s production and the price of carbon then might be £90/t.”

Such ‘in-setting’ could be very relevant in food commodity supply chains, warns Amy Watkins, sustainability manager at agronomy firm Agrii. “Companies are wanting carbon neutral sustainability scores on their products, so will be asking for the emissions on the products they source. So get the credits now.”

Commodity supply chains are certainly looking at taking account of carbon, Mr Gent agrees. “You, as a farmer, have something they really, really want, which is going to give you power in negotiations, if you have the credits and know their value. Companies will only ever be able to do less ‘bad’ on emissions. As farmers we are very, very lucky to have this opportunity to step up and deliver something that is really wanted.”

Management key

To make the most of the opportunity it may be necessary to switch agronomist, notes Mr Davey. He did. “You need your agronomist on-board to maximise credits, by doing the difficult things.”

A well-qualified agronomist will also help ensure the farm doesn’t end up in a worse situation, with suppressed yields, adds Ms Watkins. “That’s massively important.” So too is the need to address the impacts of climate change itself, such as changing weather patterns, drought and floods.

She urges farmers to think about it strategically. “Nitrogen is the biggest carbon emitter, so its about a long-term strategy looking at the cropping rotation, and soil carbon is really long-term.” Mr Davey agrees. “Extending the rotation and bringing in more cover crops has brought noticeable benefits.”

MORE INFO agreena.com verra.org agrii.co.uk savills.co.uk

All speakers participated in Farmers Guardian’s LAMMA Torques at www.lammashow.com

But is there a risk of jumping in too soon, before carbon measurement has been standardised? Although many tools are available, three very credible ones dominate in the UK, with two others emerging, says Ms Watkins. Agreena uses Cool Farm Tool, with on-going work to understand and verify assessments.

The bottom line is that until monitoring and recording starts, carbon-friendly farming efforts could go unrewarded. As Mr Davey comments: “The scheme is delivering, we are getting the certificates we expected in year one, and we’re entering year two now.”

BIODIVERSITY Net Gain (BNG) has become part of the farming vocabulary, alongside terms such as ‘natural capital’ and ‘ecosystem services’.

Largely unheard of even just a few years ago, it now represents a huge opportunity for farmers and landowners, particularly in regions where development for housing and infrastructure projects is happening.

Already enshrined in law – and due to be implemented from November 2023 – this planning concept aims to “leave the natural environment in a measurably better state than beforehand”, according to Defra.

It requires developers to provide a minimum of 10% more biodiversity than that lost at a project site. The opportunity for land managers arises because the net gain needn’t necessarily be generated at the project location. So developers are looking to enter into agreements with them to provide it ‘offsite’, i.e. on land even some distance from it.

Farmers understandably might not want to take their most productive ground out of agricultural use. But on less productive areas – whether that’s field corners, edges, strips or indeed bigger parcels – there is scope to generate big revenues.

Recognised metrics

The amount of biodiversity lost and the required additional provision is calculated through a system of ‘units’ using a recognised metric. Some farmers might look to provide, say, a handful of units, while others could devise schemes that deliver, say, 40 units. Large farms and estates that pursue it as a central plank of their strategy could provide hundreds or even thousands of units.

Here at CLM, our experience is that the payments for BNG are potentially far greater than what’s available under the Countryside Stewardship scheme. For example, two agreements we’ve been involved in will cover 3ha and generate nine units at prices ranging from £25,000 to £35,000 per unit. Such revenues will be much-needed on many farms and estates, with BPS payments falling and incomes under severe pressure.

Delivering BNG could also offer synergies with existing enterprises – better habitats may complement a diversification such as a farmshop, wedding venue or tearoom, plus the work could ultimately increase the capital value of land.

Baselining vital

As for what farmers and landowners should be doing at this stage, a good starting point would be the ‘baselining’. This involves establishing what biodiversity you currently have and modelling what you could enhance or create. Wrapping your head around this is also useful if you’re planning submitting any planning applications of your own, because you’ll also have to meet the BNG requirement.

Having credible, authoritative data will help you win the confidence of developers looking to do BNG deals and it also means you won’t be reactive if an opportunity presents itself. Instead, you’ll have a proper thoughtthrough plan for how you can deliver BNG and how that fits with the rest of the business. Consider all the knockon implications – what might farming fewer acres mean for your fixed costs, for instance, or might you need to introduce a livestock enterprise to graze a new meadow?