6 minute read
5 Question About Carbon Markets
from LAND Winter 2023
Q&A
5 Questions About CARBON MARKETS
A Q&A with TALT CEO CHAD ELLIS
STORY BY LORIE A. WOODWARD
PHOTO BY WYMAN MEINZER
Carbon sequestration, either nature-based or engineered, is a hot topic of conversation for policy makers, conservation organizations, agencies and landowners. Like most natural resource challenges and opportunities, it takes land.
I sat down with Chad Ellis, CEO of the Texas Agricultural Land Trust (TALT), for a quick Q&A. Ellis is one of the senior movers, shakers and thinkers in the emerging field of ecosystems markets of which the carbon market is one of the earliest opportunities.
What prompted the development of the carbon market and is continuing to drive its growth?
CE: Carbon markets were created by demands being placed on corporations by their stockholders and NGOs in response to climate change and governments’ pledges to reach carbon neutrality and eventually zero carbon benchmarks. In the United States, participation is voluntary. In other countries, such as those in the EU, participation is mandatory and operates under a different regulatory system.
What opportunities exist for landowners and why should they consider participating in this emerging market?
CE: The carbon market is the first of several nature-based opportunities that are emerging because of the reasons we’ve discussed previously. These emerging markets represent the first time that landowners can get paid for the “products” of their voluntary land stewardship. Historically, landowners’ efforts have produced the clean air, water, biodiversity, wildlife habitat and so many other ecological services that are essential to life for free.
When it comes to the carbon market, which is the most mature, the prices have not gotten extreme. Right now, they are running between $17 to $20/ton/acre on well-managed rangeland. Many landowners are trying to decide whether it’s in their best interest to get into the market now at these price points or wait until the market matures even more and prices rise.
It’s important to understand that each property has its own “soil DNA” and some naturally sequester more carbon than others. Factors include soil type, rainfall and vegetation. Sand in dry areas holds less carbon than clay in higher rainfall areas. As a result, it might not make sense for a rancher in Kent, Texas to participate in carbon markets, while naturebased carbon sequestration might be a perfect fit for someone who operates in the Brazos Valley near College Station, Texas.
Because the market and many of its players are not yet established, how can landowners best protect themselves from bad decisions or being taken advantage of?
CE: My best advice is to be patient, get educated and ask the right questions. Don’t jump into an agreement until you explore the options by talking to different companies and coming to understand what the best fit is for you and your family.
When it comes to carbon markets, as in everything, you don’t know what you don’t know. To that end, I’d suggest taking advantage of the resources that are available. (See the sidebar for some online resources.) In the process of creating your knowledge base, don’t overlook landowners who are already active in the market.
Here at TALT, we’ve worked hard to create a hub of trustworthy sources and information. As an organization, we’re neither for nor against, but an objective sounding board that presents the pros and the cons. Just like a conservation easement, participating in a carbon market must help you reach your goals. It makes sense for some families, but not for others.
Finally, if you’re seriously considering signing a contract, find an experienced attorney to help you negotiate the best position and avoid pitfalls. Carbon contracts are complicated, so they need to be right.
What are the baseline questions landowners should ask themselves when considering whether carbon markets are right for them?
CE: There are too many to list. For the purposes of this discussion, though, I’ll suggest two as a starting point.
First, determine the length of commitment. How long am I and my family going to be obligated to the terms of this agreement? Some contracts are limited to a year, but others are five, 10, 30 or even permanent commitments.
Second, find out whether you will be paid for implementing a practice change such as rotational grazing or for sequestering carbon, which is outcome based and potentially carries more risks. From a landowner’s perspective, implementing or changing a practice carries less cost and is simpler and less volatile.
In nature-based carbon sequestration, there are a lot of steps, variables and scientific unknowns that make this market more complicated and riskier. Generally, these contracts require measuring the existing carbon in the soil to create a baseline and then remeasuring it after a certain time, usually five years, to determine whether the amount of carbon has increased. The payments are predicated on the increase.
The amount of carbon sequestered is impacted by variables like drought and floods. It’s important to understand who is liable for the unpredictability of Mother Nature and how that will be associated with the payments. If you as a landowner don’t hit the modeled projection, will you be responsible for giving the money back?
There are some big questions that need clear answers before any contract is signed.
From your seat at the table are the new carbon markets going to stick around or are they just a flash in the pan?
CE: From my seat, I believe our carbon markets are here to stay. Right now, we’re seeing $1 billion traded annually at the global level. Every day in America we’re moving closer to a path for longevity.
The marketplace has begun to weed out the “fly by night” players and strengthen those entities with staying power. As result, we’re beginning to see differentiation to a point where soon landowners might look at one marketplace that isn’t a fit but have another that is.
Bonus Question (because five just isn’t enough) . If they are lasting, what additional opportunities might open?
CE: Water markets and mitigation markets already exist and are the most mature ecosystem services markets. Others that are being developed include biodiversity credits as well as methane emissions.
From my seat, I believe our carbon markets are here to stay. Right now, we’re seeing $1 billion traded annually at the global level. Every day in America we’re moving closer to a path for longevity.
For more information on carbon markets and ecosystem services. Check oot the following on-line resources:
