CFAES Give Today
Farm Office

Ohio State University Extension



No till plsnting on Ohio farm
By: Peggy Kirk Hall, Tuesday, August 03rd, 2021

“Carbon farming” is a term that came and went about a decade ago, but it’s back and gaining traction.  Ohio farmers now have opportunities to engage in the carbon farming market and receive payments for generating “carbon credits” through farming practices that reduce carbon emissions or capture atmospheric carbon.   As with any emerging market, there are many uncertainties about the carbon market that require a cautious approach.  And as we’d expect, there are legal issues that arise with carbon farming.

Some of those legal issues center on carbon agreements--the legal instruments that document the terms of a carbon farming relationship.  Each carbon market program has its own carbon agreement, so the terms of those agreements vary from program to program.  Even so, understanding the basics of this unique legal agreement is a necessity. 

Here’s what we know at this point about carbon agreements and the legal issues they may raise.

New terminology.  Carbon markets and carbon agreements speak a new language, containing many terms we don’t ordinarily use in the agricultural arena.  The terms are not fully standardized, and their meanings may differ from one program to another.  Understanding these new terms and their legal significance to the carbon agreement relationship is important.  Common terms to know are below but check each program to clarify its definitions for these terms.

  • Carbon practices.  Farming practices that have the potential to reduce carbon emissions or sequester carbon.
  • Carbon sequestration.  The process of capturing and storing atmospheric carbon.
  • Carbon credit.  A measurable, quantifiable unit representing a reduction of carbon dioxide emissions that can be transferred from one entity to another.  A credit typically represents one metric ton of “carbon dioxide equivalent, which is a metric that standardizes the global warming potential of all greenhouse gases by converting methane, nitrous oxide and fluorinated gases to the equivalent global warming potential of carbon dioxide.
  • Carbon offset.  Using a carbon credit generated by another entity to offset the emissions of an entity that emits carbon elsewhere.
  • Carbon inset.  A reduction of carbon within a specific supply chain that emits carbon, accomplished by adopting practices within that supply chain.
  • Carbon registry.  An entity that oversees the registration and verification of carbon credits and offsets.
  • Verification.  The process of confirming carbon reduction benefits, typically performed by a third-party that reviews the carbon practices and the accounting of carbon credits generated by the practices.
  • Additionality.  Carbon reduction that results from carbon practices incentivized by the carbon agreement and that would not have occurred in the absence of the incentive.
  • Permanence.  The longevity of a carbon reduction, which may be enhanced by a requirement that carbon practices remain in place over a long period of time and steps are taken to reduce the risk of reversal of the carbon reduction.
  • Reversal risk.  Risk that a carbon reduction will be reversed by future actions such as changing tillage or harvesting the trees or vegetation planted to generate the carbon reduction.

Initial eligibility criteriaEach carbon program has specific requirements for participating in the program.  Two common eligibility criteria are:

  • Location.  The program may be open only to farmers in a particular geographic location, such as within a specified watershed, region, or state.
  • Acreage.  A minimum acreage requirement often exists, although that can vary from 10 acres to 1,000 or more acres.  Some projects may allow adjacent landowners to aggregate to meet the minimum acreage requirement, but that can raise questions of ineligibility should one landowner leave the program.
  • Land control.  If the farmer doesn’t own the land on which carbon practices will occur, an initial requirement may be to offer proof that the farmer will have legal control over the land for the period of the agreement, such as a written lease agreement or certification by the tenant farmer.

Payment.  While the goal of a carbon agreement is often to generate carbon credits to be traded in the carbon market, there are varied ways of paying a farmer for adopting the practices that create those credits.  One is a per-acre payment for the practices adopted, with the payment amount tied to the reduction of carbon resulting from the adopted practices.   Another approach incorporates the carbon market—a guaranteed payment that can increase according to market conditions.  Concerns about market transparency abound here.  Yet another method is to calculate the payment after verification and quantification by a third-party.  For each of these different approaches, the amount could be based upon a model, actual soil sampling, or a combination of the two.  Payments may be annual or every several years.  Another consideration is the form of payment, which could be cash, company credits, or “cryptocurrency”—digital money that can be used for certain purposes.  Also be aware that some carbon agreements prohibit “payment stacking,” or receiving payments for the same carbon practices from multiple private or public sources.

Acceptable carbon practices.   Carbon practices are the foundation for generating carbon credits.  An agreement might outline acceptable carbon practices a farmer must adopt as the basis for the carbon credit, such as NRCS Conservation Practices.  Alternatively, an agreement might allow flexibility in determining which carbon practices to use or could state practices that are not acceptable.  Typical carbon practices include planting cover crops, using no-till or reduced tillage practices, changing fertilizer use, rotating or diversifying crops, planting trees, and retiring land from production. 

Additionality.  Many agreements require “additionality,” which means there must be new or “additional” carbon reductions that occur because of the carbon agreement, which would not have occurred in the absence of the agreement.  On the other hand, some agreements accept past carbon practices up to a certain period of time, such as within the past two years.  This is a tricky term to navigate for farmers who have engaged in acceptable practices in the past.  An agreement may address whether those practices count toward the generation of a carbon credit or for payment purposes.

Time periods.  Two time periods might exist in an agreement.  The first is the required length of time for participation in the program, which may vary from one year to ten or more years.  The second relates to the concept of “permanence,” or long-term carbon reductions.  To ensure permanence and reduce the risk that gains in one year could be lost by changes in the next year, the agreement may require continuation of the carbon practices for a certain time period after the agreement ends, such as five or ten years.

Verification and certification.  Here’s an important question—how do we know whether the carbon practices do generate carbon reductions that translate into actual carbon credits?  Verification and certification help provide an answer.  But verification is a testy topic because there is uncertainty about how to identify and measure carbon reductions resulting from different practices on different soils in different settings.   Predictions that are based upon models are common, but there is disagreement over appropriate and accurate methodology for the models.   Some programs may also verify practices with data acquisition and on-the-ground monitoring activities and soil tests.  And it’s common to require that an independent third party verify and certify the practices and carbon credits, raising additional questions of which verifiers are acceptable.  A final concern:  who pays the costs of verification and certification?

Data rights and ownership.  The verification question naturally leads us to a host of data questions.  Data is critical to understanding and verifying carbon practices, and every agreement should include data sharing and ownership provisions.  What data must be shared, who has access to the data, how will data be used, and who owns the data are questions in need of clear answers in the agreement.

Legal remedies.  There’s always the risk that a contract will go bad in some way, whether due to non-performance, non-payment, or disputes about performance and payment.  A carbon agreement could include provisions that outline how the parties will remedy these problems.  An agreement might define circumstances that constitute a breach and the actions one party may take if breach conditions occur.  An agreement could also list reasons for withholding payment from a farmer; one concern is that insufficient data or proof of carbon reductions or carbon credit generation could be a basis for withholding payment.  There could also be penalties for early withdrawal from the program or early termination of the agreement.   It’s important to decipher any legal remedies that are contained within a carbon agreement.

We’ve heard of carbon farming before, but today it raises new uncertainties.  Caution and careful consideration of a carbon agreement should address some of those uncertainties.  Our list offers a starting point, but it’s not yet a complete list.  As we learn more about the developing carbon farming market, we’ll continue to raise and hopefully resolve the legal issues it can present.

For more information on carbon agreements, see this listing from the Ohio Soybean Council of programs available to Ohio farmers with a side-by-side comparison of those programs, and this report on How to Grow and Sell Carbon Credits in US Agriculture from Iowa State University Extension..

Aerial view of farm and woodland
By: Peggy Kirk Hall, Thursday, April 22nd, 2021

President Biden announced a major goal this week--for the U.S. to reduce greenhouse gas emissions by half over the next decade as compared to 2005 levels.  Agriculture will play a key role in that reduction by “deploying cutting-edge tools to make the soil of our heartland the next frontier in carbon innovation,” according to President Biden.  Several bills introduced in Congress recently could help agriculture fulfill that key role.  The proposals offer incentives and assistance for farmers, ranchers, and forest owners to engage in carbon sequestration practices. 

Here’s a summary of the bills that are receiving the most attention.

Growing Climate Solutions Act, S. 1251.  The Senate Agriculture, Nutrition and Forestry Committee passed S. 1251 today.  The bipartisan proposal led by sponsors Sen. Mike Braun (R-IN), Sen. Debbie Stabenow (D-MI), Sen. Lindsey Graham (R-SC) and Sen. Sheldon Whitehouse (D-RI) already has the backing of over half of the Senate as co-sponsors, including Ohio’s Sen. Sherrod Brown.  The bill has come up in prior sessions of Congress without success, but the sponsors significantly reworked the bill and reintroduced it this week.  The new version includes these provisions:

  • Requires the USDA to conduct an initial assessment of the domestic market for carbon credits, to include assessing market actors, market demand, estimated credits in process, supply and demand of offsets, barriers to entry, monitoring and measurement technologies, barriers for small, beginning and socially disadvantaged operators, among other factors.
  • Creates a Greenhouse Gas Technical Assistance Provider and Third-Party Verifier Certification Program to ensure that technical service assistance providers who work with farmers to establish and sell carbon credits have sufficient expertise, including agricultural and forestry knowledge.  Certified parties are to act in good faith to provide realistic estimates of costs and revenues and to help farmers, ranchers and forester receive “fair distribution of revenues” derived from carbon credit sales. 
  • Establishes an online website providing information for farmers, ranchers and foresters interested in participating in carbon markets.
  • Creates an advisory council that would oversee the certification program.  At least 16 of the committee’s 25 members must be farmers, ranchers, or private forest owners. 
  • Charges the USDA with producing a report to Congress identfying barriers to market entry, challenges raised by farmers and forest owners, market performance, and suggesting additional ways to encourage voluntary participation in carbon sequestration practices.
  • Authorizes up to $9.1 million in USDA funding for the program, including $4.1 million immediately and an additional $1 million per year for the next five years.

Rep. Don Bacon (R-NE) and Rep. Abigail Spanberger (D-VA) will soon introduce companion legislation in the House of Representatives.   

Rural Forest Markets Act, S. 1107.  A second proposal in Congress aims to remove barriers for small-scale private forest landowners and help them benefit from carbon markets and other climate solution markets.  Senators Stabenow and Braun are also sponsors of this bill, along with Sen. Angus King (I-Maine) and Sen. Shelley Moore Capito (R-WV).  The bill echoes previous similar legislative attempts and includes these provisions:

  • Directs the USDA to create a Rural Forest Market Investment Program to guarantee up to $150 million to finance eligible projects for rural private forest landowners to participate in an “innovative market for forest carbon or other products.” 
  • States that eligible projects will be those developed by private entities or nonprofits to aggregate sustainable practices by rural private forest landowners for sales in a carbon or environmental market, using approved methodologies. 
  • Requires that eligible tree planting projects may take place only on historically forested lands using native species and be planted at ecologically appropriate densities without causing negative impacts to biodiversity or the environment.

The interest in carbon reduction practices and monetizing carbon sequestration at the federal level doesn’t end with these two proposals—there are several more that may gain interest.   While not addressing private landowners, another Senate proposal focuses on public land reforestation.  The “Repairing Existing Public Land by Adding Necessary Trees Act” (REPLANT Act), with Ohio’s Sen. Rob Portman as a sponsor, proposes increased funding in the Reforestation Trust Fund for replanting 1.2 billion trees over the next ten years on public land in need of reforestation.  The USDA is weighing in on the issue as well, and has recently announced plans to target carbon reduction through existing programs such as the Conservation Reserve Program.  And just after passing the Growing Climate Solutions Act today, the Senate Agriculture, Nutrition, and Forestry Committee held a hearing on “Farmers and Foresters:  Opportunities to Lead in Tackling Climate Change” featuring testimony from several farmers and groups.  Readers may get a sense of what more is to come by viewing the hearing on the committee’s website

Subscribe to RSS - carbon