National Agricultural Law Center
There’s a lot of talk about carbon markets and agriculture these days. While carbon markets aren’t new, recent proposals in Congress and announcements by the Biden administration are raising new interests in them. Some companies are actively pursuing carbon trading agreements with farmers, further fueling the discussion in the agricultural community.
As is common for any new opportunity, the talk on carbon markets may be tinged with a bit of skepticism and a lot of questions. Do carbon sequestration practices have real potential as an agricultural commodity? That’s a tough question and the answer isn’t yet clear. There are answers for other questions, though, as well as resources that may be helpful for those considering carbon markets for the first time. Here’s a sampling.
What is a carbon market? A carbon market revolves around carbon credits generated by carbon reduction practices. In the farm setting, a producer who either lowers the farm’s carbon emissions or captures carbon through “sequestration” practices can earn carbon credits. Like other markets, a carbon market involves a transaction between a seller and a buyer. The seller sells a carbon credit to a buyer who can use the carbon credit to offset or reduce its carbon emissions.
Do carbon markets already exist? Yes, although they may be private markets with varying names occurring in different regions. For example, Bayer Crop Sciences began its Carbon Initiative last year, paying producers for adopting carbon reduction practices that will help Bayer reach its goal of reducing its greenhouse gas emissions by 30% in 2030. Indigo Ag began entering into long-term carbon agreements with producers in 2019, paying $15 per ton for carbon sequestration practices. Food companies and agribusinesses including McDonald’s, Cargill, and General Mills formed the Ecosystem Services Market Consortium, which will fully open its private carbon market in 2022.
Are legal agreements involved? Yes. Using a written agreement is a common practice in carbon market transactions, but the agreements can vary from market to market. Provisions might address acceptable practices, calculating and verifying carbon reductions including third-party verification, sharing data and records, pricing, costs of practices, minimum acreage, and contract period. As with other legal contracts, reviewing a carbon agreement with an attorney is a wise decision. Watch for more details about carbon agreements as we share our analysis of them in future blog posts.
What is President Biden considering for carbon markets? The Biden administration has expressed interest in developing a federal carbon bank that would pay producers and foresters for carbon reduction practices. The USDA would administer the bank with funding from the Commodity Credit Corporation. Rumors are that the bank would begin with at least $1 billion to purchase carbon credits from producers for $20 per ton. The proposal is one of several ideas for the USDA outlined in the administration’s Climate 21 Project.
What is Congress proposing for carbon markets? The bipartisan Growing Climate Solutions Act would require USDA to assess the market for carbon credits, establish a third-party verifier certification program overseen by an advisory council, establish an online website with information for producers, and regularly report to Congress on market performance, challenges for producers, and barriers to market entry. An initial $4.1 million program allocation would be supplemented with $1 million per year for the next five years. The Senate Agriculture, Nutrition and Forestry Committee has already passed the bill. The Rural Forest Markets Act, also a bipartisan bill, would help small-scale private forest landowners by guaranteeing financing for markets for forest carbon reduction practices.
Is there opposition to carbon markets? Yes, and skepticism also. For example, a recent letter from dozens of organizations urged Congress to “oppose carbon offset scams like the Growing Climate Solutions Act” and argued that agricultural offsets are ineffective, incompatible with sustainable agriculture, may further consolidate agriculture and will increase hazardous pollution, especially in environmental justice communities. The Institute for Agriculture & Trade Policy also criticizes carbon markets, claiming that emission credit prices are too low and volatile, leakages and offsets can lead to accountability and fraud issues, measurement tools are inadequate, soil carbon storage is impermanent, and the markets undermine more effective and holistic practices. Almost half of the farmers in the 2020 Iowa Farm and Rural Life Poll were uncertain about earning money for carbon credits while 17% said carbon markets should not be developed.
To learn more about carbon markets, drop into an upcoming webinar by our partner, the National Agricultural Law Center. “Considering Carbon: The Evolution and Operation of Carbon Markets” on May 19, 2021 at Noon will feature Chandler Van Voorhis, a leading expert in conservation and ecological markets. The Center also has a recording of last month’s webinar on “Opportunities and Challenges Agriculture Faces in the Climate Debate,” featuring Andrew Walmsley, Director of Congressional Relations and Shelby Swain Myers, Economist, both with American Farm Bureau. A new series by the Center on Considering Carbon will focus on legal issues with the carbon industry and will complement our upcoming project on “The Conservation Movement: Legal Needs for Farm and Forest Landowners.” There’s still more talking to do on carbon markets.
The 2020 elections will likely be historically significant for U.S. agriculture, but what can we expect? Our partner, the National Agricultural Law Center, will try to answer that question with a webinar on January 13 at noon. The webinar will feature Hunt Shipman, principal and director at Cornerstone Government Affairs in Washington, DC. Mr. Shipman will share his predictions on what's in store for agriculture, including:
- Key appointments at USDA
- Congressional committees positions
- Implications for the next Farm Bill
- International trade impacts
- Changes in the federal and state regulatory environments
With nearly three decades of experience in Washington, Hunt Shipman has held a variety of positions in government and the private sector. Prior to joining Cornerstone, Hunt was a senior executive for the largest trade association serving the food and beverage industry, where he led the association’s government affairs and communications programs. From 2001 to 2003, Hunt was Deputy Under Secretary for Farm and Foreign Agricultural Services and served as the acting Deputy Under Secretary for Marketing and Regulatory Programs at the United States Department of Agriculture. In this capacity, he led three agencies with over 18,000 employees stationed around the world, and administered over $31 billion in programs. Hunt was the Department of Agriculture’s principal negotiator with the Congress for the 2002 Farm Bill. Hunt also served as the staff director of the Senate Agriculture Committee, Professional Staff Member at the Senate Appropriations Committee, and on the personal staff of Senator Thad Cochran.
The webinar is free, but limited to the first 500 registrants. To register, visit here.
Written by Evin Bachelor, Law Fellow, OSU Extension Agricultural & Resource Law Program
As fans of Elvis and good barbeque, we can’t help but be excited that the National Agricultural Law Center (NALC) is hosting its sixth annual Mid-South Agricultural and Environmental Law Conference soon in Memphis, Tennessee. Most exciting, however, is that the conference will provide timely legal information for attorneys, lenders, accountants, tax professionals, students and others with a passion for agriculture. The NALC is the nation's leading source of agricultural and food law research and information, and we are honored to partner with NALC on a number of research projects and outreach efforts.
The 2019 conference will be on Friday, June 7th in downtown Memphis at the University of Memphis School of Law. You won’t want to miss the welcome reception on Thursday, June 6th at The Rendezvous Restaurant, which is well known for its Memphis-style BBQ. The schedule on Friday is packed with a diverse mix of speakers and topics that is intended to encourage dialog about the range of legal issues facing agriculture today.
Here’s a sneak peek at the sessions:
- Keynote address by the USDA’s General Counsel Stephen Vaden
- Agricultural Labor and Immigration: Do’s and Don’ts--Brandon Davis of Phelps Dunbar LLP
- Updates from the senior attorneys from the U.S. House and Senate Ag Committees
- Law and Lending in a Down Farm Economy: Recent Trends and Outlooks with Greg Cole of AgHeritage Farm Credit Services and Michael O’Neal of GreenStone Farm Credit Services
- Navigating Environmental Law Issues for Attorneys, Lenders, and Landowners--Jim L. Noles, Jr., Partner, Barze Taylor Noles Lowther, LLC
- The Ethics of Succession Planning for Lawyers--Shannon Ferrell, Oklahoma State University
- Understanding Ag Bankruptcy--Stephen L. Gershner, Davidson Law Firm
In addition to the presentations, there will be time for discussion with conference attendees during the welcome reception on Thursday and a lunch and networking session on Friday. For law practitioners, the conference has been approved for CLE credit in some states and NALC will assist with obtaining CLE credit in other states. The American Society of Farm Managers and Rural Appraisers has also approved the program for 7 hours of CE credit.
Register by May 14 and receive access to a two-hour bonus online program that will feature a one hour session on Divorce on the Farm with attorney Cari Rincker and agricultural and environmental law updates from around the country by Elizabeth Rumley of NALC, Ross Pifer of the Center for Agricultural & Shale Law at Penn State Law, Stephanie Showalter Otts of the National Sea Grant Law Center and our own Peggy Kirk Hall of the Agricultural & Resource Law Program at The Ohio State University.
For more information about the conference and to register, visit the NALC’s website HERE.
Sometimes you happen upon a question that you want an answer to, and the answer you find raises more questions. That’s exactly what happened when we started examining Limited Liability Company (LLC) statutes from across the Midwest.
Originally, we wanted to determine whether there are any significant legal differences between the LLC statutes of different states. While we may be based in Ohio, we find projects that examine how different states compare to one another on the same legal topic fascinating. The comparisons allow us to see trends and different ideas, and we had the chance to do this in our recently completed projects on CAUV and agritourism.
Ultimately we found the Midwestern states to have functionally similar LLC statutes, with about half of the Midwest having adopted a uniform statute. When a state adopts a uniform statute, it intends for its law on a given topic to match those of other states with the same uniform statute. There are other examples of these like the Uniform Commercial Code, Uniform Probate Code, and more. Uniform codes are designed to make it easier for people to do business and live their lives across state lines. For Midwestern LLC statutes, even in states that have not adopted a uniform statute, the key elements are still very similar. The statutes have filing procedures for creating the entity, default rules for operating agreements, and rules that govern LLCs in general.
When we answered our questions about the state statutes, we became curious about some of the benefits offered by using an LLC instead of some other business form. We found that LLCs offer great liability protection, with some specific limitations such as the application of piercing the veil from corporate law. Further, pass through taxation can provide great tax benefits and avoid double taxation. Since states allow operating agreements to be highly customizable, LLCs also provide a flexible entity structure that may be adapted to suit the needs of a business or family.
That last word led us to another question: what benefits does the LLC structure offer a family farm in its estate and business transition plan? The previous three benefits are well known and thoroughly discussed; however, this last one, while done a lot in practice, is not commonly mentioned in academic writing. Ultimately, the benefits in estate and transition planning come from the flexible nature of the operating agreement.
How can LLCs be helpful in an estate and business transition plan for a farm? Here’s a few ways:
- Restrict the transfer of an ownership interest through rights of first refusal and buy-out provisions
- Restrict membership and voting power of non-family members
- Transition equity ownership more easily than in a corporation
- Transition the business in relative privacy
Once we learned about these benefits, the question arose of how common farming LLCs now are. Using data from the USDA’s Census of Agriculture, we found that by 2012, there were almost as many farms organized as LLCs as there were farms organized as corporations, while the vast majority of farms remained owned outright by individuals with no formal legal entity. We are waiting for the next Census of Agriculture to spot any trends, because 2012 was the first year that farms were asked to identify whether they were organized as LLCs.
Throughout the paper, we made some observations and predictions for what we expect to see in the future. We are also history buffs, so of course there had to be a section on the origins of the LLC, and why Wyoming was the first state to adopt an LLC statute. It is an interesting and dramatic history that we had not heard about before.
Our project examining farm LLCs is available on our OSU Extension Farm Office website HERE, as well as the National Agricultural Law Center’s website HERE. This material is based upon work supported by the National Agricultural Library, Agricultural Research Service, U.S. Department of Agriculture.