Should I sign a carbon credits contract?
Before signing any carbon credit contract, farmers need to read carefully, have an attorney review and decide whether the terms will really be profitable.
By Mary Hightower
U of Arkansas System Division of Agriculture
June 19, 2024
Fast facts:
- Carbon contracts can run from 2-100 years
- Rumley: review carefully before signing
- Find resources on carbon credits online
(898 words)
(Newsrooms: with image of Rumley)
FAYETTEVILLE, Ark. — Getting paid to sequester carbon in farm fields may sound like an attractive bit of revenue, but Rusty Rumley said farmers need to dig deep into the contract to know how much they’ll actually net.
Rumley, a senior staff attorney for the National Agricultural Law Center, has seen many of these contracts. The contacts offered to farmers can promise, on average, $15-$20 per ton of sequestered carbon, but they also come with stipulations governing what techniques a farmer can use and for how long. He also noted that farmers in Europe generally get paid more for their sequestering efforts than their American counterparts.
“For row crop farming, I’ve seen these contract lengths range from two years up to 100 years,” he said. “With the 100 year one, they will pay you for the first five years, then after that, you’re expected to keep the land as was specified in the contract.”
Do the math
Rumley said a big question to ask is, “it is economically viable to even sign a contract?”
“Many of the contracts — outside of forestry — do not pay enough to make it worthwhile,” he said. “You’ve really got to sit down and put pencil to paper.”
For example, a contract might require the farmer to use cover crops and will pay the farmer $3 an acre.
“I’m not good at math, but the cost of seed for the cover crop, the cost of diesel, wear and tear on the tractor, it’s already costing more than $3 an acre,” Rumley said. “So, you’re starting out in the hole.”
However, if the farmer was planning to go with cover crops or no- or low-till anyway, the “$3 an acre is going to offset the cost somewhat, but you’re not going to make money on it,” Rumley said.
How much carbon?
How do companies estimate the amount of carbon your farm will sequester?
“That’s the million-dollar question,” Rumley said. “They can estimate carbon for timber
pretty easily, because the tree itself is the biggest carbon sink. When it comes to
soil, that’s where everyone disagrees.
“These companies have different methodologies on how they measure carbon and different
soils have different holding capacities,” he said. “That’s the black box in the contract.”
Rumley said the contracts tend to favor the company, when determining how to measure the carbon sequestered.
“In almost all of these contracts, there will be language saying, ‘it’s completely up to us,’” Rumley said. “The company will tell you how much carbon you have sequestered and that they can change their methodologies at any time and you have no say in that.”
Some companies will require farmers to give their representatives the right to come onto the farm and take hundreds of soil samples to determine a baseline for carbon and then come back periodically to conduct additional measurements.
Before signing any carbon credit contract, farmers need to read carefully, have an attorney review and decide whether the terms will really be profitable.
Rumley said there is currently no single entity that regulates the carbon trading industry.
Carbon credit buyers
Other pressures that would shape a contract include the entity that’s buying the carbon credits, especially if the company has made public its efforts to be “net zero,” or other claims of carbon-related sustainability.
“Does the company buying think these carbon credits are ‘valid enough’? Rumley asked. “Is the Federal Communications Commission going to come back against the company buying the carbon credits and say your carbon claims are false advertising?”
The National Agricultural Law Center has resources online for farmers and attorneys on the topic of carbon contracts.
The January 2023 Purdue/CME Group Ag Economy Barometer found that 9 percent of its survey respondent had discussed a carbon contract with a company that was up from 7 percent during the first quarter to 2021. However, “just 1 percent of survey respondents in January reported that they had signed a contract,” the report said.
History of carbon trading
Carbon credits aren’t a new topic. Changes made to the Clean Air Act in 1977 opened the way to first emissions trading mechanism. More changes came in 1990, with the establishment of the Acid Rain Trading Program. The Kyoto Protocol of 1997 expanded the idea of carbon emissions trading globally.
In February, the U.S. Department of Agriculture announced the Greenhouse Gas Technical Assistance Provider and Third-Party Verifier Program, which is meant to facilitate farmer, rancher, and private forest landowner participation in voluntary carbon markets.
“Farmers, ranchers, and forest landowners are part of the solution to climate change, and they need trusted information to navigate emerging carbon market options,” said Agriculture Secretary Tom Vilsack. “This new program will provide resources for producers and landowners, helping them pursue opportunities to generate revenue while benefiting the environment. It also builds on USDA’s comprehensive approach to create value and multiple income streams for all producers and communities, including through innovative, climate-smart agricultural practices.”
In 2021, the Environmental Protection Agency determined that 10.6 percent of greenhouse gases were emitted by farm activity. The emissions included nitrous oxide from fertilizer application and manure storage and management, and methane from animal digestive processes. A report from the National Academies of Sciences, Engineering and Medicine, said that agriculture could sequester the equivalent of 4 percent of U.S. carbon dioxide emissions.
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About the Division of Agriculture
The University of Arkansas System Division of Agriculture’s mission is to strengthen agriculture, communities, and families by connecting trusted research to the adoption of best practices. Through the Agricultural Experiment Station and the Cooperative Extension Service, the Division of Agriculture conducts research and extension work within the nation’s historic land grant education system.
The Division of Agriculture is one of 20 entities within the University of Arkansas System. It has offices in all 75 counties in Arkansas and faculty on five system campuses.
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Media contact: Mary Hightower
mhightower@uada.edu