Economic Tidbits

Producers Not Wild About Carbon Credits

The notion of agriculture producers adopting practices to reduce carbon emissions or sequester carbon, creating credits, and selling the credits has been bandied about over the past several years. And while there appears to be potential around credit markets, thus far, producers have only dipped their “toes in the water” concerning such markets. A paper written by the USDA, The General Assessment of the Role of Agriculture and Forestry in U.S. Carbon Markets, reports that a survey by “Trust in Foods indicated awareness of carbon markets among 93 percent of livestock and cropland managers, but only a 3-percent participation rate.” The report echoes other surveys which have shown little participation by producer despite the plethora of programs available.

The report, required by the Growing Climate Solutions Act, examines current credit market activity, barriers to participation, and opportunities to improve access to carbon markets. Several possible reasons are offered for the lack of participation. The upfront costs of implementing new practices and high transaction costs for participating—the costs of quantification, verification, and reporting—are contributing factors. Presently carbon prices are not high enough to cover these costs. The stringency of permanence requirements in many contracts are also keeping producers from participating. And confusion over credit market options is a factor. A McKinsey survey in 2022 found that 39 percent of farmers were not participating in a carbon credit programs because they did not understand the programs.

The Growing Climate Solutions Act requires the USDA to determine whether to establish technical assistance and third-party verifier programs related to carbon markets. Such programs could facilitate technical assistance for producers interested in implementing practices to create carbon credits and create a process to register and provide standards for third-party market verifiers. These steps could help reduce barriers to participation, but until upfront and other transaction costs can be reduced or prices for credits rise, producer participation will be low.

You may also like