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Agriculture and Carbon Credits: Interest Is On the Rise

By May 23, 2023June 14th, 2023No Comments

Typically, farmers make their living by selling crops, but some are starting to generate additional income from the carbon credit markets. Carbon credit farming is a process by which farmers can earn money by reducing their carbon footprint. It incentivizes farmers to switch to sustainable farming practices, which ultimately reduces greenhouse gas emissions and is a great way to help the environment. 

Regulations for carbon credit farming in 2023 are stringent, but the benefits are plentiful if a farmer can meet them. They will have to prove that they’re not only reducing emissions but that they’re also drawing down carbon.

That might seem challenging, but it can be done. And there are plenty of resources available to help farmers to get started. 

Farmers are encouraged to plant cover crops and reduce tillage to improve soil health, water quality, and biodiversity. This can help make crops more resilient to global warming. Farming is not just one of the worst climate offenders but it is also at high risk from climate change.

Currently, there are programs across the United States that work with farmers by taking measurements to determine how many carbon credits each farm would produce and, therefore, how much money the farmers would get. Then, they pre-pay the farmers an amount that is verified by the Climate Action Reserve, a California-based environmental organization that monitors the North American carbon market to ensure integrity, transparency, and financial value. The amounts differ depending on the farm and the current price in the carbon credit markets. 

Estimates suggest that the market for carbon credits could be worth between $20 billion and $50 billion by 2030. Trading turnover of the voluntary carbon market (VCM) has increased steadily over recent years, rising to just under $2 billion in 2021. A total of 60% of Fortune 500 companies have set climate targets, and these commitments indicate substantial increases in demand for voluntary carbon credits.

There are requirements to sell credits, such as you must be registered with the United Nations Framework Convention on Climate Change (UNFCCC). 

As this process becomes popular and lucrative, increasing numbers of insurance companies are jumping into the market to increase confidence in the VCM. The solution for Agricultural Carbon Credits is to treat carbon credits as a commodity that the individual farmer or ag organization creates and controls. A carbon credit—one metric ton of CO2e sequestered or abated—should be owned and controlled by the individual farmer or ag organization that creates it. 

Establishing standards and guidelines on measuring and verifying a carbon credit can be done accurately and affordably through an insurance program with independent verifiers and auditors. Carbon credit insurance assures the rigor and transparency in creating carbon credits in agriculture. Carbon credit insurance transforms the carbon credit into a financial instrument that allows it to be traded and placed on a financial statement as an asset. Carbon credit insurance establishes accountability in the carbon credit market while bringing confidence to the carbon credit market.

If you’re involved in agriculture and have questions, the knowledgeable staff at Nesbit is always available to help.