Farmer/Rancher Checklist for Comparing Carbon Programs

The voluntary carbon market for nature-based projects is a crucial element in mitigating climate change. It also has the potential to be a very lucrative supply chain, from carbon project development to the trading of carbon offset credits. Many programs, however, seem to put the farmer last, not first, in the process. This article will break down and compare the different features – and drawbacks – of the most popular carbon programs, and provide guidelines to picking the program that works best.

This article compares policies and incentives offered by some of the largest and well-known agricultural carbon programs. All information here was accurate at the time of publication. Policies are subject to change as firms rapidly change to address an evolving industry. PanXchange is not responsible for errors, omissions, or updates.

The demand for carbon credits has exploded, with fortune-500s including Meta, Shopify, Microsoft, American Express and Ford Motors intensely ramping up their carbon credit purchases to achieve net zero emissions. But even though farmers have more autonomy and choice than ever before about with whom they earn and sell their carbon credits, most carbon programs operate under a patchwork of different rules, incentives and penalties. The voluntary carbon credit industry (now more than 20 years old) operates in a mostly opaque realm of undisclosed fees, payments, commissions, in addition to high per-acre verification costs.

Small farms still make up the majority of US farming operations, making their inclusion into carbon programs essential if we want to make a substantial climate impact. However, most carbon programs are cost, time, and logistically prohibitive for average farms, especially the programs that only offer direct payments or profit sharing. This is a massive opportunity cost to the climate, to the farmer and the consumers seeking to offset their carbon footprints.

In recent years, nature-based carbon credits have increased in value from an average of $10/ton of CO2 to $40-$45/ton, and some are predicting a rise to over $100/ton, but the farmer is not maximizing profits.

Many carbon credit programs either pay farmers a set fee-per-practice for regenerative farming (sometimes as low as $3-$6 per acre depending on the practice) or enroll farmers in opaque broker arrangements where fees are skimmed from a farmer’s payments (up to $20 per ton). Others transact in cryptocurrency, limiting available buyer pools and potentially reducing the sale price, since most established carbon registries prohibit crypto transactions.

In this demand-driven market, farmers should seek a partnership that gives them control of their own credits to sell on the open market for maximum price. Buyers, not sellers, should pay commissions, maximizing the profit to the parties who take the risk and make the efforts.

The optimal partnership offers the independent farmer several best-choice options: Low or no-cost set up fees; credit ownership to the farmers; payment in cash, not crypto; trading on a transparent platform; tech-enabled monitoring; commission paid by buyers; and the widest selection of eligible crops and locations.

It’s important to get a carbon credit partnership right, since it’s a one-time arrangement that sets a farmer up in a program for up to 10 years.

Voluntary carbon credits are now tradable instruments, which – if done right – will subsidize climate-smart farming practices and reward farmers for implementing them.

Over and above the cost of soil sampling and carbon quantification tools, auditing fees for project validation and verification run well into the hundreds of thousands of dollars, making carbon projects cost-prohibitive for the average American farmer. Third-party verification for soil organic carbon projects is quoted on a per-project basis, and this means higher costs-per-acre for smaller, independent farms.

Carbon programs make these programs accessible by paying most setup costs. It’s important to understand how these programs recoup their costs when comparing carbon programs.

The pay-for-practice business model pays farmers the least amount of money, but is also the least risky. Carbon program providers such as Bayer and Land O’ Lakes (Truterra) charge zero fees to farmers or pass-through the fees to their auditor(s).

While these programs do have a minimum payout guarantee, they cover their own fees and verification costs from the sale of carbon credits that the farmer never owns. For example, in 2021* Bayer paid $3 per acre/year for farmers to no-till and strip tilling and $6 per acre/year for planting cover crops ($9 per acre per year for both). Truterra (Land O’ Lakes) paid $2 per acre/year for eligible practice changes in 2021.* Truterra now enrolls some farmers in the carbon program paying $20/ton of new sequestered carbon. Overall, major agribusinesses are using this as another grain origination tool rather than an incentive structure to encourage regenerative practices.

PanXchange also covers most startup costs for farmers participating in the program. But because we derive revenue from buyer commissions and sell anonymized, aggregated market data, PanXchange provides farmers a pathway to receive the highest carbon credit price.

* “Details from How to Grow and Sell Carbon Credits in US Agriculture” November, 2021 by Iowa State University Extension.

A second business model is the credit-rewarding option, where farmers receive the carbon credits as they participate. Ideally, farmers should retain the full market value of their credit at the time of sale and have autonomy of when to sell and to whom. Providers such as PanXchange and Nori take this approach. Farmers adopt regenerative agronomic practices and are subject to an audit by an accredited third party. However, once practices are confirmed by an audit, the farmer receives carbon offset credits over the course of the five-year program.

While some firms, such as Indigo and Corteva (in conjunction with Indigo) say that their clients earn carbon offset credits, the rights to those credits are taken from the farmers by contractual agreement, and are sold to a limited buyer pool outside of the farmer’s control. To counteract these limitations, Indigo offers clients a minimum price guarantee of $20 per carbon credit starting with the 2021 crop, although prices for credits elsewhere have risen to more than $40. This price guarantee is only good for the first year of a five-year contract, according to Indigo’s contract language.

In these programs, the farmer does not have agency to sell to the buyer of choice. Indigo’s carbon programs pay farmers for carbon credits that Indigo sells to its own buyer pool. Upon sale, revenues above price guarantees pay expenses and passthroughs to brokers and third-party auditors. While distinct from the pay-for-practice model, neither gives full agency, or the full potential financial reward to the farmer.

PanXchange’s program is built around farmers owning the carbon credits from their climate-smart practices, and having the autonomy to sell them on a transparent market to the buyer of their choosing for maximum profits. We developed our business model after noting the missing gap for programs where farmers own their carbon credits but can’t pursue their full sale value because of structured buyback agreements.

Ideally, farmers should retain the full market
value of their credit at the time of sale, and have
autonomy of when to sell and to whom.

Typically, as markets mature, they become more transparent
and liquid, which is a trend that we believe will be followed
by carbon credit markets.

The voluntary carbon market is demand-driven, with more corporations seeking to buy offsets than there are credits to sell. For this reason, it’s the emitters/buyers who should pay a commission as opposed to the sellers. This arrangement gives farmers the absolute top-dollar maximum price for their credits.

Eliminating murky, opaque broker arrangements and creating a transparent marketplace lets farmers sell carbon credits and GHG benefits and earn 100% of their value. Flipping the commission to the buyers maximizes the leverage the seller can command on the sale price. This approach rewards the farmers on the ground who are actively combating climate change.

Participants in soil carbon programs start by establishing a baseline and then use data collected to estimate the amount of carbon sequestered. These measurements and related data are verified by certified third-parties in high-quality carbon credits. Carbon credit programs measure soil carbon in differing ways, and technology is evolving.

Traditional, on-site carbon soil measurements are the most expensive method, while computer-aided models are emerging to lower project costs. Two types of models include remote observation models and process-based models. Remote observation models utilize GIS and satellite imagery to detect soil organic carbon stock changes, while process-based models accurately relate agronomic practice data to changes in soil organic carbon in the soil.

Carbon programs that establish a baseline measurement of carbon in soil at the beginning of the program use onsite collection methods analyzed by dry combustion, wet oxidation and/or reflectance spectroscopy (the study of light waves reflecting off of surfaces). In the case of programs that are more model-reliant, remote tools are often pre-calibrated with real samples using these techniques.

To maximize greenhouse gas removal and encourage innovation, carbon credits should be available to all farmers, even those who grow specialty crops such as alfalfa, tree nuts, hemp or bamboo.

However, even though all crops are able to sequester carbon via photosynthesis into the soils below them for long-term or permanent storage, many carbon programs are limited to certain crop varieties.

For instance, the Bayer Agriscience Carbon program is limited to farmers harvesting wheat, soy, rice, canola, and corn. The rationale behind this is that they are aggregating carbon projects to capture economies of scale. Other entities, such as Indigo Ag, Corteva and Truterra work with a larger suite of crop types – 19, 19, and 4 respectively.

PanXchange has the flexibility to mesh process-based models with a remote observation model using tools such as Perennial, which inputs satellite and GIS hyperspectral imaging data input into a highly predictive machine learning model. For PanXchange, the advantage of deploying a remote-observation model is that it remotely observes carbon stock changes changes in the soil, thus yielding the flexibility to work with any and all crop types.

Remote observation monitoring and measuring tools must pass industry-accepted criteria. Tools are transparent, scientifically peer-reviewed, they provide proof that they accomplish the goal of conservatively quantifying carbon removal, and have proper version control.

PanXchange views the future of carbon quantification tools as a fusion between process-based models and remote-observation models that are calibrated with empirical samples obtained at low cost. Until then, PanXchange is utilizing all tools at its disposal, to make the program affordable, crop agnostic and able to collect valuable data to cross-validate results.

In conclusion, farmers must make careful choices when partnering with a commercial or nonprofit carbon program.

Carbon markets are changing quickly, and companies are still adapting their business models to capture this growing market. Staying within some guidelines will help farmers take the most control and maximize profits.

In general, programs that will lead to the highest profit opportunities will: drive down set-up costs, give farmers control over their own carbon credits, transact with cash, not crypto, trade on a transparent marketplace, leverage cost-saving carbon quantification technology, be crop-agnostic and be universally available across the United States.

Carbon credit markets are messy, imperfect and rapidly evolving, and we don’t know yet how much they can help fight climate change. But they are a good place to start.

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