How to Best Prepare for the Hemp Carbon Credits Market

Hemp Carbon Credits Market


How to Best Prepare for the Hemp Carbon Credits Market

PanXchange Blog

Carbon stored in soil could soon become a unique subset of commodity crops. This emerging market aims to incentivize the sequestration of the world’s carbon footprint by allowing farmers and farm managers to get paid for the carbon they store by companies—and even other countries—wanting to offset their emission. Until recently, high costs and a lack of tools to accurately quantify soil’s changing carbon content inhibited producers from participating in carbon markets. 

Carbon markets have operated worldwide for the past three decades, but they have mostly excluded agricultural projects. It’s commonly understood that plants absorb CO2, but the amount that is sequestered, or “banked” into soils, is a contentious, crop specific, issue. In recent years, researchers have captured atmospheric carbon in soil dedicated to farming with verifiable methods, the idea of selling carbon offsets has re-emerged. Concerning row-crop operations, most scientists agree that a combination of reducing or stopping tillage, planting cover crops, rotating diverse crops, and in some cases, adding animals for managed grazing, are the most effective ways of building soil carbon. Hemp’s role in servicing these objectives is still at its infancy, but with all the excitement concerning hemp’s potential role in this market, it is a noteworthy headwind worth further consideration. 

Currently, the most rigorous, and arguably most accurate methods, require on-site soil sampling biannually. The costs include up to $2,000 per sampling event and another $2,000 to $3,000 per testing round. Within the US and global hemp markets, this type of “hands-on assessment” is critical as it establishes the baseline for a particular crop’s role in the more significant market. A lingering issue to consider is that hemp production methods by crop type, namely cannabinoid farming, grain, and straw production, are still far from standardized. Therefore it should be the goal of any entity interested in carbon markets to standardize their product-type management practices and the expected yield to ascertain a physical benchmark before leveraging these assets to produce a carbon credit. Generally speaking, crops with high-planting densities and resulting populations are considered the most suitable for carbon sequestration. Therefore, both grain and fiber-type production are the most likely commercialization candidates than horticulture-style cannabinoid hemp farming. 

It’s also important to consider the maturity of public and private entities that shape the carbon market. Publicly funded methodologies include the COMET-Farm, developed at Colorado State University, and funded by the USDA’s Natural Resources Conservation Service (NRCS) to quantify the incremental changes in soil carbon associated with the adoption of regenerative practices. For field-based sequestration estimates, the system includes a full spatial interface that allows management to specify between individual fields and pastures. Given that COMET-method is entrenched within the existing market, hemp could benefit from greater acceptance. Substantive increases in CO2 capture would have near-term financial benefits compared to other, presently more academic methods. 

Recently, the US-Department of Energy awarded funding for the development of the DeepC System. The system includes in-field measurement tools, an optimized spatial sampling algorithm, and machine learning that leverages current, on-farm infrastructure. Users will obtain rapid soil carbon measurements and forgo the start-up cost that presently inhibits participation by a greater portion of the farming community. While this may provide a robust toolset in the midterm, this particular process’s adoption and validation will take time to disseminate and gain traction within the market. 

For-profit groups are developing markets that have received the most attention and investment. IndigoAg, considered by many to be the lead innovator within the US, recently purchased TellusLabs. TellusLabs’ key product, Kernel, can monitor crop progress daily and forecast crop yields before harvest across the globe. It will be leveraged by Indigo to enable data-based decision-making for growers and buyers throughout the season. Again, the issue of establishing regionally specific, physical, and financial benchmarks will preclude hemp from playing a significant role anytime soon. Apart from carbon market access, the advantage of hemp interest cooperating with for-profit entities is that partnerships will ease the burden of transition to less-established commodities by incorporating these products into acceptable rotations with highly liquid markets. 

An early adopter to keep an eye on in the hemp market is CannAcubed Pte Ltd. alongside its strategic partner, Climate Resources Exchange Pte Ltd. Together, far more established than compared to the United States, they have set an ambitious task of reducing carbon emissions by one Million Tonnes in three years. Specifically, they have launched hemp production projects primarily in SE Asia, where hemp has been operating at a commercial scale for generations. If they can maintain the estimate of 22 MT-CO2e per acre, this would equate to a minimum contracted holding capacity of 45,454 acres over three years. While this may serve as encouraging news for North American based operators, a lingering question worth considering is, “How will these based-upon credits impact the physical commodity market?” 

Whether it is hemp, or another agricultural commodity suitable for carbon adoption, the sector of the market sector an actor chooses to participate in will determine a net winner or loser from carbon market availability. Assuming that hemp can attain a high-CO2e rating, it may find itself in a favorable position for growth, especially if the market price for CO2 matches or exceeds the cost of transitioning to a new crop. However, the volatility of carbon market prices, a common critique, may also depress the physical commodity market too drastically, limiting the potential for growth within the “traditional” market channels hemp is servicing at this time. It is likely worth the risk for hemp to participate in this subset of the market early, as a jolt in liquidity would stimulate growth by lowering the price of the physical product amongst it’s mature, yet aging, substitute products.