Tuesday, 2 May 2023
As awareness of carbon credits and different schemes on offer grows, it is important to understand what to look out for in these schemes. We have compiled our main watch points for schemes that offer payments for carbon sequestration in the agriculture sector, and continue to update these as more information becomes available.
Main watch points
- Each contract differs by length, cost, if buffers are held (see below), and minimum requirements, so it important to pay close attention to each detail in each offer as one may be more beneficial than another to individual farms.
- The length of contracts offered by each scheme varies: the lowest is 1 year, and the highest is 10 years. This is important to consider if you own the land or are a tenant farmer and how long you may have access to the land which is under the schemes.
- The cost of the schemes varies, by how much you will have to pay, and the period you will have to pay either monthly or yearly. Some charge monthly fees of £100, some have initial onboarding fees with costs per hectare, and some keep a percentage of the money generated from carbon credits.
- The payments for the sale of carbon credits also vary, with the majority of schemes paying the market rate. The market value will fluctuate over the coming years, but it currently sits somewhere between £20 - £40 per carbon credit. Some schemes guarantee a minimum price per credit, which will increase with the market value.
- Take stock of possible 'early pay out schemes', making sure that you are getting the most value for your credits. Some schemes offer early pay outs before your credits have been certified based off an estimation. These can come at a pre-purchase price and may also include additional fees. The market (and subsequent value of credits) may move higher, or you get more certificates than you thought, in between the early pay out and certification.
- The breakdown of the carbon credits is important to consider, as some schemes offer different levels of buffers. A buffer is a percentage of unsold credits that are kept by the carbon offer company to ensure that practices are not being used that would invalidate the carbon credits, such as tilling or use of pesticides. Buffers range from 20 – 30%, with some schemes creating a ‘pool’ of credits each year to ensure schemes are not left early.
- Some schemes require soil analysis prior to joining, to formulate a baseline for the amount of carbon stored within the soil. The majority of schemes require soil testing for the initial assessment, with some requiring soil measurement throughout the contract period.
- Schemes are varied between the type of monitoring methods used throughout contracts. There is a ‘sliding scale’ of methods from physical monitoring on farm using testing kits to be sent away, to AI and satellite technologies that remotely monitor soil quality. These also vary in the time taken to use the different monitoring methods, so this should also be accounted for in the overall cost considerations.
- Some schemes have minimum requirements that need to be in place before signing up to the carbon offers. These include min./no till practices, certain acreage under contract, and the establishment of baseline measurements.
- Linking to this, is the restrictions in place once carbon offers have been agreed, such as no soil disturbance, the (continued) use of cover crops and green manure, and the acreage required for financial viability.
When looking to get involved in a voluntary scheme, it is recommended that you seek legal advice. Baselining your carbon stocks as early as possible and sticking to one carbon calculator is key to calculating the value of your carbon. You can find more information on this here, and click here for more information on calculators and tools available.
Do you have a question regarding carbon markets? To get in touch with us, contact our email address: firstname.lastname@example.org.