Carbon Credits Don't Work in Agriculture

1. Carbon credits are inefficient with 30% of their value consumed by overheads for project creation, validatation, and trading fees.

   The smaller the project, the higher the overhead as many costs cannot scale down in size.

2. To make the overheads with carbon credit projects feasible, the minimum viable size requires an area that is greater than 95% of Canadian farms.

   This makes them unreachable for the majority of farms, a problem that does not go away by combining several farms into a single project.

   Combining farms to increase the area employed in the carbon credit project also increases overheads and risks due to more variance in the benefits that increase with the number of participants, as well as the need to hold-back reserves in case some farms need to drop out of a multi-year commitment.

3. Even at $16 per Tonne, carbon credits are not worth the investment by farms as this nets only $2.5 per acre.

   Most carbon credit projects require farms to make significant up-front investments in new equipment that is difficult to justify when the payback occurs over several years.

   Financing is difficult for most farms even with short duration loans becasue over half of Canadian farms have annual incomes of less than $50 per annum.

   Currently, carbon credits are trading at prices as low as $2 per Tonne due to market concerns over carbon credit quality.

4. Fundamentally, carbon credits don't fit well into agriculture, missing the mark because they are best used for projects introducing additional sequestration.

   Yet additionality is not an IPCC requirement for offseting emissions on Managed Lands where existing, natural sequestration is permitted to offset human-caused emissions.

5. A better approach in agriculture is an incentive-based system that pays farmers a fair value for excess carbon sequestration services.

   In Canada this could easily be funded via proceeds from the carbon tax without impacting government budgets as the carbon tax is intended to be revenue neutral.

   It is only fair that if farms are being taxed on carbon emissions, that they should be compensated at the same rate for excess sequestration of carbon.

   An incentive-based scheme would also flow benefits back to farms faster as it can be based on the prior year's emissions.

   In addition to motivating wider participation of farms, this would also make it easier for farms to invest in emission reduction, or improved sequestration improvements, that increase excess sequestration.

6. Carbon would rapidly become a cash crop in Canada if we:
   • change the narrative from a focus on agricultural emissions;
   • to positive re-enforcement based on excess sequestration;
   • that pays farmers a fair value for carbon sequestration services;
   • via reachable programs that they can meaningfully participate in.

You can download further details in the full report or return to the overview of the 4-part series.