What is a Carbon Credit?
A Carbon Credit is a transactable, intangible environmental instrument representing a unit of one metric ton of carbon dioxide-equivalent (CO2e) created either by regulatory programs promoted by governments or by projects which are validated to a recognized carbon standard. A Carbon Credit is an emissions unit (one metric ton of CO2e) that is issued by a Carbon Credit creator that represents an emission reduction or removal of one metric ton of Greenhouse Gases (GHG). Carbon Credits are uniquely serialized, issued, tracked, and canceled by means of a distributed ledger system (blockchain) or a registry.
A Carbon Credit is an instrument that allows a country or organization to produce a certain amount of CO2e or other GHG’s. Carbon Credits are typically used to compensate for or neutralize unabated CO2e or other GHG emissions occurring in an organization or country. A Carbon Credit that is used as an offset or inset must be retired and cancelled to protect against being used multiple times. A Carbon Credit can be treated as a commodity or financial instrument which can be traded if it is not used.
What are Agricultural Carbon Credits?
Plants are a part of a carbon cycle. Growing a plant is a practice that produces a small-scale CO2e and GHG sequestration; because plants use carbon dioxide (CO2) from the air during photosynthesis. Plants utilize CO2e from the air, but they release the captured CO2e back into the air when they decompose.
When the plants die, their carbon-based structure begins to decay. Some of that CO2e is released into the air, and some of it is sequestered in the ground. When ground tillage is reduced, plant residue is retained, cover crops are utilized, and other regenerative agriculture practices are used in an agriculture operation, CO2e is sequestered. This sequestered CO2e can be measured and treated like an agricultural commodity.
What are the Challenges for Agricultural Carbon Credits?
Agricultural soil carbon capture and sequestration is real, but there a several challenges that agriculture faces. The major challenges for Agricultural Carbon Credits are: measurement, permanence, additionality and verification. Carbon credits in agriculture are only as real or valuable as the science and evidence underlying them. The realness and value of Agricultural Carbon Credits requires standards for quantifying, monitoring, and verifying carbon offsets must be in place for the creation of agricultural carbon credits. Currently measurement and accounting standards for Agricultural Carbon Credits have not established by regulatory authorities; but have been voluntarily established by Carbon Credit certifiers such as Verra, Gold Standard, and Climate Action Reserve.
What is a Solution for Agricultural Carbon Credits?
The solution for Agricultural Carbon Credits is to treat carbon credits as a commodity; 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. The establishment of standards and guidelines on how to measure and verify 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 into the carbon credit market while bringing confidence to the carbon credit market.