Introduction to Carbon Markets
What are carbon markets?
Carbon markets are a means through which entities can buy and sell carbon credits as a means for global climate change mitigation. One soil carbon credit is equivalent to one ton of carbon dioxide sequestered from the atmosphere and stored in the soil. Organizations can buy carbon credits to ‘offset’ the emissions they produce in order to meet their climate goals. In the context of agriculture, producers can implement farming/ranching management practices in order to sell carbon credits. It is important for Colorado producers to be knowledgeable on carbon markets. At the moment, carbon markets are one of the most prevalent tools the world is using to encourage emission reductions and carbon removals.
There are two types of carbon markets, Voluntary Carbon Markets and Compliance Carbon Markets. While they both aim to reduce emissions and operate through the buying and selling of carbon credits, there are some key differences.
Voluntary Carbon Markets
VCMs are a type of carbon market where an individual or organization can voluntarily sell credits and another entity can voluntarily buy those credits. The VCM operates similar to the stock market: prices fluctuate, players enter and exit the market, and it is operated outside of governmental frameworks. There are several voluntary carbon market platforms, but there is not a single authoritative marketplace. In the context of agriculture, carbon credits can be generated through measuring the amount of carbon that has been sequestered on farm land through the implementation of new management practices.
Compliance Carbon Markets
Compliance Carbon Markets are typically put in place by governments and set a limit on the total amount of carbon that can be emitted. These are mandatory restrictions on the amount that an organization can pollute. In a compliance market, companies will purchase offset carbon credits once they have exceeded that limit in order to balance out the emissions. Examples of current compliance markets are the California Cap and Trade and the European Union Emissions Trading System.
Process of Participation
In Colorado, producers only have the option of participating in a VCM since there is no compliance market. The process of participating in a VCM varies greatly depending on the project company you choose, due to varying standards and protocols.
While producers do the actual soil carbon storage, the carbon credits are sold through project developers that work with producers. Third party verifiers check the standards against the chosen protocols.
Oftentimes, there is a hybrid of sampling and modeling for the monitoring, reporting, and verification process of a project. This includes on-site soil sampling, testing, and computer modeling to track the amount of carbon in the soil.
A project usually includes a feasibility assessment, initial inventory, greenhouse gas modeling, project document development, initial verification, registration and carbon sales, and ongoing monitoring, reporting, and verification.
Players in a carbon project: third-party verifier, technical assistance provider, farmer, lawyer (recommended), and project developer company.
There are various challenges producers face and barriers when participating in VCMs that are important to understand in order to decide if a carbon market is right for a producer.
It is difficult to measure soil carbon due to expenses of sampling and the variability of soil carbon across landscapes. Modeling requires a lot of data and history of the farm in order to accurately be able to measure the carbon, so it is important to start collecting data as soon as possible.
The nature of markets makes it difficult to rely on them for addressing climate change since they are unpredictable. Markets aim to buy low and sell high, which translates to buying low quality and cheap credits and then selling them for more than they are worth, which takes advantage of those actually sequestering the carbon (Young 2024).
Carbon credits have been criticized as not making real progress towards lowering emissions because they allow companies to continue to produce emissions without changing their harmful practices.
The issue with carbon offsetting is that they lack rules and regulations that standardize the process and market.
Farmers will work with third-party verifiers for the verification process and technical assistance providers (TAPs) to help develop a carbon project. The USDA Growing Climate Solutions Act provides a list of qualified TAPs and third-party verifiers for producers. Third-party verifiers are in charge of verifying the project and making sure it meets quality standards, while TAPs assist producers in developing the project and implementing the new practices.
The company which you work on a carbon project with can vary in ethics, as well as the quality of the credits generated through the project. There does not exist a company with a protocol that is of high enough quality in all areas.
Payments for Ecosystem Services (PES)
PES are another method of getting monetary reparations for carbon sequestration practices and other activities that improve the environment such as protecting biodiversity that do not involve the carbon market. There are various organizations that aid and encourage producers to implement regenerative farming practices by providing financial support and incentives.
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