COP26 negotiators finally reached an agreement on international regulations for the carbon credits market. Along with renewable energy, reforestation projects and agriculture represent an interesting way of generating carbon credits in the future. But what are carbon credits and how could farmers benefit from this international compensation system?
A carbon credit is a tradable certificate representing one ton of carbon (or carbon equivalent) removed from the atmosphere. Carbon credits are created by offsetting projects and can be purchased by companies or countries wanting to compensate for their emissions. The concept of carbon credits emerged in the late 1990s with the Kyoto Protocol, the first international treaty that committed signatory states to limit greenhouse gas emissions according to national quotas. To meet their targets, countries must reduce emissions within their territories but can also finance foreign carbon mitigation through carbon credits. The objective was to curb global warming by establishing a system for measuring and controlling carbon emissions while driving investments toward climate change mitigation projects and technologies.
To generate carbon credits, a project must demonstrate its ability to reduce, avoid, capture, or remove a quantified amount of greenhouse gas emissions. Certification bodies, such as Verra, Gold Standard, and CCB, conduct detailed audits of these projects. Once certified, carbon credits can be traded on a regulated market. Despite the increasing number of international climate change summits and treaties, many countries have yet to sign any environmental agreements. As a result, the regulatory framework remains fragmented, with the market primarily concentrated in the European Union, Canada, and China. The prices of carbon credits are driven by supply and demand in the markets and fluctuate depending on geography.
Yet, the COP26 agreement in Glasgow may considerably change the dynamic and volume of carbon transactions.
Figure 2: ICAP, ETS world map
Any project that reduces greenhouse gas emissions or increases carbon sequestration can claim carbon credits and sell them on ETS once they get certified. However, it must first demonstrate its additionality, that is to say prove that it would have not existed without the financial flow unlocked by the carbon credits mechanism. Typical activities include reforestation projects, solar and wind infrastructures, but also methane destruction projects or energy efficiency initiatives. Projects can range in scale from very small (one hundred tons of CO2e per year) to very large (millions of tons of CO2e reduced per year).
Figure3: AFN, Percentage share of carbon credits issued by area of scope of projects. Source: Berkeley Carbon Trading Project
In practice, a majority of carbon credits are issued from forestry and renewable energy projects. Despite having a large potential of carbon sequestration, agriculture only represents 1% of carbon offsetting projects.
Agriculture directly accounts for 15% of global greenhouse gas emissions mainly because of tractor use, manure and fertilizer applications. But the sector is also a promising part of the solution. Global croplands and grasslands can capture and store the equivalent of the US domestic emissions each year according to the Intergovernmental Panel on Climate Change. Farming practices that mitigate climate change can be eligible for carbon credits and include:
To understand the environmental impact of farming practices, check out our articles Tillage: Farming Practices in Thailand and Environmental Consequences and Chemical Fertilizer in Agriculture: A Big Source of Greenhouse Gas Emissions. So why is agriculture struggling to break into the carbon credits market? The diversity of agricultural conditions, such as weather, soil types, and annual variations, makes estimating and monitoring carbon sequestration challenging. This requires costly interventions by third parties for soil and water testing.
Additionally, carbon credits are priced at around $15 per ton, meaning farmers need a significant land area to generate revenue. Several companies, especially in the US, have developed expertise to support farmers in their sustainability and carbon offsetting efforts. Their role is crucial in creating successful roadmaps, enabling farmers to access the carbon credit market and maximize its potential.
At FairAgora Asia, we drive sustainability through innovative agricultural practices, social impact training, and environmental risk assessments. Partnering with global organizations, we empower stakeholders to embrace sustainability for a greener future.
(+66) 02 252 6980
(+66) 080 770 5964
10 Soi Sukhumvit 13, Khlong Toei Nuea, Watthana, Bangkok 10110, Thailand.
© 2024 by Fairagora Asia
