When Microsoft Corp
(MSFT.O) made a massive purchase of carbon credits in January,
it turned to a relatively new source: farmers who plant crops meant
to trap carbon in the soil.
The credits are financial instruments
generated by projects that reduce or avoid the release of greenhouse
gases, such as solar farms or tree-plantings. The projects' owners
can sell the credits to companies who then use them to make claims
of offsetting the climate impact of their operations.
Microsoft bought nearly 200,000 of the
farm-based credits at an undisclosed price - among the largest-ever
purchases of agricultural credits - as part of a larger deal to buy
1.3 million credits. But the tech giant rejected far more of the
more than 5 million credits offered by agriculture projects because
of systemic problems with measuring their climate benefit.
The Microsoft purchase underscores both
the promise and the problems of the emerging industry in
agriculture-based climate credits.
"For row-crop agriculture, the big
opportunity it offers is scale. But it also has a measurement and
monitoring problem," said Lucas Joppa, Microsoft's chief
The company received proposals from
agriculture projects that made carbon-removal claims without
scientific validation, Joppa said. Others led to deforestation or
were found to capture some carbon but leak it back into the
atmosphere quickly. Simply tilling a field, for example, can release
carbon meant to be stored.
Solving such problems will be key to fully
capitalizing on what could be a huge opportunity in selling credits
to major firms such as Microsoft.
Joppa said the company might need to buy 6
million carbon credits annually by 2030. "And that is going to
require a lot greater transparency" on the part of agricultural
credit producers, he said.
Each credit should represent a metric ton
of carbon dioxide removed from the atmosphere. Companies buy them to
appeal to environmentally conscious consumers and to prepare for
expected government climate regulations.
Agriculture is among the largest emitters
of greenhouse gasses, including those from tractor emissions and
from 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 up to 8.6 gigatons of carbon
dioxide a year, according to a 2019 report from the
Intergovernmental Panel on Climate Change. That's equal to about 1.3
times all U.S. emissions that year, according U.S. government data.
BUILDING A NEW MARKET
Farmers of commodity crops can capture
carbon in their fields by planting an extra crop in the off season
or reducing their plowing. Some programs also issue environmental
credits for conserving water or reducing fertilizer runoff.
Typically, farm carbon programs establish
a field's soil carbon with soil sampling and laboratory testing.
Programs then estimate how much carbon is captured and stored by
analyzing everything from weather and seed type to farming
practices. They use data gathered by humans, satellites and sensors
on farm machines.
Third-party verifiers validate the data
and generate credits, which are issued to program managers or to
The high costs of measuring and verifying
soil carbon credits have prevented more farmers from participating
in such programs.
The Microsoft purchase showed buyers are
willing to pay for high-quality credits, but farmers say they need
help covering costs to ensure their efforts are worthwhile.
A U.S. Department of Agriculture study
estimated that a shift to sustainable agriculture practices can hurt
yields of row crops like corn and soybeans in the first two years
they are used. But thereafter, captured soil carbon can improve
yields, research shows. When farmers reduce tilling, they allow old
crop roots to break down into soils and nourish the next crop,
reducing fertilizer costs.
INTEREST FROM BIG AG
A climate push from the Biden
administration is spurring more interest in farm-based carbon
credits. The administration has, for instance, proposed creating a
carbon bank, effectively a guaranteed buyer for agricultural
credits. A bipartisan bill proposing the USDA establish
science-based standards for carbon-removal claims was passed by the
Senate agriculture committee last week.
The USDA is monitoring the success of
private-sector projects to potentially expand climate-focused
programs in future farm bills.
Agricultural companies from Bayer AG
(BAYGn.DE) to Cargill Inc (CARG.UL) have subsidized projects
that encourage farmers to reduce emissions, save water and plant
off-season crops that restore nutrients to soil and limit erosion.
They hope to aid development of a broader marketplace for credits
they sell, or keep the credits to counter pollution in their own
Lukas Fricke, a farmer from Ulysses,
Nebraska, planted rye and tiller radishes this winter as part of a
program launched by Land O'Lakes. He is among the farmers generating
credits being purchased by Microsoft. But the $20 he expects for
each credit will not cover the cost of cover-crop seed and hiring
specialized labor to prepare his fields for planting.
"It's very new," he said. "It's still the
Fricke, however, expects to recoup his
investment by growing bigger corn, soybean and sorghum crops as his
efforts bolster soil fertility and cut fertilizer costs.
Minnesota farmer Ben Mergen devoted 60 of
his 500 acres to oats and rye this winter for a pilot project funded
partly by the nonprofit environmental group The Nature Conservancy.
The program, with the help of other
grants, will pay Mergen $50 per acre for the environmental credits
generated, more than offsetting his $30-an-acre investment in seed
Without the subsidies, Mergen would not
recoup his costs of creating credits. But farmers and program
managers anticipate that participation costs will decline and prices
offered for carbon will rise.
"I think it will catch on," Mergen said.
"The hope is that in three to five years we'll see the benefit of
Companies and nonprofits have launched
pilot projects to cover soil-sampling costs and help farmers find
Verifying carbon-capture claims accounts
for about 75% of the cost of generating credits, said Debbie Reed,
executive director for the Ecosystem Services Market Consortium (ESMC),
a nonprofit group that includes environmental and agricultural
organizations along with companies like General Mills and
To cut sampling costs and reassure credit
buyers, ESMC is investing in satellite and remote-sensing
technologies that measure soil-carbon concentrations. The
organization aims to launch an environmental credit marketplace in
"Until we get to a market where there is
liquidity, we will continue to see projects without buyers and we
will continue to see buyers without the supply they need," Reed
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