Carbon Payment Potential
Carbon Payment Potential
Just how much could soil sequestration be worth?
As steam builds toward decarbonizing the economy, there is understandably more concern and confusion about carbon offset payments and I’ve been fielding increasingly more questions about the carbon market. Over the past few weeks, I’ve learned a few things that I think could help to demystify where the agriculture community could go with payments, as well as how to get there.
On 25 January 2022, I was on a panel with the excellent Lars Dyud, CEO of EarthOptics, at the 2022 Independent Seed Professionals Association annual meeting in Indianapolis. A couple of points I took from his presentation:
An acre foot of soil weighs about 2000 tons.1
When we speak of sequestering carbon in soil, we are actually referring to raising the organic matter levels in the soil. Roughly 60% of soil organic matter is carbon.2
EarthOptics’ technology is really cool and has lots of potential to make carbon levels (and nutrient levels) much more granular across a field and actually verifiable—opening the door to documenting changes in sequestration (payment for results) instead of merely changing how you operate (payment for practices).
With these facts in hand, I started doing some back of the envelope calculations on what the potential value of carbon sequestration could be in terms that I can understand. If a farmer raises the soil organic matter by 1%, that is an additional 20 tons of SOM, of which 60% is carbon, or 12 tons. However, CO2 is 3.67 times heavier than carbon alone3 so that this 12 tons of carbon is equivalent to 44 tons of CO2.
The market price of carbon varies a lot, like the prices for most traded commodities. Historically, we used a price in the US of $50/ton as a benchmark to rein in GHG emissions. Sequestering farmers wouldn’t receive the full market price. There will be some significant costs for verification, for example, but as the market is currently trading above €90/tonne in Europe, let’s just say we leave lots of space for transactions costs and assume $25/ton. At this price, the potential value of sequestered carbon is $1,100/acre for every 1% increase in soil organic matter.
I’m told that raising SOM by 1% is a process that might take 10-20 years, converting that $1,100/acre into $55-$110/acre per year—a far cry from what’s currently being offered to farmers. Why the difference? Lack of verification? Payment for practices vs. results? Lack of federal limits on carbon? Yes.
So until those things change, per-acre payments will remain much lower than they could be. Is there potential here? Also yes.
https://efotg.sc.egov.usda.gov/references/public/NH/Useful_Conversions.pdf
https://www.agric.wa.gov.au/soil-carbon/soil-organic-matter-frequently-asked-questions-faqs
https://archive.thinkprogress.org/the-biggest-source-of-mistakes-c-vs-co2-c0b077313b/