Sustainable farming and carbon credits have been hot topics over the past 12 months. We think the next 12 months could be even more exciting yet. Here’s why 2021 could be the year to start cashing in on carbon credit markets:
- Strong commodities: To date, a major barrier to entry for carbon markets has been cost, especially on land that is rented. A farmer who is renting land is less likely to make the upfront investments needed to make practice changes, even if the long term benefit is there. Cover crop seed costs ~$30 an acre, investing in the equipment to move to no-till/strip-till can cost a lot more than that, and there is always risk and uncertainty when learning a new practice. Over time, a farmer will recoup the investment through lower input costs and that coupled with the money earned through carbon credits make it a good long-term investment. With commodity prices at 6-year highs, most farmers should be in a better position this year than in past years to make the investments needed to start earning carbon credits – especially given most of the gains in commodities came after many 2021 rents were already negotiated.
- Change in administration: The Biden administration is already on the record stating that they will pay farmers to plant cover crops. The Trump administration had previously used part of the $30 billion dollars of funding available through the Department of Agriculture’s Commodity Credit Corporation (CCC) to provide aid to farmers who had lost sales due to recent trade wars, particularly with China. The Biden administration plans to direct this funding towards carbon credit programs and sustainable farming. The specifics are not yet available, but it seems like a safe bet that farmers will be incentivized to plant a cover crop this year, and will potentially receive additional incentives to adopt carbon sequestration practices.
In short, it looks like a combination of Uncle Sam and soaring commodity prices will help farmers afford the adoption of practices required to earn carbon credits. However, if farmers and landlords don’t have an agreement and plan in place, they could be missing out on money from both the government and the carbon markets.
One important thing to understand about carbon markets is that earning carbon credits is similar to planting a commodity crop: you don’t earn money until the crop (or the carbon) is harvested. This means timing is important. The earlier you start tracking the data needed to calculate how much carbon is sequestered, the more you can earn. If you aren’t tracking that data, you can’t earn money on the carbon sequestered. This is why landlords and farmers should not wait to start collecting the data.
Also, if a farmer decides to “cash in” on a government subsidy and start planting a cover crop, the landlord and farmer should have a plan in place to also earn carbon credits. Keep in mind that a farmer technically cannot earn a carbon credit on a farm they rent without a written agreement from the landowner.
You can read more about how to make your farm carbon ready here, but the most important step you need to take is to make sure you have the data on your farm to qualify – or start collecting it now. The second step is to make sure you have an agreement in place that outlines how carbon credits will be split between the landowner and the farmer, and determine what each party’s responsibilities will be for enrolling the farm and submitting the data required to comply with the selected carbon program’s data reporting requirements. Luckily, Tillable gives you the tools to complete both of these steps for free.
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