Why Are We Freaking Out About Carbon Intensity?!
The world at the intersection of Carbon and Agriculture is shifting in a very large way, and, oh by the way, this shift is going to make money available that should fit nicely into the pockets of farmers. Right now is the perfect time for farmers to start learning about this shift and how it will affect their operation.
To begin, let’s take a brief look at the old/existing carbon markets. These markets were built by brokerages that worked with farmers to implement practice changes (i.e. reduced tillage, cover crops, etc) that hadn’t previously been used. These brokerage firms would pay a premium of, for example, $15/ac to the farmer. The farmer makes a practice change, then that delta is something that a brokerage could monetize by selling the carbon offset to a corporation who was motivated to purchase it. The key term here is “offsetting”. Essentially resulting in your acreage producing two products, a crop and a carbon offset that are sold in two separate markets. And the offset is a measure of the amount an operation decreases its’ carbon impact as compared to before a practice change was made. Explain it to a 5 year old, you say? Santa is only bringing presents this year for each time you listen to your parents more than you did last year.
“The world at the intersection of Carbon and Agriculture is shifting in a very large way, and, oh by the way, this shift is going to make money available that should fit nicely into the pockets of farmers.”
The shift we are witnessing happen before our eyes can be categorized by the term “insetting”. Now the quantification of the carbon impact of an operation is tied to one single product, the crop. And better yet, it isn’t something that can only have a premium collected based upon making a practice change. Instead, each year the practices done on an operation all work together to determine the carbon intensity score of the corn that is produced on that operation. A premium is collected for a lower score when that grain is sold. That score then is recalculated each year with no historical information used in that calculation. If the operation doesn’t know its score for a crop, then it is just not eligible for collecting a premium. Explain it to a 5 year old, you say? Santa is bringing more presents for every time you listen to your parents, but fewer presents for each time you don’t listen. Worst case scenario, you get no presents because you didn’t listen to your parents at all. And each year the count starts over.
Now that the difference between carbon offsetting and insetting is understood, the next important thing is to understand how a carbon intensity is quantified for these carbon insetting markets. To determine a Carbon Intensity Score of a bushel of grain, a questionnaire needs to be filled out to show what practices were done for the crop year of that grain. That questionnaire is called the GREET Model, and it includes questions about cover crop, amount of nitrogen applied, tillage passes, herbicides, pesticides, fuel usage, etc. The better your practices are, the lower the carbon intensity score of that grain, and the high premium that can be earned when selling that grain.
As much fun as this all is, why is it important? As part of the Inflation Reduction Act that was signed into law in 2022, Ethanol Plants are being incentivized with the chance to earn tax credits for producing fuel with a lower carbon intensity score. They can start earning those tax credits on January 1, 2025. But the grain used to establish that carbon intensity score will be grown in 2024. And the tillage and cover crop practices done in the fall of 2023 will contribute to that 2024 crop’s carbon intensity score. Depending on how an operation scores, a premium of up to $1 per bushel on corn, for example, could be collected by that farmer when selling that grain to a biofuel plant.
Overall, this is a major shift in the right direction to compensate farmers who are conducting sustained practices on their operations that are beneficial for the environment around us. As well as, encouraging farmer innovation to best optimize this opportunity for their specific situation without losing out on overall profitability.
How can someone learn more and start understanding what the next steps are? That’s where Continuum Ag is here to help! Get ahold of us through our website, continuum.ag. Or contact me, Justin, directly at firstname.lastname@example.org.