Soil carbon schemes have frequently been described as a Wild West, but 2023 is the year that this changes: the sheriff is getting reinforcements. During the last six months, international and national governance frameworks for the voluntary carbon market (VCM) have progressed significantly and will develop further this year; alongside this, leading contenders are emerging amongst the soil carbon schemes active in the market.

Whether the time is right to enter the VCM, and how, is a decision for each business. By evaluating the nature of its activities, its business objectives and likely supply chain expectations, baselining its current carbon emissions and calculating its potential for reduction, a business can develop a carbon strategy to steer how it progresses towards net zero and engages with the VCM.

Working through the carbon management hierarchy (see chart below) will help a farm business identify ways it can cut its own emissions and highlight how it can help other non-land-based businesses on a similar journey.

If a farm business wishes to generate income from the sale of carbon credits, a key decision is whether to select a scheme focused on carbon insetting or offsetting. While the on-farm actions to generate carbon insets and offsets can be very similar, they are different concepts; the table below, sets out the differences for both the farmer and carbon customers. A key distinction is that insetting also lowers the farm’s own carbon footprint, whereas offsetting does not as the benefit of the carbon credit can only be claimed by its purchaser. Selling offsets could therefore have more implications for the farm’s own path to net zero if its soil carbon sequestration is not able to be counted.

INSETTING COMMODITY CROPS

Major retailers are increasingly working directly with farmers in their supply chain to cut emissions. Currently, the focus of this insetting activity is on their branded products, and the meat, dairy and vegetable categories, yet many have set ambitious net zero goals so it stands to reason they must address commodity crops such as cereals too. Relationships in commodity crop markets are more transient, sourcing is dynamic and supply lines are not segregated, so they need a different approach to tracking and insetting carbon emissions. The “supply shed” concept promoted by the Value Change Initiative is one solution here – a food processor or retailer works with a group of suppliers to cut carbon emissions by a verified amount in a defined geographic market (the “supply shed”). It can claim the benefit of those carbon reductions regardless of which farm in the “supply shed” it actually buys crops from. The approach is a pragmatic solution, however, governance processes still need to be defined.

DEVELOPING A HIGH-INTEGRITY MARKET

To attract the investment that is needed to reduce carbon emissions, trusted standards and robust governance are essential. To fulfil this independent governance role internationally the Integrity Council for the Voluntary Carbon Market (ICVCM) has been formed and in March 2023 it published its Core Carbon Principles (CCP) (see chart, below), which are the basis of its assessment framework. The CCP label will be an international sign that shows a carbon credit has high integrity. Carbon credits will be able to be marketed with the CCP label if their category and programme have both been assessed by the Integrity Council and meet the criteria set out in the CCPs.

A hallmark of quality such as the CCP label is perhaps most important to corporations where association with schemes that do not deliver on their commitments could lead to reputational damage. Other carbon credit ratings are also emerging. BeZero and Sylvera offer an alternative approach, where the companies provide a risk-based assessment of the likelihood that a carbon credit will deliver its promise of one tonne of CO₂e avoided or removed. Their scores communicate quality in a manner that mirrors the bond market ratings offered by Moody’s and Fitch.

WHAT HAPPENED TO THE UK FARM SOIL CARBON CODE?

A national consortium led by the Sustainable Soils Alliance was awarded funding by the Environment Agency in July 2021 to develop a UK Farm Soil Carbon Code. During the course of the project, it became clear that the most effective way to add value to the marketplace was through the creation of “Minimum Requirements”, against which schemes could be evaluated. Issues such as measurement, reporting, verification, additionality and permanence were addressed, along with soil sampling methods and managing changes in land ownership. The Minimum Requirements were developed following a comprehensive review of international agricultural soil carbon market standards, so existing UK schemes are likely to be broadly aligned. Defra’s 2023 Nature Markets Framework launched a three-year project with the British Standards Institution to establish official UK-wide investment standards for nature markets. Its remit is broader but is likely to include soil carbon standards, which could be informed by the Minimum Requirements.

SOIL CARBON SCHEMES

Following a review of soil carbon schemes in the UK, we have found that there are now viable options available to arable farmers that will allow them to earn income from carbon certificates. Schemes focused on livestock farms are less established. The arable schemes are verified against the globally recognised Verra VM0042 or ISO 14064-2 standards and it is possible to focus on the insetting or offsetting market. Our analysis suggests there is limited downside risk to taking part:

1. Payments reflect the annual improvements made through emissions reductions and carbon sequestration so the potential carbon certificate income would otherwise be missed if the practices were adopted without joining a scheme.
2. They are flexible enough to reflect real farming practices. Schemes are typically 10–15 years and contracts are non-binding. If the farmer breaks it the consequence is usually financial, e.g. to forfeit income from 10-20% of the certificates awarded. There are no ongoing restrictions on the farmer’s management of their land.
3. The payments are stackable with the Sustainable Farming Incentive allowing both to be claimed. While ongoing compatibility cannot be guaranteed, Defra’s stated intention is to enable private finance and markets rather than impede their development. Emerging policy in Scotland and Wales is similar.

WHAT ABOUT PRICE?

Relative to the 100-year permanence commitments offered under the Woodland Carbon Code, the shorter commitments linked to soil carbon certificates could reduce their market value. However, payments can be layered with productive land use and the story of regenerative transition can be harnessed to add value. It is possible to partner with the carbon broker to share in any future value uplift if carbon certificates are resold.

Soil carbon certificate pricing will evolve as it becomes more established and global business focuses more on its requirements. Current values are £20-£35 per tonne of CO₂e after fees and sales commission. Certificates are referred to like wine as a 'vintage'; the Soil Capital scheme paid farmers £26.70 per tonne of CO₂e for its 2022 vintage.

CAN TENANTS JOIN SOIL CARBON SCHEMES?

Contractual flexibility means current soil carbon schemes are highly accessible to tenants. In some cases they can join freely, in others either an Agricultural Holdings Act tenancy, remaining term greater than five years, or landlord’s counter signature is required. As the tenant is only monetising carbon certificates generated through their agricultural husbandry, and management restrictions do not persist beyond the scheme’s agreement term, they are not disposing of carbon in a way that is deleterious to their landlord’s longer-term interests. Indeed incentivising improved soil health is beneficial to their landlord’s property.

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