USDA releases assessment on agriculture in carbon markets

By David Fairfield, Senior Vice President, Feed

The U.S Department of Agriculture (USDA) on Oct. 23 released a comprehensive review of current carbon market activity, barriers to participation, and opportunities to improve access to carbon markets for farmers and forest landowners titled “A General Assessment of the Role of Agriculture and Forestry in the U.S. Carbon Markets.” 

USDA issued the report as directed by the NGFA-supported Growing Climate Solutions Act (GCSA), which was signed into law on December 29, 2022, as part of the Consolidated Appropriations Act of 2023. GCSA required the report to inform USDA’s future determination as to whether to establish the Greenhouse Gas Technical Assistance Provider and Third-Party Verifier Program, which would facilitate better technical assistance to producers interested in participating in carbon markets, as well as a process to register market verifiers.

The 88-page report assesses the current state of carbon markets by providing information on the supply and demand for carbon credits; descriptions of protocols and registries and other systems used to generate carbon credits; a summary of quantification and accounting methods; an assessment of barriers to entry into carbon markets; and options to address barriers. Some key findings in the report include:

• As of mid-2023, 18 carbon credit protocols have been successfully used within agriculture, forestry, and land use projects in the United States to generate carbon credits. These protocols specify requirements for participant eligibility, what sources of emissions must be included, and procedures for the measurement, monitoring, reporting, and verification (MMRV) of carbon credits.

• Carbon credits are sold on compliance and voluntary markets. Compliance carbon markets support regulatory programs that require greenhouse gas (GHG) emissions reductions, and include California’s Cap-and-Trade program, the Regional Greenhouse Gas Initiative (RGGI) in the northeast, the International Civil Aviation Organization’s Carbon Offset Reduction Scheme for International Aviation (CORSIA), and the Washington Cap-and-Invest Program. Voluntary carbon markets encompass the voluntary buying and selling of carbon credits outside of a regulatory framework to achieve a voluntary emissions reduction goal.

• Over the past 4 years, the volume of carbon credits issued in the compliance market has dramatically decreased. Meanwhile, the volume of voluntary carbon offsets increased from 2.3 million metric tons carbon dioxide equivalent (MMtCO2e) in 2018 to 7.9 MMtCO2e in 2022. The recent increase in voluntary carbon credits is expected to continue. Demand for voluntary carbon credits is high because companies have set ambitious GHG reduction and carbon neutrality goals, and many are purchasing credits in pursuit of these goals.

• The future of voluntary carbon markets will be influenced, in part, by the supply of credits which has varied significantly over time. In the last decade, there has been a large supply of carbon credits generated from forestry projects in the United States. Carbon credits generated from agricultural projects have been significantly fewer; most agricultural credits are generated by livestock projects.     

• Significant variability in agriculture and forestry GHG quantification systems makes it challenging to quantify and standardize emission and carbon sequestration accounting. Accurate quantification is critical to the functioning of carbon markets and to achievement of the GHG reduction goals driving participation in the market. 

• A recent survey by Trust in Foods indicated awareness of carbon markets among 93 percent of livestock and cropland managers, but only a 3-percent participation rate. Low participation stems from several barriers, including limited return on investment; conservative accounting of benefits generated; limited access to early adopters; stringent permanence requirements; small scale of agriculture projects; confusion over the options; and lack of demand.  

• USDA can play a role in helping to reduce several of the identified barriers to entry that agricultural and forestry producers face in accessing voluntary credit markets. This includes reducing uncertainties and building confidence in quantification through investments in a soil carbon monitoring network; advancing GHG research; improving models and tools to estimate GHG sources and sinks; and advancing data products for use in MMRV of carbon credits.

Following the report, it is widely anticipated that USDA will choose to establish the Greenhouse Gas Technical Assistance Provider and Third-Party Verifier Program.