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Crediting farmers for nutrient management - using carbon markets to create positive environmental change

27th Sep 2017

Source: Solutions, Elizabeth Hardee, July 2016

Carbon crediting holds the potential to incentivise optimal nitrogen fertiliser use on farms, avoiding negative environmental consequences (like climate change) while supplementing revenue to farmers. 

However realising the potential of this solution will depend on key factors including the adoption of nutrient managment crediting structures for compliance carbon markets, increased data collection and usage efficiencies and economies of scale for project expenses such as credit verification. This paper from America looks at the potential, key carriers and solutions for nutrient management credit at scale. 

In summary

Nutrient management practices could generate carbon credits, allowing for a supplementary revenue stream to farmers who are implementing these practices and driving positive environmental change.

The potential for scalability of carbon crediting for nutrient management is very large, and lessons learned from the successful deployment of nutrient management crediting projects on large mazie farms in the U.S. may be applicable to other crops and regions worldwide.

Scalability depends on several factors including increased focus on lowering project costs through economies of scale, increasing revenue potential through carbon markets, and prioritising environmental integrity using established credible standards.

The science behind it

When nitrogen fertiliser is applied to soil, biological processes within the soil convert some portion of it to nitrous oxide and, as global meta - analysis study concluded, "N2O emissions tend to grow in response to N fertiliser additions at a rate significantly greater than linear." The loss of excessive nitrous oxide from farms into the atmosphere is preventable and depends on matching the application of fertilisers more effectively with the needs of crops. collectively referred to as nutrient management, there are several practices that do this - applying smaller quantities, applying different fertiliser products, use of nitrogen inhibitors, injecting fertilisers into soils rather than broadcasting applications, and / or optimising the timing of fertiliser application for the plant's nutrient uptake.

Nutrient management practices are quickly catching the attention of farmres looking to save money on inputs, companies wishing to reduce the GHG emissions footprint of their supply chains, and the carbon markets - systems with potential to provide revenue to farmers on the basis of increased fertiliser use efficiencies.

In a carbon market, a farmer generates a credit for each unit of nitrous oxide emissions avoided by a change in nutrient application practices and this credit can be sold to a company or other entity that wishes to offset its own emissions. The value each credit produces is distributed through that credit's vale chain; a portion of it goes to pay for the development of the carbon project, a portion to verify that the intended outcomes of the project are met and a portion becomes an alternate stream of revenue for the farmer - important, as crop farmers are typically subject to the volatility of commodity crop prices in predicting their revenuye stream.

This means that the generation of credit from nutrient management changes is beneficial from multiple angles, millions of tonnes of greenhouse gas emissions are avoided, farmers are compensated, and jobs are created to handle the carbon accounting.  Even water quality may improve as the optimisation of fertiliser applications also limits the creation and distribution of nitrate, an anion salt that has been implicated in adverse water quality conditions in several areas worldwide.

With so much monetary value involved it becomes even more critical for emission offsetting programs to be designed effectively. In the past offsetting programs lacked accountability and offsets were sometimes created for emissions reductions that had occurred in the course of business as usual or had not occurred at all.

Environmental integrity, in the context of offset credit quality standards, means that the emission reduction represented by the credit is real (accurately calculated), measurable (able to be compared with a baseline condition), verifiable (able to be confirmed by an independent third party), permanent (unable to be reversed), additional (above and beyond business as usual, the most common practice in a region, or existing law structures), and enforceable (able to be withdrawn, should it be discovered credits were created fraudulently). Carbon accounting systems all over the world have accepted these principles as the best way to ensure the environmental integrity of credits.

Achieving change

The benefit of offset projects that are managed with integrity cannot be overstated. For agriculture, crediting could be a way to generate revenue that doesnt rely on crop prices. Howevre significant barriers remain to making carbon crediting a viable solution for agricultural emissions, breaking these will require continued co-operation between agricutlural and carbon market stakeholders and a focus on prioritizing the propoer balance between environmental integrity and ease of use. The most pressing barriers yet to be broken are related to data collection and storage, carbon credit protocols and the price of carbon.

Data collection and storage

Its complicated and includes ownership of data, length of agreements and access to figures.

Carbon price

The scalability of carbon offset crediting for nutrient management practices relies on the price of carbon being high enough to provide a margin to farmers once project costs are accounted for. 

The ability of farmers to sell credits into systems created by regulation (compliance markets) such as EU Emissions Trading scheme or the Californian Cap and Trade system woudl be an ideal solution to the issue of pricing, as both systems clearly articulate the price of each ton abated and provide more certainty in credit demand rather than voluntary markets.

Carbon protocols

Designed primarily for environmental integrity rather than to flexibly account for the complex dynamics of soils, these methodologies are highly prescriptive, with high implied upfront costs to farmers for the generation and verification of credits.

Though the ability of farmers to sell their credits into compliance markets would at least provide higher certainty around the carbon price, and therefore the ability to recoup project expenses, developers of carbon projects still need to ensure project csots remain low to minimise financial risks to farmers. 

A further thought when looking at nutrient management projects, is the duality of the benefits. As there is both an atmospheric and a water quality benefit, it may be possible to sell environmental credits for each benefit from the same plot of land, a process known as credit stacking. Stacking has often been dkiscussed as a way to maximise revenue benefits to landowners but its success depends on being able to verify that no one environmental benefit is attributed to more than one credit type.

The carbon mitigation potential of optimised nutrient management practuices is vast. IN the U.S. Corn Belt along, potential from practice changes on continuous corn or corn soy bean rotational fields is estimated to be between 0.77 to 2.7 million loffset credits per year (each credit represents one metric ton of emissions avoided). Add int he rest of the world's regions and crops and the sector becomes not only a major carbon mitigation player, but potentially very lucrative for farmers, particularly if carbon prices continue to rise - which is likely to happen with increased international focus on emissions.