The Rising Trend: SOC And Carbon Markets

Why Is Carbon Sequestration So Pressing Today?

Carbon sequestration is the process by which atmospheric carbon dioxide is absorbed by plants through photosynthesis and stored as carbon in the soil. This natural process is a key strategy for mitigating climate change as it helps to offset greenhouse gas emissions by removing CO2 from the atmosphere and storing it in the soil.

As the impacts of climate change become increasingly evident, the need for effective carbon sequestration strategies has become more urgent than ever.

How Beneficial Is Carbon Sequestration For Agribusinesses?

Apart from bringing a positive impact on climate, soil organic carbon sequestration is also beneficial for agribusinesses in terms of soil health.

Soil organic carbon (SOC) boosts nutrient availability, thus promoting healthier and more productive crops. As a result, a simple agriculture practice like straw incorporation can lead to a stunning 13.4% increase in crop production ^{Han, X., Xu, C., Dungait, J. A. J., Bol, R., Wang, X., Wu, W., and Meng, F. (2018). Straw incorporation increases crop yield and soil organic carbon sequestration but varies under different natural conditions and farming practices in China: a system analysis, Biogeosciences, 15, 1933–1946, https://doi.org/10.5194/bg-15-1933-2018.}.

Also, soil structure enhanced by SOC demonstrates improved water infiltration and retention, as well as root penetration. Carbon acts like a sponge that improves the soil’s resilience to droughts and reduces the need for irrigation.

However, we shouldn’t treat SOC sequestration simply as another best practice bringing benefits. It also implies several challenges. For instance, the sequestration rate is influenced by several factors, such as soil type, climate, crop type, and management practices. The interaction of these factors is quite complex, which makes it difficult to assess the possible profitability of this practice for farmers.

Also, effective management of SOC sequestration requires accurate measurement and monitoring of carbon levels, which is difficult due to its spatial variability and the lack of cost-effective measurement tools.

Finally, it is a long-term term process requiring a sustained commitment to certain sustainable soil management practices. In case anything goes wrong, the sequestered carbon can get released back into the atmosphere.

Luckily, humanity has already developed various technologies to overcome these challenges.

What Kinds Of Technologies Are Most Effective In Carbon Sequestration?

One of the key technologies in this field is remote sensing, which involves the use of satellites to monitor soil conditions. Remote sensing technology can provide detailed information about soil properties, including its organic carbon content. This data can be used to identify areas of high SOC concentration and monitor changes in SOC levels over time, enabling more targeted and effective sequestration efforts.

Machine learning algorithms are another powerful tool in SOC management. These algorithms can analyze large datasets from various sources, including remote sensing imagery, soil samples, and weather data, to predict SOC levels and sequestration potential. This can help farmers and land managers make informed decisions about their land management practices to maximize SOC sequestration.

As these technologies continue to evolve and become more accessible, they will undoubtedly play an even more significant role in our efforts to harness the power of soils for climate change mitigation and sustainable agriculture.

How Farmers Can Monetize Their SOC Sequestration Efforts?

Apart from getting more fertile soil, farmers can also claim and sell carbon credits on carbon markets.

The carbon market is a trading system in which carbon credits are bought and sold. Each tradable carbon credit represents one ton of carbon dioxide or the equivalent amount of a different greenhouse gas that has been reduced, sequestered, or avoided.

Currently, two types of carbon markets exist: compliance markets and voluntary markets.

Compliance markets are regulated by mandatory national, regional, or international carbon reduction policies. Voluntary markets enable businesses, governments, and individuals to purchase carbon offsets on a voluntary basis.

Both markets have been growing significantly lately: global carbon pricing revenue reached $84 billion in 2021 (which is a 60% increase compared to the 2020 level) and by 2030, the voluntary carbon market is expected to reach up to $40 billion ^{Porsborg-Smith, A., Nielsen, J., Owolabi, B., Clayton, C. (2023, Jan 19). The Voluntary Carbon Market Is Thriving. Boston Consulting Group.}.

How Do Carbon Markets Operate Today? Are They Present In Every Country?

The origin of carbon markets can be traced back to the Kyoto Protocol in 1997, which established the first international carbon market system. However, the absence of the US and China from the agreement meant that widespread adoption remained elusive until the Paris Agreement in 2015, which saw 196 Parties commit to reducing their carbon emissions.

Today, carbon markets operate on the principle of ‘cap and trade’, where a limit is set on the total amount of certain greenhouse gases that can be emitted by factories, power plants, and other sources. Companies or other groups are issued emission permits and are required to hold an equivalent number of allowances (or credits) which represent the right to emit a specific amount.

Modern carbon markets are operational in various forms across different regions, each with its unique characteristics.

The European Union Emissions Trading System, for instance, is the largest carbon market in the world. It covers more than 11,000 power stations and industrial plants in 31 countries and has been instrumental in reducing Europe’s carbon emissions and driving investment in low-carbon technologies.

In the US, on the contrary, there are a number of regional carbon markets, such as the Regional Greenhouse Gas Initiative in the Northeast and Mid-Atlantic, and the Western Climate Initiative in California. They also operate on a cap-and-trade system and have been successful in reducing emissions in their respective regions.

China’s carbon market covers more than 2,200 power companies and 3 billion tons of CO2 emissions annually. And the Australian government’s Emissions Reduction Fund established in 2014 provides incentives for a range of organizations and individuals to adopt new practices and technologies to reduce their emissions.

How Do Farmers Claim And Sell Carbon Credits?

Once a farmer has measured and verified their SOC sequestration efforts, they can claim carbon credits. This process involves registering the carbon sequestration project with a recognized carbon registry, such as the Verified Carbon Standard or the Gold Standard. The registry will issue carbon credits based on the amount of carbon sequestered, with one carbon credit typically equivalent to one metric ton of carbon dioxide equivalent sequestered.

The average amount of carbon credits claimed by farmers can vary widely depending on the size of the farm and the specific carbon sequestration practices implemented. However, global cropland has the potential to sequester as much as 570 million metric tons of carbon per year.

The cost of one carbon credit also varies by country and market. For instance, as of 2023, the price generally ranges from $20 to $80 per metric ton. However, some markets, like the European Union’s Emissions Trading System, have seen prices exceed $100 per metric ton.

Selling carbon credits can be a complex process. It involves finding a buyer, which can be a company looking to offset its own carbon emissions, or a broker who trades carbon credits on a carbon market. The time it takes to sell carbon credits can vary, and farmers may need to wait for a buyer. However, the demand for carbon credits is growing, with the carbon credit market potentially becoming a $100-billion-a-year market by 2050.

Businesses that buy carbon credits use them to offset their own carbon emissions, so this can help them meet their carbon reduction targets and comply with regulations that require them to reduce their carbon footprint. In some countries, companies that exceed certain emission thresholds are legally required to offset their excess emissions by buying carbon credits.

What’s The Future Of Carbon Markets?

Direct carbon pricing instruments now cover almost a quarter of global greenhouse gas emissions ^{Record High Revenues From Global Carbon Pricing Near $100 Billion (2023, May 23). The World Bank.}. The Taskforce on Scaling Voluntary Carbon Market estimates that demand for carbon credits could increase by a factor of 15 or more by 2030 and by a factor of up to 100 by 2050 ^{Blaufelder, C., Levy, C., Mannion, P., & Pinner, D. (2021, Jan 29). A blueprint for scaling voluntary carbon markets to meet the climate challenge. McKinsey.}.

Such an increasing recognition of the importance of carbon sequestration and the potential financial benefits of participating in carbon markets is expected to drive a rapid shift in agricultural practices worldwide.

Governments are also playing a crucial role in this transition. Many are implementing policies to stimulate the growth of carbon markets and incentivize carbon sequestration. For instance, the U.S. government has proposed a program to boost climate funding for developing countries, leveraging voluntary carbon markets to unlock billions of dollars ^{Copley, M. (2022, Nov 9). U.S. plan for boosting climate investment in low-income countries draws criticism. NPR.}. Similar initiatives are being undertaken by governments around the world, reflecting a global commitment to mitigating climate change.

My take is that in this evolving landscape, AI-powered satellite analytics are set to play a pivotal role as it can provide precise, almost-real-time data on carbon sequestration, enabling more accurate measurement and verification of carbon credits. On a global scale, this will not only make it easier for farmers and agribusinesses to participate in carbon markets but also increase the transparency and reliability of the latter.

In conclusion, driven by shifts in mindset, government incentives, and advances in technology, the future of carbon markets looks promising. As more and more farmers and agribusinesses recognize the benefits of carbon sequestration, and as governments and technology providers offer increasing support, we can expect to see a significant expansion of carbon markets and a corresponding increase in soil organic carbon sequestration.