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Carbon Insetting: Who gets the credit? [Part 3 - Locking down the farmers]

Updated: May 29

Welcome back to part 3 of our deep dive into carbon insetting! Today, we’re tackling a key concept: Additionality

Let's explore the real issues around how unaccredited carbon insetting programs could trap farmers in a rigid path, stripping them of bargaining power, the chance to sell carbon credits outside their value chain, or the opportunity to join a verified carbon program if their insetting program gets the axe.


Quick Recap:

Before diving deeper, catch up by reading:

Part 1: Setting the Scene

  • We kick things off by exploring the essentials of carbon insetting.

  • Zoom in on our main topic: carbon removal-based insetting.

  • Discover how initiatives like the Science Based Targets initiative (SBTi) and guidelines from the Greenhouse Gas Protocol (GHG Protocol) might spark a wave of innovative insetting programs, though not all will be accredited

We'll navigate through two main paths for carbon removals in a carbon insetting scheme:

  • Unaccredited = bypassing the creation and retirement of carbon credit units.

  • Accredited = ensuring the creation and retirement of verified carbon credit units.

For this article series we are focused on carbon removal within a companies value chain or direct operations. 

Part 2: Locking down the carbon

  • We delve into the critical ideas of Permanence and Buffers.

  • We introduce Carglé, our fictional giant in the multinational food industry, set to launch a removals-based carbon insetting program aimed at aiding farmers within their supply chain to capture CO2e in soil and trees.

  • We examine Carglé's journey toward choosing an accredited or unaccredited route for their pioneering insetting initiative, within the context of permanence and buffers.

And to reiterate, the context of my own experience is within the Australian carbon farming industry. We generally have a more risk averse culture in Australia and our media is especially aggressive towards the integrity of carbon credit programs.

 Now, onto the next topic.


Understanding Additionality

Todays article explains the concept of additionality, which is really important for farmers and Carglé. Additionality makes sure that carbon credits represent actual, measurable reductions in emissions.

Imagine a project that claims to "protect" a forest that's already protected by law. This project wouldn't qualify for credits because the emissions wouldn't change whether the project happened or not.

For carbon credit schemes to work, they need to prove their projects, like planting more trees or capturing industrial gases, wouldn't happen without the funding from carbon credits.

Additionality comes down to whether a project is truly needed to reduce or remove emissions:

  • A project only counts if it's necessary for cutting down emissions.

  • If emissions would drop anyway without the project, then it doesn't count.

Focusing on projects that meet these criteria ensures that carbon credit programs really help lower global emissions, and buyers are actually funding true emissions reduction work.

Planting trees on historically cleared agricultural land is a good example of a project that meets these criteria clearly. No trees prior to planting, after planting there are trees. Clean cut.

This is a hot issue particularly in soil carbon projects. For farmers who have already adopted regenerative farming or other practices to enhance soil health, what this means is that if they are planning to embark on a soil carbon project for example, they must implement a new and material “change” in their management practices to prove additionality. They can’t just keep doing the same thing (even if they are successfully building soil carbon).

In some cases (determined by the methodology), they may also have to prove that the new activity is only financially feasible due to the carbon credit revenue. If a particular activity is common practice in a region (such as no-till cropping or cover crops), it may not be able to be counted as an additional activity, because clearly farmers in the area are already adopting this practice change without the need for a carbon credit payment. So it can get complicated. And varies from method to method.

Some critics say this system is unfair to innovative farmers who are already using beneficial practices but can't get credits because they don't meet the strict rules of additionality.

Lookback Periods

Another key concept in carbon credit methods is the lookback period. This period allows project owners to apply the additionality test retroactively, and be accredited for historical emission reductions or removals. For instance, they might have started tree planting or soil carbon enhancement activities 5 years ago, anticipating future carbon credit income to cover the costs of these non-commercial activities.

Proving additionality for these periods can be tough, and getting approval from carbon credit authorities is challenging. Many carbon credit programs, like Australia's ACCUs scheme, don't allow for lookback periods. However, some, like Verra or Gold Standard , do permit them under certain conditions.

In contrast, unaccredited insetting programs are more flexible, often granting carbon credits or incentive payments for past actions. Examples from the USA or Europe show this flexibility in action.


Revisiting our scenarios

Let's quickly go back to our hypothetical scenario for our made-up company Carglé, and explore how the concept of additionality works in our two cases. 

Just to recap, in both situations, Carglé would:

  • Cover the costs for agronomic advice and training to help farmers implement practices that boost soil organic carbon. This includes methods like no-till farming, using cover crops, and applying biological inputs.

  • Pay for selective tree planting on parts of the farmers' land that aren't being fully used.

  • Set up a top-tier system for monitoring, reporting, and verification (MRV), using high-tech software, satellite surveillance, and on-the-ground data checks (like soil samples or measuring tree thickness).

  • Carry out independent checks every five years to make sure the program is running as it should.

  • Cut down their yearly CO2 equivalent emissions based on the total carbon removals achieved.

Carglé's Accredited Pathway:

Imagine Carglé operates in Australia and decides to participate in the Australian Government's ACCU scheme. Through this scheme, they can generate tradable carbon credit units, which are recognised as registered financial products under Australian law.

  • Carglé gets 30% of these credits to cover their costs, while the remaining 70% goes to the farmers.

  • While Carglé can buy more credits from the farmers, the farmers aren't forced to sell only to Carglé.

However, the Australian ACCU Scheme's Soil Carbon Method and the Environmental Plantings Method (also known as afforestation) don't include a lookback period. This means only new actions qualify for credits.

Cargle's Unaccredited Pathway:

Carglé, collaborating with agronomists and a third-party consultant, has developed an unaccredited insetting program following the Greenhouse Gas Protocol (GHG Protocol) Land Sector and Removals Guidance.

  • This program won't produce tradable carbon credit units. Instead, it generates "certificates" that Carglé (or their downstream partners) can use within their supply chain for the commodities produced by the farmers.

  • Carglé owns all the certificates generated.

  • Farmers get yearly payments per hectare as an incentive to change their practices.

Carglé has some flexibility in setting rules for additionality and lookback periods, as long as they adhere to the Greenhouse Gas Protocol (GHG Protocol) guidance. This allows them to establish an emissions "baseline" at a specific time, after which they must demonstrate how their actions or incentives have led to net carbon reductions.

Since the "certificates" aren't tradable carbon credits, their impact on third parties is limited. 

Essentially, Carglé will face the consequences of its decisions regarding the rigour of its approach, since these certificates are used to offset their own supply chain emissions. 

The effectiveness of their approach will ultimately be judged by public opinion, third-party rating agencies, or a potential carbon-neutral certifier, should they choose that route.

 Now lets dive into the advantages and disadvantages of each approach.

Unaccredited = More Flexibility:

Choosing the unaccredited path offers greater flexibility, especially concerning the soil carbon part of the program. This option allows Cargle to tailor the program towards farming practices it wishes to promote and reward. 

Even more, it can create a program tailored to the specific needs of farmers in a particular area. 

A common critique of accredited carbon credit methods is their tendency to adopt a one-size-fits-all approach, which doesn't always fit everyone's needs and tends to manage towards a lowest-common-denominator. In contrast, the unaccredited program provides much more adaptability and a clearer focus on qualitative outcome specific to a certain value chain or context. Full credit must go to previous comments by Dominic Sutton-Vermeulen for these last insights.


Unaccredited = Farmers are out of any other program… forever!

This is a big deal! The major risk of joining an unaccredited carbon insetting program is that farmers get completely tied to just one carbon program.

They're putting all their eggs in one basket, trusting Carglé to keep the program going for the entire period they've signed up for.

If the program gets cancelled for any reason, like future business changes for Carglé, farmers can't just jump into another carbon credit program. They'll likely be barred from joining a different program for the land used in the Carglé insetting program.

That's because they've already made the practice changes required by the Carglé program. So, by the standards of any other carbon program, these activities aren't "additional" anymore.

For tree planting, the rules are very clear: you can't get credit for trees that were planted before. It all has to be new. And you definitely can't cut down trees only to replant them.

This poses a huge risk for farmers. They're making a long-term commitment to one program with no way out or option to change their mind. They're stuck with Carglé for the long haul.

The only way out is if they wait until the Carglé program's permanence period is over (more on permanence in part 2) and then make some new and additional practice changes to qualify for a different carbon credit program.

At first glance, this might seem great for Carglé. They've got farmers exactly where they want them, and it encourages farmers to stay with Carglé long-term, which means more supply security for Carglé. However, this also poses a big risk for Carglé in terms of its social reputation. If Carglé's business conditions change and they can't continue payments to farmers, suspending the program could lead to serious backlash. 

Farmers would realize they're locked out of other opportunities, and Carglé could face a media frenzy and lose suppliers.

So, the risk of future cancellation of an unaccredited insetting program is significant, impacting both farmers and Carglé.


Unaccredited = farmers missing out on benefits

As mentioned earlier, when farmers join an unaccredited insetting program, they end up selling their carbon improvements to just one buyer. Take our example where Carglé pays farmers an annual amount per hectare for adopting certain practices.

This arrangement could greatly benefit Carglé, especially if carbon prices keep rising. They've calculated a payment amount based on a conservative estimate of carbon prices.

 If the carbon prices skyrocket, Carglé ends up reducing its emissions at a much lower cost per tonne.

To make this more equitable for farmers, Carglé could link their payments to the current market carbon price, allowing farmers to earn more when carbon prices are high, making the deal fairer.

Unaccredited = potential for closer relationships

Choosing an unaccredited pathway could, if managed well, foster strong, long-term relationships between Carglé and its farmers. Carglé might offer more secure, favourable contracts, providing safeguards to farmers in the supply chain against certain risks. This strategy could help Carglé build closer ties with farmers, understanding their needs and challenges better to improve farming practices. Over time, incentives might increase. 

Such collaboration could position Carglé to sell produce at higher prices or gain better market access in a world with ever higher expectations around low emission food production

Acting as a responsible corporate citizen, Cargle could also offer farmers ways to exit the program, ensuring they don't miss out on future carbon initiatives, allowing them to focus on farming.

Though this approach has several "ifs", it highlights the potential benefits of an unaccredited insetting program based on partnerships.


Accredited = Farmers have the upper hand.

Under the accredited pathway, farmers get to keep 70% of the carbon credits generated by the program. These carbon credits are tradable.

Farmers have complete control and can negotiate openly and fairly with Carglé, deciding whether to sell some of their credits back to Carglé. They can also choose to keep the carbon credits, sell them to someone else, or use them to achieve carbon neutrality in a different part of their business.

We're now in a situation where products with low carbon footprints or those that are carbon neutral might get better prices, or might be the only ones allowed in certain markets. 

In this context the options for the farmer include:

  1. Use the carbon credits to make their produce carbon neutral and sell it to a market that prefers or pays more for such products.

  2. Sell their produce in a market that pays less for non-carbon neutral products and sell the carbon credits separately to an external party.

There's a lot to consider, but the key point is that farmers have complete control and strategic freedom over how to use their 70% share of the carbon credits.


Accredited = The program can continue without Carglé.

Under the accredited insetting pathway, the program can operate long-term with or without Carglé's involvement. If Carglé ever needs to cancel the program due to business reasons, there are several exit strategies available. The program could be handed over to another organization, like a carbon service provider, or each farmer could manage the regulatory aspects of their own project area. There's a lot of details here, so it's hard to cover every potential scenario.

The main point is that both the farmer and Carglé are protected from the risks of an unexpected project cancellation, as the program is designed to continue without Carglé.

Wrap up

To wrap things up, choosing between accredited and unaccredited carbon insetting programs is a significant decision for Carglé and the farmers, especially when considering the aspect of additionality. Here's a simplified overview:

Accredited Pathway (uses carbon credits):

  • Allows farmers to use or sell their carbon credits as they see fit.

  • Farmers hold the negotiating power, choosing to supply carbon-neutral produce or sell credits to the highest bidder.

  • Guarantees the continuity of the insetting program, independent of the downstream food company. Another group can take over or manage the program if necessary.

  • Farmers stand to gain from rising carbon prices.

Unaccredited Pathway (no carbon credits):

  • Could lead to a stronger long-term partnership between farmers and buyers.

  • Offers more flexibility and can be customized for specific supply chain needs.

  • Limits farmers to one program without the option to switch.

  • Depends on the continuous support and financial incentives from downstream food companies.

  • The achieved carbon reductions or removals can't be sold outside the value chain.

  • Farmers don't benefit from increases in carbon prices.

Considering these points, it's difficult to see how both Carglé and the farmers wouldn't prefer the accredited pathway.

The only exception is if Carglé also owned and operated farms (being vertically integrated) and could manage all the risks independently. This scenario presents the ideal situation for unaccredited insetting.

Keep an eye out for the final instalment of our series, where we'll compare the costs of accredited versus unaccredited programs and conclude our four-part journey.


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