Remunerating farmers for their stored carbon, Europe’s good idea?

On December 15, 2021, as part of its communication on carbon sinks, the European Commission made public its proposals to strengthen carbon storage in agricultural soils. Its objective: to remunerate farmers to encourage them to store more carbon. To achieve this, it is first necessary to build a European carbon certification framework to guarantee the impact of funded projects. Claudine Foucherot of I4CE considers this tool to be promising but poses three conditions, based on the French experience in this area.

Relying on a greater obligation of results is good news…

With this future certification framework, a new direction is taken by the commission: it relies more on the obligation of result. This is good news!

Indeed, until now, very few incentives existed to reduce the carbon impact of the land sector and the proposed tools (green payments of the 1st pillar of the CAP, AEM Agro-Environmental Measures, etc.) all based on obligations of means, have not demonstrated their effectiveness as the European Court of Auditors recalled in its report on the CAP and the climate. Payments on results are a solution to ensure the environmental impact of funding, or to put it another way, to ensure that each euro spent in the name of the climate really contributes to the fight against global warming.

Opposition to this type of instrument is regularly expressed with regard to their supposedly higher transaction costs than for instruments with an obligation of means. An obligation to achieve a result means evaluating this result, which implies collecting a certain amount of data and obviously has a cost. This point must however be qualified because the obligation of means already imposes large transaction costs. Indeed, when we try to optimize the practices to be implemented in a given pedo-climatic context, the costs linked to the multiplication of specifications in the case of the obligation of means (for example for AEM) explode. In the end, the costs of developing these “à la carte” specifications offset the costs of MRV (Monitoring, Reporting, Verifying) of the environmental impact associated with the obligation of result.

On condition that the scope of the certification framework is reviewed

This is good news, but it will be really good under 3 conditions resulting from the French experience with the Low Carbon Standard (LBC). The LBC is the French carbon certification framework piloted by the Ministry of Ecological Transition. Although it is intended to cover all sectors of activity, the first methods and projects focus on the agricultural and forestry sectors, which makes it a perfect case study for the future European framework.

The first condition is to review the scope of the scheme to include agricultural emissions other than CO2. Without this ‘enlargment of the scope’, the scheme will be unusable for the agricultural sector.

In its communication, the Commission treats the objectives of carbon sequestration and the reduction of N20 and CH4 emissions in the agricultural sector separately. However, the nitrogen and carbon cycles are linked. The same practice, such as permanent soil cover or soil conservation, can have impacts on both soil carbon storage and GHG emissions, and not always in the same direction. If we do not want this system to be unusable by farmers or to create perverse effects in this sector, it is essential to broaden the scope to include the reduction of methane and nitrous oxide emissions.

This does not preclude counting separately what comes under carbon sinks and what comes under GHG reductions in order to monitor changes in these two categories, which is essential in order to manage the risk of non-permanence specific to carbon sequestration. This is the choice that has been made in the context of the Low Carbon Standard.

…To ensure that the system encourages real transformations in production systems

The second condition concerns the proper consideration of all sustainability issues.

The Commission’s communication rightly insists on the importance of taking into account all these issues. But it is not so simple to develop methods that are not carbon-centric when the metric is tCO2eq. Several solutions exist, however. Imposing safeguards (maximum stocking, minimum number of species, etc.) to avoid pushing intensive systems, which would have a negative impact on biodiversity and water quality; adding indicators for monitoring other issues to the calculation of carbon impact; and giving priority to accounting for emissions per hectare rather than per quantity produced to encourage extensification. These different approaches are being tested in the Low Carbon Label and their respective effectiveness should be discussed.

More fundamentally, behind this condition lies the question of the transformations of the food chains that we want to push. There are many ways to achieve carbon neutrality, with scenarios relying on technology or scenarios involving major changes in food behavior. But not all of them have the same impacts on the other dimensions of sustainability. As mentioned above, there is no shortage of ways to integrate these issues into a carbon certification framework. But the way they are integrated can drastically change the type of practices and transformations that are pushed on the ground. It is up to the regulator to set the course.

…And not to misjudge the sources of financing

The third condition is not to choose the wrong target for financing. We often hear that carbon certification is a tool dedicated to carbon compensation. In reality, this would be very simplistic. Carbon certification can provide guarantees on the impact of a project and can be useful for any financing, private or public, seeking to have an impact and to monitor this impact.

To those who think that carbon certification is only of interest for voluntary carbon markets, the commission brings a first answer by leaving a place for public financing and agribusinesses via other forms of financing than the purchase of carbon credits (CAP subsidies, investment aid, premium on production, etc.). This is already a great step forward, but it could go even further.

The voluntary carbon market is marginal for the moment, even more so for credits worth several dozen euros, as we can see with the first projects certified by the LBC. It would be risky to bet on its development to finance the low-carbon transition of the agricultural and forestry sectors. Let’s make no mistake, it is the voluntary market that can be a complement to public financing, to financing from the sector and to private investment, and not the other way around as the Commission’s communication might suggest. If the challenge is to find new sources of financing for the land sector through voluntary carbon markets, the result will likely be very disappointing. On the other hand, if the challenge is to provide a tool to channel funding more effectively to low-carbon projects, the future European framework could be a structuring tool in achieving the objectives set by the Green Deal.

Under these three conditions, Europe will be able to develop a robust and credible taxonomy for financing the low-carbon transition of the agricultural and forestry sectors.