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Nov 21, 2024
By Allison Jenkins
Photo credit: Allison Jenkins
When economic opportunity knocks, farmers usually aren’t afraid to answer the door.
The past few years, however, what’s been on the other side of the door is billions of dollars invested in hundreds of climate-smart agriculture projects with many different partners in multiple states. Following the money to opportunities that fit on the farm can be a challenge.
Dave Walton figured a farmer-led program was a good place to start.
Two years ago, he enrolled in the Soil and Water Outcomes Fund (SWOF), managed by AgOutcomes, a subsidiary of the Iowa Soybean Association (ISA), which allows participants to earn financial incentives for new or expanded on-farm conservation practices. Walton says he was attracted to the program’s flexibility and ability to stack payments for multiple ecosystem benefits. Around a third of his farm in Wilton, Iowa—some 300 acres—is enrolled for the 2024-25 season.
Dave Walton says for him, participating in ecosystems opportunities is about improving soil health, gaining better weed control, reducing erosion and runoff and ultimately protecting his family’s 188-year farming legacy. Photo Credit: Iowa Soybean Association
“We looked at a lot of different programs, most of them based on carbon,” says Walton, who serves on the board of directors for both ISA and the American Soybean Association. “None of them really made sense either from a management or monetary standpoint. But when the Soil and Water Outcomes Fund launched, I knew it was going to be farmer-driven and farmer-focused, and there was going to be some real financial benefit. For our farm, this was the direction to go.”
Trust is also a decisive factor in choosing to participate in the ever-evolving ecosystems marketplace. Increasing consumer demand for sustainable products along with government regulations pushing for net-zero emissions are driving companies to explore ways to lower their carbon footprint. One solution is to support programs that actively reduce greenhouse gases, such as climate-smart agriculture, but this demand also has pressured voluntary markets to expand quickly. As a result, the process is complex, largely unregulated and ill defined.
Adding to the complexity is the USDA’s Partnerships for Climate-Smart Commodities, which earmarked a profusion of funding for these types of programs in 2022. Some 141 projects were approved to receive more than $3.1 billion through this effort.
ISA is among those recipients, awarded $95 million—one of the largest USDA grants—for the Midwest Climate-Smart Commodity Program, which piggybacks on progress the SWOF has made since its inception in 2019.
“There’s a huge opportunity to eventually have a market between private sector partners and farmers around the way that crops are grown, but that market is not mature enough to stand on its own today,” says Adam Kiel, SWOF co-managing director. “The Climate-Smart grant is going to help us scale this market over a five-year period, building out the systems and connections that will allow it to be a standalone, self-sustaining program.”
The SWOF promotes farming practices that benefit soil health, water quality and overall ecosystem resilience. Hundreds of farmers enrolled in SWOF across 16 states are already seeing real results, with participants earning an average of $33 per acre in 2023.
“We’re trying to add value in multiple ways through multiple markets, not just carbon,” Kiel says. “The same practices that sequester carbon or reduce emissions usually have a water quality, biodiversity or some other additional benefit. We think that’s going to lead to more farmer willingness to adapt if we can expand support for other ecosystem services.”
Tom Adam, who also serves as a board member for both ISA and ASA, enrolled in the SWOF in 2021 and has added acreage each year since. He has nearly eliminated tillage on his operation in Keokuk County, Iowa, where his family has farmed since 1852. He’s added small grain cover crops into his soybean-corn rotation, and he uses livestock manure as a fertilizer source on some acres.
For growers who are considering a conservation practice addition or change, Iowa farmer Tom Adam recommends first investigating any climate-smart incentive programs for which they may be eligible. Photo Credit: Iowa Soybean Association
“The Soil and Water Outcomes Fund has a whole smorgasbord of activities it’s funding by combining resources from the federal government as well as private industry,” Adam says. “I don’t know how much is coming from each category, but one company might pay for water quality outcomes, the federal government might be paying for cover crops, and possibly another company is paying for soil health or nutrient runoff reduction.”
The program’s year-to-year contract and up-front payments of half the amount are also attractive features, Walton says. One downside, he adds, is the requirement of “additionality.” In most climate-smart programs, to receive incentives, farmers must add new eligible practices or expand them to more acreage.
“The biggest challenge for me is trying to enroll acres where those practices are not already in place,” Walton says. “As an early adopter of no-till and cover crops, there’s really nothing more frustrating than to see incentives go to farmers who weren’t caring for the ground the way they should have but those of us who’ve already been doing it not being able to participate.”
Additionality isn’t the only hurdle. One of the more daunting issues is the lack of consistency among definitions, metrics and methodologies across the various programs.
“There are many different ways to claim greenhouse gas benefits, and the rules aren’t necessarily harmonious,” says Nick Goeser, principal with Carbon A List, a company offering strategic consulting, carbon and ecosystem methodology and project development. “There are different requirements, expectations and standards being set. That inconsistency leads to a level of confusion among all the players, especially at the farm level.”
The same type of disparity is also seen in ecosystems contracts, says Tiffany Dowell Lashmet, a professor and extension specialist in agricultural law at Texas A&M University.
“One thing that’s really important for everybody to know is that each contract and each program is different, which can be overwhelming,” she says. “There’s really nothing standard in any of these, so analyzing every line is hugely important. It’s already a complex topic, and when you consider all these contracts that are so different from each other, it gets really complicated.” (see related story on page 13)
Shifting carbon-reduction strategies also contributes to the confusion. Ecosystems markets originally developed with an offset-based approach, which allows companies to balance their carbon budget by supporting external projects that reduce or remove greenhouse gases from the atmosphere. Carbon insetting, on the other hand, refers to reducing carbon emissions within a company’s own supply chain. This could mean investments in practices such as reforestation, renewable energy use or regenerative agriculture.
Global food and beverage behemoth Nestlé, fast food giant McDonald’s and international agribusiness Cargill are among well-known companies adopting carbon inset systems in recent years. PepsiCo is another. The food, snack and beverage corporation has partnered with the SWOF to subsidize regenerative agricultural practices in the Midwest.
“The carbon offset markets have largely faded, and everyone seems to be interested in insetting to address emissions in the value chain,” says Scott Gerlt, ASA chief economist. “Sustainably produced inputs is where a lot of that movement is headed, and there are many opportunities for farmers to participate.”
In this fast-moving market, Gerlt says ASA’s role has been to monitor offerings and provide advice and feedback to its members. Fellow ASA economist Jacquie Holland says another focus is to ensure farmers have a voice when it comes to climate-smart policies and programs.
“It’s important that these solutions are feasible for farmers and cost effective for everyone,” she says.
When considering which ecosystems opportunity is right for their operation, farmers are navigating a lack of consistency among definitions, metrics and methodologies across the various programs.
Carbon A List’s Goeser agrees, insisting that constructive conversations are key to creating substantive value for climate-smart commodities and building trust in the process. Getting a broad range of individuals and entities to work together is the not-so-simple starting point, he says.
“These are not easy conversations. There’s a lot of heated debate,” Goeser says. “And what we found is that farmers and ranchers—real farmers and ranchers—are absent from so many of the conversations. Our first priority is making sure we have the right people in the room. Not talking about farmers but actually talking with them to understand the impacts of participating in this space.”
One of Carbon A List’s core initiatives centers on land-use change, in which a great deal of inconsistencies exist. The Land Use Change Initiative, a collaborative partnership with the United Soybean Board, is aimed at standardizing and improving the way land use conversion is measured and addressed within the agricultural sector.
“Land use change can mean a number of things to different people,” Goeser says. “How conversion is actually measured in the United States is not agreed upon. Even the words we’re using aren’t agreed upon. We’re trying to bring consensus on that, not only for the farmers and landowners but also for the markets.”
For farmers who are considering a conservation practice addition or change, Iowa’s Tom Adam recommends they first investigate any climate-smart incentive programs for which they may be eligible.
“If anyone is thinking of transitioning to no-till or cover-cropping, for example, you definitely want to look into this before you make that switch,” he explains. “If you wait and decide to enroll in a carbon program down the road, it might be too late. If you’ve done these practices for a couple of years, they’re no longer new, and, in most cases, you only get paid for additionality.”
Participation in ecosystems opportunities should not only be based on the right fit but also the right benefits. For Walton, it’s not just about monetizing those practices: It’s about improving soil health, gaining better weed control, reducing erosion and runoff and ultimately protecting his family’s 188-year farming legacy, one that his oldest son, Brad, is poised to continue.
“We’ve always been conservation-minded when it comes to best use of the land, whether it be cover crops, no-till, grass waterways or setting aside unproductive acres,” Walton says. “A lot of these things we’re doing to be more sustainable on the farm are for that next generation. If you’re implementing these practices just to capture payment, maybe it’s not the right thing to do.”
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Tiffany Dowell Lashmet didn’t mean to become an expert in carbon market contracts, but her role as an agricultural law specialist at Texas A&M University means dealing with legal issues affecting the state’s producers and landowners. So, when a farmer called to ask her to look over a contract for a carbon offset program, Lashmet felt it was her responsibility to get familiar with the topic.
“I told the producer I couldn’t do a specific review of a contract but that I’d love to see it, just to know what’s going on,” she says. “I looked at it, and I just panicked. That contract was terrible. This really wasn’t a topic I was super interested in, but somebody had to get out in front of it to help people understand what they were agreeing to in these programs.”
Since then, Lashmet has become somewhat of an expert on the promises and pitfalls in ecosystems program contracts, even presenting on the topic at the Agricultural & Applied Economics Association’s annual meeting this past summer.
“These contracts are complex, and that’s partly because the concept is complex,” Lashmet says. “Most farmers and ranchers can read a simple row-crop or grazing lease and be good to go. But in these carbon contracts, there may be a lot of terms that they’ve never heard before. Be sure to read it entirely, because the devil is in the details.”
Here are a few critical cautions Lashmet shares:
Make sure the practice you agree to undertake is clearly defined. Sometimes that’s straightforward: Plant a cover crop or reduce tillage. But some contracts might just say you have to implement conservation practices. That’s too broad. Or for rangeland, it might say you have to do regenerative grazing, which can have many different interpretations. If you agree to do something on your farm, be sure you know exactly what that is.
There could be a per-acre payment for adopting certain carbon practices, a payment per metric ton of carbon as measured and verified, or a payment based on the carbon market at an identified time. Producers should ensure the contract sets forth the exact details about how payments will be calculated. For any contracts based on actual carbon sequestered, producers should investigate the amount of carbon likely to be sequestered in their particular area.
Know the provisions related to the length of the contractual agreement, including early termination or opt-out clauses. Some contracts allow either party to cancel merely by giving notice. Others may require that certain conditions are met. There may be penalties, such as having to return all payments that the company made to you or reimbursing fees that the company has spent. Look for these terms in the contract.
This is new territory, and many unknowns still exist in the carbon market and these climate-smart agreements. Lashmet says she highly recommends engaging an attorney to review any contract prior to signing.
For more information, Lashmet co-authored a guide, “Understanding & Evaluating Carbon Contracts,” available by scanning this QR Code.
