Carbon has been on the brain this month. So we’re digging into regenerative ag and carbon markets this issue!
If you haven’t checked out Kiss the Ground on Netflix (linked below), it’s worth a watch. It’s got a very narrow view on agriculture - conventional, chemical-driven agriculture is evil and we need to move toward regenerative ag as a way to capture carbon and solve the climate crisis. I generally dislike this type of single viewpoint, non-systems thinking, but I also like regenerative ag for both its carbon sequestration opportunities and the general benefits that come from healthier soil.
I like to think of regenerative agriculture as a tool in our toolbox for solving our climate crisis. It’s similar to indoor agriculture. Will indoor agriculture solve all of our food system challenges? No, of course not. But it allows us to focus on solving some of the challenges around production and distribution of certain crops. Will regenerative ag solve all of our problems? Also no. Regenerative ag is one part of moving toward a more sustainable food/ag system.
I had the pleasure of interviewing Finian Makepeace, the co-founder, policy director, and lead educator of Kiss the Ground for Artemis Live Talks this week and we dug in (pun intended) to some of the science around regenerative agriculture. So after you go check out the documentary, watch our 30 minute chat here.
In addition to soil health, I’ve been thinking a lot about carbon markets. This seems to be the hot topic of agriculture right now. I don’t think you’ll find a company who isn’t talking about their strategy on carbon trading.
I’m certainly not a carbon trading expert. Instead, I asked some friends about carbon trading and am sharing their thoughts this week. Enjoy (note: gifs are added by me)!
Matt Schmitt is the Senior Director of Commercial Carbon at Cargill. His work focuses on developing and scaling products to bring agricultural operations in balance with natural systems everywhere, working with customers both within and outside of traditional agricultural supply chains. Matt began his career in the US Army, later worked in smartgrid tech at EnerNOC, and was most recently part of a venture capital and product development team at Cargill.
Eric Rubenstein is an investor with a focus on sustainability. In addition to investing in Venture Capital and private companies, he spend most of his career on Commodity Trading Desks at Citigroup and Louis Dreyfus.
[AK] What's the deal with carbon credits? What are they and what does the current market look like now?
[MTS] – A carbon credit is what gets created when you combine some data with a protocol (sometimes protocols are also called “methodologies”). The protocol tells you what data you need and how to analyze it, and the result is a claim about carbon, backed by data and a protocol. The carbon might be prevented emissions, reduced emissions, captured and stored, etc. And other gases like methane and nitrous oxide can be converted to “carbon dioxide equivalent” values and also be part of creating credits. How protocols are designed and what data is required can be decided by essentially anyone – governments, NGOs, private companies, startups, citizens, etc. Where protocol provenance matters is when selling to buyers – some buyers might want only specific protocols, where other buyers are open to a broader array of protocols.
The major sources of protocols today are from certain governments and compliance organizations (European Union, California, Vietnam, Australia, China, Canada, Brazil, etc.), certain private groups (Verra, Gold Standard, Climate Action Reserve, etc.), and certain collections of companies agreeing to work together (any shared supply chain initiatives, any Scope 3 reductions, etc.).
Estimates of market size vary wildly, and are often focused solely on compliance credits and offset credits. Where there is consensus, however, is on the massive need for carbon intensity reductions across industries everywhere. Carbon credits of all types can play a role in that, but they aren’t the only activity that needs to take place.
We’re starting with about 40 billion metric tons of annual emissions today. Ideally we’ll be able to get that down to 20 billion by 2030, and 10 billion by 2050. At the same time, annual credit volumes today ideally represent about 100 million metric tons, mostly in reductions and avoided emissions. To be carbon neutral as a planet, the 10 billion metric tons of emissions we’re aiming for by 2050 should have 10 billion metric tons of removals on the other side (and that’s only carbon neutral – more removals than emissions would be ideal). So, whether we’re looking at a 75% reduction in global emissions or a 1,000x growth in carbon removals (assuming removals are 10% of current credit markets – an optimistic assumption), the challenges are large.
[ER] Carbon offsets are generated when companies capture and store it or transform it. The current market is extremely fragmented and composed of both regulated and voluntary markets with the voluntary markets growing quickly and becoming ever more prominent as companies set sustainability targets and seek Offsets that represent carbon capture that is more permanent than those produced by protecting forests.
[AK] Why now and why ag? It seems like every company in agriculture is talking about carbon programs. Why?
[ER] Climate change is increasingly recognized as being a big issue that can be reversed through a combination of new technologies and changes in behavior. The ag industry is a contributor to the issue of climate change (19% of global emissions come from the ag industry), and in a lot of ways the ag industry can reverse climate change by incorporating sustainable practices into farming. About 41% of the land in the US is farmland but only a small percentage of farmland actually incorporates sustainable farming practices. By changing farming practices global emissions can be reduced significantly, and an easy path to changing farming practices is to till land and make the land a carbon sink. This can actually generate carbon offsets for companies and become revenue which is one reason ag companies should be looking at changing their practices. The other reason companies are talking about carbon programs is their interest in doing their part to be more sustainable which includes buying offsets if they cannot change behavior to reduce their emissions footprint themselves. For many reducing footprint requires new technology that doesn’t yet exist at scale so buying offsets will be their only option to materially help reduce emissions globally (airlines would be an easy example of an industry that will struggle to reduce emissions quickly).
[AK] Is it real or hype?
[MTS] It’s real, but focusing just on the carbon is like focusing just on the calories in what you eat – it’s a good start, but far from nutritious. There’s no question that today, as an industry, agriculture is a major source of emissions. There’s also no question that the building blocks of the agriculture industry, the plants and animals themselves, by themselves, are in balance with natural systems (call it “carbon neutral” if you want, but there’s more to it than carbon). The forward path for agriculture, therefore, primarily demands innovation in business models, data, supply chains, etc. (as opposed to industries like aviation or construction which likely require some re-engineering of industry building blocks). It’s not a stretch to imagine a future food system that is technically carbon neutral and nutritionally sufficient while also being incredibly undesirable (think Matrix gruel). At the same time, it’s not a stretch to say we cannot continue apace in our current system. So, the need for change is quite real.
Where many challenges come from today are issues around measurement and verification, additionality, and permanence. For measurement and verification we need to recognize that those can only be judged relative to business models. For example, we have government programs and laboratories today that rely on types of measurement and verification for financial transactions in agriculture, but where those activities land on the spectrum of measurement and verification activities depends on whether they are adjudicating crop insurance claims or testing seed genetics – different business models have different data quality standards.
Additionality is often brought up in agriculture by saying, “if these practices are so good, why would I pay a farmer to adopt them? Shouldn’t they just adopt them on their own?”. In other words, if a company wants its capital to have a positive climate impact, shouldn’t they look for those marginal areas where the additional capital should make a difference? These are good questions, but they fail to capture the need and the opportunity. Practices have been changing in agriculture for, give or take, over twelve thousand years. And practices will continue to change in the future. Our dilemma is that, today, given what we know of the science and models, current adoption rates are slower than they need to be to mitigate severe effects in the future. The question then becomes, “how can we accelerate our rates of positive change?” When viewed this way, it becomes a matter of transforming a business to operate in some fundamentally different ways. We’ve seen similar disruption in other industries as technology of all kinds either forced incumbents to adopt new practices or become obsolete. The difference in agriculture, however, is the inescapably physical nature of food. An insurance company can process claims digitally instead of on paper and drastically transform its business, but we cannot use digital outputs for our food (Farmville jokes aside).
Permanence is another holdover from traditional registry models that should be re-examined in agriculture. The concerns with permanence come from uncertainty in future conditions. Will weather events disrupt carbon stored in the soil? Will the farmer make different decisions in the future that reverse the carbon-reducing actions they took before? Again, these challenges are born of the need for new business models. As a society we have all sorts of examples around us where we recognize the value in a system without requiring that every individual asset in that system be infallible. Power grids deliver electricity even while individual assets go on and offline. School systems deliver education even while individual teachers might be present or absent. Social network systems can deliver connection and community even while individual friends might come and go. Agriculture is no different – placing an extreme emphasis on perfect performance of every individual asset misses the incredible value that the system can provide.
[ER] The reality is carbon offsets have huge potential to help the environment. If the offsets companies buy actually improve behavior or reward someone for doing something that removes/captures emissions, prevents emissions, or avoids emissions, those offsets help and should be bought to finance the solution.
The equality important reality is not all carbon offsets are “real” so verification is important and knowing what you are buying is very important. Some developers sell offsets that are not additive and/or they make false claims. The buyer most certainly needs to beware, but offsets do have their place in combatting climate change.
[AK] Is this the same old carbon trading from back in the day or is it something new?
[ER] The carbon market has been evolving over the past couple years as more and more corporations are setting sustainability goals, and as new technologies are launching. This has brought more buyers to the market (tech companies in particular are trailblazing in that way), and as companies evaluate offsets that exist they realize natural offsets aren’t permanent but more and more permanent options are being innovated.
[AK] What's the most exciting thing about carbon credits?
[MTS] Carbon credits represent what I hope is the first of many steps in recognizing the full value of what farms everywhere can produce, which goes far beyond physical agricultural outputs. Farms, in one sense, can be thought of as a network of decentralized, distributed infrastructure assets for a variety of services that, if addressed today, are often done via centralized, costly, engineered infrastructure. As a society it’s great that we can clean our air, but we’ll never be as efficient as natural systems. It’s great that we can clean our water, but we’ll never be as efficient as natural systems. It’s great that we can engineer nutritional components of all types, but we’ll never be as efficient or as integrated as natural systems. Nature has a headstart of 4 billion years on A/B testing for natural balance in systems. What we can, and should, aim for is a market balance that lets natural systems work. Carbon credits represent a step in that direction, that will hopefully be followed by many more.
[ER] The most exciting thing about carbon offsets (more than carbon credits which are regulated) is how they can accelerate the growth of new industries. If you look at what is happening in the direct air capture space for instance, companies are literally building giant fans that suck in CO2 and turn it into a liquid or a solid. That liquid or solid then can be used as an input into other processes like soda beverage production or mixed with cement to make cement stronger and more sustainable. Meanwhile, people pay the companies to simply take CO2 out of the air and they receive an offset in return. This is creating jobs and will be a whole new economy down the road. As part of this, we too can participate. Some companies, like Climeworks for example, will sell individuals offsets so we all can offset our carbon footprint. Climate tech is an exciting space that will get more attention in the years to come.
[AK] What is the biggest opportunity here?
[MTS] “Here” can cover a lot of ground. To me, the biggest opportunity is to bring our global agricultural production system to a state where our decisions today do not limit our options tomorrows.
More resources on carbon markets and regenerative ag
Dirt to Soil: One Family’s Journey into Regenerative Agriculture
Call of the Reed Warbler: A New Agriculture A New Earth
Growing a Revolution: Bringing Our Soil Back to Life
The US Farm Sector is Gearing Up to Cash In on Climate Action
Clubhouse event tomorrow
I'm partnering with Food+Tech Connect & AgFunder to mark the end of Women’s History Month with a celebration of women innovating in food tomorrow from 3-5:30pm ET on Clubhouse. For women in ag, we’d love to feature you and have you share what you’re working on. If you’re interested, we’ll bring you up on stage, and you’ll have a minute to share.
This will be our second session focusing on women innovators in food. We hosted a 3-hour session on International Women’s Day with over 600 attendees and more than 50 women presenting, including myself, Kat Kinsman, Katherine Miller, Kristen Barnett, Mavis-Jay Sanders and more.
If you’re interested in joining, let me know so I make sure to bring you up on stage.
Don’t have a Clubhouse invite? Email me and I’ll get you on.