Regenerative Agriculture and Nature-Based Carbon Markets

In this spotlight, William and Utkarsh interviewed Perennial, a regenerative agriculture company, about their part of this large and exciting space.

“It was a wonderful opportunity to listen to the domain experts at Perennial answer nuanced questions on topics such as the role of soil carbon in the markets, how the expectations of offset permanence might change, and the practicalities/limitations/future of remote sensing.” – William Wylie-Modro

You can view the full webinar recording here and find more resources and different viewpoints on regenerative agriculture in our #learning-group-regen-ag channel and in Past Events.

What is regenerative agriculture?

Regenerative agriculture is a group of farming practices that aim to keep carbon in the ground. In contrast, conventional agriculture is focused on maximizing the amount of production regardless of what environmental degradation might occur.

Regenerative practices that can be used in industrial-scale agriculture include planting cover crops, integrating livestock into fields, reduced or no-till farming, diverse crop rotation, and improved grazing management.

Regenerative agriculture doesn’t just store carbon in the soil – it has a lot of co-benefits that make it extremely valuable for farmers. These include reduced soil erosion, increased soil nutrients, better water retainment, more ecosystem biodiversity, and a decreased need for pesticides. These are a few examples, but there are lots more!

How can regenerative agriculture be a climate solution?

In agriculture, a new batch of crops grows every year. Between annual planting and harvesting, the plants develop from seed to maturity, collecting carbon through photosynthesis. Although some of the carbon goes into the crop itself, much of the carbon moves underground, building out the root system of the plant.

As root systems grow, microorganisms thrive by using the additional carbon and nutrients brought deep underground by the roots to multiply, trapping carbon-rich biomass in the soil. The problem is that conventional agriculture practices tend to prioritize food production efficiency over soil health, halting this cycle and stripping carbon, biomass, and other nutrients from the soil.

Examples of conventional agriculture practices include tilling (turning over the soil during planting to remove organic waste), monoculture (planting the same crop type on a field every season), and fertilizer overuse (blanketing the field with synthetic fertilizers).

What’s really exciting is that soil has the potential to become the world’s largest carbon sink. When we think about the makeup of the carbon offset market, forestry projects account for more than 80% of offsets currently. However, the nascent soil carbon segment of offsets has the potential to grow substantially, given the global shift to regenerative agriculture and the improvements to soil carbon quantification.

Credit: Journal of Soil and Water Conservation

How do nature-based solutions like regenerative agriculture differ from engineered solutions?

Within the carbon offset space, there are lots of different projects and solutions, but we can broadly divide them into two categories: nature-based and engineered solutions.

Nature-based solutions utilize natural resources to reduce emissions or remove carbon from the atmosphere. Examples include soil carbon, forestry, and ocean biomass sinks. Nature-based solutions often have valuable co-benefits for ecosystems, are very scalable, and are relatively inexpensive to implement. Barriers include concerns around the performance of their benefits (ie that they won’t last since they’re part of changing natural ecosystems) and the potential for greenwashing criticism due to concerns about additionality, permanence, or leakage.

Engineered solutions utilize innovative technologies to reduce emissions or remove carbon from the atmosphere. Examples include direct air capture, decarbonized cement, and enhanced weathering. They tend to be highly permanent because they’re removing carbon from the atmosphere and storing it deep underground, and they can have high methodological certainty because, unlike nature-based solutions, they aren’t affected by ecosystem changes. Some of the barriers are that they’re currently extremely expensive, not rapidly scalable, and have limited environmental or community co-benefits.

How do soil carbon credits work?

Carbon removal means taking carbon dioxide (CO2) or other greenhouse gases out of the atmosphere to compensate for human-caused emissions.

A carbon offset is a tradeable representation of 1 ton-equivalent of CO2 removed or avoided. This can mean carbon that’s removed from the atmosphere or emissions avoided in the first place.

If a company has a net-zero goal and wants to reduce their emissions, they can do that by paying someone else to reduce their emissions or removing carbon, which is called buying a carbon offset/credit. In this case, they’re paying farmers to adopt regenerative practices that sequester carbon in the soil, and they do this with the help of intermediaries such as a marketplace and a project developer.

How are soil carbon levels measured?

Typically to measure soil carbon content, you need to dig a hole to extract a soil core (a tube of soil down to a standard depth of ~30cm) and send it to a lab, so they can tell you how much carbon is stored in it. This works, however, it’s very expensive and time-consuming to do accurately. When you do get the number, it only characterizes that individual soil core. If you were to get another soil core from a hundred yards away, you would get a different number, because soil carbon is so geographically variable. This means that you need to collect a lot of soil cores from a field to get the average amount of carbon, which is a major disincentive to participation.

Machine learning methods are being developed to greatly reduce this burden. For example, we can collect information from satellites, past soil samples, and environmental data sources like temperature and precipitation and use a statistical model to predict how much carbon is in the soil. It’s a lot like predicting the value of a house on Zillow, where you know its square footage, the number of bathrooms, numbers of bedrooms, etc, and can use this information to predict the value of the house.

With soil, this means we can predict the carbon levels to high accuracy without requiring access to the field or anything from the grower at all, and even higher accuracy with a very small number of soil samples. This reduces the barrier to entry and makes soil measurements possible at scale.

What are the challenges with soil-based carbon removal?

To scale soil-based carbon removal, we need innovation in some key areas, the first being how it’s measured which we discussed in the previous question. The second is how the economics of soil carbon markets operate. In order for soil-based carbon removal to have an impact, we’re going to need thousands or millions of farmers around the world to start switching to regenerative agriculture practices. Like most things in the world, this isn’t going to happen unless the right incentives are there.

It’s also very important to be aware of the greenhouse gases other than carbon dioxide that result from agricultural activity. Two of the main ones are nitrous oxide, which comes from the microbial decomposition of nitrogen in the soil, and methane, which comes from cows burping and farting, to put it bluntly. It’s also key because when you’re generating a carbon credit, you have to make sure the change in activity hasn’t created negative impacts that outweigh the sequestration you’re getting in the soil.

How do soil carbon credits compare in cost to other carbon credits?

Soil carbon credits cost approximately $20/ton. Although this seems really low in comparison to the cost of carbon credits from engineered solutions, which are hundreds if not thousands of dollars per credit, the cost of soil carbon credits is actually a lot higher than other nature-based solutions. For example, high-quality forestry projects tend to be $12-15 dollars.

So while $20 seems high, it’s still way too low to incentivize widespread adoption of regenerative agriculture practices. We need to see this price increase several times over in the next 5-10 years in order to achieve widespread adoption of regenerative agriculture.

The reason this price is so much lower is that it’s being anchored to other nature-based solutions like forestry. It’s important that buyers and project developers start to recognize that each of these types of offset programs is unique, both in terms of how they’re developed and the benefits of each different type of offset. Although we label them all as carbon offsets representing one ton of carbon dioxide, they should really be priced according to their unique features.

What does the term durability refer to in the carbon market?

By durability, we mean that when someone pays for a carbon offset credit, they want to know that it’s going to be there for a long time. For example, if I emit one ton of carbon and I pay you to store one ton of carbon, but then next year that ton of carbon is released back into the atmosphere, that’s not really what I paid for. I paid for a permanent benefit and you did not supply it. The burden is on you to guarantee that sequestration is permanent. This is essentially the way the market works today.

However, there is a new idea that instead of permanence, we should focus on choosing a time horizon. For example, instead of expecting this carbon to be stored forever, I could aim to offset the damage that one ton of carbon will cause in the atmosphere over the next 50 years. This concept recognizes the fact that carbon goes into the atmosphere but doesn’t stay there forever. It comes out naturally on its own due to the activity of the forest carbon sink or the ocean sink that exists no matter what we do. You can calculate this using a method of accounting called ton-year accounting, which determines what the accumulated damage one ton of carbon emitted today will have over the next 50 years so you can offset this damage. There’s currently a lot of academic work and writing being done on this topic, but it hasn’t really caught up with the carbon market yet. However, it will help remove the need to think about durability and storing carbon forever. It’s not about avoiding the concept of durability or permanence, but avoiding the need for people to make a claim that they simply can’t make. No one can guarantee that a nature-based carbon sequestration quantity is going to be in the soil or forest forever – it’s just not possible, so we need to find another way.

Soil from a regenerative farm (left) vs from a conventional farm (right)

How do we make the transition from conventional to regenerative agriculture?

There are several different opportunities to help the transition, but they all depend on the development of cheap, efficient, and robust quantification methodologies. The first opportunity is a carbon offset market, which means allowing soil to participate in voluntary carbon markets. Soil carbon credits are nature-based solutions that combine removal and abatement benefits. They’re a completely new product in the carbon market.

The second opportunity is supply chain markets. This means decarbonizing supply chains through sustainable procurement, and it allows downstream companies to reduce their indirect emissions. However, the complexity of the soil carbon market leads to challenges in the transparency and traceability of commodities.

There are benefits to participating in the soil carbon market for both farmers and companies. For farmers, it provides an additional revenue stream, which helps mitigate the financial or yield risk they undertake when switching from conventional to regenerative farming practices. For companies, it allows them to impact the climate in a really positive way while also financially enabling soil to become a carbon sink.

Right now there are a lot of barriers growers face in adopting regenerative practices, the major barrier being financial incentives. Growers generally operate their farms with slim annual margins and high risk products. Switching to regenerative agriculture is risky, both financially and with yield. We need ways to financially incentivize growers to switch, through market mechanisms (aka payment for regenerative outcomes) and policy in the form of regenerative subsidies.

What advice would you give to people who want to become involved in regenerative agriculture or nature-based carbon markets?

It’s important to do a lot of this research into this industry. It’s a really complicated industry, and you can prepare for conversations, networking, and interviews by familiarizing yourself with terms like the Science Based Targets Initiative (SBTi), scope 3 emissions, carbon offset markets, voluntary carbon markets, etc. This allows you to speak the language, so you’re not just discussing the definitions of key terms in these conversations. Leaders in the space, like Indigo Ag, are producing a lot of good educational material targeted at growers about regenerative agriculture, so these resources can be really helpful as well.

It’s also really helpful to be open-minded about what you want to do at the start. The climate tech and regenerative agriculture spaces are both growing incredibly rapidly; however, they are still very niche industries. It can be really helpful to take whatever opportunities you can get to enter the industry, even if it’s not your absolutely ideal position. Once you get your foot in the door and start gaining practical knowledge, it becomes a lot easier to be mobile in the industry.

There are many ways to get involved in this space! For example, the landscape includes organizations that run carbon offset programs (like Truterra, NCX, and Running Tide), organizations creating measurement, reporting, and verification (MRV) technologies that quantify climate claims (like Perennial and Pachama), organizations that validate credit creation (like Verra, Gold Standard, and CAR), and organizations that run the marketplace (like Xpansiv and Nori).

However, getting involved with these types of organizations is definitely not the only way you can work on nature-based solutions! There are opportunities like working on robotics to improve on-farm technology, driving climate policy forward around agriculture and nature-based solutions, working in insurance or investing, working as a data scientist, mathematician, or engineer…and many more

The bottom line is that nature-based solutions present huge opportunities as well as huge challenges. They have the potential to remove billions of tons of carbon from the atmosphere, but getting there will require immense problem-solving, collaboration, and multi-disciplinary work. And that’s where you come in!

This write-up is based on a seminar organized by Work On Climate and sponsored by Perennial. Watch the full webinar to learn more about Perennial’s work.

Work On Climate