Carbon markets
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Paul McDivitt:
Welcome back to University of Minnesota Extension's Nutrient Management podcast. I'm your host, Paul McDivitt, Communications specialist here at U of M Extension. Today on the podcast we're talking about carbon markets. We have three guests on the podcast today. Can you each give us a quick introduction?
Anna Cates:
Sure. I'm Anna Cates. I work out of St. Paul as a Extension specialist in soil health.
Jodi DeJong-Hughes:
I'm Jodi DeJong-Hughes, and I work for the University of Minnesota Extension out of the Willmar office. And I also work with soil health in reducing tillage.
Amy Robak:
Amy Robak, I work with Centra Sota Cooperative based out of Little Falls, Minnesota, and I work with our environmental services division focused around soil health and nutrient management.
Paul McDivitt:
Great. So starting off, what is soil carbon sequestration and how does it work?
Anna Cates:
I'll start on that one. So soil carbon sequestration is referring to the process of increasing the amount of carbon in the soil. There's naturally carbon in all soils. This is also sometimes referred to as soil organic matter. If you get a soil test, you'll see 2% organic matter, 5% organic matter if you're lucky, that kind of thing. And that refers to anything made of carbon in the soil. The organic matter can be about halved to get to your carbon amount. So if you got 4% organic matter, you might have 2% carbon.
Anna Cates:
Sequestration right now is being used to mostly mean just increasing that number, but it kind of implies a permanence in the soil, which is an issue that kind of needs to be addressed I think by the talk around carbon sequestration right now.
Anna Cates:
In terms of how you do increase the carbon in the soil, there's kind of two different ways, just like with your checkbook, you either want to increase your inputs or reduce your outputs. To increase your inputs. You think about things like growing more biomass, leaving more biomass in place, like leaving your crop residue behind instead of harvesting it for bedding or something like that. You can grow more biomass by growing a cover crop.
Anna Cates:
And then you can also increase your carbon just by protecting the carbon you have by improving your soil structure. Those are some sort of big picture ideas about how we increase carbon sequestration.
Paul McDivitt:
So what are carbon markets and how do they work?
Amy Robak:
Yeah. So I'll start with that one. So a carbon market is a place where companies can go and buy carbon credits from producers, for example. So a producer generates carbon on his or her operation. They can go to the open market and sell those credits to a company and that company will pay them for that credit.
Anna Cates:
And I think it's fair to say that these are generally motivated by companies trying to reduce their carbon footprint. They're essentially carbon offsets for the carbon that a company is pumping into the atmosphere just as a cost of doing business through transporting goods or producing goods or that kind of thing. Is that about right, Amy, in terms of why companies are doing this?
Amy Robak:
Yeah, they're trying to overall reduce their carbon footprint, be environmentally sustainable. And this is a good way for them to accomplish some of those goals.
Jodi DeJong-Hughes:
Yes. And agriculture has a large role in that. About 11% of the total greenhouse gases go into agriculture, which on a worldwide basis isn't 50% or more, but we actually have a really good chance here to show that we can capture carbon and really help keep it down into the soil. And it has a lot of benefits for the farmer and not just the payment.
Anna Cates:
Yeah, that's right. That's so important Jodi that increasing carbon for companies it's kind of a narrative piece. It's something they can tell their customers that they're reducing their carbon footprint and they're acting more sustainably, but for farmers, not only do they get that narrative piece, but they might get some co-benefits in terms of how their cropping system works, how water works on their farms, good soil structure, those kinds of things. So it's not just an add-on for the farmer we hope.
Amy Robak:
I think for our company is we're trying to bring that holistic approach to our customers and being that service provider that can help navigate some of these waters for our producers, it's a very complex space. So how do we implement some of these new practices? What are the benefits not only like you said on the farm, but could there be monetary benefits of it? So it's a very quickly changing space. And it's something that I know we're collectively invested in as a cooperative to help provide that guidance to our customers and to our sales staff.
Anna Cates:
Right. And just to make sure that we have all this straight. So Amy's working for Centra Sota, which is helping farmers to navigate carbon markets. There are also companies like large multinational companies that are buying the carbon credits, so they might have different motivations. And I think that has more to do with the geopolitical landscape, if you will, and how the conversation about climate change has been changing on the international stage over the last few years, let's say. So they're influenced by what's happening on those formats. And then they come to companies like Amy's and then Amy's working with the farmers and a bunch of layers in there.
Paul McDivitt:
So what are some of the risks and benefits of carbon farming?
Jodi DeJong-Hughes:
Well, risks are always when change and trying something new. That's usually a risk, but we do have a lot of data that shows the same things that help build soil health also capture carbon. And we have more and more data from many different states that show that reducing tillage does not necessarily mean you're going to reduce your yields and adding cover crops that has a little risk to it, but it also has a lot of benefits to it.
Jodi DeJong-Hughes:
So farmers are really used to balancing what are the risks versus the rewards out on their fields. And I think the carbon markets came at a really good time. When they were here about 15 years ago and it kind of fall apart, a lot of these practices of cover crops and no-till and strip-till were still fairly new, or maybe not even looked at yet. And so to jump into that market and go to no-till, there wasn't a lot of data to always back it up, especially in Minnesota. Nowadays, we have a lot of data on that and we show that we're not getting a yield hit by having more residue out there. We're actually showing lots of benefits and carbon is one of them.
Anna Cates:
Yeah, that's exactly right Jodi. Carbon is one of the benefits there. And then in terms of risk, I just was at a grower meeting out in far western Minnesota and there was a great group of growers who were experimenting with strip-till, experimenting with other reduced tillage practices, experimenting with cover crops. And the way they talked about it was essentially the same as they talk about any farming practice. "Not everything works every year. This hybrid didn't work this year. I didn't actually need that fungicide pass. I put on this year, it was kind of a waste of money."
Anna Cates:
So every year there's something that didn't work perfectly and something that works pretty well. And so I think that you have to think about these practices in that context and look for those sort of both small scale on farm benefits and also the big picture societal benefits, which is kind of why the larger companies are talking about these practices now. Are there any other risks you bring up with your people, Amy? As you're talking to an individual grower what do you tell them to look for?
Amy Robak:
I always tell them it's a process. We think about soil health and changes over time. It's going to take time. I always tell producers, "Let's start small. Let's try something first." So you're not jumping 100% into no-till or strip-till or cover cropping every acre, but I kind of start at, I call it, the 101 program. Let's take a look at potentially doing cover crops after a soybean crop or after a silage corn. Can we use that not only to help build carbon in our soil for maybe the carbon markets, but could we use it as an alternative forged piece if they have animals on the landscape?
Amy Robak:
So I tell them, "Let's start small. Let's make that risk small." Also there's government assistance out there. There's different financial programs to help them starting different tillage practices, carbon, or excuse me, soil covers. And that, again, leads to building more carbon into our soils.
Amy Robak:
So that's kind of the main things that we start off with the producers. And then eventually it's kind of almost like that next year they come back and they're like, "Well, I want to do more. I want to do more." So it's a trickle down effect and then the neighbors start seeing it and asking questions. And so it definitely has caught on. I think we're in a good spot right now.
Anna Cates:
So you're saying your guys aren't only doing it in the back that nobody can see behind the past or whatever?
Amy Robak:
Some of them do. Well, I had one producer down by Hutchinson here this last year, he's like, "Well, I got this 20 acres in the middle of the field. I didn't till up the cover crop. I'm going to go no-till into it so no one can see it."
Anna Cates:
Exactly.
Amy Robak:
Because some of them they're like, "Yeah, I'll do it right along the road. I don't care what my neighbors think when I'm planting into this cover crop and it's green and up to the tractor tires." So every producer is different. Every situation is different, but that's why we're here to help on an individual basis with our producers to navigate that field of risk/reward, cost share, monetary benefits, things like that.
Jodi DeJong-Hughes:
I have a group that say, well, they don't want to the neighbors to see what they're doing. And especially if something doesn't work well. And I tell them if they put it in and something doesn't work well, that give me a call because I have a bunch of signs that say research by the University of Minnesota and they can put it out there and blame the university.
Anna Cates:
Good plan. Now Amy I'm curious too. You mentioned cost share from other programs, are the markets you're working with allowing growers to stack those payments, both carbon payment and maybe an SWCD or NRCS payment?
Amy Robak:
Yeah. So the pilot project we're working with it is stackable. So some of the producers are stacking it on top of NRCS cost share programs, SWCD payments. Also Practical Farmers of Iowa has some cost share benefits for small grains and covers. So all those are stackable. And that's why coming to talk to someone here at Centra Sota, NRCS, we can kind of navigate that field. So as of right now, it is, in the future, I don't know. The program I do work with is a pilot. So it's a very short term contract for growers to try the carbon markets before they buy in.
Paul McDivitt:
Can you tell us a little bit more about that pilot program, when did it start and how is it going?
Amy Robak:
So the pilot we're good two and a half years into it. So it started with the Stearns County SWCD and the Sauk River Watershed. Started with a partnership with them, Greg Page, and with The Nature Conservancy. So when we first started this, it was a group of us getting together, figuring out we have this donor money and how we can move forward with implementing sustainable practices on the landscape. And then hopefully resulting in a partnership with the company to sell carbon credits.
Amy Robak:
They partnered with the Ecosystem Consortium Marketplace. It's a nonprofit marketplace. And between donor funds with NRCS, we were able to develop a two year pilot project that's now been expanded to throughout Minnesota for producers to join, to get their feet wet on implementing some new practices on the landscape, how much carbon that would sequester with those practices and then sell them on the open market hopefully in 2023 when the marketplace gets started.
Amy Robak:
So right now we're still in the beginning stages. COVID kind of set a few things back, but we're hoping to ramp up this year. The goal is to have 50,000 acres within the pilot. So I'm not quite for sure where we're at with that, but we do have a handful of producers that are going to be getting their first payments here this year for practices done in 2021, which is really exciting.
Amy Robak:
So it is a short term contract. They're only looking at a two year contract, so it's a good way for producers to try it, to try cover crops, to try reduced tillage and some of those other practices and earn a little bit of money and see what the carbon markets are all about. One thing we do try to point out to producers it is a pretty, pretty robust process as far as information needed.
Amy Robak:
So we are asking a lot of information on that acre as far as all tillage passes, dates, depth of tillage, tile lines. We're asking if there's irrigation, depths of water tables. I mean, there's literally I think a page or two of information we ask on each field. We need to have a lot of information to get that output of our carbon on the acre. And then also with this pilot, we do very robust soil sampling. So that is part of the pilot is it's a little bit excessive at time, but that's the purpose of figuring out what's going to work in the future with these types of programs.
Anna Cates:
Yeah, there's no such thing as too much soil sampling here. Come on.
Amy Robak:
Yeah. It's so true. All right. One of my fellow coworkers did a lot of the soil sampling last fall and he said he loves sampling, but sometimes when the cores go down 20 some inches and two inches across and you got to pull 80 of them on a 40 acre piece, it's a little much, but I am full purpose behind it. It's trying to get what is the best approach, what is the most economical approach and what's going to be profitable for the farmer in the future. So that's what I like from that standpoint with this pilot project.
Jodi DeJong-Hughes:
I know some of the ice states have water quality credits too. Do we have any of those in Minnesota yet?
Amy Robak:
It is in the works. So NPCA has been doing some of it. There has been some water quality trading happening within the state within different watersheds. Part of the pilot project is to look at water quality and water quantity trading. I know Leif Fixen from Nature Conservancy is our main point person for that. He's been trying to work with hopefully some buyers for this pilot project for that.
Paul McDivitt:
Amy, have you gotten any feedback from the farmers who are participating in the pilot? Are they satisfied so far?
Amy Robak:
I think they're going to be satisfied when they see that first paycheck. They're going to really like that. It does take a little time. The winter is a great time to do some of this stuff. They do say it's a lot of information. "Wow. The main thing is I can't remember that far back." Because we do go back to 2018 to try to get the most accurate information. Even though we're going to be selling credits in 2022, we still need that historical information on that acre.
Amy Robak:
So sometimes it's a little difficult for them to remember that far back on things, but that's where we encourage good record keeping. If they're using precision platforms to input every tillage pass and they're doing put the dates down on a piece of paper or notebook or something so we can make things a little less time consuming maybe in the future. But typically once that acre is set up in the program in the ECMC platform, it's pretty simple just to add to that acre year-after-year. So the initial can be a little robust sometimes.
Anna Cates:
Yeah. But I think it's fair to go back to what I was saying in the early part about how carbon is sequestered in the soil. It's a really complex process depending on your soil texture, which as we know, can vary across a 40 acre field substantially. Right Amy?
Amy Robak:
Yes.
Anna Cates:
And so your carbon sequestration can vary alongside that. And that's at this point, I would say the jury is still out on how many samples we need for a carbon market to feel robust to the buyer of the credit and not be so onerous as Amy's talking about. I'm hopeful that in the future we might not have to do as many samples as you're talking about, but we're still building the models so that we can be more certain about what practices, with what depth of tillage, at how many passes, at what soil conditions, you're collecting all this data, will sequester X, Y, or Z carbon.
Amy Robak:
Yeah. Yep. And some of the initial stuff we're getting back is really realizing, okay, we are over sampling, but that's good because we need that information back. But I found it very interesting the coworker that did the sampling he said even we did a lot up here in central Minnesota on the sands you think the sand field wouldn't change. He says, "Yeah, the top maybe a couple inches," but he said even you go a few feet away and he would pull another core, it changes more than a person thinks. And most people don't think about past that few inches what does our sub soils look like? Even on a sand everyone says it's a sand piece. Well, no, not necessarily. There is a lot of variability even within those types of acres.
Paul McDivitt:
And Anna, I think you were quoted in an article about the measurement problem when it comes to carbon sequestration. Can you talk a little bit about that issue?
Anna Cates:
There's a few aspects of the measurement problem. One is this spatial variation that we've been talking about. And I think we've kind of covered how we're trying to address that with taking too many samples so that we have a better sense of what the variation is. Another piece is that you really have to measure in the beginning, just going to a no-till field and a tiled field and saying one's more than the other doesn't tell you which direction you're going. Are you going up in both fields, but one is going up more? Or are you going down in both fields and one is going down more?
Anna Cates:
So you always have to have that baseline data. And again, this is why pilots, like Amy's part of, are really important. And then the other thing is that we do have to measure deep in the profile. Like Amy said, there's not just variation on the surface, there's variation in the deeper soil. And when we talk about the carbon stocks of the planet, I think it's pretty common for soil scientists to start a paper on carbon with something like, "Soils have more carbon than any other pool in the earth." And that's true, but that's only going down to a meter or something. So when we're thinking about what soils can do in the total global carbon budget, getting down really deep is pretty important. I think those are the main things that I would think about.
Paul McDivitt:
What else should farmers interested in participating in carbon markets keep in mind?
Jodi DeJong-Hughes:
Kind of what I had mentioned before is that this is a piece of going to soil health and a way to maybe get paid to try new things. Because when you improve the soil health or improve the structure of the soil, the soil aggregation, just by leaving residue out there, you're going to have better water infiltration. So when we get those pounding rains, that water gets into the soil quickly and it's held there better too for later on in the season when you need it, in July and August when it starts getting really droughty.
Jodi DeJong-Hughes:
And when you have the soil covered, then you reduce the erosion. So you're not seeing all the "snirt" [snow + dirt] in the ditches and watching your soil blow away. And when you also have aggregation, it helps with compaction because those are like mini columns in the soil that help hold up the weight of equipment and keeping the equipment you have better traffic ability. And there's so many other benefits and if they start trying to improve soil health, they are improving carbon. So if they're really interested in soil health, I would definitely recommend that they look into the carbon markets.
Amy Robak:
Another thing I think when producers start looking at carbon markets is to ask questions. Not every carbon contract is the same, not every piece of information is the same. So what I typically tell producers is gather information, ask questions. If you Google online carbon market questions, there's a lot of different questions you can prepare to ask that person there that's presenting that information to them. But that's the best way. There's some markets are doing look backs. So they're paying you for historical credits.
Amy Robak:
Some are only paying for future credits and current credits. Sometimes there's going to be, if you've already established cover crops historically on that acre, you might not be eligible for the program. So I always tell guys, "Ask questions. There's no such thing as too many questions when it comes to this and take your time to do the research and ask for a copy of the contract." A lot of these companies will provide you with a copy prior to you signing of the contract so you can actually read through it and determine if that's the right direction for your operation.
Jodi DeJong-Hughes:
Oh, yeah. Very good points. What kind of payments are you seeing per acre with the farmers in your pilot program?
Amy Robak:
In the pilot project we're hoping payments, and that information's still going to be kind of hashed out here I think over the next month as I understand, but we are going to pay on a per acre basis. A lot of carbon companies will pay on a per ton. The reason this pilot is paying on a per acre is because it is grant funded money. In the future I could see that going to a per ton. We're hoping to get around that $15 per acre for the pilot project. After that we see anywhere from $7 a ton all the way up I've heard to $20, $30 a ton. So every company's different. That's why I always make the point to ask those questions and understand where you sit maybe initially with carbon and what the potential could be.
Anna Cates:
And Amy, those numbers are in the hands of the farmers, not including the service fees for the stuff your team is doing.
Amy Robak:
Yeah. Like I said prior to this, there's a lot of information. There's a lot of backside computer work that is done with these type of programs. So in order for us to gain some profit for our time, there is going to be administration fees that are going to be associated with it. And of course, fees with implementing new practices. It might be a cover crop or reduced tillage system. Those are the kind of things to weigh into when a producer thinks about going into a carbon market.
Anna Cates:
I just going to share a perspective I heard from a producer yesterday who has been doing some of these practices for a while. And he's had conversations with a couple of companies who have approached him. And in both cases he decided not to sign. One, he just didn't feel good about the contract. And part of his reasoning was that he'd been doing it anyway and was going to do it anyway. And he didn't like the idea of someone else having some say over what he was doing. He wanted to kind of do it his own way instead of the way it was specified on the contract.
Anna Cates:
And then there was also a little sense of ownership of his own conservation work, which I thought was really interesting. He thought, "Well, why don't these guys reduce their own carbon footprint? I'll worry about my carbon footprint and let the company worry about their carbon footprint. I'm not going to greenwash their carbon for them." So that was an interesting perspective from a grower I thought.
Jodi DeJong-Hughes:
I was talking to somebody at the Soybean Growers Association and he was saying that your credits could be sold kind of different ways. So let's say the people who are buying soybeans, they have these farmers who are holding down carbon. So that company that's buying the soybeans actually gets the credit, but the farmer won't get the credit. Where in the chain system who gets that carbon credit is kind of really up in the air still.
Jodi DeJong-Hughes:
And so when you're saying that the farmer should hold onto it for himself, I could see in the future that they may want to do that. Right now I'm kind of saying put your big toe in, try the low hanging fruit, the early season crops and vegetable crops and things like that, and just trying to go to vertical-till instead of all the way to strip-till or no-till. And try it on a few acres, kind of like you were saying, maybe the 20 in the middle of the section, but give it a try and see how this works for you.
Jodi DeJong-Hughes:
And then I think there's going to be more and more opportunities for farmers to either sell these themselves. Yeah, I just think it's still pretty open what's going to happen in the future.
Anna Cates:
Right.
Amy Robak:
Yep.
Paul McDivitt:
And Amy, do other co-ops in Minnesota have positions similar to yours or is yours kind of a unique one?
Amy Robak:
What we do is very unique. So quick history Centra Sota, myself, we decided about four years ago to focus my position more on nutrient management, being a technical service provider with the NRCS kind of started that. And as the position grew, people started to add to my team and we now have rebranded as our environmental services division within Centra Sota because of the carbon markets, the soil health, irrigation water management. There's just such a complex space that we feel like we need to bring this to our producers and be that leader in the field and help them navigate some of this area.
Amy Robak:
So when I first started this, we tried to reach out other co-ops that have done this before and we found only one other co-ops. So this is very, very unique. We are also very lucky to have a partnership with Morrison County Soil and Water and Truterra Land O'Lakes to have a conservation agronomist now on staff. So she's going to be helping us navigate some of the carbon markets, cover crop implementation, working with producers on reduced tillage. So definitely the space is growing in our area.
Anna Cates:
Yeah. I will say Paul I've talked to a few others who do similar things to Amy. Central has technical service providers like Amy on staff in their consulting businesses. North Country Co-op in southern Minnesota they have a conservation agronomist that straddles Minnesota and Iowa. And I would say, like Amy said, this is only growing. The technical service provider list from the NRCS is a good start if you don't know one in your area now.
Jodi DeJong-Hughes:
And the Corn Growers are helping to pay for a Carbon Smart program to come out of the University of Minnesota. And so Anna and I are going around talking about carbon. I mean, what is it? And what's the cycle of it? A lot of people know there nitrogen and phosphorus and potassium, but carbon, well, it's in almost everything. So to see what's happening there, why is it important in agriculture? What we can do to either put it in the atmosphere or hold it down? And then a little bit about the markets, but they change a little bit too quickly. So I would be at the end of the talk referring to Amy and saying to go to her to get the real nitty gritty details of these contracts.
Paul McDivitt:
I assume that'll be similar to our Nitrogen Smart program. Will that be in-person sessions starting next year or what's the plan for that?
Jodi DeJong-Hughes:
Well, I think Anna and I have already given five or six of them. And we'll be doing more this year and just trying to figure out where would be the best fit for that. Most of them right now are invited to go look at the different things there. So Brad [Carlson] with Nitrogen Smart, he has actual places and he goes to those and he sets them up. And it may turn into that too.
Anna Cates:
I think it's fair to say you've experienced a carbon smart event as we speak here Paul.
Paul McDivitt:
Great. Well, I think that's everything I have. Any last words from the rest of the group?
Anna Cates:
Get in touch if you want to talk about carbon.
Amy Robak:
Yep. We're all here to help and help producers understand this space and how to navigate it.
Jodi DeJong-Hughes:
And I think when it comes carbon, they know a lot more about it than they think they do. We just haven't used those words for it, but the markets are interesting. It is a great way to add a little more money and you can double up on some of the government programs and it does take out the risk of trying something new.
Paul McDivitt:
All right. Well, that about does it for the podcast this week. We'd like to thank the Agricultural Fertilizer Research and Education Council (AFREC) for supporting the podcast. Thanks for listening.
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