Carbon markets - why should I care and what is their value?

The agricultural policy environment is changing.Farming businesses will need to balance businessprofitability, with environmental sustainability going forward, as the industry works to meet net zero emission targets.Farmers and growers will play a vital role in ensuring net zero targets are met for the UK agricultural industry.

With government'sgoal to meet net zero by 2050,and the NFU goal for agriculture in England and Wales to reach net zero by 2040,there is increasing pressure on farmers to reduce greenhouse gasemissions and build carbon stocks.

Carbon is an increasing buzzword across farming sectors. Carbon emissions, soil carbon, carbon marketsare all areas of focus. Carbon markets is an area the AHDBare looking to explore in more detailin order to ensure our levy payers stay fully informed about these emerging markets. What are they and how do they work? As after all,they could offer a solution to both emission reduction and offer an additionalincome stream.

Why should you care about carbon markets?

From changing agricultural policy, to net zero commitments, and other tangibleon-farmbenefits, there are many reasons why farmers should beinterested in carbon markets.

Global commitments to net zeroareunder anincreasing focusacrossevery industry,and across multiple actors in the supply chain. There are global commitments such asthe Paris Agreement,which commits to limitingwarming temperatures to below 2 degrees Celsius (preferably 1.5 degrees Celsius), and the United Nations Net Zero Coalition. In this coalition,over 70 countries have now committed to net zero targetsby 2050. Looking to UK specific commitments, in 2019 the UK committed to meeting a net zero target by 2050 which involves decarbonisationand reducing GHGemissions,carbon capture and storage. Alongside international and government targets there is also industry specific targets for agriculture asset by the NFU. The NFU targetfor agriculture in England and Wales is to reach net zero by 2040. This is10 years before the government targetdate, and only 18 years down the line from today. The commitments and goals, both by government and supply chain, show the incentive is there to reduce greenhouse gas (GHG) emissions and sequester carbon, and farmers will play a crucial role in achieving these targets.

Agricultural policy in the UK is changing as a result of EU exit. The UK government are moving away from direct payments and towards the Environmental Land Management (ELM) schemes. AHDB insightfound that the new Sustainable Farming Incentive (SFI) scheme alone will not bridge the gap left as payments from the Basic Payment Scheme (BPS) are phased out. Instead, the funding used for the BPS scheme will be split between the three ELM schemes; SFI, Landscape Recovery (LR), and Local Nature Recovery (LNR) which will be open to all landowners, not just farmers. As aresult,farming businesses will need to look further afield for varied income streams to help bridge the gap such as diversification or improving efficiencies.Carbon markets also offer an opportunity to diversify your income stream as well asbeingrecognised for actions that are increasing carbon capture and storage.

Finally, carbonmarkets are not just beneficial due to policy and international commitments and providing additional income sources, but there are also tangible benefits such as improving soil health, crop quality and more efficient input use. Soil productivity is aligned with soil organic matter(SOM)levels, as SOM is a key component of soil that can affect the physical, chemical, and biological properties. Carbon is part of SOM and can improve the quality of soil through greater retention of nutrients and water. As a result, the quality of the crop can be improved, aswell as a reduction in inputs such as fertiliser and irrigation if needed. Also, certain practices that could be used to improve carbon capture in soil such as cover crops, planting legumes or reducing tillage can impact the need for fertiliser and reduce fuel usage.