AHDB - UK Agriculture and Horticulture Development Board

11/24/2022 | News release | Distributed by Public on 11/24/2022 09:50

Does my carbon have a value? Yes, it does.

Carbon may behard to visualise, but the benefits of building carbonstocks (which form part of natural capital) andreducing greenhouse gas (GHG) emissions aretangible.Thesebenefitsinclude gains fromimproved soil health and input cost reduction. Benefits are also monetary as carbon stocks haveamarket value, as they contribute towardsmeeting net zero goals.

To ensure market value, credits need to have these four key requirements:

  1. Credibility
  2. Additionality
  3. Permanence
  4. Verifiability

There are two types of carbon markets that attach a value to carbon, the compliance (compulsory)market and the voluntary market.

Within the established compliance market, carbon values are understood to be higher than in the voluntary sector currently. This is because the compliancesector has a set demandbase, and the cost to de-carbonise these industries (for example airlinesand energy) are high.It is also becausethe compliancemarket is regulated by government, and the quality of the carbon credits is audited, giving assurance of that quality to potential buyers.

But value in the voluntary sector too is set to increaseThis isespecially if the market does become regulated in the coming years, and as companies and industries look to become net-zero. Atpresentthe voluntary market issometimesreferred to as the 'wild west'due to its unregulated nature and the variability of price and quality of carbon credits generated, as well as the asymmetry of information for those wishing to sell their carbon assets.This market has seen significantdevelopments over recent years,and demand in the voluntary market is set to rise.

Carbon pricing

Looking at carbon pricing, creditssit around the£30/tmark,depending on those 4 key areas flagged above(credibility, additionality, permanence and verifiability). The value of carbon in the agricultural sector is expected to reach £125/tby 2050. This projection is based on the cost of technology to reduce carbon emissions (LSE, Grantham Institute).

Butwe have seenthe increase in carbon valuein recent years exceed the predicted price.Could values reach higher than thisper tonne? Possibly, butit is too early to tell.

We may also see a difference in how quickly valuesriseof carbon acrossdifferent sectors, which in turn will impactprices for offsetting vs insettingin the supply chain, within the voluntary market. It might be that carbon prices per tonne for offsetting (e.g., selling to a companyin a different sectorto counterbalance GHG emissions)may rise at a faster pace, as demand rises.

But it is well known that farms will likely needtheir carbon going forward for their own business to meet net-zero,to meetsupply chain requirements. Selling carbon within your own supply chain, or 'insetting' allowsa return on that carbon,without ruling out the possibility that it can be used towardscalculations forwholesupply chain emissions(socalled Phase 3 emissions). This is an area we will explore in more detail and somethingto think about when understanding current on-farm carbon stocks.

Schemes are there to get involved innow, should you wish to explore these options.If you are looking to entera scheme, it is recommended that you seek legal advice. Especially considering rightsof tenants.

What can I do now if I am still unsure? Well, the key action now is tobaseline your own farm forcarbon stocks. This is because you need to show additionality and improvementin carbon stocks,for market value. The bigger the baseline (number of years), the better (more robust).Choose a calculator that works best for you and stick with it.

For information on calculators and tools available,follow this link.