Agriculture, Climate change, Economics, Policy, Politics

371. Challenges in making soil-carbon sequestration a worthwhile policy

I have a new article out this week in the Farm Policy Journal co-written with Michael Crawford, Chief Executive Officer of the CRC for High Performance Soils. The FPJ people have kindly allowed me to reproduce the article here. It is a more coherent version of the material I presented in several Pannell Discussion posts in 2021, with important additions by Michael. 

Abstract: Creating financial policy mechanisms that encourage farmers to sequester carbon in agricultural soils is widely seen as a useful policy response to combatting climate change. However, there are a number of challenges that make it difficult for such an approach to be effective and worthwhile. If a policy accounts well for the realistic technical complexities of soil-carbon sequestration, the revenues received by farmers will be small relative to their other costs and revenues, and so will make little difference to their decisions about farming practices. There is a high risk of paying farmers for doing things that they would have done anyway, despite existing policy measures intended to avoid this. Even if the current high cost of measuring soil carbon can be substantially reduced, this will not be sufficient to overcome the other technical and economic challenges that reduce benefits and limit participation in the offset program by farmers. Targeted agricultural research and development may help to overcome some of these challenges.

Soil carbon features in the Australian Government’s 2021 “Long-Term Emissions Reduction Plan” and has been advocated by politicians and others as a strategy to help address climate change. The Government hopes that soil carbon can make a major contribution to achieving a target of net zero emissions by 2050. To that end, it released a “Low Emissions Technology Investment Roadmap” in 2020 identifying reducing the cost of soil carbon measurement as a priority technology to help stimulate more soil-carbon sequestration activity.

In December 2021, the Minister for Industry, Energy and Emissions Reduction put into effect a new “Methodology Determination” for soil carbon, defining what farming activities can be undertaken and how their carbon sequestration will be measured.

Prominent economist Ross Garnaut is also enthusiastic about the prospects for soil carbon. In his 2019 book Superpower: Australia’s Low Carbon Opportunity, he says “Australia can make an exceptional contribution to climate action by creating natural systems to store more carbon in soils”.

Unfortunately, there are aspects of the science and economics of sequestering soil carbon that pose enormous challenges to achieving such an outcome, and there are additional challenges specific to the design and implementation of an effective soil-carbon policy that reduce the likely benefits of any such policy.

Limited potential gains

It is difficult to increase the amount of carbon stored in most cropped soils in Australia. Australian soils, climate and farming systems don’t lend themselves to storing great amounts of carbon. A wide-ranging assessment of soil organic carbon levels in Australia last decade showed that the major drivers of carbon stocks were rainfall and soil type, with management making a minor contribution. Australian crop growers have for decades been practising methods advocated for improving soil carbon (e.g. no-till and stubble retention) and soil carbon levels have not changed all that much (Metcalfe and Bui 2016).

In addition, even if soil carbon can be increased, soil-carbon sequestration on a piece of farm land is a one-time event. Once a new farming system is adopted, soil carbon increases for about 20-30 years and then stops increasing as a new equilibrium is achieved. The same piece of land does not continue to offset new emissions indefinitely. However, farmers need to stick with the new management regime to avoid releasing the carbon they have sequestered, so costs continue to be incurred, but not new benefits that would justify further payments.

Sequestration increases other emissions

The 2021 Methodology Determination mentioned above lists various farming practices that may contribute to increasing soil carbon. One that potentially makes a relatively large difference to soil carbon is converting land from crop production to permanent perennial pastures. However, for a farmer looking at this option, there are trade-offs when the whole system is considered. Not only would switching to perennial pastures be substantially less profitable for many crop farmers – potentially a far greater drop in profit than can be compensated for by any plausible carbon offset payment – but it may not decrease emissions overall, at least with current technologies. Farmers use pastures to run livestock, and methane emissions from livestock would negate some or all of the gains in soil carbon. Australian research has shown that if farmers switch from cropping to permanent pasture, grazed by livestock, the net effect on greenhouse gases when increased methane emissions are accounted for is close to zero (Meier et al. 2020). The new soil carbon Methodology does provide for deductions due to extra emissions that occur as a result of adopting the new practices, so that means that the offset payments to crop farmers who switch to perennial pastures would be close to zero, assuming that the extra emissions are properly accounted for.

Scientists have been working on ways to reduce emissions from ruminant livestock for at least 20 years, but while there are some promising options for minor reductions, there doesn’t yet seem to be a practical solution providing substantial cuts.

The Methodology allows for the option of reducing stocking rate to increase the growth of pastures, and hence the storage of carbon. That too would involve a reduction in farmer income that would have to be set against any increase due to soil carbon.

If a crop farmer succeeds in increasing soil carbon without switching to perennial pasture, there is another increase in emissions that can occur. Higher soil carbon creates conditions that enhance the conversion of nitrogen fertilizer into nitrous oxide gas (Palmer et al. 2017). Nitrous oxide has about 300 times the greenhouse gas effect as carbon dioxide, so a small increase in these emissions could negate the benefits of sequestered carbon. Other practices that might be used to attempt to increase soil-carbon sequestration (e.g. better nutrition, summer cropping, irrigation) are also likely to increase nitrous oxide emissions.

Hidden costs

Carbon does not sit in the soil by itself, but as soil organic matter, a complex substance composed primarily of carbon, oxygen and hydrogen, but also an array of other elements, some of which are very important for the nutrition of crops and pastures. The process of storing carbon in the soil ties up these other nutrients (including nitrogen, phosphorus, potassium and sulphur) that would otherwise be available to plants. The cost of replacing these with fertilizers (or the loss of yield if they are not replaced) further reduces the benefits of the whole approach. It adds to farmers’ costs if they participate, and any increase in fertiliser applications can add further to emissions because of the high levels of energy involved in the manufacturing and transport of fertilisers.

Being paid for soil carbon means that the farmer is committed to maintaining the soil carbon for the length of the contract. This limits the options that a farmer may have in the future if they want to respond to changing markets or other factors. It also imposes restrictions on the freedom of use for future landholders, thereby impacting the potential sale value of the land if the farmer wishes to sell.

Risks of reversals

The permanence of carbon sequestration is another concern. For the sequestered carbon to be effective in offsetting greenhouse gas emissions from elsewhere, it must be stored permanently. By convention, for practical purposes, “permanently” has generally been accepted internationally to be 100 years.

However, once the carbon has been sequestered into the soil, keeping it there is not always easy. Australia has regular droughts. When there is a drought, carbon is released from the soil. This is included in the policy as a “reversal buffer”, which has the effect of further reducing the payments that farmers receive.

In a previous policy phase, the Australian Government found that requiring soil carbon to be maintained for 100 years was so unattractive to farmers that they would not participate. In response, the Government reduced the requirement to 25 years and discounted farmers offset payments by 20%. After that time, farmers who have been paid to sequester carbon will be free to switch to a more profitable land use without penalty even if that results in the release of all the newly stored carbon. If the Australian Government wants the sequestered carbon to stay in the soil beyond that time, they will have to pay the farmers again.

Getting farmers to adopt

Australia’s policy does allow for deductions for the issues we’ve raised above, so if these are applied properly, the result will be small payments to farmers – small relative to farmers’ other production costs and revenues. If the payments are not small (i.e. the deductions are not applied properly), then farmers will be receiving more money than can be justified by the contribution they are making to reducing climate change.

A 2021 Government document called “Australia’s Long-Term Emissions Reduction Plan” seemed to acknowledge the relatively small contribution of soil carbon sequestration payments to farmers’ incomes. It includes a prediction that farmers will receive $400 million per year in payments for soil carbon by 2050, but this is only 0.3% of the predicted $131 billion of agricultural output by that time.

A consequence of small offset payments is that they will have only a marginal influence on farmers’ decisions about their land. For the great majority of farmland, if an appropriately modest payment is offered, adopting a new practice that increases sequestration of soil carbon will either be too unprofitable for the payment to make a difference, or the new practice will already be profitable without the payment. In either of those cases, the availability of the payment would make no difference to farmers’ decisions about their land management. Only for a small area will the payment make the difference between unprofitability and profitability of the new practice.

Lack of additionality

Additionality is about whether the actions being undertaken by farmers are “additional” to what they would do anyway. If they are not additional, then paying the farmers for carbon that they were going to sequester anyway makes no contribution to mitigating climate change.

The new soil-carbon Methodology handles this by establishing a five-year baseline period and paying for increases in carbon sequestration relative to the soil-carbon level in that baseline period.

As we noted above, some of the main methods being advocated to increase soil carbon (e.g. no-till and stubble retention) are already practiced by the majority of farmers, so the opportunities for further gains in those areas are low. At least in Australia, much of the low-hanging fruit has already been picked (more so in some states than others). Those crop farmers who are already practicing no-till in their baseline period will not be able to claim carbon offset benefits for it in future.

Although that sounds like establishing a baseline period works to pick up non-additional soil carbon, that is not necessarily the case. In fact, detecting additionality accurately is extremely challenging. Even if a farmer is not utilizing a particular practice during the baseline period, that does not necessarily mean that he or she would not have adopted it subsequently, even in the absence of offset payments. Agriculture is extremely dynamic, with many movements in and out of particular practices over time, particularly over a timeframe of a decade or two. Additionality can change over time, depending on changes in markets, technology and climate (Thamo et al. 2016).

In addition, farms and farmers are heterogeneous. Given that the offset payments farmers receive will be relatively small, they will only make a difference to the adoption decision for those farmers who happen to have a small cost of adopting the practice. However, if there are some farmers with low adoption costs, there would also be other farmers who could increase their profits if they adopted – adoption by them would not be additional. The very practices for which there are plenty of farmers with low-cost adoption opportunities (ones the program would most like to target) will inevitably also have many farmers who would adopt it without any payment (i.e. farmers the program should not pay if possible). The problem is, unless the second group have already adopted the practice, you probably can’t tell the two groups apart.

The practices that don’t have problems with additionality are the ones that are costly for farmers to adopt, but the offset payments on offer will not be enough to change farmers’ decisions about adopting those practices.

If the practices that sequester carbon are as good for farm production as some advocates claim, many farmers would eventually adopt them anyway, even without payments. That is exactly what happened with no-till/stubble retention. Early on in its adoption process in Australia, no-till would have looked like a good thing to support with offset payments, but now we know that, from a climate-change perspective, it would have been a waste of money. Farmers would have been happy to get payments, of course, but the program would have made no genuine contribution to mitigating climate change because no-till was going to be adopted anyway, as it is highly profitable to farmers who adopt it.

These problems with additionality are not specific to soil carbon; they apply to some degree in every agri-environmental program where farmers are receiving financial rewards for taking particular actions. But the problems are especially acute for soil carbon because the benefit that is being bought – the monetary value of the carbon sequestered per hectare per year minus any increase in emissions – is small relative to the other costs and revenues of farming. It means there is little room for the program to manoeuvre in; it will always be operating at the margin where it is impossible to distinguish additional from non-additional.

The bottom line is that, even with the specification of a baseline period, there is a high risk of paying farmers for soil-carbon sequestration that is not additional, so that the payments make no contribution to climate change mitigation.

Costs of implementing policy

It is costly to measure the amount of carbon stored in soils. Regular soil testing is needed to verify that carbon has been sequestered (indicating that a payment is justified) but the current cost of testing is large relative to any benefit of the program.

The Technology Investment Roadmap has an objective of reducing the cost of testing soil carbon from $30/ha to $3/ha. This is described in the policy document as a “stretch goal”. Time will tell whether efforts to substantially reduce these costs are successful.

What is not specified in this stretch goal of $3/ha is any measure of accuracy or variance. A potential concern is that less costly measurements might be less accurate. It should not be assumed that cheaper is better. Reduced accuracy would also eat into the benefits of the program. Weighing up the trade-off between the accuracy and cost of this information would be possible, but it requires a more sophisticated analysis than has been done so far.

Even if the Technology Investment Roadmap does deliver a low-cost system for measuring soil carbon reliably, there will still be costs such as the need for regular reporting over the life of the contract. And as we’ve shown, these policy implementation costs are far from being the only challenge facing the policy.

Other strategies

Although lack of additionality is a problem if money is changing hands to encourage adoption of new practices, it has a positive dimension. It means that farmers are adopting the practices for other reasons, probably because they generate other agricultural benefits, and climate benefits can occur as a spinoff from that adoption. In other words, if farmers can increase soil organic matter and this leads to substantially improved soil health, farm productivity and profitability, a scheme based on offset payments would suffer from non-additionality, but the absence of such a scheme would not matter because farmers would want to adopt the practices anyway without extra payments.

A key to promoting this type of privately motivated adoption would be making sure that farmers have good information about agricultural benefits and costs for relevant carbon-sequestering practices. This could include practices such as removing constraints to plant growth (acidity, sodicity, poor soil structure and low fertility); extending the growing season (and hence carbon input) through the use of perennials, cover crops, double cropping and intercropping; and increasing the diversity of crops and pastures to take advantage of seasonal differences and variable soil and landscape conditions.

Inevitably, there will be situations where no sufficiently good options are currently available. There is a strong track record in agriculture of identifying such gaps and undertaking research and development (R&D) to plug them. This is the “development” side of R&D. If successful, it could provide new win-win farming options that are both economically attractive and effective at sequestering carbon. Options to explore could include the development of innovative soil amendments and microbial inoculants that will improve the stabilisation of carbon inputs into soil from plants and microorganisms, and potentially increase the soil-carbon storage ceiling. Of course, whether this is a feasible approach requires careful consideration prior to investment in R&D.

A lot of this research and development needs to take place in collaboration with farmers and grower groups, to produce research outcomes that are relevant to their farming systems and farming businesses. A challenge is that the agricultural benefits and costs of these practices are highly place-dependent and context-specific across the vast diversity of soil types, local climates and farming systems across Australia. Providing good enough information to motivate farmer action probably requires a large investment in research and local trials, for a wide diversity of circumstances.

If this strategy worked, it would side-step the problem of small net benefits from carbon-sequestration, because farmers would be adopting the practices to seek private agricultural benefits, rather than relying on external payments. The net benefits of sequestration would still be small per hectare, but the hope would be for large areas of adoption.

Conclusion

All industries and sectors have a role to play in reducing or offsetting greenhouse gas emissions and there may be situations in which agriculture can contribute to some extent by way of soil-carbon sequestration. However, the scale of difference it can make, and the methods by which this will be achieved, needs critical analysis.

There is a danger that farmers are being misled into thinking that offset payments for soil-carbon sequestration will provide them with great financial opportunities. In our judgement, for the reasons we have outlined, the financial benefits from soil-carbon sequestration alone will be too small for most farmers to motivate large changes in land management. For that reason, as well as the technical challenges we have highlighted, it is very unlikely that an offset-based policy for sequestration of soil carbon in agricultural soils can make a substantial and cost-effective contribution to mitigation of climate change.

If a soil-carbon offset program seems to be highly successful and supporting a lot of farmers, that should set off alarm bells. It probably means that insufficient deductions are being made (for emissions of methane or nitrous oxide, for impermanence and for the risk of reversal) or that most of the money is being paid for sequestration that would have happened without the payment.

Webinar: “Could soil carbon sequestration ever be a worthwhile climate policy?”

I will be presenting the Environmental Policy Lecture supported by AARES, CEEP and CAED
Date: Friday 20 May 2022
Time: 11:00am – 12:00pm  AWST
Where: Online; to register click here
Cost: FREE

The original version of this article

Pannell, D. and Crawford, M. (2022). Challenges in making soil-carbon sequestration a worthwhile policy, Farm Policy Journal. Web page

References

Meier et al. (2020). Simulated greenhouse gas emissions from cropped lands match those from permanent pastures after accounting for livestock emissions. Frontiers in Sustainable Food Systems 3, paper 121.

Metcalfe, D. and Bui, E. (2016). Land: Soil: Carbon dynamics. In: Australia state of the environment 2016, Australian Government Department of the Environment and Energy, Canberra, https://soe.environment.gov.au/theme/land/topic/soil-carbon-dynamics, DOI 10.4226/94/58b6585f94911

Palmer et al. (2017). Management practices likely to provide greenhouse gas abatement in grain farms in New South Wales, Australia. Crop and Pasture Science 68, 390–400.

Thamo, T. and Pannell, D.J. (2016). Challenges in developing effective policy for soil carbon sequestration: perspectives on additionality, leakage, and permanence, Climate Policy 16, 973–992.