Developing Strategies to Generate Carbon Offsets Using Regenerative Agriculture

Abstract

Regenerative agriculture ('RA' or 'regenerative ag') is gradually gaining traction as a more environmentally sustainable alternative to traditional, modern agricultural practices. Regenerative agriculture represents a systems-based farming approach that prioritizes ecological health by improving soil conditions and biodiversity and conservatively managing inputs. By enhancing ecological health, the hope is that RA will also enhance a farm's productivity and profitability. Despite regenerative ag's potential economic and environmental benefits, adoption rates in the United States remain low. However, carbon offset markets are one mechanism that could possibly drive greater adoption. RA improves soil health by increasing the soil's carbon content, making it an eligible activity for carbon offset credits in emerging agricultural carbon markets. My Master's Project seeks to uncover if carbon offsets can influence the widespread adoption of regenerative agriculture in the United States. This Master's Project is an extension of a Fuqua Client Consulting Practicum project. The project's objective was to devise strategies for our Client to create a program to generate and sell carbon offsets by supporting farmers in transitioning to regenerative agricultural practices. Due to a non-disclosure agreement, the Client's name will remain confidential. Many practices constitute regenerative agriculture, but our Client suggested that our team focus on two practices, cover crops and no-till farming. Although adoption rates for these practices are still low, they are better understood, easier to implement, and more conducive to carbon markets than other regenerative practices. The Client provided three main project objectives for our team, 1) recommend an ideal target market for initiating a carbon program, 2) determine the economic implications of adopting RA from a farmer's perspective, and 3) identify the main drivers and barriers that influence farmers' decisions to pursue RA and engage in carbon markets. The Client advised our team to segment US farms by farm size, geography, and crop type to identify the highest potential farming archetypes. Medium and large farms represented the top size targets because they have the financial flexibility to try new practices, offer economies of scale, and comprise enough combined acreage for the carbon program to proliferate. For the ideal geography, the CaRPE tool, developed by the American Farmland Trust, projected that many Midwestern states provided high emissions reduction potential through cover crop and no-till conversion. These states also contain significant cropland acreage, making the Midwest the ideal geography. Lastly, corn was chosen as the recommended crop type based on its prevalence in the Midwest and potential to realize an uplift in carbon removal from no-till and cover crop adoption. After identifying the ideal farm segment, our team created a net present value model to analyze the economic dynamics from switching to cover crops and no-till farming. The Client strove to determine whether the economics supported the transition to RA. Our analysis informed how the Client would compensate farmers to entice them to pursue carbon markets. The model revealed that RA could improve profitability, but many assumptions contain uncertainty. All farms are different, making it difficult to create a universal model. The key takeaways from the economic model are that benefits take time to materialize, positive financial outcomes are not guaranteed, and carbon programs must be structured to mitigate the risks of adverse impacts on operations. The goal of the qualitative analysis was to confirm the findings from our economic research and uncover other factors influencing farmers' decisions about regenerative agriculture. This analysis involved interviewing twelve experts in various fields within the agricultural industry; from these interviews, three main barriers emerged, 1) economic, 2) psychological, and 3) logistical. Many farmers feel current carbon prices are inadequate to offset the risks of changing practices. Also, many farmers rely on traditions passed down through farming communities and are unsure of new carbon markets, methods, and partners. Lastly, technical assistance is lacking. Our Client's program must include strategies to overcome both economic uncertainty and non-financial barriers. Competition in incipient agricultural carbon markets is ramping up quickly, but these markets are also experiencing growing pains. Our Client can differentiate itself by offering flexible programs that are easy to understand and address economic uncertainty, farmer mistrust, and technical knowledge gaps. It will take time before carbon programs surmount obstacles and inspire a paradigm shift in farming practices. Therefore, developers of carbon offset programs must create conditions to ease the learning curve to accelerate acceptance. Although immediate transformation is unlikely, increased evidence of regenerative agriculture's benefits, improved carbon verification processes, more accessible technical knowledge, and higher carbon prices could make carbon markets a major driver of farming transformation long-term. If this shift occurs, farmers could benefit from more productive farms and additional revenue streams, and society would benefit from more resilient, climate-friendly food systems. However, iterations of prudent carbon program designs are needed to achieve transformative adoption.