Carbon A List
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Carbon A List

What does an ecosystem service cost?

And when can you sell it at the antique roadshow?

Happy 2022!

I’m kicking the blog off this year with a post I am writing in anticipation of sitting on a panel about “Ecosystem Services and Carbon Markets” at the Beltwide Cotton Conference in San Antonio this week. There’s no way I’ll be able to cover all the nuances of all the points I want to make on stage — actually I might not even get to any of this — so I will try to do so here.

Let me start with a story. I recall a brisk morning right at the end of the before COVID times, February 22, 2020, when I was still at Nori, and part of the Ag Launch program living in Memphis, Tennessee. I borrowed Mitchell’s truck and took myself on a weekend road trip across the state with a key stop being the Willis Farm in Coffee County. I sat down with Don and his nephew Cory to talk about the Nori program. It was these kinds of visits that affirmed why I loved my job. I was ready to learn, but my used carbon salesman hat was fully set on how to generate a supply of NRTs — the Nori Carbon Removal Tonne, or the market instrument that would sell in the Nori market. I was in full pitch mode. Their farm qualified for “grandfathered NRT’s”, meaning, they had recently adopted conservation practices in the last 10 years that resulted in more incremental Carbon being stored in the soil. As we were sitting in the office, talking about the ins and outs of a program such as forward contract auctions, at one point, Don asked:

“What good is an NRT? Can I sell it at the antique roadshow?”

Later, while touring around the farm with Cory, seeing the cattle operation side of things, and better understanding his farm’s way of thinking about price, production, and value, I realized that this comment wasn’t just tongue-in-cheek: it was touching a nerve on the lack of the maturity of the carbon market.

All a market really is, after all, is an exchange of goods and services between a buyer and a seller. Carbon markets have emerged to stimulate a demand for that good. However, as I’ve written about in a past blog “Do it, prove it, sell it — my evolving views on carbon accounting” the devil is in the details, and sometimes “selling it” can be counterproductive. “It” in this case, is the outcome of carbon being removed from or retained from reaching the atmosphere. The reason for counter-productiveness is because:

the terms under which one can sell it today are complex and vary greatly depending on the standards set by a protocol or methodology by a carbon market administrator, and the demands, or lack thereof, of the entity that buys it. Obviously, this defines the parameters and ultimate performance of how one does it.

The devil in the details is over things like:

  • Getting rewarded for things you already did
  • Getting paid for removals, retentions, or avoidances
  • Stacking payments from related activity
  • Profitability of activity
  • Being able to claim the benefit elsewhere
  • What negative impacts might occur from the adoption of “additional” practices
  • How often practice changes must be made
  • Contracting terms, length, ownership of asset, clawback clauses, buffer pools
  • Method for establishing project boundaries and baselines
  • Ways to price and sell the asset
  • Acts of God

In all the debate over carbon markets, I am not against them. In fact, I think they are a critical part of climate finance in the quest to rebalance our earth. But as I published last year in Frontiers in Climate, in the future, I believe they will be obsolete. I also think they are just one tool for the job, and currently have more hype over other qualified tools. So, today, they are only useful to figure out how to align the costs of producing goods and services that can restore our planet to thrive into the future. Unfortunately, as we start 2022, carbon markets for US agriculture are still evolving in a way that has confusion, barriers, misinformed premises, blackboxes, and unnecessary hurdles to doing good science. This can, must, and will change.

But let’s go back to the antique roadshow. There, you are selling a thing. In the seller’s mind, this is a market that can answer the question: what’s my carbon really worth?

Full disclaimer, I am not an economist and to be honest, I only have guesses. I would argue in 2022, it doesn’t actually matter other than knowing it will have a price and it will go up, but ultimately, that carbon isn’t even the most important thing to be creating a market for. But I was invited to a panel about carbon markets, and the good that’s created and sold in them. And people want to know what it’s worth.

The above graphic from Pricing Methods: The Investor Book is one attempt at an exhaustive list of all the different pricing methods. Don’s trip to the roadshow is using a market oriented method, using an auction. But to list his offer, he needs to know what to offer it for (typically a cost oriented approach). On the other end, there is is already a buyer market who are thinking about things like:

  • Whether the product is unique or not
  • How many others are selling it
  • How much of it will be available during the trading period
  • Number of recent sales or purchase price (this is the price at which items traded)
  • Current bid price
  • Current offer price
  • Availability of funding for the carbon
  • Obligations of participants (e.g. regulation, exchange rules, Fund Policy)
  • Cost of execution (market fees and tax)
  • Cost, Availability and Transparency of pricing information in current and other execution venues.

Currently, NRTs sell at $15 + a transaction fee, and is market-oriented in the sense that it doesn’t factor in cost of production and is priced through the going rate. When the NORI token launches, this will engage a market that is using the customer oriented method, also referred to as value based pricing. It is also possible that Nori will engage a sealed bid pricing method or other value pricing methods that leverage cryptocurrency mechanisms. Much could be written about these nuances, but as I am no longer working at Nori, I will leave it at that.

The Chicago Board of Trade, now CME group, operates as a central clearinghouse for commodities. The price listed on this exchange represents the contracts of what people are willing to buy and sell a commodity at in the future. This is the reference price for any commodity that farmers use. When I caught up with Cory, the farmer I previously mentioned, to get permission to mention him in this article, he talked about how a new certificate the farm now gets called G.A.P (Global Animal Partnership) that was allowing the farm to get 18% more per pound of beef as a result of animal welfare practices on this exchange. This is both an example of a market oriented approach that is using a priority pricing model, and also of a mechanism that is not carbon credits that is successful at tracking and verifying things that are good for the planet. Loosely, this applies to ecosystem services from the holistic sense of the well-being of a farm, and the certainty that the cattle are grazing healthy pasture, restoring value to the soils.

Other market oriented approaches might take a social cost of carbon stance. This is the cost society pays for a warming planet driven by additional greenhouse gases in the atmosphere. One study that produced a meta analysis of the SCC determined an average of 54.70$/tCO2.

Conversely, cost oriented pricing can be a more straightforward way for a producer of a good and service to figure out costs. While Don’s market for selling NRT’s is market-oriented, Nori’s business model is to help Don sell NRT’s, so it is cost plus: the profit margin on top of the good. An intermediary in that system would use mark-up pricing. Other carbon credit deals that are explicitly looking for new practices must look to target return pricing. This finds the target return price by taking (Total Cost + Desired Return on Investment) and dividing by Total Sales in Units. This pricing model allows for upfront costs to be first understood in order to understand paybacks. If, for instance, payment for a new product that replaces a product with a significant carbon footprint (e.g., anhydrous ammonia), then it allows someone to do the math. It is the sticky financial additionality question that needs to understand the boundary condition of whether or not a practice would have been profitable. This is quite subjective, as many of the practice switches that we need to make are profitable, but the payback is not immediate or has a clear financial line.

So given all this talk about selling carbon, what are the opportunities for cotton growers to sell it in 2022?

If I can make one point at this conference, it’s to say that IT’S NOT JUST ABOUT SELLING CARBON! That said, we’re still in peak carbon exuberance. Accordingly, I would encourage the use of the term carbon asset, implying an asset that includes carbon offsets, insets, and any premium derived from carbon improvements (e.g., environmental product declaration, environmental, social, governance reporting, loans, insurance). So follow the pathway to create carbon assets. In so doing, restore balance and create on farm value opens the door for some key opportunities:

Experiment with things that will deliver more ecosystem services. There is plenty to experiment on. From the low-risk ideas that don’t require much other than learning about something or attending a field day, to enrolling in pilot programs, to joining active carbon markets, to trying conventional conservation practices, to deploying further out there ideas — like pyrolyzing cotton stocks and delivering in a liquid form of biochar — there is plenty to experiment with. Start small. Do things that make sense.

Participate in programs to write the rules. Quite often the rules are written by the least uninformed. Incentives exist that make the practical grower scratch their head. This is often because there is a weak feedback loop from program participants to make it better. Find the programs that are most amenable to your input. A key metric of success for any program that issues a seal of certification — be it G.A.P or a carbon credit — is how it engages the community to make sure it makes sense and can evolve over time. The current pay to play model in Gold Standard — by design — excludes the very participants who are doing the work. Farm participation in programs that can reward the expansion of ecosystem services is key to any program working. As the USDA, and others stand up certain initiatives, it is critical to have growers at the table, not invited as an afterthought.

Create farm data cooperatives. Creating a cooperative amongst farmers in your region to capture and benefit from data associated with your farm is a low risk high return opportunity. A co-op model can provide greater certainty around value return to those participating in it, while also finding value beyond just straight payments for carbon. There are already groups trying this, Australia like Regen Farmers Mutual. While payment for ecosystem services typically relies on outcomes, aggregating and anonymizing data for those in pursuit of this goal is a different value proposition, with different pricing, and a lower barrier to entry, but is a powerful stepping stone toward a goal of soil health.

Enter data once, use it many times. Similar to the above point of creating value from data, taking the approach that data has multiple uses allows even more value to be delivered back to the farm. Beyond a system to anonymously share your data with other producers in the spirit of continuous progress The information that is relevant for tracking and adopting practices for ecosystem services can also be relevant for:

  • Business operations
  • Financing/land valuation
  • Insurance
  • Loans
  • Succession planning
  • Labor dynamics
  • Market access
  • Marketing
  • Safety
  • Efficacy
  • Policy/Regulatory

Be the customer, not the product. In 1973 the artists Richard Serra and Carlota Fay Schoolman poignantly noted in a short entitled Television Delivers the People: “It is the consumer who is consumed. You are the product of t.v.” This wisdom extends to free apps, loss leaders from companies that own your data. In all the discussion about agricultural data, there is an opportunity to be the product, the customer, or the producer. The ideal is to be the customer who knows what he wants, and the producer who has new value — perhaps through a data coop — that is worth paying for.



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Christophe Jospe

Christophe Jospe


Climate change entrepreneur and consultant. Recovering from carbon exuberance. I like to stir the pot.