Incentivising soil carbon sequestration

Soil contains a huge amount of carbon, twice as much as in the atmosphere in the 0-30 cm layer alone. However, continuous cultivation over a long period has reduced stocks of soil organic carbon (SOC, which I will abbreviate here to soil carbon), often to dangerously low levels. The EU’s Joint Research Centre estimates that some 45% of the soils of Europe have a low or very low organic matter content (0-2% organic carbon). The main mechanism for soil carbon loss is associated with ploughing, due to increased decomposition of SOC due to soil aeration and soil aggregate destruction, increased aggregate turnover and a reduction in aggregate formation.
Reversing this process to build up soil carbon stocks has thus the technical potential to sequester a lot of carbon. The practices to do this are now well known: they include the use of winter cover and catch crops; crop rotation; adding legumes or N-fixing crops; reduced or zero tillage; and incorporating crop residues and other organic matter. However, the effectiveness of these practices in rebuilding carbon may vary depending on soil type and climatic conditions (see this article among many for a review).
From a climate policy perspective, where the objective is to keep the carbon concentration in the atmosphere below a certain level, a tonne of carbon sequestered has the same value as a reduction in one tonne of carbon emissions. Thus it makes sense to try to incentivise soil C sequestration, assuming that the costs of doing this are below the social cost of carbon. As there may be debate about the appropriate price of carbon, a practical rule of thumb is that soil C sequestration should be encouraged whenever it is cheaper than the least expensive measure currently being used to meet climate policy targets.
In a presentation given to the Green Carbon: Making Sustainable Agriculture Real conference organised by the European Conservation Agriculture Federation (ECAF) in Brussels yesterday, I looked at the options for maintaining and restoring soil carbon, particularly in light of the changes in the CAP regulations agreed at the end of last year. I examined five options in particular:
(a) counting soil carbon changes towards EU targets under climate change policy
(b) regulation, to require farmers and other land managers to maintain existing soil carbon or a minimum level of soil carbon
(c) cross-compliance conditions in Pillar 1
(d) voluntary agri-environment-climate measures in Pillar 2
(e) offset schemes linked to the Emissions Trading Scheme
My conclusion was that incentives under EU climate policy are not foreseen in the medium term. As regards agricultural policy, although there are some positive elements in the new regulations, on their own they are unlikely to make much of a difference. There is a need for more innovative thinking.
One possible approach would be to allow emission reductions in the Land Use, Land Use Change and Forestry (LULUCF) sectors, including soil C sequestration, as offsets in the EU Emissions Trading System. While arguments can be made against this approach, it seems to me to have some positive advantages which make it worth considering further.
Incentivising soil C sequestration under climate policy

The Commission recently published its proposals for climate targets to 2030. It proposed an overall reduction in GHG emissions in 2030 relative to 1990 levels of 40%. The communication noted the incomplete accounting of emissions in the agriculture and land use sector. Currently, non-CO2 emissions from agricultural production are counted under the Effort-Sharing Directive (ESD) in the non-ETS (Emissions Trading System) sector. They count towards each member state’s limit on non-ETS emissions over the 2013-2020 period. However, LULUCF emissions and removals are excluded from EU targets but included in the EU’s international commitments under the UNFCCC process.
The paper commented

Further analysis will be undertaken with the aim of assessing the mitigation potential and most appropriate policy approach which could, for example, use a future Effort Sharing Decision governing the non-ETS GHG emissions or an explicit separate pillar, or a combination of both.

New LULUCF accounting rules entered into force in July 2013, following the agreement within the UNFCCC at Durban in November 2011 on new accounting standards for soils and forests. The new legislation phases in mandatory accounting for grassland and cropland management at the level of member states. Accounting for the draining and rewetting of wetlands will remain voluntary, as in the international context. It requires member states to report on their actions to increase removals and decrease emissions of GHG from activities related to forestry and agriculture. Importantly, the regulation makes clear that LULUCF targets will only be set once the accounting rules have been validated.
Regulatory approaches

The distinction between regulatory and incentivising approaches to soil management is essentially about defining property rights to the soil, and thus is highly controversial. The Commission put forward a proposal for a Soil Framework Directive in 2006 which would have required landowners to take responsibility for soil degradation. It would have obliged member states to ensure that any land user whose actions affect the soil in a way that can reasonably be expected to hamper significantly the soil functions set out in the Directive, including acting as a carbon pool, is obliged to take precautions to prevent or minimise such adverse effects.
However, the proposal was prevented from advancing further by a blocking minority in the Council, including Britain, France, Germany, Austria and the Netherlands. While the argument that soil protection should not be an EU responsibility under the subsidiarity principle was used, the fact that these countries are home to the most intensive farming in Europe also played a role in their opposition. National soils legislation may provide some legal protection in some countries but I do not know how comprehensive such protection is.
Protecting existing carbon stocks

However, some pseudo-regulatory protections are included under CAP rules as part of cross-compliance rules on keeping land in good agricultural and environmental condition (GAEC). One example is the protection of existing carbon-rich soils from ploughing.
Under the previous CAP rules, protection of wetland and carbon-rich soils was included as a cross-compliance standard (GAEC 7). Environmental NGOs expressed alarm during the legislative process on the new CAP rules that this GAEC standard has disappeared. In fact, it has been moved into the basic text and it is now part of the permanent grassland eligibility condition for the green payment in Pillar 1. This change in positioning has implications for the penalties that farmers face if they decide to ignore the restriction (cross-compliance penalties as a GAEC standard, the loss of the green payment as a green payment requirement). In addition, the wording has become more specific.
Member states now have an obligation and an option. The obligation is to designate permanent grasslands which are environmentally sensitive in areas covered by the Habitats or Birds Directives, including in peat and wetlands situated in these areas, and which need strict protection in order to meet the objectives of those Directives. The option is, in addition, to decide to designate further sensitive areas situated outside areas covered by these Directives, including permanent grasslands on carbon-rich soils.
Farmers are not allowed to convert or plough permanent grassland situated in these areas designated by member states. If member states really take the opportunity to designate all potential carbon ‘hot-spots’, this could potentially be an effective measure in limiting future carbon emissions from soils. Update 16 May 2014. Note, however, that under cross-compliance all farmers would have been required to observe the restriction to remain eligible for payments, whereas under the regulation as adopted considerable leeway is left to member states, so in this way the protection of carbon rich soils has been weakened.
The GAEC soil standards

Three other GAEC standards in the new regulations are relevant to soils and soil carbon. GAEC 4 requires maintenance of a minimum soil cover. GAEC 5 requires minimum land management reflecting site-specific conditions to limit soil erosion. GAEC 6 requires the maintenance of soil organic matter through appropriate practices including a ban on burning arable stubble. These standards repeat what was included in the previous 2009 CAP regulation following the Health Check and indeed go back to 2003 and the introduction of cross-compliance.
Member states have the flexibility to interpret how to implement these standards. This flexibility is, in principle, desirable to account for the heterogeneity of agricultural conditions across Europe. However, the criticism is made that member states in the past have interpreted these standards in a lax way and that they have not really been enforced. Certainly, the latest JRC report on soils documents that the reduction in the carbon content of the EU’s soils has not yet been halted.
It is the Commission’s role to evaluate that cross-compliance standards are adequately transposed and enforced in member states. At a minimum, its reviews of national GAEC standards should be published to enable the public to assess the extent to which member states are fulfilling their obligations.
Pillar 1 greening measures and soil carbon

The innovation in Pillar 1 of the CAP in the new regulation is the introduction of a green payment. Farmers are required to follow three practices beneficial for the environment and climate, or follow equivalent practices, in order to be eligible for the new green payment. The three measures are crop diversification, maintaining ecological focus areas on their land, and maintaining the share of permanent grassland.
The equivalent practices can be undertaken either as part of an agri-environment measure under Pillar 2 or as part of a national or regional environmental certification scheme. The equivalent practices must yield the same or a higher level of environmental benefit. Member states can decide whether to allow the option of claiming eligibility through an environmental certification scheme and, if so, whether to make it compulsory or not.
EFAs are primarily intended to encourage biodiversity even if they may also have benefits for soil carbon. Crop diversification is beneficial for soil carbon but as so few farms will be required to change current practices to abide by this measure, it is not considered further.
The main greening condition with relevance to soil carbon is therefore the requirement to ensure that the ratio of permanent grassland to the total agricultural area does not decrease by more than 5% compared to 2015 levels. If this level is exceeded, then individual farmers who converted grassland will be required to reconvert it. Although the explicit statement of this latter requirement is new, it applied de facto in the past where a member state was likely to breach the ceiling.
The requirement is deemed fulfilled if the absolute level of permanent grassland is maintained. The obligation can apply at national, regional or the appropriate sub-regional level or even at holding level if a member state wishes. Member states shall notify the Commission of any such decision by 1 August 2014.
The updating of the baseline to 2015 from 2003 (for the old member states) and 2004 (for the new member states) constitutes a small change from the previous regulation. This will have a different impact on member states where the ratio has been decreasing compared to those where it has been increasing. The former get the chance to wipe the slate clean and decreases in permanent pasture between 2003 and 2015 are ignored; the latter will have a higher reference standard to adhere to in the future.
Maintaining permanent grassland avoids the release of soil carbon which would occur on first ploughing. However, there is the potential for substantial leakage if this grassland is used for ruminant production with the potential for continued non-CO2 emissions as a result. This may be offset if grassland soils are able to act as a carbon sink but the soil under arable use continues to lose carbon. Overall, whether protecting the permanent grassland area, in general, is a cost-effective way of achieving a reduction in GHG emissions remains to be proven, in my view. It may also run counter to the flexibility needed for agriculture to adapt to climate change in the decades ahead.
Pillar 2 agri-environment measures and soil carbon

The measure in Pillar 2 with the most potential to address soil C sequestration is the agri-environment-climate measure (Article 28) which is compulsory for member states (other relevant measures include support for organic farming, afforestation and renewable energy). This measure aims to preserve and promote the necessary changes to agricultural practices that make a positive contribution to the environment and climate.
In the previous rural development programming (RDP) period, a number of countries and regions incentivised cropland management practices which had the effect of improving soil C stores in the soil. The synthesis report of the mid-term evaluations of these programmes noted that climate change impacts were assessed as positive for 42 RDPs (just under half of all programmes) and that some 28 RDPs had tried to quantify these impacts at least partially. However, evaluations of the other half of RDPs did not measure the climate change impacts at all.
Potentially, there is scope to use this measure to encourage specific soil C sequestration measures. The efficiency of the measures adopted, however, will depend greatly on the contract design. The simpler measures are those which pay farmers a per hectare payment in return for following farm practices (above the cross compliance baseline) which can help to sequester soil carbon. More complex measures would pay farmers on the basis of each additional tonne of carbon sequestered above an agreed baseline. While more costly to verify and monitor, US experience suggests that the cost per tonne of carbon sequestered might be four to five times lower using the second approach, suggesting that there could be a high pay-off to devising simple monitoring, reporting and verification (MRV) procedures.
However, it is not clear whether ‘payment by results’ is permitted under the regulation. The relevant Article 28 states that:

Agri-environment-climate payments shall be granted to farmers … who undertake, on a voluntary basis, to carry out operations consisting of one or more agri-environment- climate commitments on agricultural land to be defined by Member States…. Payments shall be granted annually and shall compensate beneficiaries for all or part of the additional costs and income foregone resulting from the commitments made.

Paying for tonnes of carbon sequestered (or for the number of wild flowers in a farmer’s field, for that matter) may not be covered by the way the regulation is phrased insofar as the compensation should be related to the additional costs and income foregone, rather than related to the results achieved.
Another problem is that soil C sequestration schemes can run foul of the requirement in agri-environment schemes that the level of payments must be related to the additional costs incurred by the farmer in adopting the new practices. Conservation agriculture (which advocates minimum soil disturbance through no-till systems and permanent soil cover as well as crop rotation) has the possibility to sequester considerable amounts of soil carbon (even if the scientific literature disagrees on whether this is always and inevitably the case). However, advocates of conservation agriculture also emphasise that the system can improve farmers’ margins without an additional payment (largely due to reduced fuel and machinery costs). Under AEM rules in Pillar 2, it may be difficult therefore to reward farmers for practices which sequester soil carbon.
Again, one solution would be to pay farmers directly for the carbon sequestered in their soil but, as we saw above, the rural development regulation is not designed to allow this economically efficient solution. Another solution might be to focus only on those aspects of the conservation agriculture system where increased costs are incurred (e.g. the establishment of a catch crop) and to ignore those elements (such as no-till) where cost savings might be expected to occur. The European Innovation Partnership for Agricultural Productivity and Sustainability which has a focus on land management may also have a role to play in helping to incentivise good practices.
Developing a carbon compliance offset market

Given the limitations of the previous approaches, it seems worth considering trying to incentivise private funding for soil carbon sequestration by developing a compliance carbon offset market. Examples of such markets exist in other parts of the world, for example, the Australian Carbon Farming Initiative and the Alberta Carbon Offset project.
Under a cap-and-trade emissions trading system, offsets are a reduction in GHG emissions/increase in sequestration realised by an unregulated party that can be used to counterbalance emissions from a regulated party. Offsets are allowed in the EU’s Emission Trading Scheme under the Joint Implementation/Clean Development Mechanisms for carbon offset projects in developing countries.
Because LULUCF is not covered under the ETS or ESD, it could be linked to the ETS by allowing LULUCF offsets to count towards compliance. This would be separate from any voluntary carbon offset market that might develop as a result of demand from large companies seeking to improve their carbon performance – for example, the World Expo in Milan in 2015 is seeking to buy voluntary carbon offsets to offset its carbon emissions when it is in operation.
The big advantage I see in developing a compliance carbon offset market is that it would encourage the development of protocols for the measurement, reporting and verification (MRV) of soil carbon changes. We need to see a lot more ‘learning by doing’ in developing appropriate methodologies for MRV for LULUCF activities.
It would also be politically popular as it would potentially benefit both the ETS sectors and farmers. The ETS sectors would benefit to the extent that they gain access to a cheaper source of carbon emission reductions. Farmers would benefit because they gain access to another stream of income. Many of the initial projects might be in the forestry sector, but Alberta’s experience suggests that agricultural offsets can also be competitive.
There might be criticism that allowing such offsets in the ETS dilutes the level of ambition in reducing emissions in the ETS sector. But the point is to reach the overall EU emissions reduction target at the minimum cost. The ETS and the ESD are just instruments to achieve this end. Climate policy is not an exercise in sado-masochism. Provided that the emissions reduced in the LULUCF sector are genuinely additional to what otherwise would have been achieved, they are just as valuable as emissions reduced in the ETS sector itself.
There would be some issues to watch out for, including the need to avoid ‘double-counting’ when reporting on international commitments. There are also thorny issues in designing carbon offset contracts in the land use sector, such as addressing permanence, saturation and leakage as well as ensuring additionality, but these have been addressed in other jurisdictions. It is precisely the experience we would gain in learning how to address such issues which would add value to the exercise.
The ECAF conference presentation can be viewed here.
This post was written by Alan Matthews.
Photo credit: Geograph, used under a Creative Commons licence

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4 Replies to “Incentivising soil carbon sequestration”

  1. Dear Alan Matthews,
    Thanks for information.
    1.In-spite of various efforts to minimize the rate of carbon emission, the net access of greenhouse gas in atmosphere is 36 billions tonnes.
    2. Adverse effect of climate change and permanent food/nutrition security for all human beings are the most prioritized problems of the world.
    3. Global Dissemination of cost-effective organic farming technology will not only provide permanent food/nutrition security for all human beings but also increase soil organic matter, assure dependable Eco-system services, conserve bio-diversity, increase employment opportunities and over all peace & prosperity.
    4. One percent increase in soil organic matter sequesters 88 tonnes of carbon dioxide per hectare per year.
    5. So carbon trading for carbon sequestered through increase in soil organic matter should be promoted.
    6. Global Dissemination of cost-effective organic farming technology should be highly prioritized.
    Please inform if you have any comments on above mentioned points.
    Best regards

  2. Dear Alan Matthews,
    Thanks for information.
    1.In-spite of various efforts to minimize the rate of carbon emission, the net access of greenhouse gas in atmosphere is 36 billions tonnes.
    2. Adverse effect of climate change and permanent food/nutrition security for all human beings are the most prioritized problems of the world.
    3. Global Dissemination of cost-effective organic farming technology will not only provide permanent food/nutrition security for all human beings but also increase soil organic matter, assure dependable Eco-system services, conserve bio-diversity, increase employment opportunities and over all peace & prosperity.
    4. One percent increase in soil organic matter sequesters 88 tonnes of carbon dioxide per hectare per year.
    5. So carbon trading for carbon sequestered through increase in soil organic matter should be promoted.
    6. Global Dissemination of cost-effective organic farming technology should be highly prioritized.
    Please inform if you have any comments on above mentioned points.
    Best regards

  3. @K.P. Paudel

    I agree we should encourage and incentivise carbon sequestration in soils but there is a lot to learn, technically, about how best to do this, not least in Europe. We need more experimentation on appropriate models; hence my suggestion to give credits in the Emissions Trading System to encourage this.

    Organic farming has many merits but it is not necessarily superior in reducing emissions than conventional farming when expressed per unit of product rather than per unit of area because of generally lower yields.

  4. @K.P. Paudel
    I agree we should encourage and incentivise carbon sequestration in soils but there is a lot to learn, technically, about how best to do this, not least in Europe. We need more experimentation on appropriate models; hence my suggestion to give credits in the Emissions Trading System to encourage this.
    Organic farming has many merits but it is not necessarily superior in reducing emissions than conventional farming when expressed per unit of product rather than per unit of area because of generally lower yields.

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