Carbon Markets Landscape (Pt. 1), with Ben Nelson, Carbon Project Lead at Nutrien Ag Solutions

We all hear about global climate change regularly on the news.

But what does it really mean, both on a global level and in your own farm field?

And how is it that farmers find themselves in a position to help combat climate change, while also benefitting from doing the right thing?

In this episode of The Future. Faster. Tom and Sally cover the basics of climate change and carbon markets, where growers can be compensated for their integration of sustainability practices.

Plus, they're joined by Ben Nelson, Nutrien Ag Solutions Carbon Project Lead, to discuss current carbon market opportunities, the complexities of farm practices versus measured outcomes, and how decisions are made about the rules and regulations for carbon markets--specifically, Nutrien Ag Solutions' stance on additionality and permanence. 

Episode Transcript

Ben Nelson:

Nutrien views itself as a grower advocate, and one of the primary grower advocates that are out there as to how growers can participate in these carbon markets. And we're going to continue to do that. Nutrien views itself as someone that needs to continue to advocate for growers as these markets evolve.

Dusty Weis:

The future isn't just written by the past. It's written by the right now. And right now Nutrien Ag Solutions is focused on what's next. Hello, I'm Dusty Weis, and welcome to the Future, Faster, a sustainable agriculture podcast by Nutrien Ag Solutions, where you can learn about the next horizon in sustainable agriculture for growers, for partners, for the planet. To us, it's not about changing what's always worked, it's about continuing to do the little things that make a big impact. Nutrient Ag Solutions is the retail division of Nutrien, the world's largest crop inputs company. And at Nutrient Ag Solutions, our network of over 2000 retail locations and 3,400 craft consultants across seven countries help support our more than half a million grower customers in their mission to feed the world.

Dusty Weis:

On this week's episode, Ben Nelson, carbon project lead at Nutrien Ag Solutions, joins us to discuss current carbon market opportunities, hears the complexities of farm practices versus measured outcomes, and talks about the decision-makers of rules and regulations for carbon markets, specifically sharing Nutrien Ag Solutions' stance on additionality and permanence. If you haven't yet, make sure you're subscribed to this podcast in your favorite app. Also make sure to follow Nutrien Ag Solutions on Facebook and Instagram.

Dusty Weis:

And with that it's time to once again introduce Nutrien Ag Solutions' own Tom Daniel, director of retail Sustainable Ag, and Dr. Sally Flis, field manager of Sustainable Ag. And Tom and Sally, we're going to be spending a lot of time diving deep on a lot of these sustainability topics on this podcast. But in this episode, we're going to try to look at it a little more from 30,000 feet, this issue of carbon. So let's level set a little bit here, Tom. Carbon, what is it? Why is it a problem, and how does sequestration help?

Tom Daniel:

The topics that you keep hearing on the news every day around climate change, right? And so some of the biggest issues around climate change are the amount of CO2 emissions that are being released into the atmosphere are being held in the atmosphere today. And the fact that we're not taking enough of that out in our normal carbon cycle, using green plants to pull CO2 out of the atmosphere, and use it in their cycle of energy. So the whole idea here around carbon is how do we increase photosynthesis within crops, keeping a green crop growing on an acre year round, and pull more of that CO2 out of the atmosphere, and sink it into the ground, or sink it into the lifecycle of the plant?

Tom Daniel:

That way we are not going to heat up this climate, as we see happening. The big issues you have today around climate, a lot of it is around the severity that we see today in our climate. We don't seem to have just that normal one inch rain that we used to get 25 or 30 years ago. We get three and four inches of rain along with-

Dusty Weis:

The big gully washers. Yeah.

Tom Daniel:

Oh. And the thunderstorm and everything. So really the whole issue around carbon today is driven around climate. I mean, that's the whole piece.

Dusty Weis:

Right. And people tend to forget that when you're burning oil, when you're burning fossil fuels, that's coming from plant matter and animal matter that has been trapped down there for millions and millions of years, and became that oil eventually, but that contains carbon that had been sequestered millions and millions of years ago that's getting pumped back out into the atmosphere. And having plants, having corn capture that carbon through photosynthesis, or part of the photosynthetic process, and put that back into the soil, that's the sequestration that we're talking about. Sally, did I get that right?

Sally Flis:

Yeah. And in addition to that though, Dusty, is we keep that carbon that's going down into those corn roots in the soil by changing practices, like reducing or eliminating tillage, keeping that growing crop on there, adding a cover crop that's got another set of living roots going down into the soil. And then depending on how we terminate that cover crop, how we get rid of it, are we adding that surface level organic matter back to the soil in some way as well? And stimulating the bacteria life in the soil to cycle that carbon, and provide carbon and nutrients back to that next growing crop, so we can continue that process of pulling more and more carbon out of the air every season, and getting it in the soil, and keeping it there through those additional practices like reduced or no-till and cover crops.

Dusty Weis:

Right. Yeah. And when we talk about climate change, the original term that was thrown around a lot was global warming. And you often hear people say, "Well, it's still really cold in the winter by me. So I don't know if there's global warming." How are we seeing this climate change manifest? You mentioned the bigger rain events, Tom, a little while ago, but sitting here in Colorado, where they have seen one of the hottest summers on record in temperatures regularly up over 100 degrees and wildfires in the hills, is that a symptom of climate change?

Tom Daniel:

Sure it is, or at least we believe it is. Right? So there's all kinds of discussions you have around climate change. Some believe, some don't believe. But what I do is I observe what I see around me, and I know that what I'm seeing are very unique climate patterns that I don't think I've seen in the past. How many more heavy or bigger hurricanes have we seen come up through the Gulf of Mexico, or last year was one of the biggest hurricane seasons we've had in a long time.

Tom Daniel:

So those type of things cause me to think, "Has this atmosphere heated up slightly?" And if you watch anything around a global climate pieces, they're measuring what happens if we increase the overall temperature by half a degree, one degree. I think he goes all the way up... What, Sally? To two and a half degrees is where they're doing the modeling right now. It changes everything. It even changes the way we grow crops, because now there are stress levels that change, not just outside of the markets in general, but we're talking about stress levels that are going to change.

Tom Daniel:

So, Dusty, we talk about all these practices and farmer practice implementation, like no-till and cover crop, that we want to implement that around the carbon sequestering piece, right? But we also recognize there's long-term benefits, but Sally argues with me all the time, and she says, "We don't argue," but we do, that there can be negative impacts to some of these practice changes that we need to look out to the longterm just like phosphorus. And I think, Sally, you've given some good examples where long-term no-till can create some issues around watersheds.

Sally Flis:

Yeah. If you look at some of our phosphorous or water quality stressed watersheds in the US, like the Western Lake Erie Basin, you've seen increased soluble phosphorous loss because we pushed for no-till implementation, which was good. We reduced sediment arrival into the Western Lake Erie Basin, which helped with water clarity, but it changed where we put the fertilizer or the manure. And without that incorporation, it's an 80% increase in soluble phosphorous loss, because we're leaving that phosphorus on the surface.

Sally Flis:

So we end up with shifting or unintended consequences, because implementing no-till isn't bad, it's done good things for the soil there, and it's done good things for reducing sediment loss into the Western Lake Erie Basin, but we created or shifted our problem, because we shifted the type of phosphorus that we're losing from the landscape. So we just need to make sure as we consider these practices, that we're considering all of the things that they're going to do in that cropping system, and not just focus on we want to sequester more carbon in the soil.

Tom Daniel:

It goes back to the discussion then, Sally, that we have to look at the solution holistically, right?

Sally Flis:

Yep.

Tom Daniel:

It can't be just let's implement no-till, and we've reached the goal. It's how do we bring in a whole solution around that farming operation, and making sure that if where we're placing the phosphorous fertilizers an issue, then let's place it in a different way. Let's put it furrow, let's do it in injected, or ever how we choose to do it. There's different methods that we can use then, right?

Dusty Weis:

And certainly, all of these produce data, and all of these produce measurable results, and again, we'll be able to get into that a little bit later in this episode, but first, I have exhausted the depth of my expertise when it comes to carbon in the atmosphere here. So I was hoping that you guys could clear up a couple of terms for me that come up pretty regularly in this discussion. Additionality and permanence, what are those, and why are they important?

Sally Flis:

So additionality is the idea that we want to do something new on the landscape that hasn't been practiced historically on that field. So these markets are really looking for new practice implementation. They're really bot being driven by carbon sequestration, because in a cover crop cycle, for example, you're going to continue to sequester carbon for an extended period of time, 25 years maybe, depending on the geography your in. But the carbon markets only want to pay for or count fields where that cover crop has been implemented in that cropping season you're signing up for. So it's got to be a new practice.

Sally Flis:

So they're really incentivizing new practices, and that's the additionality. They want a new, additional practice implemented in that field, on that acre, in order to be eligible to participate in the marketplace. That doesn't mean that if you're a grower that's five or 10 years into a cover crop, that you're not continuing to sequester carbon, it just means that the marketplace right now only wants to buy new carbon.

Sally Flis:

Permanence is we're looking to keep that carbon in the soil, because it doesn't do us a lot of good when we get back to that climate change or carbon in the atmosphere discussion if we take it out of the atmosphere this year, and we pay to take it out of the atmosphere this year, and then next year we till up that field, and all that carbon is lost again. So we want to make sure we're continuing to improve or continuing to reduce the carbon concentration in the atmosphere by keeping what we sequester each year in the soil.

Tom Daniel:

Sally, I'd ask one question on that. When we look at these registries in these different carbon markets, they seem to be talking about 30 years or 100 years worth of permanence. Where does that come from?

Sally Flis:

That goes back to forestry, and it's a lot easier to track 30 years or 100 of permanence in a forest, because a lot of times we don't want to harvest in less than a 20 or 30 year cycle, or we may not ever harvest that. So it's a lot easier to say, "We're going to keep it there for a 100 years. So it gets to be really tricky in these grower or more dynamic ecosystems like agriculture to figure out how do we maintain some sort of permanence that's reasonable with changes in crop production techniques.

Tom Daniel:

And it all goes down to creating an offset or an inset that has credibility that people can count on that we've actually done something. We've not just said we've done it, but we've actually sinked a carbon source, and we've left it in the soul where it can be counted and measured. So these are all things we're working on, and that's Nutrien Ag Solutions' whole reason for being involved in the carbon pilots this year is to figure out how do we get around things like 30 and 100 years permanence? What do we do that we can represent our grower with these registries, and express to them the need to get more realistic in some of these terminologies?

Dusty Weis:

And of course, creating a data stream, creating measurable results is also important, and probably the next most important thing about this, which is getting paid for taking carbon out of the atmosphere, creating additional revenue streams for our growers. And that is what we are going to discuss next with Ben Nelson, carbon project lead from Nutrien Ag Solutions, in just a moment here on the Future, Faster.

Dusty Weis:

This is the Future, Faster, a sustainable agriculture podcast by Nutrien Ag Solutions. I'm Dusty Weis along with Tom Daniel and Sally Flis. And we're joined now by Ben Nelson, carbon project lead at Nutrien Ag Solutions. Ben, thanks for joining us.

Ben Nelson:

Thanks for having me.

Dusty Weis:

So there's a new potential revenue stream for growers in the ag industry, something that should be plenty exciting to everybody listening to this, and it's focused on meeting the need to reduce carbon impacts on the environment, carbon markets. Can you elaborate a little bit on what the current carbon market options that growers and corporations can participate in are?

Ben Nelson:

Yeah. At a high level, there's two types of carbon markets that are out there. The first one would be a regulated market, or also called a compliance market. And this is where carbon emitting industries are capped at a certain amount of emissions that they're allowed to emit, and other players can come in and reduce their carbon emissions to help those industries meet what their targets are, and they can get paid for participating in reductions or removals of carbon to help those regulated industries to meet those levels that have been set for them through legal mechanisms.

Ben Nelson:

Largest compliance market today is in Europe. China just opened one this year as well, and as we look to North America, these compliance markets are really done at a state and provincial level. So Alberta has one, California has one, Washington state has just put into law, it hasn't gone into practice yet, but it's just put into law one as well. The other type of market is a voluntary market, and this is where corporations have come out and said they're going to meet certain environmental goals.

Ben Nelson:

So think about companies that have said, "We are going to reduce our emissions, or be carbon neutral, or net zero by 2030, or some other date." And if they're not able to reduce their own emissions completely, they can offset their emissions through other areas that can reduce their emissions. And one of those is nature-based systems or agriculture that has the opportunity to reduce and/or remove carbon from the atmosphere and participate in these markets.

Sally Flis:

So Ben, are there any ag generated carbon credits that have actually been sold on a voluntary market in the US?

Ben Nelson:

To date, there haven't been any verified or validated carbon offsets that have been generated in any of these voluntary markets in the US, and the fundamental limitation there is on the supply of them, not the demand. And the supply side is really around the rules on these protocols on getting to a verified outcome to have an offset to actually sell. The demand is there, the supply has been the problem to date.

Tom Daniel:

So, Ben, why is the supply the problem? I mean, we seem to have been working on this for years, right? If you go all the way back, what? In 2007, 2008, 2009, back in the years that they were actually developing carbon markets, at that time there wasn't a demand, but today we have the demand, but we don't seem to have the supply. What's holding us back on getting to a supply?

Ben Nelson:

It's really about getting to a verified reduction or removal of carbon that has a level of uncertainty that's low enough that these buyers are willing to accept it. And nature based systems are complex, agriculture is complex, the soil is complex, and the cost to administer these, and to verify, and get to a measured outcome has limited the ability to really scale these in a meaningful way to generate enough supply to meet that demand.

Tom Daniel:

So it's really around there's just not a system in place today that we can verify, validate the way we need it to, right?

Ben Nelson:

On a cost-effective scalable basis.

Tom Daniel:

And when we talk about cost-effective, we talk about soil sampling, we talk about the verification process, validation, all of it's brought together.

Ben Nelson:

Data collection, historical data collection, all of the pieces that are needed to prove that what actually got reduced or removed from the atmosphere actually happened.

Sally Flis:

Bed, you used the term certainty in one of your answers in the last few minutes, what are the things that impact the certainty of the quality, or the value, or the magnitude of a carbon credit?

Ben Nelson:

One of the basic principles of these carbon markets is getting to an actual outcome. And generally speaking, they follow a process of modeling what those outcomes are, but then with a measurement on some frequency that backs that up. The most accurate way to reduce the most amount of uncertainty would be to go out and soil sample every single acre, and test for soil carbon on every single acre. But that is just cost prohibitive in being able to actually generate any value for growers or for the markets themselves.

Ben Nelson:

And so what you have is modeled outcomes based off of these bio chemical models that estimate what the carbon impact is, and then on some frequency you go in, and you true those up with actual soil samples, and it's trying to find the right balance between a level of certainty on what that outcome is, and the cost to actually drive the uncertainty level down to a level that people are comfortable that the outcome is real.

Tom Daniel:

An really I believe, Ben, if I understand it correctly, when we have uncertainty, we create a lower value for the carbon offset or inset that's created, right?

Ben Nelson:

That's right. So there is reductions in the carbon outcome value. If your uncertainty is high, that uncertainty deduction will take the amount of carbon offset that you're generating out of the system. And so the lower the uncertainty, the more carbon value of that outcome that you're generating.

Tom Daniel:

So I'll ask this question, what is the reason that companies that are making their environmental claims today, reduction of carbon footprint, net zero, all of those different discussions, why is certainty important to them?

Ben Nelson:

They want to be certain that what they're paying for is actually real.

Tom Daniel:

Makes sense,

Dusty Weis:

Just from a public relations standpoint, nobody wants to be in the situation of claiming to have offset X, Y, Z amount of carbon, and then somebody coming in, and doing some soil sampling, and being like, "No, actually you didn't." That doesn't work out well for anybody.

Ben Nelson:

That's absolutely right. And there is reputational risk for the organizations that are buying these carbon credits, and you've seen that in the press on a number of different occasions.

Tom Daniel:

Yeah. We actually have seen some things come out just recently that some environmental groups or NGOs have actually called out some of the measurements that have been made around carbon. You made the comment a minute ago that there's not been a validated or verified carbon offset that's actually been sold, that's gone through a registry process. So we do hear about these deals that are going on around carbon, that people are purchasing carbon from different sources. What are the processes that will allow them to make those claims? They seem to be bore of an agreement between a buyer and a seller that basically just come together.

Ben Nelson:

When I think about the carbon markets, I think about it in three buckets, the first would be these verified offsets that have gone through a third-party registry verified by a third party. That's been difficult to actually get the supply through to date, in terms of the cost to administer, and the uncertainty levels, and the other things that we've already talked about. The second would be decarbonizing the supply chain. So insets or interventions to decarbonize the supply chain. And then the third bucket would be narrative claims where people can say, "I've done something, but I'm not actually able to quantify or have a high level of confidence in the outcome, but we're making a positive impact in some way." I think a lot of these bilateral agreements that companies have made around this are trying to progress the narrative claims for themselves, but also give some incentive for continued evolution of getting to an actual verified scope point offset. And so they're trying to help the markets continue to progress, because these are very immature and early markets at this point.

Sally Flis:

So, Tom, you mentioned registries, and I think you maybe mentioned the registries and the different bodies involved here. I know we hear a lot while we're out in the field, Tom, "Why did you guys make this decision? Why do we have to deal with additionality? Why can't this grower qualify?" So who is actually making the rules when it comes to who can participate, and how they can participate in these different markets?

Ben Nelson:

It's a large tent of nonprofit organizations that are taking the constructs from the Paris agreements and applying those into different industries, one being agriculture, and developing specific protocols that meet the high level guidance of the Paris agreement in terms of carbon reductions and removals. And there's a number of these organizations that have put them out there. The three biggest in the US markets would be the Climate Action Reserve, Verra, and Gold Standard. They're nonprofit organizations that are setting out protocols that are applicable to agriculture. And honestly, it's a consistent negotiation around the demand side and the buyers with what's practically executable within any given industry. And so they are the ones that are setting the rules around additionality and permanence, which I think we'll talk about a bit more.

Sally Flis:

Ben, you mentioned that these different groups are kind of setting what the protocols are for terms like additionality and permanents that Tom and I touched on a little bit earlier in the podcast, in the opening. What's Nutrien's perspective on additionality and permanence? Because in some of these private agreements that you mentioned, they tend to take a different interpretation than these registries do of additionality and permanence.

Ben Nelson:

Yeah. So let me take both of those separately. So on the additionality side, so additionality fundamentally is you got to do something more than business as usual. And how do you test for that in an agricultural context? And what these registries have done to test for that has basically said it has to be the implementation of a new practice, so something you haven't done before. And in addition to that, the adoption rate of that practice has to be below a certain threshold, and the different registries have different thresholds on what they've determined. From Nutrien's perspective, that threshold should be at the field boundary level. So to use an example, the climate action reserve only allows practices that have below 50% adoption in a given county in the US.

Tom Daniel:

Now, before you eave that, so we're talking about, for instance, as an example, cover crops, right?

Ben Nelson:

For example, cover crops. Maybe a better example would be no-till. So if a certain county has adopted no-till across that county greater than 50%, no-till is no longer applicable to be registered as an additional practice within the Climate Action Reserve.

Tom Daniel:

Even though I've never implemented that practice on my particular farm?

Ben Nelson:

That's correct. Nutrien's position is that that boundary instead of being at the county level should be at the field level. So if I'm a grower, and I've not implemented no-till in the past, I should be allowed to consider that as additional. And one of our key roles in the carbon market is to advocate for growers in how they can participate in these markets. And we continue to have this discussion with each of these registry bodies on why additionality is important, and why field boundary should be the geographical limit for additionality, not some other arbitrary geographic boundary. And in addition, we're having the same conversations with USDA and other government bodies that will have an impact in the long-term around how these markets continue to evolve.

Tom Daniel:

Ben, one of the questions Sally and I get a lot when we're traveling is, "I understand additionality, but I'm still sequestering carbon, even though I've been in cover crops or no-till for four or five years. Why can I not get paid for that additional carbon that I'm continuing to sequester?"

Ben Nelson:

And, again, Nutrien's position would be that they should, and that's something called proportional additionality. It's something that has made some head roads in Canada, but to date, the offset registries that are impacting the US have not been willing to engage in that conversation. It's the rules of the markets that are being created today. And ultimately, we've got to follow those if we're going to have a certain level of quality that will meet the requirements of the demand side, but we will continue to advocate for growers on things like proportional additionality, and how those rules continue to evolve in the future.

Dusty Weis:

If I may, it sounds like we're still very early in the stages of a game for which the rules are still being written, and those rules are being written by some very, very big players, much more macro than the individual farm field. Who's out there right now advocating on behalf of individual growers?

Ben Nelson:

Nutrien views itself as a grower advocate, and one of the primary grower advocates that are out there as to how growers can participate in these carbon markets, and we're going to continue to do that. I think that grower organizations will also play a role in there, but Nutrien views itself as someone that needs to continue to advocate for growers as these markets evolve.

Tom Daniel:

Ben, it seems like when we're dealing with USDA and RCS type programming, they've always just driven farm practice change, for the most part. They've not actually measured any outcomes from the farm practices, but they're assuming if a grower implements them, there are outcomes generated. So what's the difference between farm practice payment versus true outcome payments that can come off the farm?

Ben Nelson:

Tom, you're absolutely right. So historically, the USDA through their environmental programs would pay for practice change. And the hope was that those practice changes would lead to environmental benefits, but they never quantified what the actual outcome of those benefits are. As we go to these markets, what the markets are interested in is a quantified outcome. So these practices lead to environmental benefits, but those benefits are different for each field based off of the agronomic conditions of those fields. And so where the markets are going to is taking those practices, applying them to the specific information on a specific field to model, and then eventually measure what the outcome that was generated on that actual field, and then paying off of that outcome, as opposed to just paying for the practice with the hope that the outcome will be realized.

Tom Daniel:

Typically, on the USDA programs that I've seen too is they only pay for short period of time, trying to get the farmer practice for the grower to recognize a return on investment for whether it be cover crop, or no-till, or whatever the practice may be. Well, we've seen in a lot of these programs, and not being critical of the USDA trying to drive this, but as growers lose the payment, they have a tendency to move away from those practices that if they're not being paid for them. I think the idea around the carbon initiatives and the things that we're working on is to create that revenue stream that can be constant over time, but not just particularly to pay for the upfront costs, but actually to help the grower supplement his income over time, and then gain the ROI advantage from the practice change after he's done it for a period of time.

Ben Nelson:

I think you're absolutely right, Tom. And if you look at the protocols from these registries, they do allow for a long period of time for carbon to continue to be recognized as you get back into balance within the soil structure itself.

Sally Flis:

Ben, you mentioned a couple of times scope one, scope three. What is scope one or scope three, and is there a scope two involved in any of this?

Ben Nelson:

There is a scope two, and there's three primary scopes of carbon accounting is probably the best way to think of it. Scope one is the emissions related directly to a company's operations. So using Nutrien as an example, the production of nitrogen fertilizers generates carbon dioxide emissions through the production of ammonia. That would be a scope one emission. Scope two are emissions indirectly related to a company's production or operations. Again, using Nutrien as an example, the greenhouse gases released from electricity generation that's used to operate the production facilities that Nutrien is operating would be an example of a scope two.

Ben Nelson:

Scope three is upstream or downstream from an organization. So either through the greenhouse gas emissions related to product purchased or to product sold. And so, again, sticking with the Nutrien example, nitrogen fertilizer being applied to a farmer's field, and nitrous oxide being released into the air would be an example of a scope three emission for Nutrien.

Dusty Weis:

Well, certainly lot of things to take note of here. And you guys have done a great job of sort of setting the table as far as carbon and carbon capture goes. In the next episode here, we're going to dig in and learn a little bit more about carbon, and some of the opportunities that are out there for growers. So certainly tune in for that. In the meantime, that going to do it for this discussion. Ben Nelson, carbon project lead at Nutrien Ag Solutions, thanks so much for joining us on this episode of the Future, Faster.

Ben Nelson:

Thanks, Dusty. Thanks, Tom and Sally.

Dusty Weis:

That is going to conclude this edition of the Future, Faster: The Pursuit of Sustainable Success with Nutrien Ag Solutions. New episodes arrive every other week, so make sure you subscribe on your favorite app, and join us again soon. Visit futurefaster.com to learn more. The Future, Faster podcast is brought to you by Nutrien Ag Solutions, with the executive producer Connor Irwin, and editing by Larry Kilgore III. And it's produced by Podcamp Media, branded podcast production for businesses, podcampmedia.com. For Nutrient Ag Solutions, thanks for listening, I'm Dusty Weis.