In the broadest sense, carbon markets are financial platforms that allow for the transfer of carbon credits, typically quantified as a metric ton of CO2 – or the equivalent of some other greenhouse gas. In these markets, CO2 becomes a commodity to be traded between businesses and/or governments to incentivize reducing total emissions. Firms that can decrease emissions more cost-effectively are able to sell their decreases in CO2 emissions to firms that cannot meet their stated (or mandated) emission reduction targets.
Firms may want to reduce their emissions for a number of reasons: response to customer or stakeholder preferences or from a mandate imposed by a governing body. Carbon markets all require some form of baseline level assessment, and a way to monitor and report changes to the baseline, which allows the project to claim additionality. Additionality is required to show additional emission reductions occurred beyond business as usual. Further, carbon markets require permanence of a project. This means assurance that any reduction in emissions, or sequestered carbon, will not be rereleased in the future essentially offsetting current emission reductions.
Carbon Markets in Agriculture:
Efforts to sequester carbon on working farmland through practices like cover cropping or reduced tillage have been the primary focus of agricultural carbon programs. But there has been a recent push to include carbon sequestered on rangelands as an option to provide carbon credits to these markets. Like all markets, for a carbon market to work both the suppliers of credits (ranchers) and demanders of credits (firms hoping to offset their emissions) have certain obligations.
For ranchers that means ensuring the credits they generate are additional and permanent. Any credits generated on rangelands must be based on additional carbon stored above a baseline to achieve additionality. Permanence requires that the additional carbon that is stored in the soil must be permanently stored, which can be a challenge, especially in semiarid and arid rangelands.
On the demand side, firms that purchase carbon credits want assurance that the carbon sequestered will not be rereleased into the atmosphere during the next drought or wildfire, for example. A lack of confidence in the quality and security of offsets may limit the demand for credits generated from working farms and rangelands. Often, this concern is handled by not selling all carbon that is sequestered and holding a percentage back as insurance to ensure a landowner is not in breach of contract if a drought and/or fire occur, or they simply change management mid-contract and no longer meet the requirements of additionality.
Interested in learning more about the challenges and outlooks for carbon markets in agriculture? Check out our next blog.

Dr. John Ritten
Agricultural Economist and Extension Specialist

Dr. Nathan DeLay
Assistant Professor of Livestock Economics