With the emergence of ambitious climate commitments worldwide and the rise of net zero pledges from some of the biggest brands, the jury is out – we stand at the forefront of unparalleled growth in global carbon markets. These markets present substantial opportunities for farms to get paid for implementation of climate change mitigation strategies by selling carbon credits.
The purpose of carbon markets is to reduce greenhouse gas (GHG) emissions and slow climate change by making actions to reduce emissions profitable. Carbon markets give companies – including producers of dairy products – a business case to meet their climate goals, providing incentives for those who do and allotting the biggest incentives to those who reduce the most emissions.
What is a carbon credit?
A carbon credit is a tradable and fungible commodity that represents 1 metric ton of carbon dioxide equivalent (mtCO2e) GHG emission reduction. Carbon credits can be generated in one of two ways: through physically removing GHGs from the atmosphere, often referred to as a removal credit, or by avoiding an emission that would have otherwise occurred, referred to as an avoidance credit.
Broadly speaking, once a carbon credit is generated, there are two types of markets in which the credit can be traded or sold: voluntary and compliance markets.
The voluntary market consists of companies or organizations that willingly purchase carbon credits and apply them to meet their internal climate commitments. The voluntary market is facilitated by accreditation bodies known as registries, which set the standards and design the methodologies for producing credits and oversee the trading and end use of the credits.
The compliance market consists of programs determined by state and federal policies that place regulatory mandates on entities, which must either surrender emission permits, often referred to as allowances, or purchase credits in order to meet their regulatory emission limits. These policies create markets into which unregulated industries (e.g., farms and/or their project development partners) can generate and sell emission reduction credits to regulated entities.
Opportunities for dairies
Within both the voluntary and compliance markets, lucrative opportunities exist for dairies to produce carbon credits from implementing a variety of GHG mitigation practices. The carbon market opportunity that best suits an individual farm depends on which practice harmonizes with the farm’s current operation and future goals. Here, we break down those opportunities into two broad categories: digester and non-digester-related opportunities.
Digester-related opportunities
Under normal circumstances, when stored in an anaerobic environment, organic waste decomposes into methane (CH4), which is one of the most impactful GHGs, as it has a global warming potential (GWP) – a measure of how much atmospheric warming a GHG will cause over a given period – that is about 25 times larger than that of carbon dioxide (CO2) over a 100-year period.
Anaerobic digesters provide a physical mechanism for capturing methane (often referred to as biogas) produced by organic waste and conveying it to a variety of end uses that ultimately destroy the methane, preventing it from entering the atmosphere.
A majority of dairy digester projects will either transmit the biogas to an internal combustion engine to produce renewable electricity on-site or deliver the biogas to an upgrading facility where the gas can be refined to pipeline quality, often referred to as renewable natural gas (RNG), which can be directly injected into the natural gas grid.
Digester-related carbon markets are the most mature and potentially lucrative form of carbon markets for farms, which is why a majority of dairy-related carbon credits are generated from digesters. A few notable carbon markets for dairy digester projects include: California’s Compliance Offset Program, California’s Low Carbon Fuel Standard (LCFS) program and the EPA’s Renewable Fuel Standard (RFS) program.
Non-digester-related opportunities
While digesters currently offer the most rewarding carbon market opportunities for dairies, there are other options available.
One such opportunity is producing carbon credits through the adoption of alternative manure management practices to reduce emissions from manure storage. Such practices include installing manure or wastewater processing equipment to extract manure into its component parts (e.g., solids, concentrated nitrogen and phosphorus fertilizers and water), implementing advanced composting methods (such as worm composting), and/or operating solid separation systems.
Another opportunity that involves an emerging series of products that are making big waves in climate tech, and even bigger waves in carbon markets, is enteric methane reductions. Enteric methane is naturally produced by microorganisms in the cow’s rumen. Cows belch out this gas, resulting in one of dairy’s largest sources of methane emissions. This methane also represents substantial inefficiency in feed use, as the energy contained in the methane was not utilized for milk production.
Several companies are producing feed ingredients that can be mixed with the herd’s rations in order to combat these issues. Farmers who feed these additives to their herd can not only improve the productivity of their herd but can potentially produce valuable carbon credits through voluntary market registries, such as Verra and the Gold Standard, that have developed protocols for quantifying and producing credits from the use of such products.
Finally, some opportunities for dairies do not involve the cows themselves and instead involve crops and soils. Growing feed has a substantial GHG footprint, and carbon can be stored in soils. Multiple registries in the voluntary market, including the Climate Action Reserve and Verra, have developed protocols to produce carbon credits from improved cropping and soil management practices. Methods such as optimizing nitrogen fertilizer application rates and applying soil amendments (e.g., microbes and biochar) that sequester carbon are but a few of the many practices that can generate carbon credits in the growing voluntary carbon market.
Maneuvering the sea of options
While there is a myriad of potentially rewarding opportunities for dairies in carbon markets, it can often be difficult to know where to start, and there are substantial considerations to be made before reaching a decision.
What approved practices can I implement? How many credits will they generate? Is my farm a good candidate for a digester? What determines the eligibility for certain programs? Are my current practices eligible? What are some options for financing a project?
These are complicated questions, and thankfully an industry has emerged to help farmers answer these questions. Carbon market experts, often referred to as carbon project developers, can provide information on all aspects of generating carbon credits, such as exploring project feasibility, financing, registering projects, monitoring and reporting in order to support farms in navigating carbon markets. However, all these firms have their own priorities, agendas and business models, which may not suit every farm. Like in many other aspects of operating a dairy, independent advice tailored to each farm's goals is often crucial.
