Carbon markets: everything you need to know

From changing agricultural policy, to net zero commitments, and other tangible on-farm benefits, there are many reasons why farmers are interested in carbon markets.

AHDB sets out what you need to know, from how markets work, the value of carbon to your business and what to look for in a scheme.

The agricultural policy environment is changing. Farming businesses will need to balance business profitability, with environmental sustainability going forward, as the industry works to meet net zero emission targets. 

Farmers and growers will play a vital role in ensuring net zero targets are met for the UK agricultural industry, and wider UK economy as a whole.

As we move forward and policy is more focused on environmental outputs and regenerative farming practices, many farming businesses will not only need to consider their traditional outputs, such as crops, milk, and meat, but also the natural capital they maintain.

Those delivering landscapes that support biodiversity and capture carbon, have the potential to produce an alternative stream of income.

With increasing numbers of companies setting targets for achieving net zero and some even pledging to be carbon positive, this creates a market for them to buy carbon from farmers and landowners.

Carbon insetting and offsetting are two ways for companies to reduce their carbon emissions and help the UK reach net zero. So how do they differ?

Natural capital is the stock of natural resources such as soil, carbon, air, water, biodiversity, trees, for example.

Building natural capital, especially in carbon stocks, can help farmers accumulate carbon on their farm which could eventually be used as carbon credits to sell into the voluntary carbon markets.

Carbon markets are not just beneficial due to providing additional income sources, but there are also tangible benefits such as improving soil health, crop quality and more efficient input use. 

Soil productivity is aligned with soil organic matter (SOM) levels, as SOM is a key component of soil that can affect the physical, chemical, and biological properties.

Carbon is part of SOM and can improve the quality of soil through greater retention of nutrients and water.

As a result, the quality of the crop can be improved, as well as a reduction in inputs such as fertiliser and irrigation if needed.

Also, certain practices that could be used to improve carbon capture in soil such as cover crops, planting legumes or reducing tillage can impact the need for fertiliser and reduce fuel usage.  

However, there is an imbalance in available information on carbon markets – both in how they work and the value of carbon.

Carbon credit buyers know a great deal more about the market and the value of that credit to their businesses than the sellers (farmers and landowners).

There is real need to provide clear and unbiased information to allow our farmers and landowners to make informed business decisions on whether to enter into carbon markets.

As carbon markets are new, they are developing very rapidly, with a wide divergence of offerings through the various schemes.

Every scheme has different payment structures, verification systems and rules around data ownership, so it’s important you enter into these ventures with a full understanding of the risks, obligations, and rewards to ensure you benefit in the long term.

Of these two, the voluntary market is most relevant to farmers and growers, as there is the potential opportunity to sell carbon credits.

However, it is still worth being aware of the compulsory market, as buyers may ask their farmers to reduce emissions as part of the limits set on them by the government.  

These voluntary carbon markets look set to grow exponentially over the next decade, both in size and value.

Once the regulations on reductions and accountability are in place, it would be expected that prices for carbon will see massive increases.

For this reason, the general advice on entering voluntary carbon markets would be to hold fire.

There needs to be informed decision-making before selling carbon or tying up land in long term offsetting schemes, because once you’ve sold your carbon it has gone!

There are also some concerns about duplicating the carbon stocks – if you sell carbon credits from your farm, you cannot then use that carbon to support your business achieving net zero targets in the future.

However, if you’d like to explore getting involved in a voluntary scheme, it is recommended that you seek legal advice. We have compiled our main watch points for schemes that offer payments for carbon sequestration in the agriculture sector.

Regardless of entering a carbon scheme or not, AHDB advises baselining your carbon stocks as early as possible and sticking to one carbon is key to calculating the value of your carbon.

While AHDB seeks to ensure that the information contained on this webpage is accurate at the time of publication, no warranty is given in respect of the information and data provided.

You are responsible for how you use the information.

To the maximum extent permitted by law, AHDB accepts no liability for loss, damage or injury howsoever caused or suffered (including that caused by negligence) directly or indirectly in relation to the information or data provided in this publication.

While AHDB seeks to ensure that the information contained on this webpage is accurate at the time of publication, no warranty is given in respect of the information and data provided. You are responsible for how you use the information. To the maximum extent permitted by law, AHDB accepts no liability for loss, damage or injury howsoever caused or suffered (including that caused by negligence) directly or indirectly in relation to the information or data provided in this publication.