Carbon Credits, Carbon Offsets, Grants and Subsidies
Remark: The references mentioned in square brackets [ ] relate to the references used in the scientific report of dr. Arnold on the Biochar Calculator. You will find these references under References. The text is an excerpt of the scientific report.
A general comparison of different incentives of carbon farming, i.e., Cap-and-Trade-allowances credits, carbon offsets, and direct subsidies is presented and discussed from a farmers’ and ranchers’ viewpoint in [ 57 ].
California Cap-and-Trade Program
The California Emissions Trading Scheme (ETS) began operation in 2012, with the opening of its tracking system for allocation, auction distribution, and trading of compliance instruments. California has been part of the Western Climate Initiative since 2007 and formally linked its system with Quebec’s in January 2014. The California program, which is implemented by the California Air Resources Board (CARB), covers sources responsible for approximately 80% of the state’s GHG emissions. Key amendments to the system took effect in 2021, following the passage of legislation clarifying the role of the program after 2020 (Assembly Bill [AB] 398) and regulatory amendments adopted by CARB. Among the major changes to the system that started in 2021 are the addition of a price ceiling, the inclusion of two allowance price containment reserve tiers below the price ceiling, reductions in the use of offset credits (especially for credits generated from projects which do not provide direct environmental benefits in the state), and a steeper allowance cap decline to 2030. The current allowance price (per Mt CO2,eq) is about $24 Mt CO2,eq (average auction settlement price in 2020) [ 57].
Although, concepts of extending the reach of the California Cap-and-Trade Program to agricultural GHG emissions became public a few years ago, which created a lot of concern in the Californian farming community. Californian agriculture is still exempt from the compliance obligations and allowance system. This is documented in §95811 “Covered Entities” under sub-article 3 of article 5 of the regulation (https://govt.westlaw.com/calregs/Browse/Home/California/CaliforniaCodeofRegulations?guid=I47A831C02EBC11E194EACEFFB46E37D1&originationContext=documenttoc&transitionType=Default&contextData=(sc.Default)). Nevertheless, the California Cap-and-Trade Program already includes a mechanism for carbon offsets under sub-article 13 “ARB (Air Resources Board) Offset Credits and Registry Offset Credits” (https://govt.westlaw.com/calregs/Browse/Home/California/CaliforniaCodeofRegulations?guid=I81C4C3F07FC011E19772DE7EC34FB4E8&originationContext=documenttoc&transitionType=Default&contexData=(sc.Default)). In §95975 (2) a “Compliance Offset Protocol Livestock Projects, November 14, 2014” is mentioned and can be taken as an indicator that carbon offset credits for GHG-emission-reductions in livestock farming are at least already included conceptually. So far however, these projects are confined to “… a set of activities designed to reduce GHG emissions that result from anaerobic manure treatment at dairy cattle and swine farms. Projects that install a BCS (biogas control system) that captures and destroys methane gas from anaerobic manure treatment and/or storage facilities on livestock operations are eligible”. Hence, to date only manure and slurry utilizations in digesters are included in these projects and not yet the reduction of enteric methane emissions by means of feed additives (for more details see below).
At present, the exemption from “covered entities” and limitation of the mentioned “Livestock Projects” mean that Californian farmers don’t need CAL-ETS-allowances for their consumption of e.g., Diesel-fuel, electric power or for the enteric methane-emissions of their cattle stock. On the other hand, however, the farmers can’t claim a financial compensation in form of tradable carbon offset credits from the California Cap-and-Trade Program for the CO2-sinks they create on their farmland (e.g., by means of increased soil organic carbon).
Air Resources Board, Compliance Offset Protocols
The Compliance Offset Protocol Livestock Projects provides methods to quantify and report greenhouse gas (GHG) emission reductions associated with the installation of a biogas control system (BCS) for manure management on dairy cattle and swine farms. The protocol focuses on quantifying the change in methane emissions, but also accounts for effects on carbon dioxide emissions [ 59].
Offset Project Operators or Authorized Project Designees that install manure biogas capture and destruction technologies must use the methods contained in this protocol to quantify and report GHGs. The protocol provides eligibility rules, methods to quantify GHG reductions, offset project-monitoring instructions, and procedures for preparing Offset Project Data Reports. Additionally, each offset project must submit to annual, independent verification by an ARB-accredited verification body. Regulatory requirements for verification of Offset Project Data Reports are provided in the Cap-and-Trade Regulation.
This protocol is designed to ensure the complete, consistent, transparent, accurate, and conservative quantification of GHG emission reductions associated with a livestock digester project. The protocol is composed of both quantification methodologies and regulatory program requirements to develop a livestock project for generating ARB offset credits [ 60 ]. Prices for ARB offset credits are the same as emissions credits traded on the California ETS.
The practical implementation of the Compliance Offset Protocol including the issuing of ARB offset credits is administrated by the Climate Action Reserve (CAR) – see below.
Anaerobic digestors require significant capital to construct, operate and maintain. Estimates of capital costs for various systems can vary greatly depending on the type of system selected and the size of herd it is designed for. AgSTAR estimates of capital costs on a per cow basis for larger farms indicate costs at the 500-cow level of approximately $1,500 per cow for plug flow systems and $1,100 per cow for complete mix systems (AgSTAR 2012). However, analyzing existing small farm data (farms 100 to 250 cows) prices can vary from $1,000 up to $2,800 per cow [ 61 ].
Carbon Offsets in general
Parallel to state regulations, a private market for carbon offsets is emerging. There is a clear and constantly raising demand for compensating the carbon footprint of private enterprises by means of tradeable carbon offsets in order to comply with corporate sustainability strategies and ESG-investment restrictions. The disruptive importance of this trend was recently highlighted indirectly, for instance, by Larry Fink, CEO of Blackrock, in his 2020 letter to CEOs “A Fundamental Reshaping of Finance” [ 62 ]. And indeed, more and more large, medium and small companies use the instrument of carbon offset-trade to exculpate themselves from parts of their carbon footprint. Hence, the demand for carbon offsets is rapidly rising in number and volume of requests.
The semi-private nature of the emerging market of tradeable carbon offsets implies that a lot of different initiatives and trade platforms emerge.
Climate Action Reserve (CAR)
The Climate Action Reserve (CAR), a non-profit organization founded in 2001, started in California as the carbon offset registry for the North American carbon market. The CAR encourages action to reduce greenhouse gas (GHG) emissions by ensuring the environmental integrity and financial benefit of emissions reduction projects. The CAR establishes high quality standards for carbon offset projects (in North America), oversees independent third-party verification bodies, issues carbon offset credits (known as Climate Reserve Tons – CRTs) generated from such projects and tracks the transaction of credits over time in a transparent, publicly-accessible system (in parts quotes from CAR’s website: https://www.climateactionreserve.org/about-us/).
The CAR earned approval from the Air Resources Board (ARB) to serve as an Offset Project Registry for the Compliance Offset Program (see above) under the Cap-and-Trade Program. As an approved Offset Project Registry (OPR), the Reserve can issue Registry Offset Credits under ARB Compliance Offset Protocols.
Moreover, CAR provides information and contact data of the heterogenous carbon offsets marketplace in the U.S. structured by exchanges, brokers, project developers, retail and wholesale traders https://www.climateactionreserve.org/how/offsets-marketplace/.
Carbonfuture
Influenced by biochar-expert Hans-Peter Schmidt (Ithaka-Institute), the German start-up Carbonfuture.earth (https://www.Carbonfuture.earth/about-us) was founded in 2020. Using blockchain technology at low energy consumption level, Carbonfuture operates an online-trading-platform of biochar-based carbon offsets for biochar-producers and traders as well as for carbon offset consumers (so-called “balancers”). Suppliers of verified CO2,eq-sinks (e.g., biochar producers) at first have to submit themselves a demanding certification process which is carried out by the Ithaka-Institute.
Before a certain amount of biochar and its related carbon-sink-impact can be offered as specific carbon offset budget, end-consumers of the biochar (in most cases farmers) have to confirm, that the biochar is not utilized energetically but instead deposited reliably in order to perpetuate the carbon-sink-impact of the CO2 which was extracted from atmosphere during the growth-process of the feedstock needed for the production of the biochar. The sales revenues of sold carbon offsets are cashed in by the biochar suppliers who deduct this revenue from the effective biochar-price or share it with the farmers. In the Carbonfuture-system the farmers have a relatively strong position to benefit from the offset-sales because their confirmation of biochar application is mandatory.
Pacific Biochar was an early adopter and the first Californian biochar company to be awarded carbon credits on the blockchain carbon sink platform Carbonfuture. The total accredited amount of carbon emissions sequestered by Pacific Biochar was 357.9 Mt CO2 equivalents in 2020 and 2021 at a price of $137 (€119 incl. VAT) per Mt CO2e [ 63 ]. The example of Pacific Biochar proves that the Carbonfuture-trading platform is an option also for Californian producers and agricultural users of biochar.
In 2020 and 2021, Carbonfuture has sold carbon offsets with a comprehensive volume of about 3,870 Mt CO2e or 1,358 Mt biochar. Among the balancer-clients of the platform some well-known company names like SwissRe and Spotify can be found. At present, however, the offset-budgets of Carbonfuture are sold out. Replenishment by certified biochar producers and end-users is urgently needed.
Puro.Earth
Puro.earth, founded in 2018 with its headquarters in Helsinki, Finland, claims to be the first B2B-marketplace in the world to offer verified carbon removals. In 2021 Nasdaq acquired a majority stake in Puro.earth. Puro identifies carbon removal suppliers from various methodologies, verifies their negative emissions and issues CO2 Removal Certificates, CORCs (1 Mt CO2,eq), a science-based carbon removal credit. CORCs are available on Puro’s online shop(https://puro.earth/services/) and by pre-purchase agreements. In order to be listed by Puro-earth suppliers of carbon-sinks have to submit to a rigorous auditing process. A lifecycle assessment (LCA) or an environmental product declaration (EPD) which attests that the product has absorbed more CO2 that it has emitted, are required.
Biochar is the dominant but only one option of the carbon removal methods puro presents. Soil amendments and wooden building elements e.g., are offered as well. In the pipeline are for instance enhanced-weathering-of-rock projects and a total capacity of more than 300,000 Mt CO2 for CORCs.
Oregon Biochar (Rogue Biochar) produces biochar with an 83% fixed carbon content, 0.08 H/C and 0.05 O/C molar ratios as well as a high surface area. The current carbon offset price listed on puro.earth for 1 Mt CO2 from Oregon Biochar is $148 (€129) [ 64 ].
Freres Biochar is primarily a lumber company that produces biochar through a biomass-fired rotary bed boiler that runs 24/7 producing steam to use in the manufacturing of lumber-based products and for electricity generation. The feedstock comes from multiple sources: 62% of the feedstock is waste wood, ply trim and sawdust. 10% is agricultural waste and 28% forestry residues. The carbon content of the biochar is 81.1% in the dry state. The current carbon offset price listed on puro.earth is $110 (€95) [ 65 ].
ARTi, Prairie City, Iowa, is located in the USA’s Corn Belt where it produces biochar from agricultural and woody wastes by means of pyrolysis. The Biochar is used as a soil regenerative practice in local communities; in farming, composting, landscaping and in vegetable gardens. The current carbon offset price listed on puro.earth is $143 (€124) [ 66 ].
Among the CORC-buying clients of the platform there are some well-known companies like Microsoft, SwissRe and Shopify. The examples of Oregon Biochar, Freres Biochar, and ARTi biochar prove that the Puro-trading platform may be also an option for Californian producers and agricultural users of biochar.
Carbon Sinks through Soil Biochar Application
The carbon sink effect of biochar in agricultural soil is significant. Blanco-Canqui et al. [ 139 ], for instance, showed that per ton of biochar, organic soil matter (OSM) is produced in a relatively short time (1 decade) with about twice the C mass (SOC) related to the C-mass in the biochar applied. This carbon is previously removed from the atmosphere via photosynthesis and deposited in the soil over a comparatively long time in a climate friendly way (see chapter 2.3.6 and [ 73 ]). The model in chapter 4.4.3 is used to quantify the average SOC- and SOM-increases due to biochar application.
Biochar is broken down very slowly in the soil by microorganisms and oxidation. C14 measurements have shown that the average time biochar remains in the soil is about 2,000 years, and the half-life is about 1,400 years [ 246 ]. In [ 73 ] mean residence time (MRT) of biochar in soil is given as 2,800 years (see chapter 2.3.7). Archaeological investigations proved that biochar deposits in the Amazon basin (early Terra Preta-applications), i.e., under warm and humid environmental conditions, also persisted for several thousand years [ 247 ].
Several studies highlight the potential of soil biochar deposition as a climate-relevant carbon sink ([ 246 ] to [ 248 ] and IPCC SR1.5 report of 2018 [ 7 ]).
Of course, this does not mean that the carbon sequestered with biochar in the form of photosynthetically extracted CO2 from the atmosphere and converted into biomass is permanently removed from the carbon cycle. However, compared to currently discussed alternatives of creating globally impactful carbon sinks (e.g., by means of BECCS – bioenergy carbon capture and storage), an effective leakage rate of carbon storage in agricultural soils of about 0.5 o/oo appears to be quite competitive with respect to the effectiveness of this carbon sink and sufficiently sustainable from a practical point of view. The overall ecological balance (including carbon footprint) of cascading biochar use on the farm has yet to be quantified using a process chain-encompassing LCA (life-cycle analysis).
As an alternative to the ETS system, biochar users can also benefit from the proven use of biochar as a carbon sink (C-sink) if it is certified, e.g., via the EBC (see chapter 2.3.7, and [ 249 ]). This requires quantitative balancing of the greenhouse gas emissions from raw material extraction to biochar delivery to the end user at the biochar producer and proof of a “final disposal site” e.g., in the soil. However, the sink effect of the biochar used can only be claimed once. The portions that were previously already accounted for as C-sinks, e.g., when balancing the feed, bedding and slurry biochar, must be deducted from the “final disposal site” soil. This does not apply to the avoided CO2,eq emissions in the barn and during manure storage or handling prior to application, which can be accounted for separately. The conditions of C-sink certification and the associated market prices have already been described above.
Modeling the Reimbursements for Climate Protection Contributions
The use of biochar on farms contributes significantly towards climate protection in several ways. Greenhouse gas emissions from animal husbandry and the use of farm manure of animal origin in the fertilization of cropland and grass land are reduced (GHG emission reduction). Furthermore, carbon previously sequestered from the atmosphere by plant photosynthesis is stored in the soil in the long term, primarily in humus (C sink).
The Biochar Calculator offers alternative compensation systems for this purpose:
1. The CO2 allowances of the CAL-ETS (Emission Trade System of California, see above), whose application to greenhouse gas emissions from agriculture – either in the form of the cost difference of required emission allowances without and with biochar use or in the form of analogous bonuses on “saved” emissions – has not yet been clearly implemented (future scenario).
2. The already introduced and tradable C-sink certificates of various trading platforms (See above), e.g. Carbonfuture GmbH with its own certification standards [ 251 ][ 252 ], which are based on the EBC standard of EBC C-sink certification [ 249 ], but only account for the net carbon sink effect from raw material to delivery to the end consumer (Present scenario). Similar conditions apply to the C-sink-certificates of Puro.earth, see above.
3. A future holistic carbon accounting (analogous to LCA – life cycle analysis) combining systems 1 and 2, extended by the effect of carbon sequestration in humus and remunerated with the CO2,eq price of the trading platforms (future scenario).
In system 1, the beneficiary (farm) would have to prove the greenhouse gas emission savings achieved by the use of biochar. This requires a commonly accepted certification system that seems to be in preparation, but is not yet finally established.
In the calculation tool, a compensation based on the CAL-ETS for greenhouse gas emission reductions due to biochar application is offered as an option for the analysis of conceivable future scenarios. For this purpose, the greenhouse gas emission reduction from feed, bedding and slurry biochar use is balanced and multiplied by an ETS certificate price.
In system 2, the biochar producer and its plant must first undergo certification. The dry mass of the biochar produced is multiplied by the carbon content (93% in the case of biochar produced by the CONVORIS-group) and multiplied by a factor of 3.66 kg CO2,eq/kg C. The mass-specific CO2,eq emissions of raw material preparation in the forest, raw material transport to the pyrolysis plant, any raw material drying, raw material storage, electricity and fuel consumption of the pyrolysis plant, biochar packaging (e.g., pellets, granules), product transport to the end user, and interim losses due to biochar decomposition [ 252 ] are subtracted from this value. For biochar of CONVORIS, this results in a value of approx. 2.85 t CO2,eq/t biochar dry material, which is multiplied by the total mass of biochar used on the farm and the current CO2,eq market price on the platform. In the medium term, the Ithaka Institute cautiously forecasts a value of 50 €/t CO2,eq (less than 50% of the current price) for this market price due to the expected rapid increase in the total quantity of C sink allowances offered.
The CO2 sink certificates are applied for and collected by the biochar producer or a wholesaler with confirmation from the biochar end user about the “final storage site” (type of use for the biochar used), sold through the trading platform for a fee at the market price. The fee of the C-sink certificates can be charged by the certificate holder (biochar producer or wholesaler) directly with the biochar price (which can result in a significant price reduction depending on the market price of the certificates) or passed on to the end user according to an agreed key.
In the calculation tool, a remuneration of the C-sink certificates is offered as an option for the analysis of today’s economic prospects. For this purpose, the total biochar quantity is multiplied by the factor 2,85 t CO2,eq/t biochar dry material and an assumed C-sink certificate price (here: Carbonfuture platform).
In System 3, the biochar producer AND the beneficiary (farm) would have to undergo detailed and comprehensive carbon accounting and certification. The methodology is presented in detail using an example Swiss farm [ 250 ]. However, this requires a certification system and trading platform conditions that do not currently exist.
In the calculation tool, compensation of the biochar-induced total CO2,eq sequestration effects is offered as an option for the analysis of conceivable future scenarios. For this purpose, the specific GHG emissions from stables and manure minus the biochar-induced specific emission reductions from the application of feed and slurry biochar are first multiplied by the livestock numbers of the farm. For greenhouse gas emissions from conventional land management, 5.9 t CO2,eq/ha (derived from [ 147 ]) and for the C-sink effect of humus buildup by means of the SOC-calculation model (in addition to the pyrogenic C fraction, derived from [ 147 ]) and multiplied by the total area. The product of total biochar used and 2.85 Mt CO2,eq/Mt biochar dry material is added. The resulting total in Mt CO2,eq is multiplied by an assumed C sequestration allowance price (C-sink plus reduced emissions).
The use of biochar on farms contributes significantly towards climate protection in several ways. Greenhouse gas emissions from animal husbandry and the use of farm manure of animal origin in the fertilization of cropland and grass land are reduced (GHG emission reduction). Furthermore, carbon previously sequestered from the atmosphere by plant photosynthesis is stored in the soil in the long term, primarily in humus (C sink).
The Biochar Calculator offers alternative compensation systems for this purpose:
1. The CO2 allowances of the CAL-ETS (Emission Trade System of California, see above), whose application to greenhouse gas emissions from agriculture – either in the form of the cost difference of required emission allowances without and with biochar use or in the form of analogous bonuses on “saved” emissions – has not yet been clearly implemented (future scenario).
2. The already introduced and tradable C-sink certificates of various trading platforms (See above), e.g. Carbonfuture GmbH with its own certification standards [ 251 ][ 252 ], which are based on the EBC standard of EBC C-sink certification [ 249 ], but only account for the net carbon sink effect from raw material to delivery to the end consumer (Present scenario). Similar conditions apply to the C-sink-certificates of Puro.earth, see above.
3. A future holistic carbon accounting (analogous to LCA – life cycle analysis) combining systems 1 and 2, extended by the effect of carbon sequestration in humus and remunerated with the CO2,eq price of the trading platforms (future scenario).
In system 1, the beneficiary (farm) would have to prove the greenhouse gas emission savings achieved by the use of biochar. This requires a commonly accepted certification system that seems to be in preparation, but is not yet finally established.
In the calculation tool, a compensation based on the CAL-ETS for greenhouse gas emission reductions due to biochar application is offered as an option for the analysis of conceivable future scenarios. For this purpose, the greenhouse gas emission reduction from feed, bedding and slurry biochar use is balanced and multiplied by an ETS certificate price.
In system 2, the biochar producer and its plant must first undergo certification. The dry mass of the biochar produced is multiplied by the carbon content (93% in the case of biochar produced by the CONVORIS-group) and multiplied by a factor of 3.66 kg CO2,eq/kg C. The mass-specific CO2,eq emissions of raw material preparation in the forest, raw material transport to the pyrolysis plant, any raw material drying, raw material storage, electricity and fuel consumption of the pyrolysis plant, biochar packaging (e.g., pellets, granules), product transport to the end user, and interim losses due to biochar decomposition [ 252 ] are subtracted from this value. For biochar of CONVORIS, this results in a value of approx. 2.85 t CO2,eq/t biochar dry material, which is multiplied by the total mass of biochar used on the farm and the current CO2,eq market price on the platform. In the medium term, the Ithaka Institute cautiously forecasts a value of 50 €/t CO2,eq (less than 50% of the current price) for this market price due to the expected rapid increase in the total quantity of C sink allowances offered.
The CO2 sink certificates are applied for and collected by the biochar producer or a wholesaler with confirmation from the biochar end user about the “final storage site” (type of use for the biochar used), sold through the trading platform for a fee at the market price. The fee of the C-sink certificates can be charged by the certificate holder (biochar producer or wholesaler) directly with the biochar price (which can result in a significant price reduction depending on the market price of the certificates) or passed on to the end user according to an agreed key.
In the calculation tool, a remuneration of the C-sink certificates is offered as an option for the analysis of today’s economic prospects. For this purpose, the total biochar quantity is multiplied by the factor 2,85 t CO2,eq/t biochar dry material and an assumed C-sink certificate price (here: Carbonfuture platform).
In System 3, the biochar producer AND the beneficiary (farm) would have to undergo detailed and comprehensive carbon accounting and certification. The methodology is presented in detail using an example Swiss farm [ 250 ]. However, this requires a certification system and trading platform conditions that do not currently exist.
In the calculation tool, compensation of the biochar-induced total CO2,eq sequestration effects is offered as an option for the analysis of conceivable future scenarios. For this purpose, the specific GHG emissions from stables and manure minus the biochar-induced specific emission reductions from the application of feed and slurry biochar are first multiplied by the livestock numbers of the farm. For greenhouse gas emissions from conventional land management, 5.9 t CO2,eq/ha (derived from [ 147 ]) and for the C-sink effect of humus buildup by means of the SOC-calculation model (in addition to the pyrogenic C fraction, derived from [ 147 ]) and multiplied by the total area. The product of total biochar used and 2.85 Mt CO2,eq/Mt biochar dry material is added. The resulting total in Mt CO2,eq is multiplied by an assumed C sequestration allowance price (C-sink plus reduced emissions).