Hemp Industry Stakeholders Back Carbon Credit Research as Prices for CO2e Skyrocket
By Eric Singular, Director, Hemp Business Journal
In 2021, the value of carbon reached new heights as more businesses targeted net-zero emissions, and governments aimed to achieve the goals set out in the Paris Climate Accord. As a result, activity soared in the compliance and voluntary carbon credit trading markets, setting price records. According to the Ecosystem Marketplace, there was a nearly 60% increase in the voluntary carbon trading markets from January to August of 2021. At the start of November, the value of carbon futures in California rose 90% over the previous five months. That same month, leaders from around the globe met at the 2021 United Nations Climate Change Conference (COP26) to set rules for an agreed-upon international framework on carbon markets. The consensus was the importance of carbon credit quality, but ultimately this represented a step forward in unlocking trillions of dollars for protecting forests, building renewable energy infrastructure, and financing other projects to combat climate change.
It’s likely we’ll see more businesses and governments make ESG value-driven decisions in 2022, especially with the increasingly immediate effects of climate change being felt, such as the intensifying drought and wildfires impacting the Western U.S. Industrial hemp will play a significant role as a crop capable of generating carbon credits for farmers by sequestering carbon dioxide in soil and in sustainable materials made from hemp hurd.
In the past several years, several companies have launched services that track, generate, and sell agricultural carbon credits. This service starts on the farm with growers who adopt regenerative agricultural practices, like planting cover crops and reducing the use of synthetic fertilizers, to maximize the amount of carbon sequester (or captured) in their soil. Carbon credits can be generated when farmers document sustainability practices that are included in several protocols, including the Conservation Cropping (Zero Tillage) and Nitrogen Oxide Emission Reduction Protocol (NERP) Protocols.
According to the U.S. Environmental Protection Agency, U.S. agriculture was responsible for emitting 629 million metric tons of carbon dioxide equivalent (CO2e) in 2019, approximately 10% of the country’s greenhouse gas emissions. Utilizing U.S. cropland as a carbon sink presents a huge opportunity as a 2004 study entitled “Soil carbon sequestration to mitigate climate change” estimated that global cropland has the potential to sequester as much as 570 million metric tons of carbon per year.
The biggest hurdle standing between earning carbon credits from growing hemp is data. There are strict requirements that must be met to quantify and qualify the amount of carbon dioxide sequestered from one acre of hemp in order to generate credits that can be traded on voluntary exchanges. The most-cited study about carbon sequestration in soil by growing industrial hemp was authored and submitted to the Australian government by GoodEarth Resources PTY, Ltd. (i.e., GoodEarth Resources), before the latter disbanded in 2014. The study claims that one acre of industrial hemp absorbs nearly 40,000 pounds of CO2 through its growing cycle. While a few land-grant universities and private companies have taken steps to measure and monitor the carbon-sequestering ability of hemp, the approval process and carbon registries managed by the United Nations Framework Convention on Climate Change and Climate Action Reserve, are data intensive and require time to accrue replicable, year-over-year results.
U.S. hemp growers got a step closer in December of 2021 when Heartland Industries announced that their soil innovation program, ‘Hemp4Soil’, was selected as the recipient of a $360,000 grant over 3 years from the Natural Resources Conservation Service of the U.S. Department of Agriculture. This includes the collection of datasets that according to Heartland, “will set the framework for trading in agriculture carbon credits.” The grant will allow Heartland to partner with farming communities in more than 10 states to advance research on regenerative agriculture techniques that bolster soil health, as well as quantify and qualify the carbon sequestration of industrial hemp production.
The rising interest in carbon credits has in part been spurred by skyrocketing price per ton of carbon dioxide equivalent (CO2e) on the European Union Emissions Trading System (ETS). This was the world’s first emissions trading scheme created to help the EU meet the goal of cutting net greenhouse gas emissions by 55% from 1990 levels by 2030. Unlike voluntary carbon trading markets, the ETS represents a compliance market that is used by companies and governments that by law must account for their GHG emissions. The ETS requires manufacturers, energy companies, and airlines to pay for each metric ton of carbon dioxide they emit. Since 2016, the price per metric ton of CO2e on the ETS has increased an average of 65.6 percent year-over-year. In April of 2021, the World Bank pegged the price per metric ton of CO2e on the ETS at $49.78. By December, Reuters reported the price could soar past $100 a metric ton by the end of the year after soaring 50% since the start of November.
Indigo Agriculture was an early mover in the North American carbon market gold rush. In 2019, Indigo announced a project to pay farmers for carbon credits that result from implementing climate-friendly practices and capturing carbon dioxide in farm soil. A carbon credit represents a one metric ton reduction in carbon dioxide or the equivalent amount of different greenhouse gases. In turn, Indigo sells those credits on a voluntary exchange to companies seeking to offset their carbon footprint. Major purchasers of carbon credits have been ridesharing companies like Uber and Lyft, as well as energy companies and airlines.
While there’s a myriad of projects and avenues for carbon capture being explored and implemented, McKinsey & Company predicts that nature-based solutions could account for 65-85 percent of the total supply of carbon credits by 2030. This raises the stakes for expeditiously advancing the necessary research and data collection to get farmers paid for growing hemp. In the wake of increasing climate change-related disasters, the rise of ESG, and the creation of a carbon marketplace, the subsidy-like impact of carbon credits for industrial hemp could exponentially grow the crop’s acreage and greatly accelerate its widespread adoption as a plant-based protein ingredient and a renewable material capable of minimizing our environmentally exhaustive dependence on wood and petroleum.
New Frontier Data will be documenting efforts in sustainability and carbon credit-related progress and services available to the hemp industry in 2022 and beyond. These will be integral sectors analyzed in New Frontier Data’s upcoming Hemp Reports for this year.