Challenges with Carbon in Agriculture.
Climate-focused funds are quite the craze these days. As part of the ESG and sustainability focus, Challenges with Carbon in Agriculture have come up as an important topic.
Indigo has really put this topic on the radar for Agripreneurs as well as ESG/Agritech investors around the world. Their claims that corn farmers in the US can make more money through carbon credits (than their regular farming income) have really shaken up a lot of conventional thoughts.
In India, Rabo has been driving some forestry-related projects; Varaha has got good VC attention; there are many other start-ups working in this space. Very recently, I heard from a VC saying “Hey I have a mandate to do a pre-seed/seed investment in Carbon-for-ag space; can you recommend anyone?”… that’s a great indication of how serious the action is.
Having said all that, there are certainly challenges on the ground. This is a new space; people are still trying to figure out things. Some of the issues I have seen are:
Questioning the basic certification process – especially after the Guardian article that challenged VERA work, many carbon credit buyers are unsure of what they are buying. They are taking extra time and effort to be sure of what they are getting into. Irrespective of the latest article, the groundwork involved with measurement/audit/monitoring, etc., all of it, is extremely time-consuming and expensive and fraught with risks of both errors and fraud.
Commerce around Forests – Serious carbon credits are possible when you look at (re)forestation projects; now, forests, by default, are not true commercial projects; so how do you drive economics from such an initiative? Who pays for it (if not the government)? Maybe the large carbon generators have to invest in such projects on their own (instead of buying credits in the market)…but then that would actually bring down the demand for carbon credits to be traded in the market.
The time needed for Forest-related-projects – Apart from commercial viability, the other issue with forestation projects is time. The long cycle time of forestation is keeping large corporates disinterested. Even though we at Growpital considered forestation, it was an immediate no. We don’t have that kind of patience, to see results panning out after a decade.
How much can you sequester in an open farm? – Now let us look at general farming. Normal open-field agriculture processes are not easily amenable to sequester a significantly incremental carbon in the soil; plus it is difficult to tell a farmer “Don’t till your land”… you can tell him to use fewer chemicals but he will be afraid of reducing yield (at least in the short run).
Show me the money – Finally, as per carbon/Agri professionals, the expected income from carbon credits is just INR 1000-1200 per acre. Now this is a ridiculously low amount for anyone to take pains and extra effort, and risk lower yields
Before someone calls me a pessimist, let me clarify that I am still bullish about the FUTURE in this space. I am merely being pragmatic and transparent about the current problems.
Here are a few things I anticipate, going forth:
Technology will make monitoring easier (and more difficult to fudge). This should address basic veracity or genuineness concerns.
Large corporates will fund long-duration projects – Large corporates with massive carbon reduction goals will fund projects (such as forestation) with long gestation projects. This will give more and better evidence of how carbon credits can be generated in a well-managed project.
Hacks for making money – Commercially viable methodologies would come up for farmers to earn carbon credits. A small possibility is… can a farmer do honey farming (without touching the soil of a forestation project)?
I am especially hopeful of the young start-ups in this space to drive innovation and growth