As directed by the Consolidated Appropriations Act of 2023 (CAA) that was signed into law by President Biden on December 29, 2022, on October 23, the U.S. Department of Agriculture (USDA) released the report on its general assessment of the state of the U.S. compliance and voluntary carbon markets for the agricultural and forestry sectors. The report, titled Report to Congress: A General Assessment of the Role of Agriculture and Forestry in U.S. Carbon Markets (Report) provides a summary of the assessment’s findings with respect to the current supply and demand of agriculture and forestry carbon credits in the U.S., as well as the barriers to market entry faced by many agriculture and forestry landowners and operators. The Report also highlights the role that USDA could play in reducing such barriers, notably through a potential GHG Technical Assistance Provider and Third-Party Verification Program (Program). As participants in the voluntary carbon market search for greater certainty regarding the integrity of carbon credits being bought or sold, the Program may become a unique and valued resource for potential project developers and carbon credit buyers.
The Report notes that while forestry projects accounted for approximately 58 percent of credit issuance volume for U.S. carbon projects from 2013-2022, agriculture and land use projects accounted for just three percent of such volume during the same timeframe. With respect to future demand, the Report highlights the growing interest in carbon removal credits rather than carbon avoidance or reduction credits, while noting that removal credits currently only account for five percent of all credits in the U.S. carbon markets. Because only projects that comply with a carbon credit registry’s protocols for reforestation or soil carbon sequestration are eligible for removal credits at present, the Report predicts that reforestation and soil carbon sequestration projects will receive preference in the voluntary carbon market over other kinds of agricultural or forestry projects moving forward.
Among the barriers to entry for agricultural and forestry landowners and operators, the Report references the cost of GHG quantification and market confusion. Recent surveys, the Report notes, indicate that the creation, merger or discontinuance of voluntary carbon credit standards and registries, and the differing requirements of such standards and registries, make it difficult for landowners and operators to determine whether developing a carbon project is a prudent investment. With respect to GHG quantification, the Report notes that estimation models commonly used to determine the GHG impact of a project must be calibrated, validated, and parameterized to accurately represent the various conservation practices, species, crops and geographies relevant to the project. This kind of quantification requires significant time, data and investment by project components, the Report adds.
Regarding the role that USDA could play in reducing these barriers, the Report mentions the development of a soil carbon monitoring and research network that the USDA will establish to collect field-based data for carbon sequestration over space and time, and to develop a network of on-site experiments on carbon sequestration to strengthen predictive models and support GHG assessment. Regarding market confusion, the Report notes that the Program would enhance the USDA’s efforts to provide farmers, ranchers and foresters with the requisite resources to decide if and how to participate in the carbon market, and suggests that the Program’s focus would be providing increased certainty around qualified market actors and expected market outcomes. The Report also notes that the CAA does not direct the Program to create a USDA carbon registry, and thus, since the Program would not compete with voluntary carbon credit registries, it would not impede or constrict existing markets.