Carbon credits are a new way for farmers to make money, but they don’t need to be daunting or confusing.
Chris Harbourt, chief strategy officer at Indigo Ag, said his company’s credit program is designed to be straightforward and accessible to farmers.
The basic idea behind carbon credits is simple. A farmer generates credits by adopting practices that build soil organic matter — think no-till or cover cropping — and companies purchase those credits to meet pledges they’ve made to help the environment.
Chris Harbourt is the chief strategy officer at Indigo Ag.
Farmers implement the practices and provide supporting data. Indigo, in its third season of issuing carbon credits, handles the number crunching and sale of the credits.
“We’re figuring out how to bring dollars to the farmgate from customers who really weren’t customers of the farm before,” said Harbourt, a farmer himself in Champaign, Illinois.
In addition to providing agronomic benefits, carbon-capturing practices give farmers access to a market that has been growing rapidly.
Indigo is pricing credits at $40 or more per ton of carbon sequestered, a doubling in price since the program launched.
Payment is based on performance, so the more carbon the farm traps, the more money it can make. That principle is reflected in Indigo’s payment formula — 75% of the credit revenue goes to the farmer, and the company gets 25%.
“Indigo and the farmer are on the same side of the table,” Harbourt said. “We have aligned incentives. If you’re making more money as a farmer, we’re making more money.”
Harbourt said some carbon companies buy their own credits, a practice that doesn’t seem to give the business an incentive to increase the credits’ value.
Carbon by Indigo is active in about 30 states — most of the US east of the Rocky Mountains. The company’s 6 million contracted acres nationwide has roughly doubled in the past year.
The program has 30,000 acres across Maryland, New York, Pennsylvania, Vermont and Virginia. That’s not bad, considering 2022 was the first year Indigo offered credits in most of those states.
Indigo does not yet offer credits in New Jersey or most of New England.
Indigo doesn’t disclose the number of farmers it works with, but when it made its first payment in September 2021, it said 267 farmers got paid.
Creating a Credit
A carbon-sequestering practice has two key components — additionality and permanence.
Buyers of carbon credits are looking for farmers to implement new practices, not get paid for something they are already doing, and to keep the practice in place for the medium or long term.
“If you do something different in the atmosphere in one year and then you undo it the next year, you really didn’t do anything for the atmosphere in the eyes of the buyer,” Harbourt said.
This thinking is built into Indigo’s payment formula.
In the first year of a five-year contract, the farm receives half the value of the credit; the rest comes in installations over the next four years.
The first year’s revenue rewards the farmer for making the change (additionality), and the trailing payments encourage the farm to keep the practice in place (permanence).
Each year, the farm gets a new credit following the same formula, half up front and half spread over the next four years. That’s on top of the payments accruing from the first year.
After five years, the farm receives 100% of the carbon credit’s value each year, Harbourt said.
This spread-out payment method gives farmers an incentive to stick with the program and helps Indigo know the volume of credits it can offer to buyers.
To demonstrate changes in soil carbon levels, farmers must submit data on any major activity that happens on the field — planting and tillage dates, nitrogen applications and harvest yields.
The only entities that can access this information are Indigo and the third-party verifier, which looks at the data solely to make sure the credits are valid.
“It’s the farmer’s data. We wouldn’t collect it if we didn’t absolutely need it to generate the revenue,” Harbourt said.
Every farm’s carbon-sequestering performance is assessed by a computer model accepted by an independent carbon credit registry. To double-check its results, Indigo also conducts a random soil sample of 8% to 10% of enrolled acres each year.
If something goes wrong and the farm doesn’t have a net increase in soil carbon, the farm gets a zero for the year, but it doesn’t have to repay money earned in a previous year, Harbourt said.
Getting Settled In
Though Indigo’s carbon program initially had a 500-acre minimum, farmers can now enroll any amount of acreage, from a single field to the whole farm.
If a farmer is switching to no-till for the program, Harbourt actually likes that person to start with one or two fields to get comfortable with the practice.
“The most important thing is that they have primary crop success,” Harbourt said. “That’s the main business. The carbon is secondary.”
Farmers are welcome to earn carbon credits through Indigo on practices implemented with government cost-share.
But farmers should be sure to sign up for the credits at the same time as they are making the on-the-ground change, Harbourt said. Otherwise the upgrade will count toward the farm’s baseline rather than as a new practice, and it won’t be eligible for a carbon credit.
Indigo also offers a way for land to keep generating credits if the owner or tenant changes.
The first farmer must allow Indigo to contact the new farmer, and that person must agree to continue the enrolled practice. Both people must provide the usual production data from their time farming the parcel.
Assuming all that works out, the first farmer will get the trailing payments from the years they were on the land, and the new farmer will start generating credits themselves.
The details of the credits are spelled out in a contract that Indigo has tried to keep comprehensible to farmers.
“Lawyers got ahold of it early on, and it was pretty onerous. And we’re like, no, it needs to be much shorter, much simpler, much easier to understand,” Harbourt said.
While some companies may include confidentiality agreements in their carbon contracts, Harbourt said that isn’t the case with Indigo.
“In fact,” he said, “I would encourage farmers to talk about their experiences with their neighbors and others.”
That’s because increasing the volume of available credits should attract new buyers to the carbon market. The potential demand for carbon credits is five times what could be generated by the whole world’s agriculture, so it’s not like carbon companies are fighting for a piece of a small pie, Harbourt said.
For the Farmer Who Has Everything
The path to getting carbon credits is fairly clear for tillage farmers who leave their soils bare over the winter. But many Northeastern farmers have long since shifted to no-till with cover crops and may not have much additionality left to find.
Instead of generating carbon credits, these farms can participate in Indigo’s Market+ Source program, which helps companies secure products from farms that already have strong environmental resumes. Nestle, Walmart and Anheuser-Busch are among the participants, Harbourt said.
While eligible farmers anywhere in Indigo’s territory can join the carbon program, Market+ Source is only available in regions where Indigo has set up a sourcing agreement with a company.
The program was piloted in Arkansas and Kansas, but Harbort expects Source will expand to the Northeast in the next year.
How Much Can a Farm Earn From Carbon Credits?
The amount a farmer can earn for carbon credits can vary significantly by location, size of operation and practices used.
Here are average annual carbon payments from Indigo for select Northeastern locations, based on enrolling 50 acres to start growing cover crops.
Indigo says these numbers are estimates for row crop operations, and real payments could be hundreds of dollars lower or higher depending on an individual farm’s circumstances.
- Grove City, PA: $199
- Rutland, Vermont: $199
- Cortland, NY: $205
- East Stroudsburg, PA: $290
- New Holland, PA: $380
- Hagerstown, Maryland: $461
- Cambridge, Md.: $498
- Warrenton, Va.: $543
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