They’re usually measured by three main accounting frameworks, said Patrick Wood, founder of Ag Methane Advisors of Montpelier, Vermont. Carbon markets exist for dairy farms in all three systems.

• Lifecycle accounting calculates greenhouse-gas emissions per unit of product, such as a gallon of milk.

• Inventory accounting calculates the emissions of an entire business or farming operation. It takes into account direct emissions such as from fossil fuels for transportation, lighting or heating. It also takes into account cropping, raising livestock and manure management. It calculates emissions from purchased energy. If a milk processor or other entity downstream from a farm were doing an inventory, it would include their supply-chain emissions, such as enteric and manure methane associated with the milk or meat.

• Project accounting calculates emissions reductions associated with the implementation of a specific project or activity, such as the building and operation of an anaerobic digester.

The California Air Resources Board uses a lifecycle-accounting system in its Low Carbon Fuel Standard, Wood said. With renewable natural gas produced from dairy manure, it measures grams of carbon-dioxide equivalent per megajoule of energy to produce Low Carbon Fuel Standard credits.

Rabobank launched in August 2021 a carbon bank that uses an inventory-accounting system. Participating farmers are compensated for implementing regenerative agricultural practices that improve soil health and sequester carbon.

• reduced tillage or no-till

• cover-crop plantings

• planting cash crops “green” into living cover crops

• more-robust crop rotations

• precision agriculture used in planting, application of fertilizer or crop inputs and-or irrigation

• transition to natural fertilizer

Farmers continue to be compensated based on the amount of carbon sequestered, measured and monitored through time, according to Rabobank.

Some organizations supplement efforts to reduce emissions by offsetting some carbon emissions with the purchase of carbon offsets, according to the U.S. Environmental Protection Agency. Airlines, for example, might compensate a biogas operation to offset airline emissions.

“Carbon credits are an ethereal commodity so integrity is crucial,” Wood said.

Carbon credits should be scientifically defensible, permanent and verifiable, he said. And “additionality” is important. It means that practices that are implemented to reduce greenhouse-gas emissions should be better than business as usual. It means those practices wouldn’t have “happened anyway” due to mandates, regulations or common practice in the industry.

Because of that early adopters of carbon-reduction practices may or may not be eligible to participate in some carbon-market programs. The California Air Resources Board Livestock Offset Protocol of 2014 noted there were less than 150 anaerobic digesters in the dairy industry in 2014 – so all of them are considered “additional.”

County data may be taken into account as it relates to additionality. The Climate Action Reserve Soil Enrichment Protocol uses Census of Agriculture data to determine if carbon-reduction crop practices have more than 50 percent adoption by county. If practices have less than that adoption rate, they may be eligible for additionality.

Double-dipping disallowed

Carbon-market participants can’t sell offsets outside a supply chain in addition to selling credits within a supply chain. Carbon registries serialize each offset so they aren’t accounted for twice. And offsets are retired after they’re used.

A dairy farmer who uses a feed additive such as seaweed, for example, to reduce enteric methane could sell a carbon offset to an airline that wants to reduce its emissions. But that farmer couldn’t also sell a credit to a milk processor to reduce emissions in its supply chain.

There are two general types of carbon markets – voluntary and compliance.

Voluntary markets are based on the choices of companies or individuals to buy credits. Examples of private-sector players in the carbon market are Indigo Ag, the Ecosystem Services Market Consortium and the Nori Carbon Removal Marketplace.

Compliance markets are formed by laws and regulations that require regulated entities, such as large emitters of greenhouse gases, to reduce their emissions by obtaining and surrendering emissions permits or offsets to meet predetermined regulatory targets, according to Ecosystem Services Market Consortium. Often farms can voluntarily sell credits into a compliance market.

Voluntary markets are more flexible because private companies generally evolve and adapt more quickly than agencies and regulations. But compliance markets tend to be more valuable, Wood said.

Wood presented “Carbon markets 101: offsets and credits” during the Professional Dairy Producers of Wisconsin Business Conference, which was held March 16-17 in Wisconsin Dells. Visit agmethaneadvisors.com and pdpw.org for more information.

This is an original article written for Agri-View, a Lee Enterprises agricultural publication based in Madison, Wisconsin. Visit AgriView.com for more information.