Soil carbon credits: Opportunities and challenges ahead

Banner Image

Corporate interest in reducing and offsetting greenhouse gas emissions has grown substantially in the past decade. With more than one-third of the world's largest publicly traded companies now committed to net-zero goals, according to the Net Zero Tracker, carbon credit offsets have been touted as a way for the private sector to reach its decarbonization targets.

One nature-based offset, soil carbon credit, has begun to gain traction particularly in the US and Australia, yet several challenges impede the take-off of such projects globally.


The intersection of voluntary carbon markets and agriculture has become increasingly important in the face of global climate change.

The agriculture industry contributes significantly to GHG emissions, yet there are numerous opportunities for the implementation of agricultural practices that reduce, avoid, or remove emissions from the sector.

Carbon is sequestered by plants during the process of photosynthesis. As plants photosynthesize, carbon dioxide is pulled out of the atmosphere and eventually stored below ground within soil organic matter. Soil organic matter is created through the decomposition of plants, the breakdown of animal waste, and through various processes involving soil microorganisms.

Land management practices greatly influence the amount of carbon sequestered in soil. Practices that increase the amount of soil carbon stored include reduced or no tillage, prevention of overgrazing, reduction or increased precision of fertilizer application, and the maintenance of ground cover through cover cropping.

According to Australia's Commonwealth Scientific and Industrial Research Organization, nature-based carbon sequestration projects, including soil carbon projects, represent the most cost-effective methods of storing carbon.

Apart from being a cost-effective tool for reducing emissions from the agriculture sector, soil carbon projects also represent a long-term investment and source of income for farmers. As most farmers live season to season and often work off-farm jobs to get by, so-called "carbon farming" presents an opportunity to reward farmers for switching to more regenerative agricultural practices. For example, farmers in the US can earn up to $30/acre/year from participating in soil carbon projects, according to US-based project developer Indigo Ag's website.

Public policy

Countries such as the US and Australia have begun incorporating soil carbon sequestration into climate mitigation plans and policies, creating an opportunity for soil carbon projects to grow in popularity.

In the US, President Joe Biden has pushed soil carbon sequestration as an important component of climate mitigation, suggesting in his first address before Congress in April 2021 that farmers should be getting paid for growing cover crops.

In June 2021, the Senate overwhelmingly voted to pass the Growing Climate Solutions Act, a bill that would make it easier for farmers to participate in voluntary carbon markets. The bill sat stagnant in the House of Representatives until recently when it was included in the omnibus spending bill passed on Dec. 23. The legislation is set to reduce barriers of entry for the voluntary carbon market by establishing a US Department of Agriculture certification program for third-party verifiers and providing technical assistance on generating and selling carbon credits. Agriculture Secretary Tom Vilsack has suggested that one long-term solution for promoting the development of carbon markets in the US is through the Commodity Credit Corporation, which could act as a carbon bank.

In Australia, the storage of carbon dioxide in soil is one of the major goals of the government's Technology Investment Roadmap, which represents an important part of the country's long-term emissions reduction plan. Under the country's Emissions Reduction Fund scheme, project developers can participate in the compliance-based market by following various established methodologies, such as for soil carbon sequestration, to generate Australian Carbon Credit Units, or ACCUs. There are 433 soil carbon projects registered under the ERF as of Feb. 13, according to a spokesperson from Australia's Clean Energy Regulator.


"There's no getting around the complexity of agriculture mixed with the complexity of the carbon market," Max DuBuisson, head of sustainability policy and engagement at Indigo Ag, said in an interview with S&P Commodity Insights earlier this year.

The viability of carbon farming as a value-add for farmers is limited by several factors, such as the upfront costs of soil sampling and project registration, the opportunity cost of changing practices, potential near-term reduction in yields and the market price of nature-based carbon credits.

The complexity and differences between the various standards for soil carbon quantification presents another challenge for farmers due to the potential variability in the quality of credits produced and thus the marketability of those credits.

Permanence and additionality are also contentious issues when discussing soil carbon projects. The additionality of projects, or showing that the changes in carbon stocks wouldn't have occurred without the financial incentive of credit generation, limits participation in the carbon market to farmers that have not yet adopted sustainable practices. For example, farmers that already sow cover crops in their rotations would not be able to benefit from participating in the carbon market.

The permanence of storing carbon presents a challenge for the take-off of soil carbon projects as the length of carbon storage in soil varies based on the biological, chemical, and physical properties of soil. Additionally, as almost half of all farmlands in the US are rented according to the USDA, changes in land ownership or management could result in a reversal in carbon storage.

Furthermore, up to tens of thousands of acres are needed to enable feasible, cost-effective credit generation, DuBuisson said, adding that this imperative for scale to make the numbers work has likely held the market back. "You really need larger projects to make it work."

The aggregation of fields to generate credits is the most common way to address the issue of scale as this reduces the upfront financial burden of sampling each field. Project developers in the US and Australia have taken an aggregation approach by taking a subset of soil samples from different farms to determine baseline carbon stocks and then using models or remeasurement to determine changes in carbon stocks under the project scenario.


Currently, carbon prices are too low for soil carbon projects to be profitable unless done on a massive scale or unless they attract a major premium for the credits generated. For reference, Platts, a part of S&P Global, assessed CRC current year, which reflects the most competitive price for nature-based and technology-based removal credits, at $12.30/mtCO2e on Feb. 21.

"Today a soil carbon project needs to be delivered at scale and requires a carbon price of $30+ to be viable," Louise Edmonds, CEO and founder of Carbon Sync, an Australia-based project developer, told S&P Global via email on Jan. 30.

Under the Carbon by Indigo program, Indigo Ag sold credits generated at $20/credit when the program first launched. It has since increased with a wave of contracts sold at $27 and $40/credit. With farmers receiving 75% of the revenue from credits sold, farmers participating in the Carbon by Indigo program may receive up to $30/credit generated.

"We tend to be selling out well ahead of the sort of market average prices," DuBuisson said. With the average acre generating around 0.2 credits/year, "we do you need that price to be even higher, to make this a really, really valuable sort of addition to the farmer's business," DuBuisson added.

For context, a 1,000-acre farm would generate around 200 credits/year on average, and if valued at $40/credit, the farmer would earn only about $6,000/year of additional income for conducting a soil carbon project.

With the return on investment fairly low and possible short-term decreases in yield from adopting regenerative practices, the price of soil carbon credits would have to rise substantially, or additional incentives would need to be implemented, for farmers to participate in the carbon market on a larger scale.


  • Agriculture

  • Energy Transition

Related content

Thought Leadership

INTERVIEW: Alphamar director sees 17 million mt of Brazilian corn going for ethanol

Ethanol will create new prospects for Brazilian corn in the domestic market, with corn for ethanol use rising sharply to 17 million mt in the next marketing year, Arthur Neto, partner director at Alphamar Shipping Agency, told S&P Global Commodity Insights June 12. Register Now Pointing to the impact on domestic and export markets, Neto said on the sidelines of the IGC Grains Conference in London that increased use of ethanol for corn will push prices up, incentivizing corn production in a situation where "the market is flooded by corn because you don't have much exit for it in the domestic market." "This is going to be a dynamic that's going to make the price on the domestic market go higher, which makes the producers maintain the corn inside, meaning that if you have export demand, you need to pay much more," Neto said of the expectation of 17 million mt of corn for ethanol usage in marketing year 2024-25. For 2023, the figure was 13.26 million mt. Speaking on whether Brazilian corn is trading higher than competitors' in the current season, Neto said, "you have to understand that the market is very heated internally, so it doesn't make sense for the farmer to just sell it at pennies for the international market." "I do believe that there's going to be a lot of market, but not as much as in the previous year, because the market is good for the farmer domestically, and they will hold on to the cargo in the country, even though there are many incentives to export," Neto added. 'We are here to sell' Responding to speculation around China's move to bridge the gap between its domestic supply and consumption and what it means for its biggest supplier, Brazil, Neto said carrying out that plan would take time. "China is growing, not as much as it was, but there's a lot coming out of there," Neto said. Any change in China's domestic supply and demand equation will have a major impact on the global balance sheet, considering China's position as the biggest demand center for corn. "I wish them the best of luck," Neto said. "I hope they make it and reach their goals. Meanwhile, we are here to sell." Big flooding impact on soybeans, less on rice Speaking about flooding in Rio Grande do Sul, a key agricultural province that was expected to produce 70% of the country's rice and about 15% of its soybeans in the current marketing year, Neto said the floods were less likely to have a major impact on rice, but soybean production could take a hit. "Roughly 85% of the rice was already harvested when we had the floods," Neto said. "Now we just have logistics issues. Some delays are expected, but not much." However, he said he thought the floods would leave their mark on soybean production, a big factor considering Rio Grande do Sul's strategic location closer to major ports. "Soybeans were the core produce in the region, shipped to the port close to it," Neto said. "That system itself is going to lose a lot of volume." Neto further pointed to the floods in Rio Grande do Sul causing a terminal outage, which is posing a "big risk to the entire export ecosystem." Lower water levels a concern for shipping Brazil's northern ports saw some of the lowest water levels on record last year because of a severe Amazon drought, forcing cargoes to be diverted to Santos. The Alphamar director compared challenges in the northern ports to those on the Mississippi River in the US in the previous year. "When we talk about the northern ports, we're not talking about any problems with the capability on the ports," Neto said. "The water levels are OK. The problem is the cargo being transferred." He added that at some point, the water level will be so low that convoys will have to be disassembled to pass over shallow areas. "Sometimes a trip that is to be done in two days can take around five, so of course, with the total turnaround of the barges, it's very bad," Neto said, adding that there could be two months of major shipping challenges.

Thought Leadership

MPGC 2024: Navigating Uncertainty in the Energy Market Amidst Global Shifts

The annual Middle East Petroleum and Gas Conference convened in Dubai from May 20 to May 22 at a time of heightened concern about the oil markets, the longevity of OPEC+ cuts, the future of hydrocarbons and the switch to non-fossil fuel sources by the middle of the century. The S&P Global Commodity Insights-run event focused on the outlooks for oil and gas on day one with insights from inhouse experts as well as industry leaders and external analysts. The event opened with a keynote address by Emirates National Oil Company group chief executive Saif Humaid Al Falasi, who heads a leading energy company in the UAE. On day one, Carlos Pascual, senior vice president - global energy & international affairs at S&P Global addressed the deepening polarization in the US, the ongoing China-US standoff and potential spill out, and two ongoing wars – Russia-Ukraine and Israel-Hamas – all of them risks to energy market stability. Pascual also talked about energy poverty in the developing world – where many lack access to electricity and have been left behind by the rapid pace of the energy transition. FGE chairman Fereidun Fesharaki tapped his famous crystal ball for analysis on the oil markets. He noted that with a global surplus capacity of 6 million b/d, the world is unlikely to see dramatic swings in oil prices in the event of major political conflict. The focus also turned towards liquefied natural gas, which is widely seen as a transitional fuel. The global LNG market is heating up with European LNG prices rising to a five-month high amid ongoing geopolitical risk factors and tightness in European supply, according to Commodity Insights. There will be “chaos in the markets for the next few years” as the supply of LNG is set to increase by 50% in the next two years, Fesharaki said in his crystal ball analysis. The conference's much-attended events were the ones focused on oil market vagaries with traders concerned about to navigate the sector rife with so much uncertainty. S&P’s Global's vice president and head of crude oil market and energy and mobility research, Jim Burkhard said in his presentation that the surplus in the market will last as long as the US continues pumping more oil, which could extend for a year or two. Members of OPEC+, who are due to meet virtually on June 2 have to make choices about whether to keep the current cuts in place or increase production later this year, he added. Day two of MPGC focused on several downstream tracks with in-house and external experts discussing outlooks for refineries and petrochemicals as well as plans to scale up hydrogen and strategize for a low-carbon future. MPGC attendees also benefited from a day of training courses on May 20. S&P Global experts taught carbon markets fundamentals, oil markets & commercial strategies as well as refining economics and refineries of the future to those in the energy industry.

Thought Leadership

Global upstream spending growth expected to slow, but remains well above climate targets: IEA

Global upstream oil and gas investment growth is expected to slow in 2024, driven primarily by Middle Eastern and Asian NOCs, but remains at levels well above that needed for governments to hit key climate targets in full and on time by 2030, the International Energy Agency said June 6. Global upstream spreading is expected to rise by 7% to reach $570 billion this year, following a 9% increase seen in 2023, the IEA said in its World Energy Investment 2024 report. Cost efficiency improvements have helped contain upstream spending which now stands at 30% below the 2015 peak, the IEA said. At the same time, however, global spending on clean energy such as renewable power and energy efficiency is now almost twice the levels of those on fossil fuels, the IEA said. While investment in clean energy is growing fast, the report finds that oil and gas spending this year is broadly aligned with oil demand levels implied in 2030 by today's policy settings under the IEA base-case STEPS scenario, which shows coal, oil and natural gas demand leveling off or declining before 2030. Measured against its central Announced Pledges Scenario, however, the IEA said upstream spending is on pace to be around 35% higher than needed for national climate goals to be achieved by 2030. Global upstream spending is also more and more than double the 2030 levels needed if oil consumption falls in line with Paris Agreement targets to contain global warming, the IEA said. As a result, the IEA reiterated its call that no further developing spending on long-lead-time oil and gas projects is needed to meet global demand in the coming decades. "The trajectory for oil and gas consumption is curbed by rapid growth in renewables, efficiency, and other clean energy sources. There is no need in this scenario for further oil and gas exploration, as already-discovered fields are sufficient to cover projected demand," the IEA said in the report. Total energy investment worldwide is expected to exceed $3 trillion in 2024 for the first time, the IEA estimates, with some $2 trillion set to go toward clean technologies – including renewables, electric vehicles, nuclear power, grids, storage, low-emissions fuels, efficiency improvements and heat pumps. Peak demand The IEA's latest energy investment report comes amid a growing divergence in long-term demand outlooks by key forecasters due to uncertainty over the ramp-up and affordability of clean energy sources. The IEA predicts that demand for gas, oil and coal will peak by 2030, with road transport no longer a source of oil demand growth by the end of the decade. Under its central APS scenario, the IEA expects global oil demand to average around 97.5 million b/d in 2030. According to S&P Global's reference case scenario, global oil and biofuel demand will peak at around 111 million b/d in 2031 while OPEC expects global oil demand to reach 110.2 million b/d in 2028. The IEA report also comes a day after a similar investment report which concluded that spending on oil and gas projects worldwide must rise by almost a quarter to $738 billion from next year to meet rising hydrocarbons demand and prevent a supply crunch by 2030. According to the "Upstream Oil and Gas Investment Outlook" carried out by the International Energy Forum and S&P Global Commodity Insights, just over $600 billion will be spent on upstream projects to boost or maintain oil and gas output in 2024, the highest figure for a decade. Analysts at S&P Global Commodity Insights estimate that global oil demand -- including biofuels -- will remain at around 31% of the global energy mix through 2030, while renewable energy sources will grow 6%-8% per year to make up 13% of total energy demand at the end of the decade, up from 8% in 2022. Refining sector In the downstream sector, the IEA said it expects spending on oil refineries to decline globally by 5% in 2024, following a similar trend in 2023 where investment was just under $37 billion. Around 800,000 b/d of new refining capacity is set to come online in 2024, the IEA estimates, with future investments likely to continue to be concentrated in China, India, and the Middle East due to competitive operating costs and stronger demand growth. With a rising disconnect between long-term climate change targets and measured global emissions, many refiners are increasingly opting to rationalize capacity or shift to low-carbon feedstock processing. "Uncertainties around future demand growth present significant challenges for new investments in the refining sector," the report notes. Clean energy investments by oil and gas companies themselves reached $30 billion in 2023, accounting for only 4% of the industry's overall capital spending in 2023, according to the report. Meanwhile, coal investment continues to rise, with more than 50 gigawatts of unabated coal-fired power approved in 2023, the highest since 2015. Clean spending by oil and gas companies in 2023 was a 30% increase from 2022 levels but well below the 65% jump seen from 2021 to 2022, reflecting in part the inflationary environment and supply chain issues for some renewable projects, the IEA said.

Thought Leadership

Interactive: Platts SAF-Jet Fuel blend price

Sustainable Aviation Fuel is being blended with conventional aviation fuel in increasing percentages. Mandated blend volumes and voluntary targets across the globe are aiming to tackle the challenge of decarbonizing aviation. The S&P Global SAF-Jet fuel blend slider uses the month average Platts CIF Northwest Europe Jet cargo price benchmark and the CIF ARA SAF price assessment to show a representation of the blended price of aviation fuel.