Carbon emission reduction in arable farming: Farmer crop portfolio responses to varying carbon credit pricing scenarios

The agricultural sector contributes by approximately 22% of the global greenhouse gas emissions. Private carbon certification and emerging carbon markets offer farms a remuneration for sustainable, carbon-reducing and -sequestering practices (carbon farming). However, adopting carbon farming practices (e.g., inter- and cover cropping) requires a costly reorganization of the farm crop portfolio. This process carries uncertain elements such as additionality, leakage, and permanence of the carbon sequestration and thus future profitability of the altered portfolio (e.g., Paul et al. 2023). 

In fact, farms need to balance agricultural productivity, efforts (costs) for carbon sequestering, and respective certification and pricing for carbon. Scientific evidence on how the private carbon market may incentivize farms’ adopting carbon farming practices, however, appears limited. This research addresses the gap and explores how German farms would adjust their production programs in different carbon credit pricing scenarios. We surveyed 93 German arable farms to identify their current economically optimal (revenue maximizing) production program without carbon credit pricing. Afterwards, we simulated for each farm a new optimum for different price scenarios for carbon credits using a linear programming approach and the farms’ land and labor constraints as indicated in the survey.

Our results suggest that relative to the farms’ baseline, an emission reduction of about 5 kg carbon dioxide equivalent (CO2e) per hectare is realistically to be achieved at the current price level of €35 per ton of CO2e. The reduction of carbon emissions increases with carbon prices as farms’ optimum shifts towards more carbon farming practices - however, this is disproportionate in terms of CO2e per hectare. In the scenario with the highest carbon credit price (€680 per ton of CO2e), the decrease in emissions compared to the baseline approaches 3 tons CO2e per hectare, suggesting net negative emissions from arable farming. This study demonstrated how production management strategies of farms responds to varying prices for carbon credits. Our study, however, was limited to the production portfolio of arable farms in Germany. Extending this approach to other regions and agricultural systems, such as on former peatlands, could provide a useful starting point for future research. For instance, little is known yet how carbon markets, certification and the carbon credit price may incentivize rewetting and reconversion of agricultural land back into peatlands.

Reference: Paul, C., ... , Helming, K., 2023. Carbon farming: Are soil carbon certificates a suitable tool for climate change mitigation? J. Environ. Manage. 330, 117142. https://doi.org/10.1016/j.jenvman.2022.117142