Carbon market opportunities for agri-business and sustainability

“Agriculture is a key opportunity and solution to the climate change issues we’re seeing today,” said Kevin Ogorzalek to the audience at Alltech ONE Dubai, the final stop of the Alltech ONE World Tour in 2023.

Ogorzalek is a partner and the sustainability supply chain leader at Concord Agriculture Partners, which works to build bridges between farmers and brands with the mission of achieving shared sustainability goals. Over the course of his career, he has gained extensive experience in the areas of sustainable production, land use, and carbon across global agri-commodities and in multiple sectors.

His closing plenary talk at Alltech ONE Dubai addressed how climate change is impacting agriculture, how governance and compliance are influencing the food sector, and how agri-businesses can benefit from taking actions to mitigate climate change risk through carbon market opportunities.

Key drivers of sustainability efforts for agri-business

In the past year alone, climate change has cost the U.S. $1 billion. Recent flooding and other extreme weather events have highlighted the urgency for agri-businesses to address climate-related risks.

Ogorzalek noted six key drivers of sustainability efforts for dairy and animal feed customers:

1. Supply chain consistency: The brittleness of food supply chains, which was particularly exposed during the COVID-19 pandemic, underscores the need for greater resilience and consistency.
2. Brand reputation: Brands are increasingly concerned about protecting their reputations, recognizing that many consumers now expect greater transparency in supply chains.
3. Regulatory frameworks: Growing regulatory pressures, including environmental, social and governance (ESG) requirements, are pushing agri-businesses to adopt sustainable practices.
4. Investor ESG requirements: Shareholders today require ESG reporting from their major investments.
5. Talent retention: Sustainable performance, including environmental responsibility, is becoming a key factor in retaining top talent within agri-business.
6. Value creation: Collaborative efforts between brands and supply chain partners can lead to improved overall performance and value chain enhancements.

Climate change impacts and risks

In his presentation at ONE Dubai, Ogorzalek introduced the concept of planetary boundaries by the Stockholm Resilience Centre, within which humanity can continue to develop and thrive for generations to come (image 1). Crossing boundaries increases the risk of generating large-scale abrupt or irreversible environmental changes, according to the scientists who proposed the nine planetary boundaries.

Image 1: The 2023 update to the planetary boundaries

Source: Azote for Stockholm Resilience Centre, based on analysis in Richardson et al 2023

From a business perspective, there are risks to operations and supply chains, such as weakened production capacity, resource scarcity, new stakeholder demands, potential reduced demands for goods and services, and increased capital and operational costs.

“If we focus specifically on the planetary boundary of our climate, which will be addressed by the global community over the next several weeks, we can see that as a result of greenhouse gas emissions, temperatures are rising to all-time highs,” Ogorzalek said. “This year will be the hottest year ever recorded. And since 2014, eight of the hottest years ever recorded will have occurred.

“Now, these emissions are the result of the entire human enterprise. Often, one specific sector or another is singled out as being a contributor, but it’s going to take an entire collaborative approach as a global society to address these issues and bring our emissions down to net-zero by 2050,” he continued.

Acknowledging the severe drought in Brazil and Argentina and the resulting challenges in the animal feed sector, Ogorzalek outlined the interconnected risks, from water scarcity to reduced production capacity. He emphasized the need for agri-business to be proactive in managing these risks, especially by avoiding deforested areas when sourcing feed.

Global initiatives to reduce climate change impacts

Ogorzalek discussed global initiatives, including the United Nations Framework Convention on Climate Change (UNFCCC) and the Paris Agreement, and how they shape the commitments of the agri-business sector. The global commitment to ending deforestation and reducing methane emissions presents both challenges and opportunities for the dairy and animal feed industries.

“World leaders signed the Global Methane Pledge, which will reduce methane by 2030, a key opportunity for the dairy sector especially,” Ogorzalek said, adding that at COP28, “there will be specific discussions on Article 6 of the Paris Agreement, which is the overarching governing framework trading carbon credits.”

A map created by the World Bank in 2023 indicates that carbon markets are increasing in scope and scale, and also in regulations.

Carbon pricing dashboard | Up-to-date overview of carbon pricing initiatives

Summary map of regional, national and subnational carbon pricing initiatives

Carbon markets are trading systems in which carbon credits are sold and bought. Compliance markets are created as a result of any national, regional and/or international policy or regulatory requirement. Voluntary carbon markets – national and international – refer to the issuance, buying and selling of carbon credits, on a voluntary basis.

International carbon markets can play a key role in reducing global greenhouse gas emissions cost-effectively, according to the European Commission.

Many countries and jurisdictions are developing compliance carbon markets and levying taxes to bring down and contribute to each country’s individual, nationally determined contribution to the Paris Agreement.

In addition, the European Commission, the United States Securities and Exchange Commission, and the California Air Resources Board will all have regulations requiring businesses that operate within their jurisdictions to report on emissions, both of their own operations and of their supply chains.

Voluntary carbon market opportunities for agri-business

Ogorzalek also delved into the evolving landscape of voluntary carbon markets, noting the increasing importance of carbon credits. He highlighted the voluntary carbon market’s potential for agri-businesses to play a significant role in reducing methane, citing examples of over 6,000 companies committing to ending deforestation and engaging in carbon offsetting.

“There is a variety of quality in the carbon markets. There is also a lack of supply,” Ogorzalek said. “The Wall Street Journal is projecting that by 2030, 2 gigatons of carbon credits will be needed. However, based on current business practices, there will be only 700 million tons available. A significant portion of this gap can be made up by agri-business.” 

Significant voluntary market activities are happening in the Middle East:

• UAE’s Blue Carbon has arranged memorandums of understanding (MOUs) with Liberia, Kenya, Tanzania, Zambia and Zimbabwe to purchase carbon rights in forests.
• 16 Saudi firms purchased 2.2 million MT of CO2 credits in Nairobi in June 2023.
• Saudi Arabia will launch its Greenhouse Gas Crediting and Offsetting Mechanism (GCOM) in 2024.
• ACX Ltd, based in Abu Dhabi, is the first fully regulated carbon exchange connected to the voluntary carbon market.

Ogorzalek outlined key opportunities for the dairy and animal feed sectors:

1. Efficiency and value creation: Driving efficiency in production while partnering with brands to improve environmental outcomes can create value for agri-businesses.
2. Transparency and innovation: Transparency in the supply chain, coupled with innovation in key areas such as feed sourcing, positions agri-businesses to be part of the solution.
3. Collaboration with banks and brands: Working with financial institutions and brands on pricing and financing solutions aligns with the growing demand for sustainable practices.
4. Feed additives for methane reduction: Addressing methane emissions, a global priority, through the use of feed additives offers a tangible way for the animal agri-business sector to contribute positively.

The call to action

Ogorzalek concluded by challenging regional leaders in the agri-business sector to adopt practices that not only feed the world affordably but also create value while operating within safe planetary boundaries. His presentation underscored the urgency of collectively addressing climate change, emphasizing that the actions taken today will shape the future of agriculture and the planet.

In essence, Ogorzalek’s insightful talk serves as a call for the agri-business sector to engage proactively in sustainable practices, leverage emerging opportunities, and play a pivotal role in mitigating the impacts of climate change on global food systems.