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Understanding carbon credits for beef sustainability

February 14, 2023

The three-pronged approach to beef sustainability — environmental, economic and social — often focuses most on the pillar of environmental stewardship. In the beef industry, much attention is given to the environmental impacts associated with beef production practices. However, highlighting the benefits that beef production can impart to the ecosystem can help the industry develop a more complete picture of beef’s environmental footprint.

Many companies have set environmental sustainability goals that project a targeted reduction in their carbon emissions. In order to reach these goals, the practice of purchasing carbon credits from suppliers to help offset emissions through a carbon marketplace is becoming more common and popular.

What are carbon credits?

Carbon credits are permits that each represent 1 metric ton of carbon dioxide (CO2) or the equivalent amount (CO2-eq) of a different greenhouse gas (GHG) that is removed from the atmosphere.

The term “carbon offset” is commonly interchanged with the phrase “carbon credit,” but they vary slightly in meaning. Carbon offsetting is the purchase of carbon credits to compensate for emissions that have been created by a business or lifestyle. A carbon offset is a reduction in GHG emissions that compensates for emissions occurring elsewhere in the supply chain.

Each GHG has a different global warming potential (GWP), which allows for comparisons to be made between the global warming impacts of various gases relative to CO2. The GWP measures how much energy the emissions of 1 ton of a GHG will absorb over a given time frame (i.e., 100 years) in relation to 1 ton of CO2 (EPA, 2022).

According to the Intergovernmental Panel on Climate Change (IPCC; 2021):

  • Methane (CH4) has a GWP of 27–30 times higher than CO2 over a 100-year timescale
  • Nitrous oxide (N2O) has a GWP 273 times higher than CO2 over a 100-year timescale

The average American generates 16 metric tons of CO2-eq annually, which is enough to fill more than three and a half Olympic-sized swimming pools (Tso, 2020). These emissions come from driving cars, utilizing electricity and gas in homes, food systems and other day-to-day activities.

What are carbon markets?

Carbon markets are economic trading systems that support the buying and selling of carbon credits. Carbon markets provide monetary incentives for credit producers to adopt approved carbon-reducing practices, while credit purchasers utilize the offsets to reach their carbon emission goals.

Carbon markets can be split into two categories: compliance and voluntary.

Compliance markets 

Carbon markets are created as the result of regulatory requirements or national, regional or international policies.

Cap-and-trade systems are traditional examples of mandatory programs in which regulated businesses are issued GHG emission allowances or permits that add up to a total maximum, or a capped amount. Companies that exceed their permitted emissions allowance must buy permits from others with available permits for sale, or they will face penalties (UNDP, 2022). Carbon offsets may be used as a compliance option for some regulated entities (Stubbs et al., 2021).

In the U.S., California is the only state with a cap-and-trade market, which was established in 2013 and which targets the state’s electric power plants, industrial plants and fuel distributors. The state has a goal of lowering its emissions below the levels seen in 1990 by 2030. Entities that are required to comply with California’s program can use offsets to satisfy 4% of their obligation, which includes agricultural offsets from livestock manure management projects, rice cultivation projects and forest management projects (Stubbs et al., 2021).

The European Union launched the first international cap-and-trade or emissions trading system (ETS) in 2005, and in 2021, China launched the world’s largest ETS, leading the way for the development of other national and subnational ETS (UNDP, 2022).

Voluntary markets

Currently, most carbon market programs are voluntary markets, which includes the buying and selling of carbon credits on a voluntary basis outside of a regulatory framework (e.g., corporate sustainability reporting).

Transactions involving credits can occur directly between participants and buyers or can be mediated by other parties or programs. Sellers of carbon credits are typically farmers and ranchers, and they are paid for generating carbon credits by adopting management practices that meet specific criteria for carbon emissions reduction or sequestration (e.g., no-till, cover crops, crop rotation, anaerobic digesters, grazing management, manure management, reforestation, etc.). Sellers are usually paid on a per-acre or per-ton basis of carbon sequestered (Shockley and Snell, 2021). The monetary compensation for carbon credits varies widely based on the practice and program, averaging between $10–20 per credit (Stubbs et al., 2021).

There are a handful of voluntary carbon markets in operation, including programs established by Bayer, Ecosystem Services Market Consortium, Nori, Verra, Gold Standard and several others. Since voluntary markets remain unchecked by regulators and do not have caps on how many tons of emissions can be offset, there are several organizations that set standards and that validate carbon credits based on those standards. Verra, for example, has set a widely used carbon-credit validation standard — called Verified Carbon Standard — that is based on accounting methodologies specific to the project type, independent auditing and a registry system (Thompson and Miranda, 2021). Other programs, such as Nori, follow a similar process using practices that qualify under their methodology and a third-party verifier. The eligibility for voluntary programs, approved practices, verification processes and compensation of these voluntary markets differ widely.

The voluntary carbon market options for agriculture continue to emerge and evolve, and pilot projects and reduction practices continue to be assessed. There is much to learn about carbon sequestration, monetizing production practices based on GHG emissions reductions and accurately measuring carbon emissions from different industry sectors. As many programs currently focus on crop and forest production practices, there is room for beef production practices to enter the market.