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The carbon markets in the UK are expanding, but there is a lack of clarity on the fundamentals. In an interview with CLA adviser Matthew Doran, Farmers Weekly explores how these markets operate.

Carbon markets offer farmers a new revenue stream as the Basic Payment Scheme is phased out and Input Costs rise. By sequestering carbon, farmers can contribute to fighting Climate Change and earn income in the process. Whether to participate in carbon markets depends on individual goals and Land Use options. While some schemes require significant Land Use changes, others like hedgerow carbon and soil carbon can be integrated into farming practices.

In carbon markets, businesses trade carbon credits rather than physical carbon. These credits represent either the removal of carbon dioxide from the atmosphere or the avoidance of emissions. Farmers can sell carbon credits to polluting businesses striving for net-zero emissions, helping them offset their carbon footprint.

There are mandatory and voluntary carbon markets. Mandatory markets, like the Emissions Trading Scheme, focus on buying and selling emission rights. Farmers are more likely to participate in voluntary markets, where businesses buy carbon credits to offset their emissions voluntarily.

Nature-based removals, such as woodland creation and peatland restoration, are common projects in the voluntary market. There are also offset credits where buyers pay sellers to reduce emissions, ensuring additional carbon reduction. Engineered removals, like capturing emissions from power plants, are another type of carbon credit.

The voluntary carbon market has been likened to the “Wild West” due to concerns about legitimacy. However, UK schemes like the Woodland Carbon Code and Peatland Code offer high-integrity carbon credits. Key factors for farmers include contract transparency and adherence to accredited schemes.

High-integrity carbon credits adhere to principles like additionality, financial additionality, permanence, and non-double counting. Soil carbon credits can be of lower integrity due to challenges in measuring long-term storage. Robust soil carbon schemes closely monitor changes in biomass through soil sampling.

To create a carbon credit, projects must be registered before initiation. Credits are verified by third-party auditors to ensure sequestration meets requirements. Farmers can participate in woodland creation, peatland restoration, and soil carbon projects to generate carbon credits.

Farmers should conduct a baseline assessment to determine carbon sequestration potential. Consider transaction costs, establishment, and maintenance costs when calculating the opportunity. Stacking payments with other income sources may be necessary to finance Land Use changes.

When selling credits, consider obligations at the contract’s end and potential penalties for non-delivery. Ensure alignment with business needs to access future contracts. Seek professional advice on tax implications and land value impacts when considering permanent Land Use changes.

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