The world's largest software maker made a novel purchase recently—from a handful of rice farmers.
Microsoft bought carbon offsets from rice farmers in Arkansas, Mississippi and California who had worked for the better part of the last 10 years to implement conservation measures on their farms. Through a complicated measurement and verification process, these conservation steps ultimately translated to carbon offsets purchased by the software giant.
The transaction this month was the first of its kind and, in the complex and controversial world of carbon markets, it represents a milestone for agriculture.
"Now we know what it takes to do this," said Debbie Reed, director of the Coalition on Agricultural Greenhouse Gases, a group that works with agricultural producers to reduce greenhouse gas emissions. "It's not symbolic, so much as proof-of-concept."
For years, researchers, advocacy groups and private-sector environment-focused investment groups have eyed agriculture's potential contribution in carbon markets to help address climate change. But carbon trading is complex under any circumstances, and particularly so when the entities generating the offsets grow rice or corn or raise cows. Measuring emissions—or, rather, emissions reductions—accurately and consistently from agricultural sources can be more complicated than for wind energy or solar power projects.
"Developing a protocol with farmers that's verifiable and rigorous enough so you can sell it in the market—that takes a long time," Reed said.
Rice production emits methane, a potent greenhouse gas with significantly more warming power than carbon dioxide over a shorter period, though there is far less of it in the atmosphere. Globally, methane accounts for about 16 percent of human-caused greenhouse gas emissions. The largest human-caused methane source is the oil and gas industry (about 33 percent), but raising livestock comes a close second (27 percent), and rice production alone contributes 9 percent of methane emissions.
Much of the methane emitted in the rice production process comes because of the way rice is grown—immersed in water, creating ripe conditions for the bacteria that emit methane. But researchers have found that "dry seeding" the rice, or planting the rice before the field is flooded, alternating between dry and wet periods and draining the field earlier in the season can reduce methane buildup.
The seven growers that took part in the recent trade used these practices on 2,000 acres of farmland, ultimately generating reductions of 600 tons of carbon dioxide equivalent. The emissions reductions were calculated using a "DNDC" model—denitrification and decomposition—that compares results against dozens of other sites across years of production.
The process was shepherded by the Environmental Defense Fund, funded by the U.S. Department of Agriculture and southern power company Entergy, and overseen by a San Francisco-based investor called Terra Global, among others.
"You put in all kinds of data around the practices that were implemented in the field," explained Leslie Durschinger, founder and CEO of Terra Global, which brokered the deal between the growers and Microsoft. "Then you say: On this year, I did alternative drying and wetting. You put in that data and it produces the greenhouse gas emissions."
This trade happened in a voluntary market—the American Carbon Registry—but it was based on a protocol, or system, similar to the protocol California approved in 2015 to allow rice farmers to generate offsets to be sold in the state's cap-and-trade market. So far, no such trade has occurred in the California market.
"This paves the way for agriculture to participate in environmental markets," said Robert Parkhurst, director of agriculture greenhouse gas markets for the Environmental Defense Fund, which helped direct the project and referred to rice as the "gateway protocol" for other crops.
"We've done this with rice. We're working with ranchers to avoid conversions of grassland, also corn growers in the Midwest and almond growers in California to reduce fertilizer use," he said. "This shows that it can be done."
Developing New Markets
So far, American crop farmers have engaged in a handful of voluntary carbon offset trades, including a corn grower in Michigan who reduced nitrogen fertilizer use, generating credits through the Delta Nitrogen Credit Program. (Reed says this is the first cropland-based trade she's aware of in the U.S. Other cropland-based trades have occurred, Reed explained, but as private transactions, not within carbon markets that have peer-reviewed processes and offset methodologies.) When nitrogen-based fertilizer breaks down in soil, it releases nitrous oxide, a greenhouse gas with roughly 300 times the warming potential of carbon dioxide. The 2014 National Climate Assessment says agriculture is responsible for about 60 percent of nitrous oxide emissions, due to the heavy use of nitrogen-based fertilizer.
While the cropland-based trades that have occurred in the U.S. so far have been voluntary, others have occurred within compliance markets, including in Alberta, Canada and Australia.
Proponents are optimistic that the recent trade could spur buyers in California's cap-and-trade market to look toward rice-based offsets. But that market may change as the state contemplates whether to renew it beyond 2020 and whether to continue using agriculture-based offsets.
"The carbon market space, in particular, continues to lack real demand and real scale, and one primary reason is policy—there's no policy backing this up," Reed said. "The voluntary space continues to struggle, and the lack of policy means there's a lack of demand, and that keeps prices down."
How Microsoft Benefits
Meanwhile, the voluntary carbon market will rely largely on corporate commitments, which are continuing to expand.
"Corporations like Microsoft have a vested interest in corporate responsibility, but also toward a future where ecosystem services are valuable," Reed said.
Microsoft has set its own, voluntary internal carbon pricing system to lower the company's significant carbon impact, which is largely driven by the energy used to power its vast data centers.
"They've made a huge commitment to carbon offsets," Durschinger said. "They have internal carbon pricing and they purchased these credits at a fair price."
While Durschinger would not disclose the price Microsoft paid, the current price on the voluntary carbon market is $7 per ton.
But regardless of price, these companies could find agricultural-based offsets particularly appealing because consumers are demanding more sustainably produced food.
Scaling Up and Building Demand
"The general public is screaming for sustainably sourced products. We're building the base right now," said Mike Sullivan, one of the Arkansas growers involved in the project.
"We need a type of green seal on every bag of rice," he said. "That seal needs to to be accompanied by a barcode that, when accessed, tells the consumer that this rice came from a young farmer—which in my case would be my son Ryan—and was grown in Burdette, Arkansas, using less water, less energy and at the same time creating more waterfowl habitat."
Getting that brand recognition in the marketplace could help create the demand and scale that's lacking in the absence of stronger market-based incentives or mandatory policy-based requirements.
"Branding, certification. Those are the key components that would help scale this," Durschinger said. "Scaling on rice will clearly take an efficient way to work with larger numbers of farmers that are not only motivated by the potential revenue of carbon, but other benefits—water and energy savings—so we're working with hundreds of farmers instead of dozens."
The growers in the rice project, for example, used 30 percent less water, without any loss in yield.
"As you reduce carbon, there are a lot of other ecological benefits," Reed said. "We're realizing as we begin to measure those, we could monetize those as well."