Academic Advisory Panel - soil carbon and natural capital markets: advisory note

This advisory note has been prepared by the Academic Advisory Panel (AAP) in reponse to a request from ARIOB to summarise the current knowledge on soil carbon and Natural Captial Markets. Thsi note summarises the discussion held during the AAP meeting on 5 August 2024. The panel received a presentation on the principles of high integrity soil carbon markets in the UK, and on Scottish Government commitment to develop Scotland’s Natural Capital Markets Framework. The discussion then focussed on market opportunities for soil carbon assets in Scotland. The Panel also considered potential risks for Scottish soils arising from natural capital markets, highlighted existing research, and addressed future research needs that could inform policy development of soil natural capital markets.

Key message

Businesses can aim to achieve net zero targets by reducing emissions and increasing carbon removals, through either carbon insetting (removal within their supply chain) or offsetting (removal outside the supply chain via carbon credits). The practical implementation of both carbon insetting and offsetting faces a number of challenges, such as accurately measuring baselines, monitoring changes, and ensuring transparency in carbon markets. Market integrity issues, like proving “additionality” and ensuring the permanence of carbon sequestration, emphasise the need for rigorous natural capital markets such as the existing Woodland Carbon Code and Peatland Code. The BSI nature markets programme is generating a series of standards that will help markets achieve the necessary rigour.

Agriculture is a key sector for carbon insetting and offsetting, through various ways of utilising agricultural land, presenting potential income generation opportunities for farmers and crofters. However, agriculture is already subject to commercial pressures to reduce net emissions as a condition of selling into certain supply chains. Ideally, the businesses should demonstrate their own net zero credentials before selling carbon credits.

There are initiatives underway to develop markets for soil carbon. This work is at an early stage and there are technical issues to address. Accurate baselines for soil carbon are required to prevent greenwashing but this is technically difficult and costly, requiring standardised protocols and the use of technology such as remote scanning tools. Soil carbon markets must also address the limited potential for sequestration, potential for carbon loss from erosion and climate change, commitment to long-term soil carbon storage, and consider long-term impacts on wider ecosystems. A standardised approach to soil carbon accounting, and co-ordination of private and national initiatives is essential for market credibility.

Summary of the discussion

Many organisations have set themselves net zero targets. Achieving these targets typically requires a combination of reducing actual emissions and increasing carbon removals. Whilst these can be attempted by an organisation itself, others can also be paid to undertake the effort on the organisation’s behalf. If this occurs within an organisation’s supply-chain it is referred to as ‘insetting’ and if it occurs outwith the supply-chain as ‘offsetting’, with payments being made for carbon credits. 

The economic theory underpinning insetting and offsetting is sound. However, practical implementation faces a number of challenges. These include technical issues relating to measuring baselines and monitoring change over time, financial issues related to whether the financial returns are greater than the costs of measuring and auditing, and market design issues relating to transparency and how buyer confidence can be established. The latter is the subject of various ongoing national and international initiatives to bolster market integrity, particularly in relation to counterfactual ‘additionality’ – whether a given carbon reduction would have been undertaken without an explicit inset or offset payment (if so, then the carbon credits are worthless ‘hot air’). The “permanency” of soil carbon storage is also an issue, as increases can be quickly undone by a change in soil management.

A lack of perceived and actual market integrity leads to low carbon credit prices and hence reduces incentives for suppliers to generate them. This has been a persistent problem for offsets, yet international standard-setting bodies’ attempts to establish consistent rules around them remain subject to ambiguity. Moreover, interactions between private sector insetting/offsetting and government-level targets mean that neither can be considered in isolation.

Reflecting the scope for different forms of carbon sequestration involving land (e.g., tree planting, increasing soil carbon), agriculture is a prime target for insetting and offsetting. This presents potential income generation opportunities for farmers and crofters. However, external investors may have better access to such opportunities, raising issues of rural community impacts. Moreover, agriculture is already subject to commercial pressures to reduce net emissions as a condition of selling into certain supply-chains, further constraining opportunities. For example, suppliers to supermarkets may increasingly expect farm businesses to demonstrate net zero credentials as a “licence to trade”. Ambitions to ‘stack’ different environmental credits (e.g., carbon, biodiversity, water quality) on the same piece of land to generate multiple income streams introduce further complications to proving ‘additionality’.

Ideally a baseline of soil carbon levels and their geographic location is needed to demonstrate that there have been additions or declines in soil carbon storage. Baselines need to include mapping of the soil surface, soil percentage carbon, and soil bulk density to depth, as changes to any of these variables affects soil C stocks. Baselines for soil carbon can be based on direct or indirect measurements, modelling, or a combination of both. Direct measurements of soil carbon are costly, and a lack of protocols and verification could lead to substantial costs with limited benefit. Establishing a baseline of soil carbon is essential to avoid accusations of greenwashing and effectively track changes in soil carbon over time. This requires rigorous sampling protocols to account for variability in soil carbon stocks, with recognition that persistence of soil carbon and potential for further sequestration vary with context (e.g., soil type, geographical location, climate, land use). Remote scanning tools should be considered to improve the accuracy of establishing these baselines (e.g., LiDAR for soil surface mapping), but cannot resolve bulk density or percentage carbon at present. Soil carbon markets must address challenges such as limited soil carbon sequestration potential, risks of carbon losses from erosion and climate change, and the need for long-term soil carbon storage. Additionally, the broader environmental impacts of carbon storage projects should be considered, as some actions may negatively affect downstream ecosystems. A standardised approach to accounting for soil organic carbon is crucial for market credibility.

Key discussion points:

1. Market opportunities for soil carbon assets in Scotland

• carbon insetting and offsetting are two approaches that may be used by an organization to compensate for its own emissions
• prior to any consideration of carbon insetting or offsetting on farms, it is recommended that farm businesses first establish their greenhouse gas emissions, the current status of biomass and carbon storage, and anticipated rates of carbon sequestration. Farm businesses should be mindful that future demands from consumers may require farm businesses to be net zero or moving towards net zero- (meaning therefore that they may not have surplus carbon to sell)
• carbon insetting takes place when businesses invest in carbon reduction projects within their own supply-chain. Carbon offsetting allows businesses to invest in projects outwith their supply-chain. Neither approach reduces an organization’s own emissions. This can attract criticism of ‘greenwashing’ but is countered by guidance from standard-setting bodies that insets/offsets should only be used to compensate for residual emissions after an organization has reduced its own first. However, the status and treatment of land-based carbon removals remains subject to some ambiguity and should be addressed in future guidance
• while carbon offsetting schemes are more established in terms of standarised frameworks, insetting schemes offer greater potential for impactful gains due to reducing emissions within a company’s value chain. Rather than depending on external projects, businesses invest in initiatives that directly impact their operations, promoting a more comprehensive approach to sustainability. To take full advantage of this potential, more robust and credible standards for carbon insetting need to be developed, ensuring their long-term effectiveness
• whereas government-level emissions accounting is constrained to its own geographical territory, private insetting/offsetting can span different countries. Interactions between the two perspectives may require adjustments to national figures and/or affect perceived ‘additionality.’
• an assessment of greenhouse gas emissions and soil carbon often provides a first step and platform for a fuller assessment of natural capital
• the domestic future Natural capital market framework seeks to establish rigorous standards that ensure the integrity of nature markets in Scotland, including any future soil carbon market. The Framework will draw on UK and international initiatives to ensure market integrity and consequently increase buyer confidence and carbon prices. In particular, it will incorporate the market standards that are being established by the BSI Nature Markets programme. However, there are ongoing concerns about the sustainability of income streams through carbon credit sales as businesses must ensure the permanence and additionality of carbon storage. Equally, external investors may find it easier than farmers and crofters to access carbon market opportunities, raising issues of rural community benefits. A comprehensive economic valuation of costs and income should be conducted to assess the profitability of activities aimed at storing additional carbon. Ideally, agricultural businesses should demonstrate their net-zero credentials before selling carbon credits
• a given piece of land can generate multiple environmental benefits. For example, carbon sequestration, biodiversity enhancement and water management. Each of these are of value to society but are not currently delivered through private market mechanisms. If these components of value could be separated into different environmental credits and sold, the income potential to land managers would be increased. Yet if the different benefits are generated jointly through the same management activities on the same piece of land it is difficult to demonstrate ‘additionality,’ since paying for one outcome would also secure the others without further payment. Hence stacking of benefits may complicate attempts to achieve perceived market integrity. However, empirical evidence on buyers’ attitudes to stacking is scarce – research into relative preferences for different market offerings is needed
• carbon sequestration can occur through various ways of utilising agricultural land. Examples include preserving existing woodlands, promoting afforestation on the right soils, integrating trees, shrubs, and hedgerows into production systems (agroforestry), planting appropriate vegetation cover in areas prone to soil erosion, changing the management of grazing land and grassland, or reducing soil disturbance. These practices, if adopted, can enhance carbon sequestration efforts on farmland. The effectiveness of carbon sequestration will depend on the baseline and factors such as the new land use and management practices, soil type, climatic conditions, net greenhouse gas (GHG) emissions associated with additional management activities, and land use policies

2. Risks for Scottish soils arising from natural capital markets

• soil sampling and national scanning of soil carbon assets are essential for establishing a baseline of soil carbon and can help reduce potential accusations of greenwashing. Establishing a spatial baseline of current soil carbon stocks, estimates of current rates of sequestration or loss, and the context specific potential for additional sequestration is crucial to determining whether additional carbon can be stored in the soil. A baseline also enables the monitoring of changes in soil carbon over time with contextualized ambition. To be cost effective, this will probably involve a combination of direct measurements, indirect measurements, and modelling. The soil sampling protocols must be carefully designed to ensure representative sample location and in sufficient quantities to detect soil carbon variability within fields and to detect changes over time. Protocols should also account for areas with difficult vehicular access, and for different soil fractions. In-field measures to reduce soil loss are required to prevent soil erosion or potential run-off after extreme rainfall
• different types of carbon and soil, along with varying soil management practices, can lead to different net carbon outcomes. Carbon responses to climatic conditions and land use will vary with soil type. These variations must be recognised and accounted for by both policy and regulatory frameworks. The adoption of remote sensing techniques such as airborne LiDAR scanning to map the soil surface across Scotland would help to underpin a soil carbon baseline, ensuring the best outcomes for each soil type. Additionally, LiDAR would also baseline other forms of carbon sequestration potential such as trees and hedges. Forecasting of soil carbon stocks into the future based on models will carry uncertainties linked to climate and management changes
• potential to sequester carbon in soil is limited and varies with context. Farmers and crofters who already adopt practices that benefit soil carbon, and have carbon rich soils on their land, may find it difficult to sequester additional carbon. There needs to be a mechanism to recognise past good practice so forward-thinking businesses can be also rewarded (e.g., schemes could be based on the amount of carbon in relation to a national saturation point and incentivise keeping carbon in soil rather than additional sequestration).
• long term commitment to soil carbon storage presents significant challenges for soil carbon projects. The stability of carbon storage in soil varies depending on biological, physical, and chemical properties of the soil, making the duration of storage highly variable. Moreover, soil carbon sinks are at risk of reversal due to external factors such as changes in climate, shift in land management practices, or changes in land ownership. Committing to a soil carbon initiative that requires long-term carbon permanence could potentially limit owner’s ability to sell the land in the future or limit the value of the land 
• wider agricultural and environmental impact of carbon storage projects must be considered. Changes in soil carbon can affect the agricultural productivity of soil (e.g., water retention), and hence increases in soil carbon can result in increased yields during drought. These more water-retentive soils can also contribute to reductions in peak flow during heavy rains, and therefore reduce flood-risk downstream. Some soil-based carbon storage activities, such as enhanced rock weathering, have less well-evidenced outcomes on the broader environment. The potential for applications of rock dust to impact water quality and biodiversity in catchments and near shore needs investigation
• establishing a standardized approach to account for soil organic carbon (SOC) is essential to ensure credibility, transparency, and efficiency of the market. At present because the costs of accurately assessing soil carbon can outweigh the economic gains, carbon calculator tools have generally overlooked soil carbon, and instead have focused on the reduction of GHG emissions and assessments of changes in biomass carbon in trees and hedgerows. Data on soil carbon is very noisy, and advances in this area will depend on robust frameworks. Dupla et al. (2024) in their recent paper “Are soil carbon credits empty promises?” provide a strong review of current soil quantification methodologies and improvement avenues

Existing farming carbon calculator tools often overlook soil carbon, or when they do include it, the approach is overly simplistic and not taking account of different fraction persistence. Advancing these tools to incorporate SOC would be beneficial in demonstrating the farm’s net-zero credentials. Development efforts should also focus on harmonising calculations across all tools to ensure consistency and robustness of the results. Additional information on harmonization of carbon accounting tools can be found at the following links:

Harmonisation of farm carbon accounting tools report published | ADAS

Three major farm carbon calculators outline a roadmap to harmonisation | Agrecalc

• National and sectoral initiatives are starting to invest substantial amounts of money on measuring or predicting soil carbon, but there is minimal co-ordination.

The area of soil carbon credits has been a wild west, but frameworks are developing, including within the EU. Different parts of the UK and different organisations are initiating projects that include extensive soil carbon measurements (e.g., in Northern Ireland, and AHDB’s environmental baseline projects) and there are existing tools for modelling soil carbon stocks based on measurements taken and held by James Hutton, UKCEH in the Countryside Survey, and by Cranfield University in England and Wales. There could be benefits to bring interested parties from the UK together, together with GHG calculator companies and others, to establish most effective practice.

3. Summary of recent research and future research needs useful for risk management and policy development for soil natural capital.

• research to determine the maximum soil carbon storage potential – under certain conditions and with careful management, soils can absorb more carbon and act as carbon sink. However, the quantity of carbon that can be stored in any soil is limited. The archive data stored by the JHI can be used to determine the soil carbon potential for soils in Scotland
• research on tracking the total soil resource in space and time through the remote sensing technology e.g., LiDAR technology to assess soil erosion risks and reduce negative environmental impact
• research to align different carbon metrics – understanding of different carbon metrics is important for investors who are looking to estimate the climate impact of their investment decisions, interpret changes in carbon metrics, and manage their carbon targets
• research to understand the true value of bundling and stacking benefits such as carbon, water, and biodiversity. Bundling can offer significant advantages but also come with potential risks that require further investigation. Key questions include whether funding for one service alone would naturally lead to co-benefits, whether there is sufficient demand for bundled services, and if the additional costs of managing and integrating multiple benefits are justified by the overall returns
• study that investigates how changes in SOC stock are estimated by the major carbon credit protocols and suggests improvement avenues to ensure that SOC is accurately quantified and that change with time is reliably monitored

(PDF) Are soil carbon credits empty promises? Shortcomings of current soil carbon quantification methodologies and improvement avenues (researchgate.net)

Optimising the balance between net accrual and loss from carbon inputs, and predicting sequestration potential.

• study that determines the effect of two tree planting methods (woodland and silvopastoral agroforestry system) on the soil bulk density and organic carbon content of a grassland site

Soil carbon changes after establishing woodland and agroforestry trees in a grazed pasture - ScienceDirect

• the following study examines different special modelling approaches to estimate SOC stocks and demonstrate that economic impacts on individual businesses will depend on the approach and the accounting method

Spatial modelling approach and accounting method affects soil carbon estimates and derived farm-scale carbon payments - ScienceDirect

• a guidance note for land managers, published by the British Society of Soil Science, to help understand how soil carbon can help mitigate climate change, how to measure it and how soil carbon stocks could be monitored, reported, and verified for carbon finance schemes

Soil Carbon: What are carbon stocks and how can they be measured? | Scotland's soils

• science note on Soil Carbon published by the British Society of Soil Science. The Science Note explores the importance of carbon in soils, how it behaves, and how soil carbon might be increased to help address the climate crisis

Launch of Science Note on Soil Carbon - British Society of Soil Science

BSSS_Science-Note_Soil-Carbon_Final (soils.org.uk)

4. Carbon market references

BCG - In the Voluntary Carbon Market Buyers Will pay for Quality

The State of Quality in the Voluntary Carbon Markets

International carbon markets for carbon dioxide removal | PLOS Climate

Toward global net zero: The voluntary carbon market on its quest to find its place in the post‐Paris climate regime - Kreibich - WIREs Climate Change