34 NEBRASKA CATTLEMAN March 2024 CONSIDER THIS levels before and after to validate the effectiveness of the practices. Contracts that include measurement of actual carbon stored pay more per carbon credits, but the farmer or rancher may bear risk of inaccurate estimates/uncontrollable factors such as fire and drought. “Carbon contracts are new, as are some of the practices that will be required by carbon contracts,” Bracht said. “It will be critical for farmers and ranchers to understand not only the cost of the new practices, but also the impact on productivity. If total bushels harvested or total pounds of beef produced are reduced, the lost revenue must also be considered.” Legal Implications to Carbon Contracts Bracht also outlines key legal implications to carbon contracts. To meet the permanence objectives of carbon credit buyers, the contracts will require commitments from farmers and ranchers for many years, even decades into the future. Many Nebraska farms and ranches have been operated by the same family for many years, but management practices are constantly changing, so making such agreements requires careful consideration. Additionality is important to carbon credit buyers because their objective is to cause new carbon storage above the amount expected under business-as-usual operations. Some ag carbon contracts even include a statement that “but for” the contract payment, the farmer or rancher would not have adopted the practice. Unfortunately, this can exclude producers already using sustainable practices, while paying those that have not. Permanence is very important to carbon credit buyers and impacts the value of the credit because the objective is to remove CO2 from the atmosphere permanently. To meet the permanence objective of the credit buyer, the term on ag carbon contracts is often 15 to 20 years and may be as long as 30 years. Ranchers and farmers must also consider the legal obligations under carbon contracts. Like any legal contract, but especially a contract with an effective term of 10 to 20 years, farmers and ranchers should have the contract reviewed by an attorney. In addition to the potential payments, it is especially important to understand the obligations under the contracts, such as: • Can the farmer or rancher rely on a credit buyer for the future payments? • What happens if the management practices don’t result in the expected carbon capture? Can the credit buyer seek a refund for past payments? • What actions (or inaction) by the rancher or farmer could result in a default under the contract? What are the penalties? Can the rancher be required to pay back prior payments? • What if the monitoring costs are higher than expected? Who pays? • What if government rules change? Can the contract be changed without agreement or approval of the farmer or rancher? • What if the rancher wants to adopt new management practice for cattle production benefits? Can the credit buyer limit changes? • Will the rancher be restricted from entering other government programs supporting sustainable practices? • Can the ranch or farm be sold? “While no one knows what the future holds, it seems clear that the consumers are interested in knowing more about how their food is produced,” Bracht said. “For some consumers, that includes knowing the management practices that affect carbon emissions. Showing that beef can be produced in a climate-friendly system may offer new opportunities to grow that value in the future and meet the demands of a growing consumer segment. Ultimately, ag carbon contracts may be just one more program option for farmers and cattlemen to use to benefit their operations.” ~NC~ THE COMPLICATED CARBON CHALLENGE CONTINUED FROM PAGE 33
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