Carbon Credit Quality Characteristics: Leakage

May 30, 2024 ac mindset

Welcome to the Agriculture Capital (AC) Mindset’s Climate Solutions Investing Primer, where we offer a point of view on the fundamental principles behind carbon markets. ​​AC is focused on speeding the transition from conventional to regenerative farming with a focus on high quality carbon credits. To do that, we are addressing six key carbon credit quality indicators.

  • Leakage
  • Permanence
  • Quantification
  • Upsides
  • Exclusivity
  • Additionality

Leakage in Carbon Accounting and Agriculture

Leakage, a critical consideration in the evaluation of carbon credit projects, involves the unintentional shift of emissions-intensive activities due to market or policy changes. This phenomenon can undermine global carbon reduction efforts and impact the integrity of carbon credits.

Market Leakage

In the agricultural sector, market leakage can occur when carbon credit projects inadvertently lead to increased emissions in other parts of the value chain. For instance, a farmer participating in a carbon credit project may choose to adopt regenerative practices that reduce on-farm emissions. However, if the associated inputs, such as specialty organic fertilizers, are manufactured in a distant location, the long-distance transportation of these inputs can offset the emission reductions achieved on the farm. Market leakage can be addressed by implementing practices that maintain or enhance crop yields while reducing emissions. 

Additionally, regenerative agriculture practices do not require incremental manufacturing of equipment or materials, application of GHG-emitting chemicals, combustion of fuels, etc. Therefore, it is unlikely that on-farm emissions in a regenerative system will “leak” to other parts of the value chain.

Policy Leakage

Policy leakage, often discussed in the context of national carbon accounting, arises when stricter environmental regulations in one country prompt industries to relocate to countries with less stringent regulations. This shift in production can undermine global carbon reduction efforts, as the emissions may simply be displaced rather than reduced.

Addressing leakage risks is crucial for ensuring the credibility and effectiveness of carbon credit projects in agriculture. By implementing appropriate mitigation strategies and promoting systemic changes, we can minimize leakage and contribute to meaningful climate action.

Regenerative Management

At Agriculture Capital, we measure soil carbon sequestration yearly and our track record is illustrated in our annual series of Regenerative Impact Reports, which we began publishing in 2016. These data are key to learning how to continuously improve how regenerative agriculture is implemented.

AC began investing in regenerative agriculture strategies in 2014. Carbon sequestration is just one output from our regenerative systems design approach to asset management, which we call the AC Way. Implementation of the AC Way has led to farmland improvements in soil carbon, biodiversity, and water and has underpinned land productivity and value creation within Agriculture Capital’s existing investments.

For more information, please reach out to