INTRO: Welcome to Organics Unpacked, a podcast for the business-minded organic grower, where we hear from top experts in the commercial organic industry. With a focus on the business elements of organic growing both in and out of the field, you will gain insight and grow your operation. This show is brought to you by Avé Organics, a Wilbur-Ellis company. Here’s our host, Tom Buman.

Bringing Transparency to Carbon Credits

TOM: In this episode, I wanted to really focus on carbon credits. I mean, something we’ve all been hearing about, whether you’re an organic farmer or you’re a conventional farmer. People are looking at these carbon credits that are out there, and it’s not a mystery what they are, right? We’re putting carbon into the soil. Really, we’re taking carbon out of the atmosphere, putting it into the soil with plants, reducing the amount of carbon dioxide in the atmosphere. But I think that’s the easy part to understand. The hard part, then, to understand is, okay, how does this system work? How does the company that is in the carbon credit market, how do they track these? And there are multiple companies buying carbon credits. And I don’t think there’s any place where there’s a clearinghouse to say, ​‘I bought your credits, but I haven’t bought your credits.’ So it’s possible to think that if somebody wanted to scam the system, they could sell their carbon credits multiple times to different players. And there’s no way of bringing that data together. I think in the organic world, where there’s a lot of integrity in what people are doing, I think it’s kind of important to talk about how we might put some, I think, hands around this system and really maybe make it more transparent.

HENRY: You really did an excellent job sort of capturing, I think, the state of carbon markets. I mean, the reality is there are thousands of voluntary carbon markets. But we’ve spent so much time, and I would say there’s probably not a day that doesn’t go by where we’re dealing with this issue around tracking and having accountable carbon. It’s a very murky system right now. And I think when we are talking about carbon credits, there’s not a lot of transparency on how these carbon credits are being accounted for. That’s the first one because there are different protocols and mechanisms for getting to the carbon. But the second part is that, to your point, once these carbon credits have been established, there’s a real danger and likelihood of potentially double-counting. So there needs to be a lot of transparency around how these carbon credits are being transacted and when they’re being retired. So, yeah, all around, I would say it’s an important mechanism, an important market, and it’s on everyone’s radar. And plenty of carbon credits are being purchased. But unfortunately, there is still a heck of a lot of murkiness around the industry.

Tracking Carbon Credits on a Blockchain

TOM: So, if there’s a company that’s working with carbon credits, I mean, and I’ve talked to many, many. And they’re like, ​‘Well, I feel really comfortable within our system that we’re tracking them.’ But there are, like you said, lots of other carbon markets out there, buyers of carbon. And there’s no way of knowing if a farmer sells to three or four different markets. Does there need to be a global tracking system for carbon credits? Or does each company track their own? And then it becomes put out on a list to say, ​‘I bought these people’s credits.’ So, if you’re going to go in, you might not want to buy them or you want to double-check them. How would it work on a blockchain to track carbon credits?

HENRY: Yeah, so, to my knowledge, I’m not aware of any sort of global clearinghouse that reconciles all of these credits. From what we’ve seen, there are just a lot of siloed proprietary markets out there, and they’re all accounted for individually. And there’s not much transparency on how these carbon credits are even being formulated. So, yeah, that’s a very challenging part, I would say, of the entire industry. Now, where blockchain becomes highly compelling is because, again, blockchain is that example where the distributed ledger, the blockchain, becomes the single source of truth. And that would be accessible amongst all the stakeholders in the global supply chain and value chain as it relates to carbon markets. Blockchain is excellent for real-time recording of high-fidelity data, which could be the basis for how these carbon credits are being determined and calculated based on whatever protocol or algorithm that’s being used. And once these carbon credits are sort of created, then if you — and probably many people have heard this term — digitize and tokenize the carbon credits such that they exist on the blockchain, they can be transacted and recorded on the blockchain. You would know with 100 percent certainty and granularity when those carbon credits were created, when they’ve been transacted between two parties and, ultimately, when they’ve been retired, right? So all of that would be real-time accessible and auditable on a blockchain ledger. So this is where the transparency really starts to become apparent when you have a blockchain-based accounting system for these carbon credits.

Recording Sustainability Practices

TOM: So, if I did a particular practice on my farm, let’s say I did no-till farming. And I got paid for the carbon credit. I get where that would go up on the block, right? It would be reported that I actually sold X amount of credits, and they would be in this field. And that field would be fenced off, basically. You would say, ​‘Within this field, these GPS points are where we purchased these credits, and the farmer is doing these practices.’ But then if, as a farmer, I said, ​‘Maybe I want to do something more. I want to use cover crops or something, and I want to sell my credits to somebody else.’ That’s all doable and trackable on the blockchain, right?

HENRY: Sure. To your example, if you said no-till, I mean, did you actually do it? There are opportunities in which you can really showcase what you are actually doing to the organizations that are investing in your sustainability practices and, ultimately, which will be procuring those carbon credits. So there are sensors that certainly could be used within your farm to capture real-time captured data, which can subsequently, then, be hashed on a blockchain and recorded on a blockchain. So, really, any kind of data that is supporting evidence for the practices that you are claiming, yes, they can certainly be recorded, real-time recorded, on a blockchain for auditability. So this is where, I think, it would be very compelling as we start to get more transparency around carbon markets.

Collecting Data on a Blockchain

TOM: So, if I’m a farmer, and I want to show proof that I no-tilled a farm, or if I put on a cover crop or if I put small grains out on my field, I could actually just stand in the field with my phone, my smartphone? And I could take a picture of what I did. It would have a stamp, a timestamp on it. It would have GPS location on it. Then I could send that to the company that bought my credits as proof that I did what I said I would do, right?

HENRY: You captured it right on. So, if you were to have a real-time capture — a photo, a video — that would be time-stamped. You would, then, once you put that on a blockchain, would have a unique digital signature associated with that file. So what’s important about that is because, later on, when you want to substantiate that that file is the same and that it hasn’t been altered, that unique signature on the blockchain should always remain the same. And you would have a corresponding timestamp for when you did it. So there are always ways that you can still cheat the system. But when you start to collect a lot of this high-fidelity data that’s auditable on a blockchain, you increase your odds of approaching the truth that you’re claiming. So we always like to describe it as sort of a digital truth mosaic, right? Collect as much data as you can. And hopefully, this is high-fidelity data on a blockchain. So maybe you’re also using geospatial data, as well. So just use lots of different data points, and that will help to substantiate and validate the claims that you’re making to your different stakeholders.

Triggering Carbon Credit Payments

TOM: So, then, the last point is that if I’m an organic farmer and I’m selling my carbon credits — whether that’s because I’m putting out small grains and alfalfa, I’m doing reduced tillage, cover crops, whatever it is — it seems like there is a lot of paperwork between me doing it and me getting paid. I understand that maybe the smart contracts associated with blockchain could really break down those barriers and make my payment come much, much faster.

HENRY: When you start to use blockchain technology, first, you’re on the path of digitization. So now you’re talking about digital records. That’s the first step. And of course, this is digital records that are secured by the blockchain, right? So that’s really important. The second part, then, is that, exactly how you described, if you want to add a layer of automation and efficiency to your operation, you can use blockchain technology. And not only to ensure you have high-fidelity data but to use smart contracts. And this is basically self-executable code that you define the parameters for the smart contract. But if you were to perform certain actions in your farm or within your supply chain, that would then trigger. The smart contract would trigger certain actions. And one of those actions could be payment, right? So maybe there’s a digital escrow that’s set up. You perform certain actions that you are claiming around sustainability or the delivery of goods. And these could be triggered in multiple different ways. It could be manual. Maybe it’s through a GPS tracking event. But once it’s triggered, the self-executable code would trigger the payment. So that’s really a significant incentive, I think, for individuals in the supply chain because, to your point, maybe they’ll get paid faster, right? Why should they wait weeks before they’re able to receive their payment for the hard work that they’ve done?

TOM: I think you’ve really shed some light on some, I think, ways where we could make carbon credits more transparent, more easily understood, and then do some of the smart contract work. It will be great to have you back to see if you’ve been able to implement some of this stuff and work through some of the things that you’ve talked about, Henry. So I appreciate your time very much.

HENRY: It’s my pleasure, Tom, and look forward to coming back and giving you more updates.

OUTRO: Thank you for listening to Organics Unpacked. If you enjoyed this episode, please consider subscribing and giving this show a five-star rating and review, so we can continue to help organic growers improve their operations.