Climate Change Mitigation Finance for Smallholder Agriculture: A guide book to harvesting soil carbon sequestration benefits

Published on November 1, 2011 | Author: Leslie Lipper, Bernardete Neves, Andreas Wilkes, Timm Tennigkeit, Pierre Gerber, Ben Henderson, Giacomo Branca, Wendy Mann

Globally, the agricultural sector is an important source of greenhouse gas (GHG) emissions, and projections indicate that these emissions will increase if agricultural growth and development proceeds under a ‘business-as-usual’ model of technology and resource use. For example, agricultural nitrous oxide (N2O) emissions are projected to grow by 35-60% up to 2030 due to increases in both nitrogen fertilizer use and animal manure production (FAO 2003 cited in IPCC 2007).

The Fourth Assessment Report (AR4) of the United Nations Intergovernmental Panel on Climate Change (IPCC) notes that food demand and dietary shift projections indicate that annual emissions of GHGs from agriculture may escalate further (IPCC 2007). At the same time, agricultural growth is a key component of economic development and food security strategies for developing countries, where the agricultural sector is often the largest sector in terms of gross domestic product (GDP) and employment. In the next 20 years, major transitions in developing country agriculture will inevitably occur in response to growing populations, and changes in national and global economies, markets and climate. These transitions will necessitate innovations in agricultural technologies and practices as well as institutions, and there exists a range of options that could be pursued to meet these challenges.

At present, there is increasing interest in ‘climate smart agriculture’ (CSA) options, particularly in developing countries that incorporate necessary adaptation into agricultural growth strategies for food security and poverty reduction, and that also capture potential mitigation co-benefits (FAO 2010). Low- emission agricultural growth strategies will entail different levels and types of investment, as well as operating and opportunity costs. Assessing GHG emissions associated with various trajectories of smallholder agricultural development and related public and private costs of reducing them is thus an important requirement for achieving CSA. This presents an opportunity to identify solutions that generate both private (food security, returns to agriculture) and public (mitigation) benefits. Financing for mitigation services generated by the sector could provide a potentially significant additional funding source to support investments to assist developing countries in adopting low emissions pathways to agricultural development and poverty reduction.

The AR4 identifies soil carbon sequestration as the highest potential source of mitigation from the agricultural sector – from both technical and economic perspectives (Smith et al 2007). Two main features of soil carbon sequestration drive this conclusion: the tremendous area and thus aggregate levels of sequestration that could be achieved by increasing carbon in soils, and the low costs associated with this form of emissions reduction, since the changes in farming practices required to increase carbon in agricultural soils often generate benefits to agricultural production in the long run, as well as mitigation benefits. Although this potential synergy between mitigation and agricultural development has generated much interest (FAO 2009), concerns about the lack of ability to achieve a system for the MRV of emissions reductions (ERs) from this source have hampered progress in tapping this potential means of mitigation.

To date, there is still relatively little field experience with crediting mitigation from soil carbon sequestration in agricultural systems in a project setting. There are also very few methodologies and approaches for crediting such benefits from smallholder agricultural systems, but there is a small and growing body of experience being built. So far, the contribution from agricultural soil carbon sequestration to climate change mitigation efforts has been mostly limited to two experimental programmes in developed countries, namely, the Chicago Climate Exchange (CCX) in the United States (US), and the Alberta Carbon Exchange in Canada. In developing countries there has been some progress with costly project-based approaches to generating offsets for the voluntary market, in anticipation of their eventual acceptance into compliance markets. The low prices, however, for agriculture, forestry and other land use (AFOLU) offsets results in relatively few opportunities to capture agricultural mitigation benefits in developing countries in this manner. While information on the biophysical potential for GHG abatement strategies is growing, the implementation potential in general, and in particular the involvement of smallholders, continues to face substantial challenges.

Thus, at this stage, it becomes important to take stock of the opportunities and obstacles of the project- based approach for the agriculture sector, and distil lessons to inform the development of broader mechanisms that can combine mitigation objectives with development goals.

Building on FAO policy advice and incorporating lessons from ongoing agricultural carbon finance projects of FAO and other organizations, this document aims to provide an overview of potential mitigation finance opportunities for soil carbon sequestration. The first part provides an overview of the opportunities for climate change mitigation from agricultural soil carbon sequestration, the emerging policy options and consequent institutional mechanisms for financing such mitigation, and the opportunities for smallholders to participate in them. The second part is aimed primarily at carbon project developers and decision makers at national level concerned with environmental and agriculture policies and incentives, and non- governmental organizations (NGOs) and farmers’ associations working towards rural development and poverty alleviation. It provides step-by-step practical support to project development.

This FAO publication focuses on climate change mitigation financing for smallholders. The Organization, however, fully recognizes that adaptation may be the imperative and priority over the short and medium term for many smallholders in circumstances where climate change may adversely impact their efforts to overcome poverty and food insecurity. In many cases, most countries will need to deal with both adaptation and mitigation. FAO is supporting national efforts on CSA which seek to enhance the capacity of the agricultural sector to sustainably support food security, livelihoods and growth under climate change, incorporating the need for adaptation and the potential for mitigation into development strategies. Climate change mitigation financing can play a role, along with other sources of financing, in enabling climate smart agriculture.
Lipper, L., Bernardete, N., Wilkes, A., Tennigkeit, T., Gerber, P., Henderson, B., Branco, G. & Mann, W. (2011). Climate Change Mitigation Finance for Smallholder Agriculture: A guide book to harvesting soil carbon sequestration benefits. Technical Report. The Economics and Policy Innovations for Climate-Smart Agriculture (EPIC). Food and Agriculture Organisation of the United Nations (FAO).

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