The author is the carbon project manager with Ag Methane Advisors LLC based in Montpelier, Vt.
Carbon has become a ubiquitous term in sustainability discussions, ranging from talk of carbon markets and carbon credits to carbon offsets and carbon insets. The relevance of this topic is underpinned by the urgency of climate change, with each consecutive year breaking previous records for global temperatures, greenhouse gas (GHG) levels, and extreme weather incidents including droughts and excessive rainfall.
Roughly a third of human-caused GHG emissions come from the activities of food and beverage companies globally, leading to recent momentum at the industry and corporate level to take responsibility for their GHG impact. However, these commitments often overlook the perspectives of farmers, who are implementing the meaningful on-the-ground changes the dairy industry needs.
Net zero commitments abound
While many companies are making various climate commitments with altruistic intentions, there are also several significant external pressures contributing to this trend. Consumers are becoming more conscious of product sustainability as they seek greener alternatives. The demand for low-carbon goods creates both an incentive and a major risk to brand reputation, making climate-related commitments paramount to ensuring customer loyalty.
Making ambitious commitments is a major first step, but they are baseless if not matched with ambitious action. Companies run the risk of being accused of “greenwashing” — making unsubstantiated claims about climate-related impacts — if they fail to make progress toward their emission targets. In response to heightened awareness of greenwashing, policymakers at both the state and federal levels have created regulations mandating the public disclosure of climate-related targets and plans to achieve them. Additionally, the risks posed by climate change to global supply chains, along with threats to brand reputation and the potential for compliance issues and lawsuits, are leading investors to apply pressure to address these concerns.
These pressures have kick-started a corporate sustainability race. However, the vast majority of GHG emissions from the food and beverage sector occur during the production of raw materials. GHG accounting standards dictate that the companies that purchase raw materials like milk claim responsibility for the upstream emissions and work on reducing them. Even though the company selling the final consumer product is held accountable for upstream emissions, the burden of actually abating them typically falls on the farms.
Covering supply chain emissions
In GHG accounting, emissions are typically broken down into three categories called scopes, depending on their source. Scope 1 emissions are from sources owned by a company (for example, fuel combusted in owned vehicles). Scope 2 emissions are from purchased energy such as electricity. Scope 3 emissions are those from all other sources upstream and downstream of the company, including everything from primary production to consumption and disposal.
Most emissions in the food and beverage industry originate from upstream sources, also known as the supply chain or value chain. Some estimate that supply chains encompass up to 90% of a food and beverage company’s total emissions. When considering fluid milk, around 50% of the total emissions come from the milk production phase alone, not including feed production.
The emissions from milk production are primarily due to the release of methane — a GHG that is roughly 28 times more potent than carbon dioxide over 100 years and more than 80 times more potent over 25 years. Dairy methane is produced primarily from two on-farm sources: enteric methane from the natural production of methane in the ruminant digestive system and manure management. While most dairy farms themselves are not setting climate targets, their GHG footprints are being incorporated into the climate targets of their co-ops, processors, and subsequent end users of their milk. Therefore, food companies must find ways to address the on-farm emissions of their suppliers to make progress toward their climate targets.
Carbon markets and offsets
For more than 25 years, carbon markets have operated as a mechanism for companies to indirectly finance projects that provide climate benefits without having to directly invest in and operate them or make operational changes. Instead, companies can purchase carbon credits that each represent one metric ton of carbon dioxide equivalent emission reductions, which offset a company’s internal emissions; hence, they are referred to as carbon offsets. The key here is that the purchasing company has not actually done anything to reduce emissions from their own business, but they have indirectly financed someone who has reduced emissions elsewhere (think of a fossil fuel company purchasing credits from an agroforestry project planting trees in South America).
While offsets have traditionally been the primary way to engage in carbon markets, many have scrutinized offsets, asserting that using them to claim progress toward emission targets without actually making any internal decarbonization efforts is just another form of greenwashing. This has led many in the food and beverage industry to seek alternatives to offsetting.
Insetting is another option
In response to criticism of carbon offsets, the concept of insetting was born. Insets are primarily different from offsets in that they are directly connected (often through direct funding) to a company’s decarbonization efforts or interventions, within their supply chains. Most importantly, the climate benefits of these interventions can be counted toward the company’s Scope 3 emission targets, while offsets cannot.
Standard setting organizations like the Science Based Targets Initiative (SBTi) and GHG Protocol are still establishing rules and best practices for insetting, but it has gained significant momentum as a way to scale up supply chain decarbonization. Companies may invest directly in on-farm projects, or pay premiums for milk from farms that adopt low-carbon practices. They may also provide direct payments based on the quantity of GHG reduced or removed by a given practice, sometimes referred to as performance-based incentives.
One method is to purchase inset credits, which are similar to offsets except the credit must be produced from within the company’s supply chain. GHG accounting rules permit companies to buy insets from farms within their supply shed, or the region(s) where they source milk. This provides flexibility, considering the complexities and dynamics of supply chains. Food companies often initiate and manage insetting programs, directly or in collaboration with third parties, into which farms can enroll for implementing GHG reduction activities. The third parties and food companies coordinate the quantification and verification of the GHG reductions for all the farms in the program. Once verified, the project or program generates inset credits that can be sold to and claimed by downstream companies that source milk from the farms or region.
Many leaders in the food and beverage industry stress that providing proper incentives to farms that implement new and emerging decarbonization practices is paramount, and we hope this is the case. However, due to various corporate pressures, incentives sometimes give way to requirements as product footprints get embedded in procurement policy. It may prove difficult for individual farms to negotiate fair compensation for the downstream benefits of their actions and to navigate the dynamic sustainability landscape. We encourage farmers to take proactive steps to educate themselves, explore programs and developers that prioritize incentives to farms, and to always work with trusted partners.
