Insight, Land & Finance
The Commission is building a buyers club for carbon farming because landowners alone cannot finance landscape-scale change. The reason is that a farmer's action produces several benefits at once, for several beneficiaries, none of whom is currently on the invoice.
The Commission's climate directorate is advancing the EU Carbon Removals and Carbon Farming Buyers Club, a mechanism to bring buyers and project developers together under the Union's carbon removal certification framework (as reported). The stated reasoning is direct: landowners alone cannot finance landscape-scale carbon farming, and food companies, cities, insurers, water utilities and other beneficiaries may need to combine demand in order to reduce transaction costs and create investable projects.
That is an unusually honest diagnosis in a policy document, and it identifies the right problem. It is worth being precise about what the problem is, because it is not the one carbon farming policy has mostly been trying to solve.
A farmer who changes management on a catchment-scale block of land produces, simultaneously and inseparably, several things.
Carbon stored in soil and biomass. Slower runoff, which reduces flood peaks downstream. Lower nutrient and sediment loading, which reduces a water utility's treatment costs. Habitat, which is biodiversity. Soil structure, which is the farmer's own resilience in a dry year. And landscape amenity, which is somebody's tourism revenue and somebody else's house price.
Only one of those has a market. Carbon has a certification framework, a unit, a registry and a buyer, so carbon is what gets paid for, and everything else is delivered free.
That produces two failures at once, and they pull in opposite directions.
The farmer is underpaid, because they are compensated for one of six outputs while bearing the cost of producing all of them. Which is the distance between the work and the reward that runs through every payment-for-outcomes scheme.
And the intervention is distorted, because a practice optimised for the one output with a price is not the practice that would be chosen if all six were valued. Carbon-maximising land management is not the same as flood-attenuation-maximising or biodiversity-maximising land management, and where they diverge, the money decides.
So the missing institution is not a better measurement method for soil carbon. It is an invoice that several different beneficiaries can each pay part of.
The beneficiaries are real, identifiable and in many cases wealthy. A water utility has a treatment cost it can quantify. A municipality has a flood damage exposure. An insurer has a loss ratio. A food company has a supply security interest and a reporting obligation.
Each of them would rationally pay something for the outcome. None of them pays, and the reasons are structural rather than a failure of goodwill.
The benefit is partly non-excludable. A water utility that pays for upstream land management cannot prevent the municipality downstream from also enjoying the reduced flood peak. So each beneficiary has a reason to wait and let somebody else fund it.
The attribution is hard. A utility's treatment costs fall for many reasons. Proving that this payment produced that saving is expensive and contestable, which makes the payment hard to approve internally.
The transaction costs are enormous relative to any single deal. Assembling five buyers with different legal forms, procurement rules, fiscal years and reporting requirements, around a package of outcomes delivered by forty landowners, is a legal and administrative project far larger than the value of most individual contracts.
And nobody has the mandate to convene it. Each institution is set up to buy its own inputs, not to co-purchase a shared outcome from a third party.
Read the Buyers Club against that list and its function is clear. It is not a subsidy and it is not a standard. It is an attempt to reduce the transaction cost of a multilateral bargain that everybody would benefit from and nobody can organise.
Whether non-carbon outcomes are ever on the invoice. If the club aggregates buyers who are all purchasing carbon, it has made the carbon market thicker, which is useful and much less than it claims. The test is whether a water utility pays for water outcomes within the same contract, using its own budget line, for its own reason.
Whether the farmer sees one contract or five. The administrative burden of a bundled outcome must land on the aggregator, not on the landowner. If a farmer has to satisfy five different verification regimes, the transaction cost has been moved rather than reduced, and it has been moved onto the party least able to carry it.
Whether payment survives a change of buyer. Landscape management is a twenty-year proposition. Corporate purchasers change strategy, and a food company's sustainability budget is not a durable counterparty. Whether the club can offer term is the difference between a market and a campaign.
Who is excluded. Aggregation favours larger holdings, contiguous blocks and farmers with the administrative capacity to participate. The landscape outcome usually requires the small and awkward parcels too, and they will be the ones left out unless somebody designs against it.
The share of contract value attributable to non-carbon outcomes. The single number that says whether this is a new market or a bigger carbon market. It should be reportable from the contracts themselves.
Farmer net income, after compliance cost. Payments received minus the cost of measurement, reporting, verification and the practice change itself. A scheme can pay well and leave a farmer worse off, and only the net figure shows it.
Persistence after the first contract term. Whether practices continue when a buyer exits, which is the persistence question that determines whether any of this produced a durable change in a landscape.
Which beneficiaries paid and which free-rode. Mapping every institution that gained against those that contributed is uncomfortable, entirely feasible, and the most useful evidence anybody could produce about whether voluntary aggregation can work at all.
Carbon farming has spent a decade improving its ability to measure what happened in the soil. The binding constraint was never there. It was that the person doing the work sends an invoice to one buyer for one sixth of what they produced, and nobody has built the institution that would let the other five pay their share.
The Lab works on this in regenerative agriculture and climate and ecosystems, and on who bears the cost of a practice change through field research.
If you are designing a payment scheme whose benefits accrue to people who are not party to the contract, tell us what you need to know.
This is an independent insight piece by Transitions Lab. For the Lab's applied work, see Regenerative Agriculture. See also The Distance Between the Work and the Reward on what the weight of a verification system tells you about a deal, Whose Field Becomes a Wetland on concentrated costs and diffuse benefits, and The Trough Before the Dividend on why persistence is the only real test. To discuss a study, see Contact.