On first glance, a new project to encourage and fund smallholders to practice agroforestry through providing them with loans and entry into the international carbon offset market, writes Carolien Samson. However, she points out, it hides major flaws.
Rabobank through its Rabo Foundation has announced that it will be offering smallholder farmers in Africa “carbon loans” to adopt sustainable and climate resilient agroforestry farming in partnership with a United Kingdom-supported NGO, FSD Africa.
As the trees and crops grow, the biomass will be measured using remote sensing and “carbon removal units” will be sold to corporates via the Rabobank trading platform, Acorn. The offsets will be used by the farmers to repay the loans while surplus could be paid out in cash or as farm inputs. The project will initially launch in Kenya, Nigeria and Tanzania and aims to reach one million farmers across the globe.
At first glance, this sounded like an innovative idea when FoodForAfrika.com’s Kobus Louwrens highlighted it on LinkedIn to me. Except it hides major flaws.
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Removing carbon from the atmosphere and locking it into the soil is an important element of fighting climate change. Plants absorb carbon dioxide from the atmosphere, convert it to sugars and store it in the soil until the soil is disturbed or the plant dies, when the carbon is released back into the atmosphere. Trees absorb lots of carbon through their leaves over the course of a lifetime and has other useful purposes like protecting biodiversity and providing food and shade.
In addition, Rabobank and its partners have invested and developed a comprehensive standard for smallholder carbon offset projects which is sorely needed. So, what is not to like about a project that will see more trees planted and more carbon stored in the soil through regenerative farming practices by smallholder farmers? The intention is laudable, and I fully support the concept of assisting these vulnerable farmers in countries which are at high risk to prepare for a hotter future, but I have fundamental issues with this format.
Pressure to reach net zero
Companies and governments across the world are trying to reduce the impact of the carbon emissions of their activities in various ways. More than 3,000 companies are currently setting science-based targets to reach net zero emissions by 2050. Net zero doesn’t mean that the company won’t have any emissions, only that it would have found a way to store its emissions so that it will not reach the atmosphere.
Countries like the United Kingdom have developed legislation which compels the country to reach net zero. First prize would be for companies to reduce their own emissions to zero, but some industries will find this virtually impossible to do or will take a long time to reach it. Therefore, they are allowed to offset some of their emissions by paying someone else who has the ability to store on their behalf.
To qualify as an offset the carbon must be stored permanently, there must be no leakage and the project must be additional to existing plans. The agroforestry projects proposed by Rabobank clearly meets the definition of additionality as they would not be occurring if it were not for the carbon offsets.
Leakage is always difficult to decide in agriculture and in this case defined by the fact that no grazing or food production activities will be moved elsewhere. Soil carbon by definition is never permanent. The project gets around this fact by clearly stating that their aim is to store the carbon for 20 years and then rename the offsets to “carbon removal units”. In practice this means that corporates that buy these would have to replace them in 20 years’ time, although this is mentioned nowhere in the documentation.
Who bears the risks?
This gets me to my first issue with the project. Smallholder farmer are being compelled to take up loan finance so that they can sequester carbon which allows large corporates to avoid reducing their emissions. In addition, the smallholder farmer is expected to carry both price and production risk until the trees reach a point where carbon can be sold.
A very attractive promise to corporates buying these offsets is that they already exist and is not based on a promise of future carbon. However, this skews the process significantly in favour of large corporates with buying power and access to the carbon market.
For example we could have an instance where the farmer incurs a debt to enter into agroforestry. Three years into the process a severe drought or a fire destroys the biomass created to date. The farmer has little resources to repay the debt or restart the operation, because all performance risk is carried at farm level.
Farmers will also have to take all price risk with little ability to choose instruments or consider alternatives.
Although the assumption is that carbon prices will increase over the long-term, there is no guarantee that farmers will be able to sell carbon at price levels that will repay the loan. The power imbalance in this relationship is stark.
If this project was undertaken without the loan component, it would be assisting vulnerable smallholder farmers to improve their farming practices and become more climate resilient. It would as a side-effect assist the world to remove some carbon from the atmosphere which is critical at this stage. Now however, these farmers are forced into debt with all the risk shifted onto the farmer. A structure which involves the parties like Rabobank and the corporates carrying price risk would address some of the concerns, but we are far from that point.
The issue of double-counting
One of the issues deeply debated under the Paris Agreement was how to stop double-counting of tonnes of carbon sequestrated. The challenge is to decide where the carbon sequestrated in one country and traded with an entity in another country will be recognised.
Under the Paris Agreement all countries have agreed to reduce their carbon emissions by implementing nationally determined contributions (NCDs). Article 6 of the Agreement allows countries to cooperate to reach their climate goals. Countries with low emissions or good capacity to store carbon could trade emissions with other countries through bi-lateral agreements or in future projects, could be registered with a UN supervisory body.
This project standard makes it quite clear that the countries selected to undertake these projects are not chosen accidently, but deliberately targeted those with no formal legislation that will prevent the smallholder farmers from trading their carbon rights.
The Rabobank project is going to lend money to smallholder farmers who will capture carbon in their countries which could be contributing to their own countries’ NCDs and then sell it to global corporates to repay the loans. This ignores the legal risk carried by the project that legislation could change in either the country of origin or purchase at some point in time that would prohibit these sales which would again leave the farmer exposed with debt, but potentially no market. Why does this remind me so much of the resource exploitation that Africa has been subject to for centuries?
Let’s be clear. Smallholder farmers in Africa are extremely vulnerable to the effects of climate change and can contribute to removing excess emissions through agroforestry practices. They should receive assistance to adapt their practices and become more resilient in a world where extreme weather events will affect them disproportionately. They should absolutely not be forced to use loans to do this which allows multinational banks to generate profits through carbon trading and large corporates to avoid reducing their emissions.
Projects such as these which have the appearance of providing innovative financing solutions, but which exploit the balance of power between large banks and corporates and vulnerable farmers will contribute to a loss of confidence in these solutions to the detriment of those who need them most.
Carolien Samson is Head of Sustainable Banking at Oxbury Bank. This article reflects the author’s personal views and does not represent those of her employer in any way whatsoever.