The latest report from the Intergovernmental Panel on Climate Change (IPCC), released in August, provides grim reading. According to the summary for policymakers: “It is unequivocal that human influence has warmed the atmosphere, ocean and land. Widespread and rapid changes in the atmosphere, ocean, cryosphere and biosphere have occurred.”
The implications are, of course, alarming and the recent extreme weather conditions being seen across the globe appear to be evidence of the dangers. But moving to a zero-carbon emission world will not be easy. One area where there are significant opportunities to make a positive difference is in agriculture.
A rising global population means that agriculture yields need to rise. However, as Dr Alexandre Köberle, a research fellow at the Grantham Institute at Imperial College London, told me, climate changes will produce downward pressures on yields. More significant in the immediate term than the rise in the average temperature, he argues, is the increased frequency of the associated extreme tail events. These have the potential to destroy whole harvests.
Agriculture and land use generally is of critical importance in the measures to achieve a zero-carbon-emission world. They are both significant sources of greenhouse gasses, particularly methane through livestock and rice production. In addition, they open up an opportunity for substantial amounts of carbon sequestration through forestry and regenerative agriculture.
So far, forestry has been the focus of much attention with planting trees being seen as an offset to carbon emission producing activities by companies. The Grantham Institute has been researching how effective this measure is and whether, as Köberle implies, the potential has been overblown. It has, he says, become a panacea: “You just plant a bunch of trees and you solve the problem.”
The problem is that even if all the world’s forests could be regenerated, it would still take decades for forests to grow to their full sequestration potential.
There is also a difference between planting, say, eucalyptus and planting native tree species that will enhance biodiversity with different outcomes. A focus just on carbon might imply eucalyptus as a better solution because it is fast-growing but it would kill off any desired biodiversity outcomes. The economic costs a tree-planting strategy would also be much higher than estimates based on current land prices. As the forest coverage increases, land values will increase. The opportunity costs start becoming a challenge when the alternative uses are for more productive and essential agriculture.
Köberle also raises challenges related to monitoring, reporting and verification (MRV) of carbon credits. These usually have been third-party verified but, he says, the methodologies tend to be not as robust as necessary to ensure they capture the amount of carbon claimed. He argues that the sampling approaches, in terms of how many samples are taken from specific plots, their frequencies and the uncertainties around results mean that the final results tend not to be robust enough to be of use. They cannot give confidence that investment into these credits actually delivers on the proposed outcome, which is ultimately is to reduce concentrations of greenhouse gases in the atmosphere.
“Regenerative agriculture meets all the requirements in terms of being a long-maturity, low-volatility asset class offering steady and attractive yields”
The other opportunity for carbon reductions is in food production. Food is responsible for about 26% of global greenhouse gas emissions, according to Our World in Data. Much of that is the result of the widespread application of nitrogenous fertilisers. Moreover, the use of pesticides in agriculture is a large contributor to the current loss of biodiversity. Most of the methane that is going into the atmosphere today comes from livestock and methane has short-term implications for global warming.
“So, by reducing methane emissions, we start moving the emissions curve downwards in the direction that we want to go,” says Köberle. He also points out that, besides carbon, the issue of maintaining biodiversity is the next big wave that’s going to start crashing on our shores as the Task Force on Nature-related Financial Disclosures (TNFD) starts to take shape.
The challenges of reducing carbon emissions and protecting biodiversity are interrelated. Taking a more holistic approach to start solving both has important positive outcomes for broader social objectives beyond the climate encompassing challenges such as sustainable development and poverty reduction.
Regenerative agriculture seeks to restore soil quality, particularly through increasing organic matter and hence carbon sequestration, alongside sustainable practices relating to biodiversity, ecosystems health and water quality. It is becoming increasingly of interest, with firms such as Westchester, a specialist asset manager, making it a focus of their farmland investments.
Several private-equity firms focused on regenerative agriculture have sprung up in recent years. Indigo Ag offer farmers the ability to create verifiable carbon credits that can be sold on to corporate buyers. The current industrialised global food production approaches can be radically improved towards a more regenerative approach that would also substantially increase carbon sequestration. However, while it is possible to demonstrate financial benefits by including carbon credits in a transition from conventional to regenerative agriculture, there is an initial cost involved which needs to be financed by investment.
To make an impact through regenerative agriculture does require influencing millions of farmers and producers across the globe. To tackle this requires going down the supply chain to the likes of grain traders and the supermarkets. Once they start working up their supply chains and demanding some kind of verification of practices, farmers will be incentivised to move towards more sustainable practices. What perhaps is a pre-requisite, is for consumers to be able to identify the source of food that is supplied in detail. So if beef is produced in the Amazon, for example, consumers can decide not to purchase it.
A potential risk that Köberle points out with this approach is adverse side-effects that need to be avoided. For example, food prices could go up because farmers may see more value in planting high-carbon-stock bioenergy products or even just trees. This perhaps is something that can be adjusted via policies such as subsidising food production.
Regenerative agriculture should be an attractive investment opportunity for long-term pension funds. It meets all the requirements in terms of being a long-maturity, low-volatility asset class offering steady and attractive yields. The main message that Köberle emphasises is that due diligence is critical in ensuring that whatever is being funded delivers the expected outcomes. But if the IPCC report is to have an impact, it is time to rethink how the world is undertaking the fundamental process of growing enough food in a way that can reduce rather than increase carbon emissions.
Joseph Mariathasan is a contributing editor to IPE and a director of GIST Advisory
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