Comparison of major carbon offset standards for soil carbon projects in Australian grazing lands

Abstract

Despite the potential role of soil carbon offset schemes to reduce greenhouse gas emissions, there are concerns that the rules for assessment, monitoring, and operation are barriers to engagement. This may explain why there is low participation of Australian landholders in soil carbon projects. This study reviews the literature on three leading voluntary carbon standards and methods to assess their suitability for developing soil carbon projects in grazing systems in Australia. The soil carbon method of each standard was analysed based on several criteria: scope, eligibility/applicability, newness and additionality, permanency, baselines and quantification methodology, environmental sustainability, safeguard mechanism, and crediting period. A hypothetical grazing case study in Central Queensland, Australia’s premier beef cattle region, was used to model the cost-effectiveness and potential returns from establishing soil carbon projects under the three standards. Results show that credits created under the Emissions Reduction Fund in Australia generate higher returns for soil carbon projects compared to the Verified Carbon Standard and Gold Standard. This is largely due to a higher market price for soil carbon credits in the Emissions Reduction Fund, reflecting more robust standards of assessment and verification. While assessment costs for credits were higher in the international schemes, returns were lower because prices reflected less rigorous standards.

Keywords:

• Soil carbon
• grazing land
• cost-effectiveness
• Emission Reduction Fund
• Verified Carbon Standard
• Gold Standard

Introduction

Soil can be a major sink for greenhouse gas (GHG) emissions [1,2]. At an estimated 2500 Gt, the carbon pool in soils is about four times the size of the vegetation pool (estimated 650 Gt) and is the largest terrestrial pool of carbon [3]. Globally, most agricultural soils have lost 30 to 75% of their antecedent soil organic carbon pool or 30–40 t C per hectare due to intensive agricultural practices [4,5]. Carbon has been lost from these agricultural soils through oxidation and mineralization of soil organic carbon compounds, leaching and translocating dissolved organic carbon compounds, soil erosion, and conversion of land from natural ecosystems [2–6]. For example, land use change from native vegetation to pasture in the brigalow land type in Queensland decreased soil organic carbon stocks by 12.2% within 2 years [7].

Demand for carbon offsets underpins substantial interest in changing agricultural practices to sequester carbon. Improved land management practices including allowing land to fallow after intensive agricultural use, conversion of agricultural land into native ecosystems, or introducing legume/deep rooted perennial species are considered effective at increasing soil carbon stocks [8–10]. For example, converting cropland to perennial grass cover in Texas, Kansas, and Nebraska led to increased soil carbon sequestration rates by 1.1 t C/ha/year [11]. These practices also have the potential to improve soil health, and other ecosystem benefits [5,12]. Improved grazing management has the potential to increase soil carbon and generate additional benefits by improving soil structure and biodiversity, reducing soil erosion, and increasing soil resilience [13–15]. Grazing lands globally occupy around 3.7 billion ha of land [2] and account for one-fourth of the global carbon sequestration potential [16]. Several studies have shown that improved grazing management practices can promote soil carbon storage, mitigate agricultural GHG emissions [13,17], improve soil fertility [2], and enhance the resilience of agricultural systems in adverse climatic conditions [15,18].

There are number of challenges in assessing improvements in soil carbon across diverse landscapes, particularly when temporal variations in climate, weather, and management have to be considered [10]. A credible offset, such as a unit improvement in soil carbon, should be equal to a unit emission from a direct emission source. For this reason, policy makers, environmental groups, and practitioners have developed a set of methodologies that can prove the credits are real, additional, permanent, verifiable, and can address other environmental integrity risks.

As industries begin to work toward emission reduction targets, they rely on voluntary carbon markets to offset some of their emissions, which has led to a rapid increase in demand for carbon credits. To facilitate the creation and supply of these credits, protocols have been established to define a carbon credit and the rules under which it can be established and maintained. Several soil carbon offset standards (also known as crediting schemes) have been established globally in the agricultural sector to encourage landowners to engage in activities that increase carbon sequestration in grazing and cropping land. The standards can be grouped into national crediting schemes (e.g. the Emission Reduction Fund (ERF) in Australia) and international crediting schemes [e.g. the Verified Carbon Standard (VCS), Gold Standard (GS), American Carbon Registry (ACR), and Clean Development Mechanism (CDM)]. These standards can be grouped into voluntary carbon standards (e.g. GS) and compliance carbon standards (e.g. CDM).

The ERF, VERRA, and GS are the major voluntary carbon standards that include soil carbon methodologies to reward landholders and farmers for increasing soil C level in agricultural land. Each of them has their own processes, requirements, eligibility criteria, technical aspects, verification and validation processes, and crediting mechanisms.

Three schemes are compared in the current study as of relevance to the Australian grazing industry; (i) the Emission Reduction Fund (ERF), as an Australian government established scheme; and (ii) the Verified Carbon Standard and the Gold Standard methods, as these are the two largest international voluntary standards that could potentially be applied in Australia [19].

Emission Reduction Fund

The Emission Reduction Fund (ERF) is an Australian voluntary carbon offset scheme that aims to provide incentives to individual farmers or organizations to adapt new practices and technologies to reduce their emissions or store carbon. The ERF was introduced in 2014 by the Clean Energy Regulator (CER) in consultation with industry, potential end users, scientists and technical experts, and the Emission Reduction Assurance Committee. The ERF allows a wide range of sequestration options including soil carbon improvements in agriculture. The CER administers all carbon projects under the ERF. The key steps and project cycle under the ERF carbon offset process are presented in Appendix A.

Verified Carbon Standard

The verified carbon standard (VCS) is an international private voluntary carbon offset certification scheme. It was created by the Climate Group, the International Emissions Trading Association, and the World Economic Forum, who were later joined as founding partners by the World Business Council for Sustainable Development. The goal was to provide transparency and credibility, standardize procedures, and enhance business, consumer, and government confidence in the voluntary offset market [20]. Although its official guidelines were only released in late 2007, the VCS has become the most popular standard in the voluntary market at the international level. It covers a wide range of activities, such as improved agricultural land management, afforestation/reforestation, revegetation, reduced emissions from deforestation and degradation, and avoided land use conversion. The steps and stages in the VCS project cycle are presented in Appendix B.

Gold Standard

Gold Standard (GS) is an international comprehensive voluntary carbon standard, which was developed in 2003 by a group of NGOs led by the Worldwide Fund for Nature. They established a system to identify and encourage activities that generate credible greenhouse gas reductions that maximize wider sustainable development outcomes [21]. Any projects under the GS have to demonstrate at least three sustainable development goals to get approval, including SDG13 on climate action. The standard is applicable to both the (Kyoto) compliance market (GS-CERs) and the voluntary market (GS VER).

Gold Standard projects can be developed in different sectors, such as land use, forestry, and agriculture [21]. All projects should apply Gold Standard principles and requirements, activity requirements related to the project type, and other associated documents to ensure they achieve significant positive economic, environmental, and social contributions to local communities. The Gold Standard will accept some methods provided by other standards, such as Kyoto Protocol’s Clean Development Mechanism (CDM), including for afforestation/reforestation, manure management, livestock management, and fertilizer management projects. A brief project cycle of the GS is presented in Appendix C.

Takeup in Australia

Within Australia, soil carbon projects in agriculture are eligible activities under the ERF for storing more carbon or reducing greenhouse gas emissions [22]. While there are anecdotal reports of high landholder interest in potential revenue from soil carbon projects, involvement in registered projects under the ERF scheme is very low, with only 450 registered projects by June 2023 [23]. Potential reasons for this are high transaction costs, the challenges and costs of assessment, or uncertainties about payment streams are deterring agricultural producers from participation [24,25].

The ERF has high standards set for assessing and validating carbon offsets which in turn involve high assessment and monitoring costs. It is possible that those high costs mean that landholders judge that the net returns are not sufficient to justify the effort and risks involved. An important policy question is whether the returns from creating carbon offsets would be higher under different assessment schemes, and hence increase landholder participation.

The VERRA Standards with the Improved Agricultural Land Management (IALM) method allows both soil and vegetation carbon pools to be assessed in the crediting system, hence it may generate more carbon credits from the projects compared to the ERF and GS methods. However, the IALM is a very recent method (version 1 released in 2022 and version 2 in 2023), so there is limited knowledge about its indicators, compliance, applications, and cost-effectiveness.

The Gold Standard’s soil organic carbon (SOC) Framework is another method that was developed in 2020 that quantifies changes in SOC stocks from the adoption of improved agricultural practices. This methodology is applicable to a broad range of activities, from small scale to industrialized large scale land management systems. However, it only includes soil organic carbon, similar to the ERF. It is unclear whether it is suitable and profitable for Australian farming systems compared to the ERF and VERRA methods.

This study focuses on evaluating three different soil carbon offset standards for appropriateness and cost-effectiveness from the viewpoint of agricultural producers in Australia. Parameters for evaluation include scope and applicability/eligibility, permanence, newness and additionality, baselines, environmental integrity, monitoring, validation and verification process, and the issuance of credits. A hypothetical farm example based on grazing systems in the Central Queensland subtropical region is used to illustrate the cost-effectiveness and potential returns from a soil carbon project under each method. The findings of this study provide insights into the relative advantages of the different systems from the viewpoint of agricultural producers in Australia.

Assessment of carbon offset standards and their methodologies

All three standards and their methods have their own criteria to define project categories and eligibility. The assessment criteria are essential to ensure that an offset genuinely represents emissions reduction or removal and is not over estimated or double counted so as to generate confidence in the market and the broader community [26,27]. The aim of each program is to ensure that carbon credits are real and additional, capable of addressing environmental integrity risks [26,28], should not cause social and environmental harm [27], and should contribute to social and environmental co-benefits [29].

An initial step in this review was to identify the most important criteria for evaluating the mechanisms. After reviewing published soil carbon methods and standards, the key criteria selected for the comparison were additionality, permanency, baselines and quantification methodology, environmental sustainability, safeguard mechanism, and crediting period [20–22,27,28,30–32]. The commonalities and differences between methods, standards, rules, and associated documents were then evaluated based on the selected criteria.

A summary of the assessment of each method against the selected criteria is given in Table 1, focusing on potential application to soil carbon projects in grazing lands. It is important to note that not all criteria may be relevant for some types of project activities.

Table 1. Comparison between three major methods under voluntary carbon standards.

S.N.	Standards
	Criteria	Emission Reduction Fund (ERF)	Verified Carbon Standard (VCS)	The Gold Standard (GS)
		Sequestration carbon in agriculture-soil carbon method	Improved agriculture land management method	Soil organic carbon framework method
1	Geographical eligibility/coverage	Australia	Worldwide	Worldwide but soil organic carbon activity module can limit geographic applicability
2	Purpose	Govt/Voluntary	Private/Voluntary	Private/Voluntary
3	Eligibility land use	Cropland, grassland, bare fallow	Cropland, grassland, rangeland	Cropland, grassland
4	Approval process	Proponents develop project consulting with experts, and Clean Energy Regulator approves the project	Project documents are assessed by independent validation/verification body approved by VERRA and final review and approval by Verra	Project design document has to be submitted via CertainCERT, VBD/GS will assess the entire process and GS issues the credit (VERS)
5	Carbon pools	Soil organic carbon	Soil organic carbon, above and below ground woody biomass carbon (optional)	Soil organic carbon
6	Additionality	Requires new or changed land management practices to increase soil carbon	Required to meet three options: (i) pass legal requirements, (ii) Identify barriers for implementation, (iii) provide common practice threshold of 20% where average adoption rate of three (or more) predominant purposed activities within the project boundary must be below 20%.	Required to meet one of the three options to demonstrate additionality: (i) should use CDM approaches that look for project level additionality or barrier test, (ii) should be non-developed country to be qualify, (iii) provides common practice test where project requires <5% of similar practice adoption
7	Permanency and buffer pool	Project required to maintain minimum of 25 to maximum of 100 years. 25% discount is applied for projects with 25-year permanence obligation	Projects required to maintain carbon for minimum of 20 years and maximum of 100 years; buffer pool contribution is not specific, can be determined using VCS non-permanence tool	Project required to maintain 5–20 years; buffer pool established. Projects require to deposit 20% of issued credit into GS buffer pool
8	Baselines requirements	Requires historical management practices in last 5 years before the project start date.	Required pre-existing agricultural management practices minimum of 3 years before the project start date to produce an annual schedule of activities.	Require historical management practices in last 5 years before the project start date
9	Soil organic carbon quantification approaches	(i) Measurement, (ii) hybrid (measure and model), (iii) default method 2015	(i) Measure and model, (ii) measure and re-measure, (iii) use default equations given on IPCC guidelines	(i) Direct measure and re-measure, (ii) model only, (iii) use default factors given on IPCC guidelines
10	Uncertainty analysis	Required. Uncertainty deduction applied based on variance on collected soil samples	Required. Uncertainty deduction applied based on variance on collected soil samples and soil organic carbon results. Uncertainty above 15% require deduction	Required, uncertainty deduction is applied based on variation on soil organic carbon results. Uncertainty above 20% require deduction
11	Safeguard mechanism	Not clear safeguard mechanism provided or required	No safeguard mechanism required but no land use change allowed	Included safeguard mechanism where landholders protection and community engagement are addressed
		Land use change allowed only from cropping to pasture
12	Monitoring and reporting frequencies	Not essential to report frequently	Monitoring report required but not specified frequency	Monitoring report required (including GHG and sustainability aspects)
13	Sustainable development/SDGs	No specific sustainability objective, reports on environmental impact assessment optional	No specific sustainability objective, reports on environmental impact assessment	Sustainability is a core requirement, must meet at least 3 Sustainable Development Goals
14	Validation and verification	Independent auditor must verify the document prepared by proponent/service provider before claiming the credit via clean energy regulator	Independent assessment to perform validation and verification by third party approved by VCS	Validation by accredited third party entities/SustainCERT
15	Lebel used for offset credits	Australian Carbon Credit Unit (ACCUs)	Verified Carbon Unit (VCU)	Verified Emission Reduction (VER)
16	Land use change practices	Allowed	Not allowed	Not allowed
17	Co-benefits	Mechanism to measure under land restoration Fund	Not applicable	Not applicable

S.N.: serial number.

Results

Methods comparison based on selection criteria

Geographical eligibility/coverage

Carbon crediting standards vary considerably in terms of their geographical eligibility. For example, the VCS and GS methods can be applied all over the world whereas the ERF soil carbon method can only be applied in Australia (Table 1).

Additionality

The key concept in offsetting practices and standards is “additionality” [28,33]. GHG reductions or removal are additional if they would not have occurred in the absence of a market for offset credits. The first step for assessing additionality is common to all three standards, which involves ensuring that a surplus to regulatory standards exists, where if a project is required by law, then it cannot be additional. Although all offset protocols have some form of requirements for additionality, the methodologies used to assess this criterion are different (Table 1).

In the ERF soil carbon method, the proposed soil carbon project must introduce one or more new eligible management practices listed in the ERF soil carbon methods which should be materially different from prior conditions in the project [22].

In the VCS method, the proposed project must pass common practice and barrier tests for the demonstration of additionality [20]:

1. The project must satisfy a common practice test (i.e. the project must not be common practice in the project region). For this, the project must show that the weighted average adoption rate of purposed activities is below 20% within the project region.

2. The project should identify implementation barriers, such as cultural and social practices, attitudes, and beliefs that would prevent the implementation of a change in pre-existing agricultural management practices.

For the Gold Standard method, the soil carbon protocol applies one of three options to demonstrate project additionality [21]:

1. A project can be additional if it applies an updated version of the CDM methodological tool for the assessment of additionality or barriers test.

2. A project will be automatically additional if it is established in a poor country or region with UNDP human development indicator below or equal to 0.7.

3. A project should follow a common practice test where <5% of farmers adopt project activity in the project region for the additionality.

Overall, while both the VCS and GS protocols use a common practice approach to demonstrate project additionality, the VCS method has a higher threshold (20% adoption) compared to the GS method (5% adoption). In comparison, the ERF soil carbon method does not allow the concept of common practice to be applied. Instead, it requires newness or material change over existing practices for each individual project on a farm or property. There are no risks of crediting existing practices under the ERF methodology whereas there are risks of crediting existing practices under the VCS and GS approaches.

Permanence and buffer pool

Permanence refers to the length of time that sequestered carbon will remain in soil or vegetation. Each protocol has distinct systems to manage permanence and reversal issues. Here, all three protocols follow their own registry rules for risk analysis and mitigation, and reserve several credits in a registry managed buffer pool which can be used to manage for risk of reversal (carbon loss).

The ERF soil carbon method requires that projects need to maintain soil carbon levels for a minimum 25 to a maximum 100-year period [22]. For projects with a 25-year permanency period, a 20% reduction in carbon credits is required as a buffer. In addition to this, the ERF requires an additional 5% buffer in credits for the risk of reversal (possible loss of sequestered soil carbon due to unpredictable environmental changes or wildfires).

In the VCS method, projects must maintain carbon for a minimum of 20 to a maximum of 100 years. As the VCS method does not have a pre-defined value for buffer pool deposits, the project developers need to develop a risk rating for their project by applying the Forestry and Other Land Use (AFOLU) non-permanence risk tool and then deposit a quantity of credits to the buffer pool based on the risk rating of their project [20]. In VCS projects, risk factors are classified into three categories: internal risks, external risks, and natural risks. The internal risk factor includes project management issues, financial viability (length of time to break-even point and project funding amount), opportunity cost, and project longevity. The external risk factors include the security of land tenure, level of community engagement, and political risk. Natural risk factors include the frequency of fire, pest, disease, extreme weather, and geological events.

The permanency period of a Gold Standard project is 5–20 years. This method requires a fixed 20% contribution for a pooled compliance buffer whether reversal risks exist [21]. Essentially this buffer represents a proportion of the sequestered carbon that the landholder is not paid for in case it is needed in years when there are reversals in stocks.

Although the VCS standards risk rating systems appear more rigorous and conservative compared to the ERF and GS systems, it is unclear whether there is any empirical relationship between the individual risk factor and the probability of failure assigned to each [34].

Soil organic carbon quantification approach

The available soil organic carbon quantification approaches are measurement based, measure and model based, model only and default IPCC equations. Remote sensing-based options are also being used for quantifying soil organic carbon changes. The measurement-based method is considered the most reliable method as it accounts for site specific effects, such as soil type, structure, and local climatic condition. Measurement-based methods are most appropriate to meet the ERF guidelines, whereas modeling or measurement-modeling approaches are more accepted under the VCS and GS guidelines. These variations in acceptance have implications for the costs of assessment.

Baseline

A baseline refers to the emissions that would occur under a business-as-usual scenario. The baseline scenario must be accurately determined so that a precise comparison can be made between the GHG emissions that would have occurred under the baseline scenario and the project scenario. All three methods have specified that three to five years of historical data about management practices is required as well as some quantification of baseline carbon levels.

The major differences between methods are that the VCS and ERF methods require direct sampling on farm for baseline soil organic carbon quantification for both model and measurement approaches. However, the GS method does not require direct sampling as it allows the use of datasets or existing models from peer-reviewed publications to model baseline soil organic carbon stocks. If a GS project selects the direct sampling method for quantification it can apply a sampling module given in VCS or ERF.

For the ERF and GS soil carbon methods, projects must detail historical management practices over the previous five years to establish a baseline method. In VCS IALM, it is necessary to assess pre-existing agricultural management practices over a minimum of three years to produce an annual schedule of activities (at least 1 full rotational cycle). The VCS method also allows the project developer to develop new methodologies for the baseline assessment, but it must be approved by the VCS body before implementation. The VCS and GS methods allow other data sources, such as scientific literature and reports to help in setting baselines whereas this is not approved under the ERF method.

Safeguard mechanism

Safeguards mechanisms help projects to identify potential environmental and social risks associated with it at different stages and to address them [27,35]. This means credible safeguards in land use projects are important to demonstrate no net degradation in existing landscape functions and services. The GS method has robust environmental, economic, and social safeguard requirements for landowner’s protection, data privacy, community engagement, ecology, and land use change, whereas the VCS and ERF methods do not have any clear requirements to meet a safeguard mechanism. The lack of clarity on safeguard mechanisms in those two methods may have negative impacts on participation.

Crediting period

The crediting period is amount of time over which a project can generate and claim for credits. In the ERF method, the crediting period for soil carbon projects is minimum of 25 years to maximum of 100 years [22]. The crediting period for VCS projects is the same as the life of the project, with a minimum of 20 years and a maximum of 100 years [20]. The crediting period for GS projects is 5–20 years [21].

Sustainable development

The GS framework methodology must show clear sustainable development benefits of purposed projects [21]. This means that any GS project should demonstrate its contribution to at least three sustainable development goals (social, environmental, and economic sustainability) during project development. The VCS and ERF, on the other hand, have only minimal requirements and do not include sustainable development goals. The inclusion of minimal environmental and social requirements in the VCS method is a direct result of criticisms of offset projects. The VCS accepts any project type including bio-sequestration thus enabling its rapid uptake. However, co-benefits, such as poverty reduction and environmental improvement, are still a point of discussion for offset projects.

Eligible land use and practices

There are differences between the schemes in terms of allowable land use and practices for improving soil carbon, as summarized in Table 2. While the ERF method allows for land use change specifically from cropping to pasture, the other two methods do not allow land use change.

Table 2. Eligible land management practices for soil carbon sequestration in grazing land.

Methods and standards	Land management practices	Allowable practices
ERF, soil carbon	Improved grazing practices	Converting from continuous cropping to pasture
		Multi-species pasture cropping
		Changing pasture irrigation, applying organic or synthetic fertilizers to pastures
		Changing stocking rates or intensity of grazing
VCS, improved agricultural land management (IALM)	Improved grazing practices	Rotational grazing
		Adaptive multi-paddock grazing
		Multi-species grazing
		Grazing of agricultural residues post-harvest and cover crops
GS, agriculture	Grazing land management	Deep rooting grasses
		Appropriate stocking densities
		Animal waste management

Strength and weakness of methods

The ERF soil carbon method (method 2021) is the improved version of the 2014 and 2018 soil carbon methods, with wider flexibility around land use and eligible activities and robust quantification approaches (both measurement and modeling approaches), and distinct additionality rules. However, the VCS and GS methods do not allow land use change during the project period and also require updates of baseline information if there is any improvement in technology and energy transition [19]. The ERF soil carbon method requires the addition of at least one new management activity to be eligible, with existing practices not eligible for assessment. ERF soil carbon credits are thus more rigorous compared to GS and VCS in meeting the criteria of additionality and permanence of carbon sequestration [36].

Another strength of the ERF soil carbon method is that it uses a clear protocol for the quantification of soil organic carbon that includes a minimum number of strata (at least three) and a minimum number of samples per strata (at least three) [22]. This requires using the same strata in each successive sampling round, which may help to reduce variability over time. However, the detailed processes create method complexity, high upfront costs, and ongoing monitoring costs that create barriers to landholder participation in soil carbon projects [24,25].

Unlike the other two methods, a VCS project is eligible for credits for CH₄ and N₂O emission reduction with the implementation of new activities, and it can also account for any additional above ground biomass carbon pool [20].

The GS framework methodology can be applied in grazing lands. However, a standardized soil organic carbon activity module for this method is not available for the measurement of soil carbon in grazing systems. A project developer/landowner needs to develop a soil organic carbon activity module as part of a project which then has to be approved by a GS methodology review body before implementation. The approval cost for a soil organic carbon activity module is US$20,000 per project in grazing lands and the process takes a maximum of 6 months. The cost and time involved will be a barrier to participation.

A potential advantage of the GS soil carbon method is that a project does not allow a decrease in agricultural productivity, hence yields should be maintained or increased. Another advantage of this method is that the project developer can add new areas to the existing project at any time during the crediting period, however, the crediting period of newly added areas does not extend beyond the crediting period of an existing project. In the ERF method, a new area is allowed to be added but within 18 months after the date that the project is registered. Land use projects under the GS soil carbon method are eligible to submit retroactive activities up to a maximum of three years from the date of project registration.

A framework to compare costs and returns

Most assessments of the attractiveness of soil carbon programs focus on the structural and eligibility rules [19,28] as summarized in Table 2. However, this may not be an accurate guide to the drivers of participation as soil carbon offsets are an economic commodity [33,37]. Landholders choosing between different soil carbon offset standards could be expected to pay the most attention to the potential for revenue and the costs incurred [25,38]. The former is dependent on the amount of soil carbon that the protocol will allow, while the second will depend on the extent of project costs, private costs, transaction costs, and opportunity costs. A flowchart to consolidate and compare these criteria is depicted in Figure 1.

Figure 1. Data inputs and information flow to calculate the cost and return of soil carbon sequestration projects under different standards and protocols.

A demonstration example

A demonstration example is used for a grazing property in eastern Australia to identify the potential costs and returns from a soil carbon project. The case study area is central Queensland, Australia’s major beef cattle region. The costs of a soil carbon offset project refer to all expenditures that landholders may incur during the project period. Consistent with Sinnett et al. [38], only potential sales of carbon credits were considered as a return, with other co-benefits excluded to simplify the comparison. To determine carbon income ($ha⁻¹yr⁻¹), we assumed that the average value of carbon credit was AU$18 per tCO₂e⁻ for ERF credits, and AU$6 per tCO₂e⁻ for VCS and GS credits, based on international carbon credit values in the year 2021 [39]. A literature review was used to identify likely rates of carbon sequestration [17,40,41].

In this study, we estimated for a typical soil carbon project in grazing lands, the total costs for project establishment (AU$ha⁻¹yr⁻¹), total cost-effectiveness (cost AU$/carbon credit) of project, and return as carbon income (AU$ha⁻¹yr⁻¹). Sequestration would be generated by adopting improved grazing land management practices, with four options considered: (a) introducing legume species, (b) introducing perennials multi-species pasture (legume plus pasture), (c) rotational grazing/cell grazing-conventional fencing, and (d) establishing rotational grazing/cell grazing-electric fencing.

The demonstration example involved a hypothetical 200 ha grazing property in Central Queensland where the four possible treatments to develop soil carbon projects were modeled under three different standards (VCS, GS, and ERF). Data about expected costs for project feasibility assessment, registration, verification and validation, data processing, and analysis was sourced from interviews with key carbon farming agents and experts in the carbon farming areas. The actions and costs required for the four on-farm management treatments were updated through discussions with a small number of landholders who had already implemented soil carbon projects into their farms. Specific data on costs of soil carbon projects were sourced from two grazing properties in the Central Queensland region that had established soil carbon projects: (a) Bindaree which is 1400 ha located at Garnant, and (b) Bongers Farm, which is 564 ha located at Jambin.

Typically soil carbon projects under the ERF involve a broker negotiating the arrangements on behalf of a landholder. The broker will pay for some of the costs in return for a share of the revenue. An example of the costs involved and the allocation between agents and landholders is provided in Appendix D. The project costs typically paid by a broker include project feasibility assessment and registration cost, reporting, and verification costs. Costs paid by landholders included project baseline measurement and implementation cost, project opportunity cost, and maintenance cost. For this case study the opportunity cost was considered to be zero because the best choice/alternative to the existing traditional grazing land management practices are improved grazing management practices. The improved practices under the soil carbon project in each protocol include legume species, multi-species pasture crops, perennials grasses, and construction of different types of fencing.

The cost-effectiveness (cost $/carbon credit) in this study was determined by estimating all potential costs involved from establishing soil carbon projects in grazing systems to the issuance of credits under each protocol which was then divided by a net carbon sequestration potential (tonne ha⁻¹yr⁻¹) of improved practice change (Figure 1). The net carbon sequestration potential in improved grazing practices was identified from the literature [17,40,41]. The review identified that improved grazing management practices (such as rotational cell grazing, sowing legumes, and improved multi-pasture species) can increase soil carbon levels at rates ranging from 0.105 to more than 1 tCha⁻¹yr⁻¹ [17], and 0.10–1.4 tCha⁻¹yr⁻¹ [40]. Rates of increase were 0.28 tCha⁻¹yr⁻¹ for improved grazing (rotational cell grazing), 0.66 tC ha⁻¹yr⁻¹ for establishing legume species [17], and 0.76 tC ha⁻¹yr⁻¹ for multi-species pasture (legume plus pasture species) [41]. These values were considered as potential carbon sequestration rates to calculate the cost-effectiveness of each protocol (see details in Appendix E).

Case study results and discussion

Cost and return

The analysis models the joint costs and returns to landholders and brokers, noting that there are variations in cost and revenue sharing agreements between those parties in practice. All expenditures involved during the project period are considered, which include all costs incurred in the project related activities from establishment until landholders/proponents receive carbon credit payments. The result shows some limited variations in cost-effectiveness (cost per credit, $/CO₂e⁻) between the carbon offset methods, with the lowest value for the ERF method and the highest value for the GS method (Figure 2).

Figure 2. Cost effectiveness analysis (L + B = landholder + broker) ($/CO₂-e) (measurement method.

The analysis shows that the total costs for a soil carbon project under ERF and GS methods were lower compared to the VCS method (Figure 3). Project income from carbon credits was highest under ERF compared to the two other methods (Figure 4). For example, project establishment and management costs for multi perennial pasture species were AU $45, AU $54, and AU $49/ha/year for ERF, VCS, and GS methods, respectively (Figure 3). For returns at the market price of AU $18 per credit for ERF and AU $6 per credit for VCS and GS in year 2021 [39], the total income would be AU$38 ha⁻¹yr⁻¹, AU$18 ha⁻¹yr⁻¹, and AU$13 ha⁻¹yr⁻¹, respectively (Figure 4). The net income of soil carbon project would be AU $7 ha⁻¹yr⁻¹ under the ERF, AU $37 ha⁻¹yr⁻¹ for VCS, and AU $36 ha⁻¹yr⁻¹ for GS.

Figure 3. Estimated total cost (L + B = landholder + broker) ($/ha/year) to develop soil carbon projects under different methods and standards.

Figure 4. Estimated carbon income (L + B = landholder + broker) ($/ha/year) from different soil carbon projects under different methods and standards.

The results indicate that ERF generates higher returns for soil carbon projects compared to the VCS and GS soil carbon methods. This is largely due to the higher market price of ERF soil carbon credits, reflecting more robust standards of assessment and verification. The carbon price is mostly governed by the quality of carbon credit, which indicates the way credits are derived under different protocols, specifically the way they address issues, such as permanence and additionality of carbon sequestered [36], and accuracy of soil organic carbon estimation [22]. The ERF soil carbon method has a clear additionality rule, which requires newness or material change over existing practices for each individual project on a farm or property. This shows that there are lower risks of crediting existing practices under the ERF methodology as compared to the VCS and GS approaches that allow a common practice test [20,21].

There are still significant costs involved in an individual soil carbon project. These include the cost of baseline sampling, project implementation, soil carbon analysis, monitoring, reporting, auditing, and validation. If individual projects are combined in a group, these costs could potentially be reduced on per hectare basis [25]. Ultimately the financial return is likely to be the key factor that landholders will consider, although the size of measurement, implementation, opportunity, and transaction costs may be specific barriers to different landholders. For example, there may be several years between the initial outlays on measurement and implementation costs and the first credit and payment that will be a barrier to some, while the transaction and opportunity costs of entering into long-term contracts (e.g. for 25 years or more) may be barriers to others. These are topics to consider in future research.

An additional caveat to this analysis is that environmental co-benefits from soil carbon project have not been considered. There is evidence that soil carbon sequestration projects in agriculture can generate additional benefits (co-benefits) [13,14], such as improving biodiversity and habitat conservation, soil fertility, and water quality [42–44]. To the extent that benefits are private benefits to landholders, their existence may increase the interest in and establishment of new projects [45]. At present only the ERF method has a mechanism to measure some co-benefits using the land restoration co-benefits standard, but frameworks to measure, report, and verify most co-benefits are still unclear [46].

Although an additional allowance for tree biomass carbon has been added to the soil carbon estimates under the VCS method [20], project income from carbon credits was still lower than ERF and GS methods. We caution that the cost estimates are only indicative in the examples, as cost differs with project objective, management regime, geographic scale of intervention, markets and their requirements, and payment design [47]. We also acknowledge some limitations in analysis around the small case study sites (size of hypothetical properties of ∼200 ha) and assumptions about the costs of assessment under the three standards.

Conclusion

This study involved the review of three carbon standards and associated methods to identify their suitability for soil carbon projects in grazing lands in Australia. The review was conducted based on key assessment criteria, such as additionality, permanency, baseline measurement, safeguard mechanism and sustainability, and cost and return estimation. The results showed that requirements and processes vary across the three standards to different extents. That means that each method has some level of disadvantage which may reduce their capacity to generate credible soil carbon offset credits.

Results show that credits created under the Emissions Reduction Fund in Australia generate higher returns for soil carbon projects compared to the Verified Carbon Standard and Gold Standard soil carbon methods. This is largely due to the higher market price of soil carbon credits in the Emissions Reduction Fund, reflecting more robust standards of assessment and verification. While assessment costs for credits were higher in the international schemes, returns were lower because prices reflected less rigorous standards for assessment.

An important finding from this study is that the returns from soil carbon projects on grazing lands are not necessarily positive under the different scenarios. To some extent, this reflects the high costs of thorough monitoring, management, and verification every five years with measure-remeasure approaches. Projects that require lower levels of monitoring and management or where re-assessment can be done more cheaply will be more viable for landholders.

The results indicate that moving to international systems for establishing soil carbon offsets is not likely to generate higher returns to growers on current market prices. Instead, increasing financial returns from carbon offsets to make them more attractive to landholders will require a combination of higher market prices and/or lower assessment and monitoring costs within the existing trading system.

Several recommendations for further analysis can be made, particularly to establish more case studies with different project sizes representing wider geographical scales. Further work could be done to quantify the environmental co-benefits of different land management practices and to replicate case studies in varying climatic conditions. Case study examples will help farmers and landholders to evaluate options and select appropriate methods that suit to their farming context and financial situation.

Acknowledgments

The contribution of Louisa Kiely (Carbon Farmers of Australia) has been important in developing the study.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Data availability statement

The collated and generated data for comparison of standards is available subject to commercial terms on a subscription basis. Should researchers want access to the data for reasonable non-commercial purposes, the authors will consider the request, and if reasonable, make it available.

Additional information

Funding

Funding support from Carbon Farmers of Australia and the Department of Industry, Science, Energy and Resources (Grant ICG001537) is gratefully acknowledged.

Appendix A.

ERF project offset/credit cycle

(a) How to participate in ERF soil carbon project

(b) Steps and requirements for ERF soil C project cycles

Appendix B.

Project offset/credit cycle in VCM and CDM

Appendix C.

Project offset/credit cycle in GS projects

(Source: GS for Global Goals: Principle and Requirements)

Appendix D.

Example of project cost assessment—legume establishment on 200 ha for ERF method (25 year time frame)

Table

Items	Cost	Regularity	Responsible
Project certification-preparation of registration/listing	$5000	Establishment	Agent
Validation cost to confirm project is eligible	$0	Establishment	Agent
Baseline sampling and measurement
Sampling design and mapping	$1500	Establishment	Agent
Review-pre-existing ALM practices over 5 years in project region	$1000	Establishment	Agent
Measure soil organic carbon	$9200	Establishment	Landholder
Data processing and estimating carbon stock	$3000	Establishment	Agent
Preparing project baseline report	$3000	Establishment	Agent
Initial auditing (Optional)	$5000	Establishment	Landholder
Project implementation
Seed-perennial legume species	$3000	Establishment	Landholder
Labor and equipment cost for seeding/planting	$15,000	Establishment	Landholder
Seed coating	$6000	Establishment	Landholder
Maintenance and monitoring
Maintenance (pesticides, fertilizing, weeding, etc.)	$5000	Every 5 years	Landholder
Monitoring	$5000	Every 5 years	Landholder
Re-measure soil carbon	$10,000	Every 5 years	Landholder
Data processing and estimating carbon stock change and report writing	$5000	Every 5 years	Agent
Auditing	$10,000	Every 5 years	Landholder

Appendix E.

Cost effectiveness and income of soil carbon projects with different methods and standards

ERF soil carbon method

Table

ERF-soil carbon methods	Value taken from literature		Estimated					When we considered landholder cost only	When we considered total cost	Return
Improved grazing land management practices	Carbon sequestered value (TC/ha/ year)	Carbon sequestered value (t CO2-e/ year)	Landholder cost ($/year)	Broker cost ($/year)	Total cost ($/year)	Landholder cost ($/ha/year)	Total cost ($/ha/ year)	Cost-effectiveness ($/t CO2-e sequestered)	Cost-effectiveness ($/t CO2-e sequestered)	Discount or buffer pool deposit (t CO2-e/ year)	Current carbon market price ($/t CO2-e)	Total income ($/ha/ year)	Net income ($/ha/ year)
Introducing legume species	0.66	484.44	7528	1540	9068	37.6	45	15.54	18.7	121.11	18	33	(13)
Introducing perennials multi-species pasture (legume + pasture)	0.76	557.84	7528	1540	9228	37.6	45	13.49	16.3	139.46	18	38	(8)
Rotational grazing/cell grazing-conventional fencing	0.3	220.2	8059	1540	9599	40.3	48	36.60	43.6	55.05	18	15	(33)
Establishing rotational grazing/cell grazing-electric fencing	0.3	220.2	8051	1540	9591	40	48	36.56	43.6	55.05	18	15	(33)

Note: In ERF soil carbon projects with 25 years permanence period, a 25% crediting discount is applied.

VCS IALM method

Table

VCS IALM methods	Value taken from literature		Estimated cost					When we consider landholder cost only	when we consider total cost	Return
Improved grazing land management practices	Carbon sequestered rate (TC/ha/year)	Carbon sequestered value (t CO2-e/year)	Landholder cost ($/year)	Broker cost ($/year)	Total cost ($/year)	Landholder cost ($/ha/year)	Total cost (ha/year)	Cost-effectiveness ($/t CO2-e sequestered)	Cost-effectiveness ($/t CO2-e sequestered)	Discount or buffer pool deposit	Current carbon market price ($/t CO2-e)	Total income ($/ha/year)	Net income ($/ha/year)
Introducing legume species	0.76	557.84	8448	2055	10,503	42	53	15.14	18.8	55.78	$6	16	(37)
Introducing perennials multi-species pasture (legume + pasture)	0.86	631.24	8808	2055	10,863	44	54	13.95	17.2	63.12	$6	18	(37)
Rotational grazing/cell grazing-conventional fencing	0.4	293.6	8979	2055	11,034	45	55	30.58	37.6	29.36	$6	8	(47)
Rotational grazing/cell grazing-electric fencing	0.4	293.6	9350	2055	11,405	47	57	31.85	38.8	29.36	$6	8	(49)

Note: VCS method accounts for tree biomass carbon and soil carbon. So, tree biomass carbon (0.1 t C/ha/year) was added to the calculation. In Verra, buffer credit is calculated by multiplying the non-permanence risk rating with the net change in carbon stocks (for details pls refer to VCS methodology section 3.8.5). The non-permanence risk rating value can be determined by using VCS non-permanence risk assessment tool. However, all Verra protocols require that all agricultural projects to rate their risks across 50 categories, which typically results in a 10–15% buffer contribution, so we used 10% buffer discount here.

GS soil carbon framework methodology

Table

GS soil carbon framework methodology	Value taken from literature		Estimated					When we considered landholder cost only	when we considered total cost	Return
Improved grazing land management practices	Carbon sequestered value (TC/ha/year)	Carbon sequestered value (t CO2-e/year)	Landholder cost ($/year)	Broker cost ($/year)	Total cost ($/year)	Landholder cost ($/ha/year)	Total cost (ha/year)	Cost-effectiveness cost ($/t CO2-e sequestered)	Cost-effectiveness cost ($/t CO2-e sequestered)	Discount (buffer credit) (t CO2-e/year)	Current carbon market price ($/t CO2-e)	Total income ($/ha/year)	Net income ($/ha/year)
Introducing legume species	0.66	484.44	7550	2279	9829	38	49	15.59	20.3	96.88	6	11	(38)
Introducing perennials multi-pasture species	0.76	557.84	7750	2279	9829	38	49	13.89	17.6	111.56	6	13	(36)
Rotational grazing/cell grazing-conventional fencing	0.3	220.2	8214	2279	10,493	41	52	37.3	47.7	44.04	6	5	(47)
Establishing rotational grazing/cell grazing-electric fencing	0.3	220.2	8069	2279	10,348	40	52	36.64	47	44.04	6	5	(47)

Note: Gold standard soil organic carbon projects require a fixed 20% contribution for a pooled compliance buffer.