When most people think about the causes of climate change, they imagine cars, smokestacks, factories spewing out all manner of greenhouse gases (GHGs). In fact, between a third and a quarter of global GHG emissions come from the destruction or transformation of natural ecosystems.
In other words, as we continue cutting down and burning the world’s forests, we emit vast amounts of greenhouse gases. And it isn’t only about the destruction of the Amazon rainforest. Many of these transformations are taking place much closer to home: in the farms and pastures that provide our food.
In the US, agriculture accounts for an amount of GHG emissions equal to about a quarter of the nation’s transportation emissions or a third of industrial emissions. Agriculture and forestry also play an important role in removing greenhouse gases from the atmosphere (a process known as ‘carbon sequestration’) (see below). At first glance, the potential for agriculture to play a central role in addressing the challenge of climate change appears extremely attractive: emissions could be reduced at low cost, carbon could be sequestered in the soil, and farmers could benefit economically. In fact, technical, economic and political barriers have so far prevented the significant involvement of agriculture in the climate solution.
From an investor’s point of view, resolving this question is attractive because it offers not one but two investment opportunities. First, as the threat of climate change gets more and more evident, the world will move towards forms of agriculture that are better suited to our new carbon-constrained reality. If investors invest in this type of agriculture early, there is a chance that these investments could pay off handsomely in the medium term. Likewise, if agriculture can be seen as a part of the solution to our climate change problems, it may be that emerging carbon markets will begin to channel money towards agricultural carbon projects. If so, investments in projects like this can benefit from revenue from carbon markets.