Exploring the incentive mechanisms for carbon farming contracts

There has been a recent increase in interest in carbon farming surging from newer forms of incentives that are being made available to farmers for enrolling into such schemes. With increased attention to defining carbon farming as a new business model, our thesis aims to define an efficient incentive mechanism that can be central to carbon farming contracts which will be profitable to the farmers and at the same time meet the environmental objectives of the scheme. We investigated the global carbon farming cases using a systematic mapping of literature, which was followed by analyzing the incentive mechanisms through the lens of carbon farming contract design attributes and project performance indicators using expert interviews, multi-criteria decision-making analysis, and qualitative inquiry. Key findings reveal that experts prefer hybrid incentive schemes (action-oriented) funded partially by public funding upfront (for covering farmers’ transaction cost, rewarding the co-benefits, and reducing risk) and partially by private sources, preferably by supply chain-based incentives (i.e., premium price for products) for outcomes, or by private market-based sources, that can be measured through simple low-cost monitoring and certified by public standards. Training and advisory, cooperation, and liability mechanisms should be intrinsic to the contract design to ensure permanence, additionality, and no leakage by implementing the project. We name this incentive mechanism the ‘hybrid-blend’ model, which parallels the EU regulations on carbon farming and meets the needs of the stakeholders involved, including, policy experts, government agencies, intermediaries, researchers, and financers. This incentive mechanism can also be applied to the voluntary carbon markets, as it addresses financial barriers like high transaction costs, the cost of complex monitoring systems, price volatility, and farmers’ risk management. Our research can provide insightful solutions to refining carbon farming contract designs, paving the way for the effective integration of carbon farming with climate mitigation goals.