Many people have talked about carbon credits over the past year, but not many of them are lawyers. What would an ag lawyer say about how one should approach a potential carbon contract deal?

Bryan Daggy decided to seek out a lawyer’s point of view. Daggy, who works with the Boone County Soil and Water Conservation District in Indiana, asked Todd Janzen of Janzen Schroeder Ag Law in Indianapolis to address the topic at a recent field day.

If a farmer is approached about selling carbon credits, what should he or she do? Start by asking three questions: First, who are the parties involved? Second, what are the elements of the contract? Third, what things should you consider before signing a contract?

There will be four parties in a carbon credit contract. The grower will create the carbon credit. Second, someone works with farmers producing carbon credits. For example, Indigo Ag connects farmers with buyers for carbon credits. The third player is the verifier. Someone must verify that carbon is sequestered to create value. The fourth player is the company paying for a carbon credit to help offset their carbon footprint.

What elements of a contract should a farmer concentrate on most? The contract will require changes in farming practices to create carbon credits. It’s called “additionality,” and there’s no way around it. It’s a disincentive to those already practicing conservation farming. But the company paying for the credit must demonstrate that someone did something different to sequester carbon.

Verifying that a credit was created involves data collection. Companies like Bayer with Climate FieldView are interested because many customers are already using their technology to collect data needed to verify carbon credits. You should pay attention to what contracts say about data collection. Don’t give up more privacy related to your data than necessary.

Many contracts offered are long term. Does that pose a risk to the grower? I’ve seen contracts for five, 10, 15 years or longer. Think carefully before making such a long-term commitment, especially if it involves switching to farming practices you haven’t tried before. Does the contract allow you to modify practices over time? Can the buyer modify expectations?

Typically, restrictions on land use, like land easements, are recorded in the county recorder’s office. Our observations indicate carbon credit contracts typically aren’t recorded. That could mean that if the land is sold, the buyer is not bound by the contract. At the same time, without these contracts being recorded, it’s more difficult for companies buying credits to make sure someone isn’t stacking contracts on the same land — selling carbon credits more than once. Obviously, that should be prohibited in the contract.

So, what should a farmer do today? He or she must look at their situation and decide what’s best for them. If they lock into a contract now, they risk missing out if prices for carbon credits go higher later. One option would be waiting to see if USDA gets involved and levels the playing field. On the flip side, if you say “no” to contracts now, you could give up an opportunity to add dollars. A lawyer can help you understand what you’re signing, but he or she can’t decide if you should sign or not.