Why Europe needs a regulated market for agricultural carbon
UnsplashUnsplashUnsplash
· 10 min read
Agri-food companies are confronting a hard reality: while they have a strategic interest in securing resilient supply chains, the scale of investment required exceeds what they can finance on their own. Carbon credits could provide a partial solution, yet fears of double counting have made these two funding channels effectively mutually exclusive, even as pressure on farmers to transition continues to mount.
Absent public oversight and sufficient funding in voluntary markets, we are drifting towards a system in which farmers and their cooperatives bear the bulk of the risk, financing much of the transition themselves while being required to monitor it through costly, fragmented MRV tools. This trajectory is a dead end. It will also reverberate downstream, as long-term access to regenerative agriculture depends on a sustainable and balanced approach to financing transition costs. In a context shaped by climate and geopolitical pressures, the agricultural transition is becoming a matter of resilience and food security, one that is likely to demand stronger public intervention.
Across Europe, a growing consensus is emerging on the limits of voluntary carbon markets to deliver the scale of investment required. Experts are calling on policymakers to explore more structured approaches, from public procurement to mandatory standards, with the ultimate goal of building a regulated market.
The advantages promoted by proponents of a regulated market are as follows:
Another benefit of a regulated market is that it can be centralised, making it suitable for:
The concerns that led to the rejection of a regulated market are legitimate; however, they appear overstated. Not all regulated market options have been explored, particularly the inclusion of large retailers among the "obligated" actors. The result is counterproductive for the sector as a whole: no financing, no ability to plan long term, and no capacity to invest in and implement the transition, which is necessary for both environmental and geopolitical reasons.
The discussion on creating a regulated agricultural carbon market in Europe must be reopened as soon as possible, particularly to ensure demand for credits produced under the CRCF.
However, realism is essential: even if agreed, the creation of a regulated market will take years. While it is urgent to set this process in motion, in the short term we remain reliant on voluntary markets. In the interim, strengthening the voluntary CRCF framework is therefore critical. This is precisely the aim of ISCIA's communication, co-signed by a coalition of more than 50 organisations, which sets out practical solutions to unlock CRCF financing: enabling "permanent" carbon storage claims, combining inset and offset flows without double counting, allowing for gradual hybridisation with a future regulated market, and, in some cases, ensuring compatibility with Article 6 of the Paris Agreement.
Europe has taken a pioneering role with the CRCF. The task now is to build on this momentum by equipping it with a financing architecture that matches its ambition, and by daring to innovate so that the model we develop can inspire international partners to follow. This will be essential to success in what remains a deeply globalised economy.
The agricultural sector is a natural target for voluntary carbon finance: it is the only sector capable of both reducing emissions and sequestering carbon, with sequestration occurring uniquely at farm level within the value chain. Yet carbon credit markets (offsets) have so far proven ill-suited to agriculture. This conclusion draws on nearly a decade of experimentation, particularly in the United States, where private "carbon farming" programmes emerged in the mid-2010s under the leadership of early movers such as Indigo Agriculture and Bayer.
In France, this momentum was reinforced by the creation of the Low-Carbon Label in 2018, the first public voluntary certification framework allowing the valorisation of emission reduction and sequestration projects in agriculture.
Despite this gradual structuring, agriculture's share of the voluntary carbon market (VCM) remains marginal: in France, many projects fail to find buyers for the carbon credits produced, and many are forced to sell them at a discount. According to Ecosystem Marketplace's State of the Voluntary Carbon Market 2025, agriculture accounted for only 1.5% of the $535 million global market in 2024. Above all, market prices fall far short of needs: credits from agricultural projects average $7.5, whereas several sectoral analyses in France estimate that prices in the range of €80–100/tCO₂ would be required to cover costs and sustainably incentivise farmers to change practices.
The 2022 release of the SBTi FLAG Guidance marked a structural shock to the VCM, not by introducing entirely new principles, but by operationalising them in a way that fundamentally altered market demand. By translating high-level climate commitments into quantified, sector-specific pathways for land-based emissions, the SBTi effectively removed the possibility for companies to rely on carbon credits as a substitute for value chain decarbonisation. It shifted the role of the VCM from a tool of compliance-like offsetting to one of discretionary climate finance, thereby undermining its primary demand driver.
As a result:
The SBTi FLAG recommendations are not to be challenged. They are scientifically indisputable, unanimously supported by experts to meet the objectives of the Paris Agreement, and extremely useful in guiding companies through their transition. But the dynamics they have triggered are creating unintended market distortions.
From 2022 onward, to meet SBTi FLAG objectives, an increasing number of agri-industrial companies have required their supplying farmers to adopt practices that reduce their carbon footprint. In return, they generally offer compensation through "supply-chain premiums" intended to cover the costs of changing practices and, in the best cases, those associated with producing and processing impact data.
This new financing channel is positive for the sector, but it has emerged by excluding the historic, albeit limited, carbon credit channel. Due to concerns about double counting, most agri-food actors condition supply-chain premiums on farmers committing not to participate in carbon credit programmes (and vice versa).
Neither funding source alone is capable of covering the true cost of the transition. The total volume of funds available through supply-chain premiums remains very limited and can only cover a small proportion of agricultural land.
Thus, while the SBTi-driven "supply-chain premium" channel is commendable, its voluntary nature and lack of regulatory framework make it risky and counterproductive when it becomes the exclusive financing mechanism. Field feedback shows that the small fraction of farmers receiving adequate premiums is increasingly used as a showcase, behind which some downstream actors impose an uncompensated transition on the majority of farmers. Because Scope 3 mechanisms are neither regulated nor subject to competition, they reinforce power asymmetries within the agricultural value chain, to the detriment of farmers and ultimately of transition goals.
This is why it is essential for farmers to be able to combine different funding sources, using a reporting methodology that prevents double counting while satisfying all stakeholders. It is equally important for farmers to retain control over their market choices: allowing them to sell the carbon they sequester to the highest bidder is the most effective way to incentivise climate action.
Because the soil organic carbon market remains at an early stage, its rules and structures are not yet fully defined, making further refinement essential.
Supply has surged in voluntary carbon markets, making segmentation inevitable. What was once a single "voluntary carbon market" is set to evolve into multiple, differentiated markets with distinct products and price points. The key question is what role agricultural credits will play in this reshaped landscape, and how a market can be designed to properly value the specific characteristics of agricultural carbon, including its relative and uncertain permanence, additionality, and co-benefits.
The latest release of the Net Zero Standard (V2.0) sends a strong demand signal for carbon removals overall. Yet its long-term emphasis on durability is likely to drive differentiation in value across project types, including within nature-based solutions such as soil carbon. Among the most critical unresolved issues is the "claim" associated with agricultural soil carbon sequestration, both within and beyond agri-food Scope 3. Clarification from the CRCF is expected, but alignment across international standards will be decisive in shaping the future of agricultural transition financing, in both voluntary and regulated markets.
On the ground, carbon fund managers are showing renewed interest in carbon farming projects, increasingly willing to invest alongside agri-food companies in response to rising demand for removals. This represents a significant opportunity for agriculture: future programmes, including those under the CRCF, should enable farmers to combine multiple revenue streams alongside supply-chain premiums.
Yet regardless of how voluntary markets evolve, it is unrealistic to expect them to finance the European agricultural transition at the scale required, which we estimate at no less than €100 per hectare per year. Relying passively on the gradual structuring of a market over which agricultural stakeholders have limited control would be a strategic mistake.
The European Commission's 2023 exploration of several options to allocate transition obligations and carbon credit purchasing requirements among actors in the agricultural value chain, inspired by the EU ETS applied to heavy industries, could have provided a guaranteed outlet for credits produced under the CRCF, the system that will govern agricultural carbon certification in Europe from summer 2026 onward.
However, pressure from European farmers' unions, mainly driven by fears of food inflation and loss of competitiveness, led the Commission to abandon this proposal. As a result, the regulated agricultural carbon market was shelved, and the CRCF is now intended to supply the voluntary market, which, according to all experts, will be insufficient to meet the financial needs of the sector across Europe.
A regulated carbon market is the only credible mechanism to ensure financing volumes at the European scale and to balance cost-sharing across the value chain, from producer to consumer.
It is not too late to reopen this discussion and extend the scope of obligated actors to include food retailers. Their inclusion is crucial, as they define product quality criteria and prices through annual negotiations with agri-industrial suppliers, which ultimately affect farmers.
This is in the interest of all, and essential to set in motion a systemic transition in which economic growth becomes intrinsically linked to the regeneration of ecosystems.
illuminem Voices is a democratic space presenting the opinions of leading Sustainability Thought Leaders, their views do not necessarily represent those of illuminem.
The world needs sustainability knowledge. At illuminem, no interest group or shareholder can influence our work. Thank you for supporting our mission to make high-quality and independent sustainability information free for all. Every contribution helps. Thank you for donating today.
illuminem briefings
Climate Change · Environmental Sustainability
Shoba Suri
Food · Agriculture
Alex Byelyavtsev
Food · Oil & Gas
The Jerusalem Post
Climate Change · Agriculture
The Guardian
Climate Change · Food
Grist
Adaptation · Sustainable Lifestyle