More questions than answers: The current legal landscape of carbon markets and sequestration programs in the U.S.

Peggy Kirk Hall

Director, OSU Agricultural & Resource Law Program, Ohio State University Extension

The past year has brought many changes to carbon markets in the United States, leaving farmers in the familiar position of questioning whether or not to engage in carbon programs that pay farmers to adopt carbon sequestration practices. 

Just a year ago, the Biden administration released its Joint Policy Statement and Principles that outlined efforts to support and expand voluntary carbon markets in the U.S.  The new Trump administration, however, has undone or revised federal climate-smart programs and incentives and has withdrawn the U.S. from the Paris Agreement and other international climate change efforts that relate to carbon markets. Conversely, several state actions have reinforced carbon market programs.  For example, in November 2024, Washington citizens voted to retain the state’s carbon trading programs despite the “Initiative 2117” effort to repeal them (learn more at Ballotpedia or from the WA Senate Committee Service) and California citizens approved a $10 billion bond for climate projects (more info at Ballotpedia).  At the same time, many new investments are focusing on different ways to sequester carbon in addition to farming practices, such as geological sequestration and carbon removal technologies.

We do not yet know the impact these changes will have on the legal landscape of carbon markets and carbon programs for agricultural producers.  But we do know that a stable policy environment could address legal concerns that have plagued “carbon farming” opportunities.  Refining the laws and addressing legal issues around carbon farming practices remains a necessity for agricultural producers.  Attention to legal issues is also essential for newer types of carbon sequestration activities that involve agricultural producers and their land, such as geological sequestration. Here’s a summary of  some of the many questions and legal issues in need of resolution.

1. Defining the legal nature of sequestered carbon.  A largely overlooked legal issue is the need to clearly define the legal attributes of carbon sequestered on farmland as a result of carbon practices.  Many legal questions arise.  For example, is sequestered carbon a separate tangible and tradable asset that can be severed from the surface estate, like mineral rights?  Can the party that paid a farmer to generate the sequestered carbon claim legal rights to the sequestered carbon?  Can that party also enforce “carbon rights” against future owners of the land?  Without clear laws and policies, these legal issues are dependent upon the written agreement parties enter into, which may or may not provide clear answers to the questions and which might conflict with existing property laws. As land and parties transition over time, legal conflicts are likely to arise in the future due to the indefinite legal nature of sequestered carbon.
2. Defining the legal nature of “carbon credits.”  Clear legal definitions are also critical to preventing future conflicts over carbon credits.  For example, is a carbon credit personal property, or is it a real property interest?  Who has the right to generate and sell carbon credits on an agricultural property between the landowner, the tenant farmer, a mortgage holder, and an easement holder? Can a landowner transfer a property but retain the right to carbon credits already generated on the property, and what if a future landowner interferes with those credits?  Private parties may attempt to answer these questions in private agreements, but clear laws would better serve the carbon market and agricultural landowners.
3. Standards for carbon credit measurement and verification.  Many of the legal issues attorneys raise with carbon credit contracts center on the need to clarify how a carbon credit is measured and verified.  Stringent, transparent and consistent standards will ensure that farmers are properly compensated while also building market integrity.  Because we still lack agreed upon acceptable public standards in the U.S., farmers must ensure that their written agreements specify measurement and verification procedures.
4. State legal frameworks for geological sequestration.  The next carbon sequestration opportunity for agricultural landowners could be the transfer of subsurface “pore space” rights for “carbon capture and storage”. These projects would consist of injecting wells that transport sequestered carbon deep beneath the land surface.  Only a handful of states have laws in place that establish critical legal issues such as who owns the “pore space” where carbon would be stored, what if the pore space conflicts with predetermined mineral rights, and who is responsible for the long-term storage of carbon?  Learning a lesson from the issues raised by a lack of a legal framework for carbon markets and carbon credits, states should act now to create clear laws and policies for geological sequestration rather than leaving the answers to these questions subject to private written agreements that can be detrimental to agricultural landowners.

Legal uncertainties still exist for carbon markets and carbon sequestration activities on farmland.  But many agree that farmers can play an important role in reducing atmospheric carbon and the impacts of climate change.  Laws and policies can relieve the legal uncertainties and further encourage agricultural landowners and producers to engage in carbon markets and carbon sequestration opportunities.

How can I stay updated?

We will post regular blog posts on this website to share progress and project deliverables, just like this post. Sign up to be notified about future blog posts! 

If you are interested in learning more or collaborating on any of this work, please reach out to Alli Wenman, project manager, at awenman@wisc.edu or Aaron Wilson, project director, at wilson.1010@osu.edu.

This work is supported by the Agriculture and Food Research Initiative, project award no. 13429389, from the U.S. Department of Agriculture’s National Institute of Food and Agriculture. Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the author(s) and should not be construed to represent any official USDA or U.S. Government determination or policy.