Support to the design of policy options for financial incentives for carbon farming : input paper to workshop.
Date: 2025-04-16
Institutions: Directorate-General for Climate Action
Subjects: EU agricultural market, carbon capture and storage, carbon neutrality, financial incentive, financing, land use, report

Support to the design 
of policy options for 
financial incentives for 
carbon farming 

Input Paper to workshop

Written by Deloitte  
April 2025  

 
EUROPEAN COMMISSION 

Directorate-General for Climate Action 
Directorate C — Innovation for a Low Carbon, Resilient Economy  
Unit C3 — Land Economy & Carbon Removals 

Contact:  

Jorge Pinto Antunes 

E-mail:  

jorge.antunes@ec.europa.eu 

European Commission 

B-1049 Brussels 

 
 
EUROPEAN COMMISSION 

Support to the design of policy 
options for financial incentives 
for carbon farming 
Input Paper to workshop

2025 

Directorate-General for Climate Action 

 
 
Manuscript completed in April 2025 

1st edition 

This document has been prepared for the European Commission however it reflects the views only of the 
authors, and the European Commission is not liable for any consequence stemming from the reuse of 
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Luxembourg: Publications Office of the European Union, 2025 

© European Union, 2025 

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PDF ISBN 978-92-68-26738-7 

doi:10.2834/3087542  ML-01-25-020-EN-N 

 
 
 
 
 
Support to the design of policy options for financial incentives for carbon farming 

Contents 

EXECUTIVE SUMMARY.................................................................................... 7 

INTRODUCTION ................................................................................................ 8 

PART 1 – BUYERS’ NEEDS AND MOTIVATIONS  
TO FINANCE CARBON FARMING ACTIVITIES .............................................. 9 

PART 2 – STUDY OF PUBLIC FINANCIAL   INSTRUMENTS ....................... 11 

1. INTRODUCTION: METHODOLOGY ........................................................ 11 

2. COMPARATIVE ANALYSIS: KEY THEMES ............................................ 11 

2.3. De-Risking and Blended Finance .................................................................. 13 
2.4. Robust Measurement, Reporting, and Verification (MRV) ............................. 14 
2.5. Long-Term Commitments and Permanence .................................................. 15 
2.6. Coordinating with Existing Policies and Stakeholder 

 Acceptance .................................................................................................. 15 

3. CHALLENGES AND BARRIERS .............................................................. 16 

PART 3 – STUDY OF PRIVATE FINANCIAL INSTRUMENTS ....................... 18 

1. 

INTRODUCTION: METHODOLOGY ................................................... 18 

2. 

ADVANCE MARKET COMMITMENTS ............................................... 18 

3. 

PRIVATE AND PUBLIC-PRIVATE CARBON FUNDS ......................... 19 

4.  CARBON INSURANCE ....................................................................... 20 

5.  REWARDING MECHANISMS ............................................................. 22 

PART 4 – CONCLUSION & WORKSHOP GOALS ......................................... 24 

1. 

INITIAL RECOMMENDATIONS – KEY PARAMETERS OF FINANCING 
MODEL ................................................................................................ 24 

2.  WORKSHOP GOALS .......................................................................... 25 

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Support to the design of policy options for financial incentives for carbon farming 

List of acronyms 

•  AMC – Advance Market Commitment  

•  BiRCS – Biomass Carbon Removal and Storage 

•  BECCS – Bioenergy with Carbon Capture and Storage 

•  CAP – Common Agricultural Policy 

•  CCS – Carbon Capture and Storage 

•  CDR – Carbon Dioxide Removal  

•  CfD – Contracts for Difference 

•  CO₂ – Carbon Dioxide 

•  CRCF - Carbon Removals and Carbon Farming Regulation  

•  DAC – Direct Air Capture 

•  EC – European Commission  

•  ELM – Environmental Land Management 

•  EU – European Union 

•  MRV – Measurement, Reporting, and Verification 

• 

ITMO (or ITMOs in plural) – Internationally Transferred Mitigation Outcome(s) 

•  LULUCF – Land Use, Land-Use Change and Forestry 

•  SDE++  –  the  Netherlands’  subsidy  scheme.  (“SDE”  stands  for  “Stimulering 

Duurzame Energieproductie” in Dutch, with “++” indicating an enhanced version) 

•  VCM – Voluntary Carbon Market 

•  UK – United Kingdom 

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Support to the design of policy options for financial incentives for carbon farming 

EXECUTIVE SUMMARY 

Carbon farming holds a central position in the European Union’s drive towards climate 
neutrality by 2050, given the significant mitigation potential in agriculture and land use. 
Recognising the need for credible, high-quality market-based approaches, the EU has 
introduced the  new  Carbon Removals  and Carbon Farming (CRCF)  Regulation, 
which  establishes  the  first  EU-wide  voluntary  framework  for  certifying  carbon 
removals, carbon farming, and carbon storage in products. 

This Input Paper explores how both public and private financing mechanisms can 
inspire the  EC  to  develop  an  effective  financial mechanism that  accelerates  a 
robust carbon farming market. It is based on desk research of case studies as well 
as stakeholder interviews. 

From  a  demand-side  perspective,  potential  corporate  buyers  indicate  a  need  for 
clarity  on  how  carbon  farming credits  can  be  integrated  into their  climate strategies 
(e.g.,  offsetting,  insetting,  regulatory  compliance).  They  also  underline  the  need  for 
harmonization between organizations that provide a framework for companies' climate 
voluntary commitments (GHGp, SBTi, CSRD, CRCF). While many value the positive 
impact of investing in tangible, local carbon solutions, they are also keenly aware of 
the  need 
for  clear  communication  rules,  based  on  straightforward,  reliable 
Measurement,  Reporting  and  Verification  (MRV)  systems  that  build  collective  trust. 
Finally,  buyers  stress  the  importance  of  valuing  co-benefits  (biodiversity,  resilience, 
soil  health)  over  and  above  the  carbon  benefits  provided  by  these  projects.  

On  the  public  financing  side,  hybrid  models  combining  up-front  support  with 
outcome-based  rewards  offer  a  practical  path  for  scaling  carbon  farming.  Market-
driven instruments  introduce  competition,  enhancing  cost  discipline  while  rewarding 
verified impact but can risk under-pricing quality outcomes. Blended finance and de-
risking  tools—such  as  price  floors  or  partial  loan  guarantees—can  improve  farmer 
participation.  Designing  effective  models  also  requires  adaptive  mechanisms  that 
reflect project lifespans and the long timespan needed to deliver lasting outcomes. 

In terms of private instruments, several innovative models have emerged. Advance 
Market Commitments (AMCs) guarantee future demand and can spur investment in 
novel removal technologies and nature-based solutions. Carbon funds pool resources 
from  multiple investors, reducing  risk  while offering  long-term returns in the  form  of 
carbon credits. Insurance products are increasingly critical too, providing cover against 
delivery  shortfalls  —  essential  to  buyer  confidence.  Finally,  rewarding  mechanisms 
within agri-food value chains (e.g., price premiums or direct payments for sustainable 
practices)  show  how  companies  can  align  their  interests  with  their  suppliers’, 
the  adoption  of  environmentally  sustainable  practices.  
effectively 

financing 

Despite these promising developments, core questions remain. How to best mobilise 
private  funding  for  carbon  farming?  What  is  required  for  a  fund  to  be  able  to  raise 
finance from banks/investors for purchasing carbon farming credits? What are the key 
success  factors  to  structure  carbon  farming  financing?  What  should  be  the  role  of 
public entities in the market development? 

At  our  workshop  on  20  May  2025,  policymakers,  companies,  investors,  and 
suppliers will come together to debate these questions. By jointly examining practical 
barriers,  financing  mechanisms,  and  governance  structures,  participants  can  help 
shape  the  main  elements  for  the  design  of  an  EU-funding  instrument  for  carbon 
farming and ensure that carbon farming plays its full part in Europe’s net-zero future. 

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Support to the design of policy options for financial incentives for carbon farming 

INTRODUCTION 

The  European  Union’s  climate  neutrality  objectives,  outlined  in  the  European  Green 
Deal, aim to achieve net-zero greenhouse gas emissions by 2050. With agricultural 
and forest lands covering over three-quarters of the EU’s territory, the land-based sector 
plays a critical role in achieving these objectives. 
The European Climate Law and the Fit for 55 Package include specific climate targets 
for Member States, particularly in the land-use sector. These targets are reflected in the 
Effort Sharing and LULUCF (Land Use, Land Use Change, and Forestry) Regulations, 
which  mandate  investments  in  land-based  carbon  removal  practices  such  as  carbon 
farming1. 
The newly adopted Carbon Removals and Carbon Farming (CRCF) Regulation will be 
pivotal to reach 2040 and 2050 EU climate goals. This regulation establishes the first 
EU–wide voluntary framework for certifying carbon removals, carbon farming and carbon 
storage in products.  

It will create a highly robust certification system, based on the EU  QU.A.L.ITY criteria 
(Quantification, Additionality, Long-term Storage, Sustainability) and on the most efficient 
MRV  systems.  The  framework  will  drive  private  and  public  investments  toward  high-
quality  and trustworthy carbon credits,  while creating  a stable environment for  carbon 
developers to pioneer and adopt sustainable practices and technologies.  
This  input  paper  was  prepared  by  Deloitte  as  part  of  its  support  to  the  EC  through  a 
dedicated  assignment2  aimed  at  exploring  potential  policy  design  options  for  financial 
incentives in carbon farming, to support discussions at the workshop on “Perspectives 
on  a  Purchasing  Programme  for  Carbon  Removal  and  Carbon  Certification 
Framework – How to finance large-scale deployment of carbon farming?”. 

To meet these objectives, this input paper is structured in four stages: 

•  Part 1 – Buyers’ needs and motivations to finance carbon farming activities;  
•  Part 2 – Study of Public financial instruments; 
•  Part 3 – Study of Private financial instruments;  
•  Part 4 – Conclusion and workshop goals. 

The approach used in drafting this paper involved: 

• 

Interviewing a variety of potential European buyers to understand demand-side 
perspectives on financing carbon farming activities, and to identify key parameters 
for designing an effective financing mechanism; 

•  Conducting a literature review to identify and analyse public and private financing 

mechanisms at both the EU and national levels; 

•  Distilling key findings to outline preliminary recommendations on the type and 

characteristics of financial instruments that could be implemented by the EC; 

• 

Identifying key questions to be addressed during a workshop to be  held on 
May 20, 2025 in Brussels (both physically and online) to generate a collaborative 
discussion  amongst  potential  key  contributors  of  the  carbon  farming  market.  The 
objective of the workshop is to gather additional insights from carbon credit buyers 
to successfully operationalize the deployment of carbon farming market. 

1 Carbon farming refers to agricultural and land management practices designed to increase the amount 
of  carbon  stored  in  soil  and  vegetation  thereby  reducing  greenhouse  gas  emissions.  Carbon  farming 
encompasses a broad range of practices and processes applied to agricultural land, wetlands, in forests or 
coastal environments.  

2 Contract #300111635, under Framework contract CLIMA.A4/FWC/2023/0002 (CLIMATE) 

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Support to the design of policy options for financial incentives for carbon farming 

PART 1 – BUYERS’ NEEDS AND MOTIVATIONS TO 
FINANCE CARBON FARMING ACTIVITIES 

As  part  of  this  study,  a  key  initial  step  was  to  identify  what  the  essential  design 
parameters for a successful carbon farming market are for carbon credit buyer. 

Deloitte interviewed five European companies (with different levels of involvement in 
the Voluntary Carbon Market) - from the banking, luxury goods, aeronautics and food 
and  beverage  sectors  -  to  understand  their  motivations  and  the  barriers  that  would 
prevent them from getting further involved in a voluntary certification mechanism such 
as the CRCF.  

The findings from these interviews suggest:  

• 
Role of carbon credits in climate strategies: Currently, the purchase of carbon 
credits  is  not  considered  a  decarbonization  lever  by  international  standards,  and 
companies  cannot  use  these  purchases  to  reduce  their  emissions.  Additionally,  the 
retirement of carbon credits cannot be used as a flexibility tool for EU-ETS obligations.  

With regards to the CRCF specifically, carbon credit buyers expect clearer guidance 
on how CRCF credits can be used—whether for insetting, offsetting, or compliance—
and  how  these  purchases  can  support  their  climate  strategies.  For  carbon  farming 
activities  specifically,  carbon  credits  buyers  want  to  better  understand  how  these 
purchases can be accounted for in the context of use within the value chain (insetting), 
and their impact on scope 3 reduction.  

Alignment  of  requirements  between  standards:  Many 

• 
international 
companies call for the harmonization of existing corporate climate voluntary standards 
(carbon accounting, target setting, transition plans, etc.), in particular with international 
initiatives such as the GHG Protocol, SBTi, VCMI and CSRD. They wish the European 
Commission  not to work  in isolation,  but  to  participate in  global  efforts  to harmonize 
standards.  

Furthermore,  carbon  certification  standards  already  exist  within  the  European  Union 
(e.g.  Label  Bas  Carbone  in  France,  Spain).  Mutual  recognition  between  these 
standards  (including  their  methodologies)  and  the  CRCF  would  be  a  major  asset, 
simplifying procedures for buyers and reducing administrative complexity. 

Differentiated  buyers’  motivations:  Companies  in  the  agri-food  sector  are 
• 
concerned about carbon credit buyers financing practices outside their value chain for 
offsetting  purposes,  overlooking  other  key  agricultural  challenges  like  soil  health, 
biodiversity, water management, food productivity and resilience, which are essential 
for the sustainability and future of agricultural value chains. Buyers expressed limited 
knowledge of the CRCF’s co-benefit requirements which intend to promote a broader 
and more holistic approach to carbon credits. 

Fair  and  straightforward  approach:  Companies  seek  in  the  CRCF  a  simple 
• 
system  that  benefits  both  farmers3  and  buyers.  They  emphasize  the  importance  of 
ensuring that financial gains first benefit farmers, rather than being largely diverted to 
service providers (such as monitoring) or complicated procedures. 

• 
Price sensitivity: Corporate buyers are noticing a major price difference between 
carbon  credits  issued  from  international  carbon  projects  and  those  from  European 

3 In the context of this study, the term farmer includes professionals involved in land cultivation, animal 
husbandry  and  forest  management.  Only  the  term  farmer  has  been retained for simplicity  and ease of 
reading. 

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Support to the design of policy options for financial incentives for carbon farming 

projects. This price difference has a direct influence on purchasing decisions and on 
companies' carbon credit procurement strategies. 

leverage 

their  carbon  credit  purchases 

Communication  &  brand  image:  Companies  stress  the  importance  of  being 
• 
able 
through  external 
to  positively 
communication.  However,  currently  some  sectors  (e.g.  aviation),  avoid  externally 
promoting  these  purchases,  as  they  may  be  perceived  as  greenwashing.  Similarly, 
companies from other sectors remain vigilant about the reputational risks associated with 
carbon credits communication, as many projects are regularly criticized by NGOs. New 
European  directives,  such  as  the  Empowering  Consumers  for  the  Green  Transition 
Directive  and  the  coming  Green  Claims  Directive,  aim  to  govern  the  communication 
surrounding these purchases in the future, and it is hoped that the CRCF's quality criteria 
will improve the perception of European carbon credits.  

• 
EU  financing  mechanism:  To  support  the  viability  of  a  CRCF  market,  the 
interviewees mentioned the need for the EC to support stable demand and prices. In this 
respect, offtake contracts and reverse public auctions were mentioned as relevant tools 
to study. In addition, to support the supply side, and more specifically the ability of the 
farmers  to  access  funding  to  implement  sustainable  practices,  the  value  of  a  "grace 
period" (i.e., temporary pause in loan repayments) financed by the EC was mentioned. 
This would bridge the significant time gap between a farmer's mobilization of funds (from 
his  financiers)  and  the  possibility  of  reaping  the  benefits  through  the  sale  of  carbon 
credits (and repaying their loans). 

After  gaining  insight  into  the  demand-side  perspectives,  we  then  explored  various 
public  and  private financing  mechanisms  that  could  be  considered  and  aligned  to 
support the deployment of the carbon farming market. 

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Support to the design of policy options for financial incentives for carbon farming 

PART 2 – STUDY OF PUBLIC FINANCIAL   
INSTRUMENTS 

1. INTRODUCTION: METHODOLOGY  

This  section  examines  public  financing  programs  and  policy  instruments  specifically 
designed  to  incentivize  carbon  farming  and  sustainable  agriculture.  Its  primary 
objective  is  to  analyse  how  governments  and  public  bodies  deploy  financial 
mechanisms  to  effectively  support  measurable  environmental  outcomes  in  carbon 
sequestration and emission reduction in farming. 

The  team  initially  examined  a  comprehensive  list  of  28  initiatives,  that  was  then 
narrowed down to 14 initiatives4 which were analysed in detail. 

2. COMPARATIVE ANALYSIS: KEY THEMES 

This section synthesizes critical insights, coming out from our analysis, drawing on the 
case studies from selected international initiatives relevant to public financing of carbon 
farming. Descriptions for each programme are available in the appendix. 

2.1. Financing Models: From Effort-Based to Result-Based 

Trend:  Many  programmes  historically  provided  action-based  (or  effort-based) 
subsidies  -  paying  landowners  for  undertaking  certain  practices.  However,  a  distinct 
shift is evident towards result-based incentives that tie payments to verifiable carbon 
or  environmental  outcomes.  Currently,  the  level  of  maturity  varies  across  different 
initiatives: 

Primarily Action-based 

  Mixed/Transitional 

  Strongly Result-Based 

•  Early phases of ELM 

in England 

•  Many historical CAP 

schemes 

•  UK’s ELM 

•  SDE++ in the 
Netherlands 

•  MoorFutures  

•  Sweden’s Reverse 

Auctions for Negative 
Emissions 

•  Denmark’s 

Klimaskovfonden 

4   Descriptions  for  each  initiative  are  available  in  the  Appendix  File.  The  initiatives  selected  as  case 
studies  in  this  research  were  chosen  for  their  illustrative  and  heuristic  value  within  the  specific 
framework of the study. Their inclusion does not imply a judgment of superiority or broader relevance 
over  other  initiatives  that  were  not  selected.  We  focused  on  assessing  how  innovative  are  the 
financing instruments utilised, the potential roles public organisations could adopt, the maturity of 
each initiative, and the application of carbon credits. 

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Support to the design of policy options for financial incentives for carbon farming 

Case Study:  

Germany’s MoorFutures: 

•  Application: Peatland rewetting projects generate tradable carbon credits, with 
state aid seeding early pilots. Each certificate represents 1 ton of captured CO2 
through the rewetting of a moor, and all of the certificates together finance the 
project, from planning and construction to aftercare over a period of 50 years. 

•  Relevance 

for  carbon 

farming:  Effectively  monetises  verified  emission 

reductions from wetlands, providing a blueprint for farmland soils. 

UK’s Environmental Land Management (ELM): 

•  Application:  The  ELM  scheme has transitioned from  a  historically  prescriptive 
approach,  where  farmers  received  payments 
implementing  specific 
management practices (e.g., planting certain cover crops). Although the initial 
stages of ELM carried over some of these pre-defined, action-based elements 
the  scheme  is  now  incorporating  “Advanced  Standards.”  These  standards 
gradually  introduce  a  partially  result-based  element  by  rewarding  farmers  for 
measurable improvements in soil organic matter. 

for 

•  Relevance for carbon farming: Demonstrates the difficulties of transitioning from 
historical area-based subsidies to more rigorous, outcome-driven models. 

Key takeaways for the deployment of European carbon farming 

While purely result-based systems heighten accountability, they can be administratively 
complex. Hybrid models combine partial up-front grants (effort-based) with robust final 
performance  rewards.  These  models  are  often  implemented  in  transitional  phases 
(e.g.,  the  UK’s  ELM  pilot  phases),  and  they  could  better  support  the  deployment  of 
carbon farming market. The newly introduced CRCF Regulation provides a single EU-
wide  framework  for  measuring,  reporting,  verifying,  and  certifying  carbon  credits, 
thereby aligning both the payment approach (through results-based and/or effort-based 
incentives) and the MRV methodology, and ensuring consistency and scalability across 
different carbon farming initiatives.  

2.2. Integration of Market-Based Mechanisms 

Many  programmes  leverage  competitive  auctions5,  contracts  for  difference 
(CfDs)6, or offset markets7 to crowd in capital and enhance cost-effectiveness.  

5   Where project developers bid for minimal subsidies, and funding goes to those proposing the best 

cost–benefit ratio. 

6   These fix a “strike price” for delivering climate outcomes; if market prices dip below this threshold, 

the public sector pays the difference - reducing investment risk. 

7   These  create  tradable carbon  credits,  allowing  verified reductions  or  removals  to be purchased  by 

entities aiming to meet climate targets. 

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Support to the design of policy options for financial incentives for carbon farming 

 Case Study:  

The EU Innovation Fund: 

•  Application:  Awards  project  support  through  regular  grants,  auctions,  project 
development assistance, and blended financial instruments such as Invest EU. 

•  Relevance  for  carbon  farming:  Auctions  expand  the  portfolio  of  support 
mechanisms  available  under  the  Fund,  fostering  faster  and  more  cost-efficient 
support for the roll-out of more mature, low-carbon technologies needed for the 
green transition. This practice can be adopted applied to set up a carbon farming 
market. 

Sweden’s Reverse Auctions for Negative Emissions: 

•  Application:  Projects  offering  the  lowest  subsidy  request  for  Bioenergy  with 
Carbon  Capture  and  Storage  (BECCS)  secure  15-year  contracts,  paid  upon 
verified  carbon  capture,  with  payments  starting  from  the  commencement  of 
geological storage. 

•  Relevance  for  carbon  farming:  This  approach,  although  currently  focused  on 
industrial BECCS, illustrates how auctions can reduce overall subsidy costs and 
could  be  adapted  to  large-scale  soil  carbon  or  agroforestry  programmes. 
Adjustments to this mechanism would be necessary, as implementation of carbon 
farming requires upfront capital costs. 

Netherlands’ SDE++ Subsidy (similar to CfDs): 

•  Application:  Designed  to  close  the  gap  between  the  costs  associated  with 
renewable energy production and CO₂ reduction technologies and their market 
revenues.  It  operates  through  a  competitive  bidding  process  that  awards 
subsidies  based  on  the  difference  between  a  project's  costs  and  its  market 
revenues, linking payments directly to verified performance outcomes.    

•  Relevance for carbon farming: If designed to credit verified negative emissions, it 
could be expanded to farmland carbon projects, bridging the cost gap for farmers. 

Key takeaways for the deployment of European carbon farming 

By  introducing  competition,  market-driven  instruments  often  achieve  greater  cost 
discipline  than  fixed  subsidy  schemes.  Both  examples  underscore  how  competition 
using  a  financial  tool  that  rewards  verified  soil  carbon  improvements  can  channel 
substantial  public  funds  toward  proven,  lowest-cost  carbon  reduction  technologies, 
much like the EU Innovation Fund and the European Hydrogen Bank have done in their 
respective  domains.  However,  they  may  underprice  quality  outcomes  and  limit 
sufficient returns for smaller scale farmers. Clear rules, robust MRV, and risk-sharing 
backstops  (e.g.,  buffer  pools  or  State  guarantees)  remain  crucial  to  balance  cost-
effectiveness and “just transition” objectives. 

2.3. De-Risking and Blended Finance 

Public–private structures  are  collaborative  arrangements  where the  government  and 
the  private  sector  partner  combine  resources  and  share  risks  to  finance  and  deliver 
projects or services. Implementing blended public–private structures is a rising trend, 
leveraging public money to reduce commercial risk and attract additional capital. 

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Support to the design of policy options for financial incentives for carbon farming 

Case Study:  

Switzerland’s KliK Foundation: 

•  Application:  Offsets  GHG  emissions  from  Switzerland’s  transport  sector 
(thereby fulfilling regulatory requirements for Swiss fuel importers) by financing 
climate protection projects both domestically and internationally and purchasing 
emission reduction certificates (guarantees & ITMOs). . 

•  Relevance  for  carbon  farming:  Shows  how  partial  guarantees  and  advance 
market commitments can underwrite smaller-scale or higher-risk carbon farming 
ventures in developing regions and potentially in the EU. 

European Hydrogen Bank: 

•  Application: Hydrogen Bank is a financing instrument where funding is awarded 
as  a  fixed  premium  in  €/kg  of  verified  and  certified  renewable  fuel  of  non-
biological origin (RFNBO) hydrogen produced to establish an initial market for 
renewable hydrogen. 

•  Relevance for carbon farming: Demonstrates an approach to support the scale-
up of the new environmental market within the European Economic Area (EEA) 
and to connect the renewable product supply with demand. 

Key takeaways for the deployment of European carbon farming 

Blended  finance  can  substantially  scale  carbon  farming  efforts  but  increases 
administrative  complexity.  Public  “de-risking”  instruments  -  like  price  floors  or  partial 
loan guarantees - can address farmers’ liquidity hurdles and help them shift to carbon-
friendly practices. 

2.4. Robust Measurement, Reporting, and Verification (MRV) 

MRV frameworks underpin all credible result-based or offset programmes. They ensure 
additionality, track carbon baselines accurately, and permit reliable payments. 

Case Study:  

Denmark’s Klimaskovfonden (Climate Forest Fund): 

•  Application: Klimaskovfonden channels dedicated financing, obtained from the 
sale of CO2 credits, into its climate projects, and is integrating public funds with 
private  co-financing  to cover,  among  other  things,  the  costs  of  rigorous  MRV 
activities. 

•  Relevance  for  carbon  farming:  This  financing  mechanism  underwrites  the 
credibility of carbon credits while incentivizing the deployment of advanced MRV 
technologies. 

Germany’s Wald-Klimastandard: 

•  Application:  Uses  standardised  protocols  for  forest  carbon  measurement, 

ensuring consistent issuance of credits. 

•  Relevance for carbon farming: Shows how robust MRV can sustain both public 

credibility and private investment. 

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Support to the design of policy options for financial incentives for carbon farming 

Key takeaways for the deployment of European carbon farming 

Building  consistent,  rigorous  yet  streamlined  EU-wide  soil  and  biomass  carbon 
protocols  -  potentially  building  on  LULUCF  best  practices  -  reduces  fragmentation, 
enhances comparability, and fosters cross-border investment in carbon farming. The 
CRCF  is  designed  to  specifically  address  MRV  issues  at  EU  level  by  establishing  a 
robust  certification  framework.  However,  securing  and maintaining  adequate funding 
for MRV systems will remain a key challenge because rigorous MRV can be resource-
intensive.  

Embracing  digital  or  remote-sensing  methods  further  reduces  transaction  costs  and 
preserves accuracy, especially for soil carbon assessments that are inherently more 
variable than with forestry. 

2.5. Long-Term Commitments and Permanence 

Carbon  farming’s  benefits  unfold  over  years,  requiring  multi-year  or  multi-decade 
financial commitments and robust permanence strategies. 

Case Study:  

Sweden’s 15-Year Contracts for Negative Emissions: 

•  Application: Encourages high upfront investment (e.g., CCS infrastructure) with 

guaranteed revenue over 15 years. 

•  Relevance  for  carbon  farming:  Similar  to  CCS  infrastructure,  soil  carbon 
restoration is a long-term endeavour requiring sustained effort and investment 
in  practices.  Sweden's  15-year  contracts  highlight  the  importance  of  stable, 
long-term  commitments.  The  Swedish  model  demonstrates  how  long-term 
revenue guarantees can de-risk significant upfront investments. 

Key takeaways for the deployment of European carbon farming 

Designing  an  EU  carbon  farming  mechanism  may  necessitate  multi-year  CfDs  or 
outcome-based contracts, alongside mandatory “insurance” components (e.g., buffer 
pools,  mandatory  re-measurement)  to  guarantee  long-term  environmental  integrity. 
Additionally, system flexibility will be essential to account for the variability in project 
lifespan  and  to  achieve  sustained  environmental  impact  which  can  only  be 
demonstrated over long time frames. 

2.6. Coordinating with Existing Policies and Stakeholder Acceptance 

Effective carbon farming programmes often face coordination challenges: reconciling 
them with existing agricultural subsidies, ensuring local communities support or benefit, 
and preventing duplication. 

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Support to the design of policy options for financial incentives for carbon farming 

Case Study:  

British Columbia’s Carbon Neutral Government: 

•  Application: Public sector offset mandates can drive local offset projects, 

but strong synergy with agricultural policy remains sparse. 

•  Relevance for carbon farming: British Columbia's experience suggests the 
potential for public sector carbon offset programs to stimulate local climate 
action. A more integrated approach, where public sector offset mandates 
actively prioritize agricultural projects (such as livestock waste-to-energy 
for  methane  reduction  and  bioenergy,  or  soil  carbon  sequestration 
initiatives), could generate significant co-benefits. 

Key takeaways for the deployment of European carbon farming 

For carbon farming, synergy with existing agricultural supports (e.g., elements of the 
CAP and eco-schemes), the CRCF Regulation, and State aid - alongside transparent 
benefit-sharing models with local communities - can facilitate project implementation 
and  foster  broader  acceptance.  By  blending  these  frameworks,  stakeholders  can 
leverage CAP funding (such as Member States’ plan8 to spend at least 25% of their 
direct  payments  budget  on  eco-schemes,  which  includes  carbon  farming),  while 
benefiting from the CRCF’s robust certification and results-based incentives. 

3. CHALLENGES AND BARRIERS 

Despite  valuable  progress,  several  core  hurdles  persist  across  the  programmes 
reviewed, and should be addressed when designing financial mechanism for carbon 
farming: 

1.  High-Cost  of  Soil  Carbon  Measurement  -  accurately  monitoring  soil  carbon 
stocks is technically complex and expensive, often requiring specialised sampling, 
analysis, and advanced MRV tools. As a result, many financial mechanisms rely on 
simpler or partial proxies, potentially overlooking crucial soil carbon dynamics. 

•  ELM (England) uses partial proxies rather than full result-based payments for 

soil carbon, reflecting high sampling costs. 

•  Rigorous  MRV  protocols  (e.g.,  MoorFutures,  Klimaskovfonden,  EIB  green 

bond standards) increase confidence in environmental outcomes. 

2.  CRCF  is  planning  to  implement  a  single,  standardised  approach  to  MRV,  but 
sufficient  financial  support  should  be  provided  for  successful  realization.High 
Perceived  Investor  Risk  -  agriculture’s  multi-year  timelines,  potential  yield 
variability, and regulatory uncertainty may deter private finance. 

•  KliK Foundation (Switzerland) addresses this by guaranteeing carbon credit 
(ITMO)  purchases,  reducing  uncertainty  that  would  otherwise  deter  private 
capital. 

3.  Adopting  similar  guarantee  mechanisms  within  CRCF’s  carbon  farming  could 
help  mitigate  investor  risk,  encourage  private-sector  participation,  and  foster  long-

8 

Source: 

https://agriculture.ec.europa.eu/common-agricultural-policy/cap-overview/cap-

glance_en#cap2023-27 

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Support to the design of policy options for financial incentives for carbon farming 

term  sustainability.Administrative  Expenditure  -  instruments  such  as  reverse 
auctions,  CfDs,  or  multi-stakeholder  offset  programmes  require  considerable 
institutional  and  financial  resources  for  effective  oversight,  potentially  diverting 
funding that could be directed to farmers to cover administrative costs. 

•  Sweden’s  Reverse  Auctions  for  Negative  Emissions entail  detailed  vetting 

and contracting, pushing up administrative burdens. 

•  Netherlands’  SDE++ requires  frequent  recalculations  of  subsidy  levels, 

creating similar overheads if extended to agricultural carbon. 

4.  Ensuring Financing of Permanent Carbon Sequestration – Adequate funding 
(in amount and regularity) should be made available to ensure that sequestration is 
permanent,  as  carbon  sequestration  is  an  essential  inherent  element  of  project 
quality and long-term investor confidence.   

•  MoorFutures (Germany) ties peatland rewetting to long-term management; 
any error risks rapid CO₂ re-release, mirroring challenges in agricultural soils 
needing multi-decade commitments. 

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Support to the design of policy options for financial incentives for carbon farming 

PART 3 – STUDY OF PRIVATE FINANCIAL 
INSTRUMENTS 

1. INTRODUCTION: METHODOLOGY  

To  gain  a  full  picture  of  innovative  financing  for  carbon  farming  credits,  we 
complemented  our  review  of  public  mechanisms  with  an  assessment  of  private  and 
public-private instruments. 

Twenty-seven initiatives, spanning procurement and purchasing programmes, as well 
as insurance and insetting programmes, were assessed according to criteria covering 
their  innovative  nature,  past  results,  impact,  cost,  ability  to  be  deployed  by  a  public 
entity on a European scale, etc. Following preliminary analysis, 4 types of instruments 
and initiatives were chosen for in-depth assessment given their heuristic value. 

The selected instruments are presented below. They are illustrated by case studies9, 
and  their  characteristics  and  relevance  are  assessed  and  summarized  in  a  SWOT 
analysis (Strengths, Weaknesses, Opportunities, Threats). 

2. ADVANCE MARKET COMMITMENTS 

Advance  Market  Commitments  (AMCs)  are  innovative  funding  mechanisms  that 
guarantee  a future  purchase or  subsidy for  a product  if  it  is  successfully  developed. 
Initially used to develop vaccines, AMCs are now used in the Voluntary Carbon Market 
(VCM). They help accelerate the development of innovative carbon projects, such as 
permanent  carbon  removal  technologies  and  nature-based  solutions.  By  ensuring 
future  demand  for  these  technologies,  AMCs  provide  a  financial  incentive  for 
companies to  invest  in and  scale  up  these  projects.  This  guaranteed  demand  helps 
secure  market  viability,  fostering  both  innovation  and  long-term  growth  in  the 
carbon market. 

SWOT analysis of Advance Market Commitments 

Strengths 

•  By guaranteeing demand, AMCs provide market confidence. Indeed, AMCs help attract 
private sector investment, thus facilitating the scaling of promising technologies. They also 
encourage potential buyers to join.   

•  AMCs  create  additional  supply  of  CDR  credits:  they  provide  a  predictable  and  secure 
revenue stream to carbon developers and encourage them to develop new technologies or 
improve existing ones. AMCs also help bridge the "valley of death" that often exists between 
early-stage technology development and widespread commercial adoption. 

•  As market pioneers, AMCs have access to privileged information that they can choose to 
share transparently (e.g., offtake agreement template, price paid per ton). This greatly 
influences the market and builds their reputation as market leaders. 

9 The initiatives selected as case studies in this research were chosen for their illustrative and heuristic 
value within the specific framework of the study. Their inclusion does not imply a judgment of superiority 
or broader relevance over other initiatives that were not selected. 

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Support to the design of policy options for financial incentives for carbon farming 

Weaknesses 

Opportunities 

Threats 

•  High delivery risks, with 
emerging technologies  

•  Several technological 

• 

pathways to explore 

•  High upfront cost, 

•  Room for a 

leadership/pioneer 
position as investor  

•  Potential for global 

• 

collaboration in between 
actors 

requiring long-term 
financial commitment 
from several buyers 

•  Complexity of 

establishing processes 
while navigating an 
emerging market 

Case study: Frontier  

Investment failures can 
lead to over-reaction by 
market players, and a 
loss of investor and 
public confidence 
Initial efforts may not be 
followed by renewed 
demand 

Frontier is a private initiative launched in April 2022 by Shopify, Meta, McKinsey, Stripe, and 
Alphabet. Its ambition is to buy an initial $1 billion of permanent CDR between 2022 
and 2030 and to help create net new carbon removal supply.  

Key takeaways for the deployment of European carbon farming  

•  Guaranteed demand for carbon credits is a powerful tool to start a carbon farming 
market, as they open the path for larger investments. They are a relevant inspiration 
in view of the European Commission’s objectives. 

•  Feasibility: the EC might consider opening participation to other investors and/or 
focusing solely on a pre-purchase track (serving as a guarantee of quality) as the 
amounts regularly deployed in AMCs might not be compatible with the EC’s budget. 

3. PRIVATE AND PUBLIC-PRIVATE CARBON FUNDS  

A  carbon fund  is  a financial  vehicle that  pools  capital  from  private  investors  and/or 
public sources that want to contribute to climate-positive projects. Carbon funds invest 
in  carbon  projects  designed  to reduce,  avoid,  or  remove  GHG  emissions  from  the 
atmosphere, while also delivering social and/or environmental co-benefits. Returns are 
typically distributed in cash or carbon credits that investors can sell for profits or use 
to meet their corporate sustainability targets. 

SWOT analysis of Carbon Funds 

Strengths 

•  Carbon funds allow broader participation from buyers whose carbon credits needs are 
too small to justify contracting for large projects, thus granting access to a more diverse 
portfolio of carbon projects.  

•  Buyers  can  leverage  the  fund’s  structured  approach  to  carbon  finance  and  its 
specialized expertise in project selection and risk management, saving time, effort, and 
cost of developing in-house capabilities.  

•  They enable buyers to engage in close partnerships with a high level of control over 

their project portfolios, ensuring alignment with their sustainability goals.  

•  They  mitigate  individual  investor  risk  by  pooling  resources,  improving  cost-
effectiveness, and diversifying investors’ portfolios of projects, reducing exposure to 
the performance risks of individual projects. 

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Support to the design of policy options for financial incentives for carbon farming 

•  They  provide  transparency  and  reporting  on  the  performance  of  invested  projects, 
promoting credibility and reputation, and enhancing the corporate buyer's public image in 
terms of responsible environmental action. 

Weaknesses 

Opportunities 

Threats 

•  Robust due diligence: 
Demand for greater 
quality guarantees to 
protect buyers' 
reputations. 
•  Strong interest in 
insetting projects. 

•  Reputational risk: if one 
project in the portfolio 
face issues, it can erode 
buyer confidence in the 
funds. 

•  Volatility of market prices 
(when selling credits) and 
buyers’ expectations 
(regarding claims). 

•  Long-term commitment: 
buyers sign up for the 
entire duration of the 
funds (10 to 20 years). 
•  Additional cost: Carbon 

funds charge 
management fees, which 
can typically reduce the 
overall return on 
investment. 

Case study: Livelihoods  

The  Livelihoods  Carbon  Funds  (LCF)  were  launched  in  2011  with  10  investors  (e.g., 
Danone,  Schneider  Electric,  Michelin,  Hermès,  La  Poste)  to  support  the  efforts  of 
agricultural and rural communities to live in sustainable ecosystems.  

Livelihoods Carbon Funds focus on agroforestry, ecosystem restoration, rural energy (such 
as cookstoves) and regenerative agriculture. Three funds invest in projects outside the 
value chain of their investors, and the last inside their value chains (insetting). 

Key takeaways for the deployment of European carbon farming  

•  Carbon funds are a historic tool in the voluntary carbon market and have proved their 
potential. They provide an efficient structure for a wide range of buyers to secure a 
long-term supply of high-quality carbon credits, enabling them to meet their climate 
commitments. 

•  Feasibility: The EC can rely on its track record in fund management to launch this 
type of structure. This type of structure does, however, require some thought to be 
given to the EC's level of involvement in projects and the impact on its image. 

4. CARBON INSURANCE 

Carbon insurance applies the core function of insurance to carbon transactions: it 
assesses, prices, and mitigates risk, enabling businesses to take (calculated) risk by 
swapping the uncertainty of future losses with the certainty of an insurance premium. 
The  risks  associated  with  the  VCM  are  low-frequency  but  high  severity,  and  can 
materialize  at  any  stage  of  a  carbon  project’s  lifecycle.  These  risks  can  be  natural 
catastrophes, fraud, crime and corruption, seller bankruptcy, government intervention 
(such as export bans), legal and regulatory changes... At present these risks are mostly 
transferred  from  one  market  participant  to  another.  By  protecting  against  significant 
losses and/or reducing financing costs, carbon insurance can play a crucial role in the 
maturation of the market. 

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Support to the design of policy options for financial incentives for carbon farming 

SWOT analysis of Carbon Insurance 

Strengths 

According to a survey by CFC, 64% of credits buyers have experienced losses from non-
delivery,  and  83%  would be more  inclined  to forward-purchase carbon credits  if  they 
could  insure  them  against  non-delivery  risk.10  Indeed,  carbon  insurance  provides  a 
stamp of confidence at several levels: 

• 

• 

• 

It  enables  buyers  to  secure  their  supply  of  carbon  credits  and  ensure  that  their 
associated climate targets are met.  
It provides buyers with long-term budget certainty for carbon purchasing, reducing 
exposure to price volatility. 
It  ensures  that  strong  due  diligence  and  fraud  checks  have  been  carried  out 
(mitigating reputational risk concerns) and risk management is in place. 

Weaknesses 

Opportunities 

Threats 

•  Most carbon insurance 
in 
the  market  only 
cover  part  of  the  risks 
faced by buyers, an all-
risk insurance is still to 
be developed. 

•  Strong  demand  from 
buyers 
carbon 
for 
insurance services (cf. 
CFC survey). 

of 

lack 

•  Carbon insurances suffer from 
the 
market 
transparency  (historical  and 
public  data)  to  define  and 
adapt  their  evaluation  of  risk 
levels and pricing strategy.  

Case study: Kita 

Kita is a private initiative founded in December 2021. Kita operates as a cover holder for 
Lloyd’s  of  London,  and  is  underwritten  by  Chaucer  Group,  Munich  Re  Innovation 
Syndicate, and RenaissanceRe. Kita’s core product is its Carbon Purchase Protection 
Cover. This is an indemnity insurance (i.e., comprehensive compensation for assessed 
losses  or  damages),  protecting  buyers  and  investors  of  forward-purchased  carbon 
credits against under-delivery. 

To  date,  the  insurance  covers  forestry,  biochar,  Enhanced  Rock  Weathering  (ERW) 
and mangrove projects, either as a single project or as part of a portfolio cover. The 
insurance must be purchased before the carbon credits are delivered. 

Key takeaways for the deployment of European carbon farming 

•  The deployment of insurance solutions is a prerequisite for the maturing of any type 
of market. Strong demand signals show that the carbon credits market is ready to 
make this step.  

•  Feasibility: The European Commission can actively contribute to the large-scale roll-
out of this type of service, given the low CAPEX required for launch and the historical 
presence of public institutions in the insurance sector (e.g., MIGA). 

10 CFC, An unmissable opportunity in the carbon market, 2024 

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Support to the design of policy options for financial incentives for carbon farming 

5. REWARDING MECHANISMS 

Rewarding  mechanisms  for  sustainable  agricultural  practices  within  the  agri-food 
supply chain are structured systems that offer financial or non-financial incentives 
to  farmers  and  agricultural  producers,  encouraging  the  adoption  of  environmentally 
sustainable practices. These mechanisms aim to align the interests of suppliers with 
sustainability objectives, rewarding them based on measurable criteria for actions that 
enhance  environmental  outcomes,  such  as  improving  soil  health,  conserving  water, 
promoting biodiversity, or reducing carbon emissions. Such mechanisms may include 
direct  payments  or  price  premiums  for  sustainable  practices,  long-term  supply 
contracts,  guaranteed  market  access,  support  in  the  form  of  technical  assistance, 
education, or access to sustainable farming tools. 

SWOT analysis of Rewarding Mechanisms 

Strengths 

Rewarding mechanisms align farmers’ economic interests with sustainability goals 
(benefit from higher and more diversified incomes based on their efforts), ensuring the 
viability of practices and long-term commitment.  

The  criteria  used  by  the  reward  system  can  be  used  to  guide  farmers'  choices,  and  to 
prioritize certain types of action over others. Additionally, the use of clear quantitative 
measurement criteria maximizes the effectiveness of the actions undertaken in relation 
to the financial resources invested. 

When benefiting from access to a clear catalogue of information, farmers are offered the 
flexibility to adapt their practices according to their local needs and constraints.  

Weaknesses 

Opportunities 

Threats 

•  Opportunity to reward 

•  Consistency: The 

•  Complexity of the 
reporting and 
administrative burden 
for farmers 

best-in-class farmers, in 
line with the CRCF's 
focus on quality 

•  The owner of the 

•  Opportunity for investors 

rewarding mechanism 
must mobilize a 
significant budget to 
pay rewards that make a 
significant difference to 
farmers’ income 

•  Dependency on external 
monitoring, which is 
costly and time-
consuming for farmers 

to invest in holistic 
approaches to 
regenerative practices 
that improve soil health 
and farms’ resilience. 
This could be extended 
to future nature credits.  

22 

chosen criteria must be 
maintained over time, 
despite a market that 
may undergo changes 
(scientific progress, 
regulation, co-benefits, 
etc.). 

•  Dependency: farmers 
become even more 
dependent on the 
company implementing 
the program. 
•  For result-based 

mechanisms, risk of 
excluding small 
farmers with no 
investment capacity 

 
 
 
Support to the design of policy options for financial incentives for carbon farming 

Case study: Arla Foods  

Arla  Foods  is  a  global  dairy  cooperative  and  the  fourth  largest  dairy  producer 
worldwide, overseeing a herd of 1.5 million cows in seven countries. As part of its 
efforts  to  reduce  its  environmental  impact,  Arla  introduced  its  FarmAhead 
Technology in 2022 - a point-based system that rewards past and future climate 
and environmental sustainability activities on farms. 

Key takeaways for the deployment of European carbon farming 

This  type  of  mechanism  allows  companies  to  decrease  emissions  within  their  value 
chain when traceability and links with farmers and are well established. However, to 
date,  it  has  not  been  applied  to  the  Voluntary  Carbon  Market.  Translation  upon  the 
VCM implies adjusting this mechanism to a voluntary certification framework delivering 
carbon credits. The following avenues could be explored: 

•  A  financial  reward  mechanism  to  give  best-in-class  project  developers  a  price 

advantage (competitive pricing through subsidy). 

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Support to the design of policy options for financial incentives for carbon farming 

PART 4 – CONCLUSION & WORKSHOP GOALS  

1. INITIAL RECOMMENDATIONS – 

KEY PARAMETERS OF FINANCING MODEL 

The  combined  study  of  public  and  private  mechanisms  has  led  to  a  number  of 
preliminary conclusions and recommendations specifically relevant to carbon farming: 

•  Upscaling the market through blended Finance: In light of the amount of capital 
required for the launch of such a market, the main objective of the EC should be to 
leverage public money to reduce commercial risk and attract additional capital (e.g., 
Switzerland’s  KliK  Foundation).  By  reducing  investment  uncertainty,  such  public-
private schemes can attract private capital into long-horizon carbon farming projects 
and achieve broader impact. 

•  Effort-based  vs.  result-based  support:  Carbon  farming  would  benefit  from  a 
combined  approach  that  provides  partial  upfront  support  for  practices  (like 
regenerative soil management or new equipment) while also rewarding measurable 
carbon gains (e.g., rewarding mechanisms such as Arla’s FarmAhead initiative, or 
Syngenta’s  Sustainable  Sourcing  Program).  Such  hybrid  models  help  farmers 
manage  liquidity  risks  and  cover  initial  transition  costs,  then  shift  focus  to 
performance-based payouts once outcomes are verifiably delivered. 

•  Multi-Year  Program:  The  EC’s  financial  instrument  must  align  with  the  varying 
lifespans of carbon projects and the extended duration required to achieve sustained 
environmental  impact  (carbon  permanence).  Mandating  10–20-year  contracts  and 
appropriate risk mitigation measures for carbon farming helps address the delayed 
payoffs  of  soil  carbon  initiatives  while  ensuring  longer-term  climate  benefits. 
Sweden’s  reverse  auction  scheme,  for  instance,  locks  in  15-year  contracts  for 
BECCS projects. Similarly, Frontier requires long-term commitment from buyers. 

•  Risk  mitigation  &  Adaptative  Design:  While  project  lifespans  can  extend  over 
decades,  market  expectations  can  evolve  rapidly  (e.g.  risks  mitigation  measures, 
definition  of  quality,  regulatory  compliance,  use  cases  associated  with  carbon 
insurance, 
farming  credits).  Flexible  risk  mitigation  schemes  (e.g.,  carbon 
guarantees), regular updates to risk assessments (e.g., California’s buffer pool) and 
subsidy adjustments (SDE++) ensure funding aligns continuously with actual carbon 
sequestration  performance,  enhancing  long-term  viability  and  responsiveness  in 
carbon farming schemes. 

While  these  parameters  are  critical  to  ensuring  the  viability  of  the  market,  its 
accessibility  and success  would also  depend  on  additional  demand-side  factors  that 
appear essential to operationalise carbon farming: 

•  Price competitivity of carbon farming activities and credits 

•  Communication  opportunities  and  role  of  carbon  credits  in  private  actors’ 

decarbonization strategies 

•  Compatibility  and  alignment  of  carbon  farming  with  existing  European  and 

international standards and methodologies 

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Support to the design of policy options for financial incentives for carbon farming 

2. WORKSHOP GOALS 

While this study aimed to identify some of the barriers and provide initial recommendations 
to  widespread  financing  of  carbon  farming,  it  appears  essential  to  validate  and  confront 
these conclusions and key takeaways with potential key stakeholders of the future carbon 
farming market.  

In pursuit of this goal, the EC will be organizing a workshop on May 20TH, 2025, afternoon 

to:  

•  Seek its stakeholders’ views and needs and on the key elements of a financing 

mechanism; 

•  Help the EC identify the main elements for the design of a “platform” aiming to 

promote carbon farming units with the sustainable finance community; 

•  Connect potential corporate buyers with the ecosystem.  

In particular discussions will aim to receive feedback on:  

•  What  are  the  key  insights  and  lessons  learnt  from  actors  involved  in  innovative 
initiatives? What are the key success factors that should be leveraged to structure 
a European carbon farming financial mechanism? 

•  How to best mobilise private funding for carbon farming?  
•  What  is  required  for  a  fund  to  be  able  to  raise  finance  from  banks/investors  to 

purchase carbon farming units? 

•  What should be the role of public entities in the market development? 

The reflections shared in this document are intended to initiate and feed the exchanges 
that will take place during the workshop. 

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Support to the design of policy options for financial incentives for carbon farming 

Support to the design of policy 
options for financial incentives 
for carbon farming 
Appendix to the Input paper - Carbon Farming 

26 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Support to the design of policy options for financial incentives for carbon farming 

Contents 

List of acronyms ............................................................................................. 28 

Appendix A: Detailed Case Studies Of Public Financial Instruments ....... 29 

1. 

2. 

3. 

Environmental Land Management (ELM) Schemes in the UK ............. 29 

British Columbia Carbon Neutral Government (CNG) Initiative ........... 30 

Denmark’s Klimaskovfonden (Climate Forest Fund) ............................ 31 

4.  Germany’s Wald-Klimastandard and MoorFutures Initiatives .............. 32 

5. 

UK’s Woodland Carbon Code and Woodland Carbon Guarantee (WCaG)

33 

6. 

7. 

8. 

9. 

The European Investment Bank’s (EIB) and the European Commission’s 
Natural Capital Financing Facility (NCFF) ........................................... 34 

The Netherlands' Sustainable Energy Production and Climate Transition 
(SDE++) Subsidy Scheme ................................................................... 35 

The UK Contracts for Difference (CfD) Scheme .................................. 36 

Sweden’s Reverse Auctions for Negative Emissions ........................... 37 

10.  California’s Forest Carbon Offsets Buffer Pool .................................... 38 

11.  Switzerland’s KliK Foundation ............................................................. 40 

12.  The European Investment Bank’s (EIB) Climate Awareness Bond (CAB)

41 

13.  European Hydrogen Bank (EHB) ......................................................... 42 

14.  France’s Onshore Wind Auctions ........................................................ 43 

Appendix B: Detailed Case Studies Of Private Financial Instruments ...... 45 

1. 

2. 

3. 

4. 

Frontier ................................................................................................ 45 

Livelihoods ........................................................................................... 46 

Kita ...................................................................................................... 48 

Arla Foods: FarmAhead Program ........................................................ 49 

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Support to the design of policy options for financial incentives for carbon farming  

List of acronyms 

•  AMC – Advance Market Commitment  

•  BiRCS – Biomass Carbon Removal and Storage 

•  BECCS – Bioenergy with Carbon Capture and Storage 

•  CAP – Common Agricultural Policy 

•  CCS – Carbon Capture and Storage 

•  CDR – Carbon Dioxide Removal  

•  CfD – Contracts for Difference 

•  CO₂ – Carbon Dioxide 

•  CRCF - Carbon Removals and Carbon Farming Regulation   

•  DAC – Direct Air Capture 

•  EC – European Commission  

•  ELM – Environmental Land Management 

•  EU – European Union 

•  MRV – Measurement, Reporting, and Verification 

• 

ITMO (or ITMOs in plural) – Internationally Transferred Mitigation 
Outcome(s) 

•  LULUCF – Land Use, Land-Use Change and Forestry 

•  SDE++ – the Netherlands’ subsidy scheme. (“SDE” stands for 
“Stimulering Duurzame Energieproductie” in Dutch, with “++” 
indicating an enhanced version) 

•  VCM – Voluntary Carbon Market 

•  UK – United Kingdom 

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Support to the design of policy options for financial incentives for carbon farming  

Appendix A:  Detailed Case  Studies  Of  Public  Financial 
Instruments 

1.1. 

Environmental Land Management (ELM) Schemes in 

the UK 

Description 

The Environmental Land Management (ELM) schemes are UK government initiatives 
designed to compensate land managers in England for adopting sustainable farming 
practices  that  provide  environmental  benefits.  Following  Brexit,  ELM  replaces  the 
EU's Common Agricultural Policy and comprises three main programmes:  

•  Sustainable  Farming  Incentive  (SFI):  Encourages  accessible  actions 
with  payments  linked  to  specific  practices  aimed  at  environmental 
outcomes,  with  future  iterations  expected  to  focus  more  on  measurable 
results. 

•  Countryside Stewardship (CS): Historically prescriptive, this scheme is 
evolving  to  include  more  outcome-based  elements,  allowing  greater 
flexibility for farmers to tailor their actions. 

•  Landscape  Recovery  (LR):  Explicitly  aims  for  significant  long-term 
environmental benefits, with payments tied to measurable milestones over 
projects typically lasting 20 years. 

Key approaches and features: 

ELM is characterised by its outcome-based financing models, where payments are 
linked  to  deliverable  environmental  improvements,  such  as  carbon  sequestration. 
Currently, ELM does not issue carbon credits but is exploring how robust monitoring 
and verification systems could potentially link to private carbon markets. 

Challenges identified: in implementing ELM include: 

•  Complexity of tiered schemes and transitioning from past structures 

•  Ensuring a return on investment for farmers 

•  Limited private investment opportunities 

•  Data gaps in measuring outcomes 

Proposed solutions involve simplified application processes, premium payments for 
high-impact  actions,  and  piloting  innovative  technologies  like  remote  sensing  and 
blockchain for effective monitoring. 

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Overall,  ELM  represents  a  significant  shift  towards  incentivising  environmental 
stewardship within the agricultural sector. 

1.2.  British Columbia Carbon Neutral Government (CNG) 

Initiative 

Description 

Established  in  2008,  British  Columbia’s  Carbon  Neutral  Government  (CNG) 
program mandates all provincial public sector organisations (PSOs) to achieve 
annual  carbon  neutrality.  This  entails  reducing  operational  emissions  and 
offsetting any residual emissions through the purchase of verified carbon credits. 
As of 2025, the program remains active, requiring PSOs to report their emissions 
and  implement  strategies  for  reduction  while  engaging  in  offset  purchasing 
through initiatives like the BC Carbon Offset Portfolio. 

Key approaches and features:   

Incentivisation  of  Result-Based  Carbon  Reduction:  The 
• 
program  promotes  carbon  reduction  through  its  offset  purchasing 
framework, which funds projects such as forest carbon sequestration and 
methane  capture.  While  it  indirectly  supports  agricultural  initiatives  via 
protocols like the Forest Carbon Offset Protocol (FCOP), its primary focus 
remains on forestry-related offsets. 

•  Mandatory  Compliance:  PSOs  are  required  to  purchase  offsets  to 
neutralise  their  emissions.  For  instance,  in  2019,  health  authorities  and 
educational institutions purchased over 588,000 tonnes of CO₂e offsets, 
primarily from local projects. 

•  Regulatory Framework: The CNG operates on legally binding mandates 
rather than direct subsidies, enforcing annual carbon neutrality reporting 
and  stimulating  demand  in  the  offset  market,  thereby  supporting  private 
offset project developers. 

Challenges identified: 

•  High offset costs, which affect the financial viability for PSOs. 

•  Over-reliance  on  purchasing  offsets  instead  of  implementing  structural 

emission reductions. 

Limited  integration  of  carbon  farming  within  the  program,  with  most  offsets 

sourced from forestry 

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1.3.  Denmark’s Klimaskovfonden (Climate Forest Fund) 

Description 

Established in 2020, Denmark's Klimaskovfonden (Danish Climate Forest Fund) 
is  a  state-funded,  independent  initiative  aimed  at  enhancing  forest  cover  in 
Denmark to bolster carbon sequestration and support national climate objectives. 
The  fund  actively  purchases  land  for  afforestation  and  provides  grants  and 
subsidies to private landowners for establishing new forests. A distinctive feature 
of Klimaskovfonden is its commitment to long-term carbon storage through direct 
land acquisition, supported by a blend of public and potentially private funding in 
the future. 

Key Approaches and features: 

•  Performance-Based Funding Model: Payments are disbursed only after 
verified increases in carbon stocks, ensuring that funds are linked directly to 
tangible environmental outcomes. 

•  Robust  Measurement,  Reporting,  and  Verification  (MRV)  System: 
This comprehensive framework monitors carbon uptake over time, providing 
reliable data that underpins result-based financing. 

•  Voluntary  CO₂  Credits  Standard  Development:  The 
fund  has 
established  the  first  Danish  standard  for  nature-based  climate  projects, 
enabling  various  stakeholders  to  contribute  to  Denmark’s  climate  efforts 
through local projects. 

•  Contractual  and  Competitive  Engagements:  The 
fund  employs 
performance-based  contracts  and  competitive  bidding  processes  with 
landowners,  promoting  efficiency  and  innovation  in  land  management 
practices. 

•  Blended  Finance  Mechanism:  By  integrating  public  funds  with  private 
investments,  the  fund  reduces  risk  and  enhances  scalability,  creating  a 
sustainable funding structure for carbon sequestration projects. 

Challenges identified: 

1.  Complexity in Verification and MRV Systems: The rigorous framework 
may lead to administrative delays. 

2.  Scaling  and  Standardisation  Across  Regions:  Uniform  performance 
criteria can be challenging across diverse geographical areas. 

3.  Stakeholder Engagement: Ensuring landowners and local stakeholders 
understand performance-based requirements can be difficult. 

4.  Long-Term Funding Commitments: Sustaining public funding over the 
long term is challenging due to fluctuating political priorities. 

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Overall, Denmark’s Klimaskovfonden represents a proactive approach to carbon 
sequestration  through  afforestation,  linking  public  financing  directly  to  verified 
outcomes  while  addressing  various  operational  challenges  through  innovative 
funding and engagement strategies. 

1.4.  Germany’s  Wald-Klimastandard  and  MoorFutures 
Initiatives 

Description 

Germany’s  Wald-Klimastandard  and  MoorFutures  are  national  frameworks 
designed to finance carbon farming by linking public funding to verifiable climate 
benefits derived from sustainable forest management and peatland restoration. 
These initiatives operate under the auspices of multi-stakeholder consortia that 
include  key  public  bodies  such  as  the  German  Federal  Environment  Agency 
(UBA) and  the  Federal Ministry for the  Environment  (BMU).  Both programmes 
utilise robust Measurement, Reporting, and Verification (MRV) systems to ensure 
that funding is allocated only after confirmed carbon sequestration or emission 
reductions. 

Wald-Klimastandard: Currently in the accreditation phase, this initiative focuses 
on  sustainable  forest  management,  rewarding  landowners  who  transition  to 
mixed-species forests that enhance biodiversity and resilience. 

MoorFutures: Operational since 2010, this programme issues voluntary carbon 
credits for rewetting degraded peatlands, which significantly cuts CO₂ emissions. 
It has facilitated over 68,000 tonnes of CO₂ equivalent reductions through various 
funded projects. 

Key approaches and features: 

•  Ex-Ante Credit Issuance: MoorFutures employs a model where credits 
are sold upfront to finance peatland restoration, transferring financial risk from 
landowners  to  buyers.  A  buffer mechanism  ensures  that  30%  of  credits  are 
withheld to account for uncertainty in reductions. 

•  Performance-Based  Payment  Mechanism:  Both  initiatives  follow  a 
model  where  public  funds  are  released  only  after  achieving  predefined, 
independently verified climate performance targets. 

in 
Integration  with  Carbon  Markets:  By  quantifying  outcomes 
• 
standardized  carbon  units,  the  initiatives  link  public  financing  with  broader 
carbon market mechanisms, enhancing transparency and accountability. 

Challenges identified: 

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1.  Complexity and Cost of MRV Processes: The rigorous requirements for 
monitoring may impose high costs, limiting participation, especially for smaller 
landowners. 

2.  Long-Term Liability: Ensuring compliance with carbon credit stewardship 
requires binding legal contracts for future landowners. 

3.  Market Fragmentation: The niche focus of Wald-Klimastandard may limit 
demand for credits. 

4.  Policy  Misalignment:  Current  Common  Agricultural  Policy  (CAP) 
subsidies for intensive farming may undermine carbon farming incentives. 

5.  Market  Liquidity  and  Scaling:  Early-stage  pilot  projects  may  struggle 
with limited liquidity in the carbon credit market. 

1.5.  UK’s  Woodland  Carbon  Code  and  Woodland  Carbon 
Guarantee (WCaG) 

Description 

The  UK’s  Woodland  Carbon  Code  (WCC)  and  Woodland  Carbon  Guarantee 
(WCaG) represent national initiatives aimed at promoting sustainable woodland 
creation  by  linking  public  financial  support  to  verified  carbon  sequestration 
outcomes. The WCC serves as a government-backed certification standard for 
woodland  projects,  ensuring  measurable  carbon  sequestration 
through 
independent validation and verification of Woodland Carbon Units (WCUs). The 
WCaG, which operated from 2019 to 2024 with a fund of £50 million, provided 
landowners  with  guaranteed,  inflation-linked  payments  for  WCUs  derived  from 
competitive  auctions.  As  of  February  2025,  the  WCaG  is  closed  to  new 
applications, but existing contracts continue. 

Key approaches and features: 

•  Hybrid  Auction  Mechanism:  The  WCaG  employs  a  unique  auction 
system where landowners bid to sell WCUs at their desired prices, with the 
government setting a reserve price (£30/unit in 2023) to ensure a minimum 
value.  Successful  bidders  secured  long-term  contracts  (35  years)  with 
payments  adjusted  for  inflation,  allowing  for flexibility  to  sell  credits  on  the 
open market if prices exceeded the guaranteed rate. 

•  Outcome-Linked Payments: Both initiatives ensure that public funds are 
only  disbursed  after  rigorous  measurement,  reporting,  and  verification  of 
carbon  sequestration  outcomes, 
to  actual 
environmental performance. 

linking  payments 

thereby 

•  Government Guarantee Mechanism: The WCaG provides a safety net 
by  backing  carbon  credits,  reducing  market  and  revenue  risks  for  project 

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developers, and facilitating private investment through reassurance of credit 
quality and value. 

•  Robust  MRV  Framework:  The  combination  of  stringent  measurement, 
reporting, and verification protocols ensures that financing is directly linked 
to  quantifiable  carbon  sequestration,  aligning  public  expenditure  with  real-
world environmental performance. 

Challenges identified: 

1.  Complex Carbon Accounting: High costs for validation/verification can 
discourage participation, particularly among smallholders. 

2.  Upfront Financing Gaps: Insufficient grants for tree planting can hinder 
project establishment. 

3.  Species Restrictions: Eligibility barriers for productive conifer plantations 
under additionality tests limit participation. 

4.  Market  Volatility:  Fluctuations  in  carbon  credit  prices  can  undermine 
revenue certainty. 

5.  Robustness of MRV Systems: Ensuring accurate monitoring of carbon 
sequestration  over  time  and  across  various  woodland  types  remains 
challenging. 

the 
1.6.  The  European 
European  Commission’s  Natural  Capital  Financing  Facility 
(NCFF)  

Investment  Bank’s  (EIB)  and 

Description 

The  Natural  Capital  Financing  Facility  (NCFF)  is  a  financial  instrument 
collaboratively  established  by  the  European  Investment  Bank  (EIB)  and  the 
European Commission to support projects that enhance biodiversity and climate 
adaptation  across  EU  Member  States.  Launched  in  2015,  the  NCFF  aimed  to 
provide  loans  and  investments  backed  by  an  EU  guarantee  for  projects  that 
create  revenue  or  yield  cost  savings  while  positively  impacting  natural  capital. 
Although the facility successfully rolled out €400 million in investments by 2018, 
it is currently closed to new applications as it has concluded its pilot phase. 

Key approaches and features of the NCFF: 

•  Performance-Linked  Financing:  Funding  is  disbursed  in  tranches 
contingent  on  achieving  predefined,  verifiable  environmental  outcomes. 
Payments  are  triggered  only  upon  independent  confirmation  of  carbon 
sequestration or emissions reduction targets. 

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•  Blended Finance Approach: The NCFF employs a mix of public funds 
and  private  capital,  combining  grants  or  concessional  finance  with  private 
investments  through  instruments  like  guarantees  or  green  bonds.  This 
approach  de-risks  projects  and  encourages  private  sector  involvement  in 
achieving environmental results. 

•  Robust  Monitoring,  Reporting,  and  Verification  (MRV):  The  NCFF 
to  ensure  accurate  measurement  of 
integrates  an  MRV  system 
environmental  performance.  This  system  underpins 
the  result-based 
disbursement mechanism, ensuring funds are released only on demonstrable 
impacts. 

•  EU-Wide Initiative: The NCFF is designed to support projects exclusively 
within EU Member States, aligning with broader EU climate and sustainability 
objectives. 

Challenges identified: 

1.  Complexity  of  MRV  Systems:  Establishing  standardized,  reliable  MRV 

systems across diverse projects can be challenging. 

2.  Mobilization  of  Private  Capital:  Attracting  private  investment  is  often 

hindered by perceived market risks. 

3.  Administrative  and  Regulatory  Complexity:  Coordinating  across 
multiple  EU  member  states  while  ensuring  compliance  with  evolving 
regulations poses challenges. 

4.  Market Maturity and Innovation: The nascent stage of carbon farming 
and natural capital markets leads to uncertainties in generating and trading 
environmental credits. 

1.7.  The  Netherlands'  Sustainable  Energy  Production  and 
Climate Transition (SDE++) Subsidy Scheme 

Description 

The  Stimulation  of  Sustainable  Energy  Production  and  Climate  Transition 
(SDE++) is a result-based operating subsidy scheme in the Netherlands designed 
to close the gap between the costs associated with renewable energy production 
and  CO₂  reduction  technologies  and  their  market  revenues.  Launched  with  a 
budget  of  €11.5  billion  for  the  2024  round,  the  SDE++  operates  through  a 
competitive  bidding  process  that  awards  subsidies  based  on  the  difference 
between a project's costs and its market revenues, 

linking payments directly to verified performance outcomes. As of February 2025, 
the scheme was temporarily closed to new applications. 

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Key approaches and features: 

•  Subsidy Intensity Model: The scheme prioritises projects based on their 
subsidy  requirement  per  ton  of  CO₂  reduced,  promoting  cost-effective 
solutions.  The  subsidy  amounts  adjust  annually  based  on  market  prices  for 
energy or CO₂, ensuring that public funds only cover the "unprofitable" portion 
of projects. 

•  Contract-for-Difference  Mechanism:  Subsidies  are  calculated  as  the 
difference between a fixed base rate and a variable corrective amount that is 
updated  annually.  This  ensures  that  funds  are  allocated  only  when  real, 
verified emissions reductions occur. 

•  Performance-Driven  Incentives:  The  mechanism  rewards  projects  for 
actual outputs, whether in terms of energy produced or CO₂ reduced, creating 
incentives  to  optimise  operations  and  reduce  costs  per  unit  of  carbon 
reduction. 

•  Dynamic  Adjustments  and  Phased  Implementation:  The  annual 
recalibration  of  subsidies  allows  for  responsiveness  to  changing  market 
conditions,  while  phased  applications  encourage  the  adoption  of  efficient 
technologies and gradually reduce public support as market competitiveness 
increases. 

Challenges identified: 

1.  Grid Capacity Constraints: The rapid growth of renewable projects has 
strained  the  electricity  grid,  delaying  connections  and  affecting  project 
deployment. 

2.  Regulatory  and  Permitting  Delays:  Lengthy  permitting  processes  can 
postpone project initiation, discouraging participation. 

Labor  Market  Shortages:  A  shortage  of  skilled  professionals  in  the 

3. 
energy sector hampers the implementation of renewable energy projects. 

1.8.  The UK Contracts for Difference (CfD) Scheme 

Description 

The  UK  Contracts  for  Difference  (CfD)  scheme  is  a  government-backed, 
performance-based financing mechanism aimed at supporting low-carbon energy 
projects. It operates through a reverse auction model that guarantees generators 
a fixed "strike price" for 15 years, effectively insulating them from fluctuations in 
wholesale  market  prices.  While  primarily  focused  on  renewable  energy 
infrastructure,  such  as  offshore  wind  and  solar,  the  scheme  has  been 
instrumental  in  driving  significant  investments  in  low-carbon  energy,  securing 
record capacities in its recent allocation rounds. 

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Key approaches and features: 

•  Reverse Auction Mechanism: Developers bid strike prices until a budget 
cap is reached. This competitive allocation ensures public funds are directed 
towards  projects  that  offer  the  best  value  for  money  in  terms  of  carbon 
reduction. 

•  Result-Based Payments:  Payments  are made  based on the difference 
between  a  predetermined  strike  price  and  the  actual  market  price  for  the 
electricity generated, ensuring funding is tied directly to successful delivery of 
carbon reduction outcomes. 

•  Risk  Mitigation  via  Long-Term  Contracts:  By  providing  long-term 
revenue  guarantees, 
risks, 
incentivising investment in low-carbon infrastructure. 

the  scheme  minimizes  market  volatility 

Challenges identified: 

1.  Budget  Rigidity:  Fixed  annual  budgets  can  lead  to  underspending,  as 
evidenced by a shortfall in 2023 for offshore wind projects. 

2.  Consumer  Cost  Exposure:  The  levy-funded  model  can  transfer  price 
risks to households, potentially leading to public discontent. 

3.  Technology  Exclusion:  High  capital  requirements  may  disadvantage 
small-scale carbon projects. 

4.  Market  Price  Uncertainty:  Fluctuations  in  energy  market  prices  can 
disrupt the balance between strike prices and market revenues. 

5.  Administrative Complexity: The long-term nature of CfDs can result in 
extended procurement periods, delaying project initiation. 

6.  Limited Scope for Emerging Initiatives: The CfD model is not well suited 
to newer or smaller-scale carbon initiatives, such as carbon farming. 

1.9.  Sweden’s Reverse Auctions for Negative Emissions 

Description 

Sweden’s  Reverse  Auctions  for  Negative  Emissions,  administered  by  the 
Swedish Energy Agency, is a state-funded program launched in August 2024 to 
incentivise  large-scale  Bioenergy  with  Carbon  Capture  and  Storage  (BECCS) 
projects.  With  a  total budget  of  €3  billion  allocated  for the period  from 2026  to 
2046,  the  initiative  awards  15-year  subsidies  through  competitive  reverse 
auctions where bidders proposing the lowest support requirement per tonne of 

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captured biogenic CO₂ are awarded contracts. Projects must capture more than 
50,000 tonnes of CO₂ per year and must achieve geological storage within three 
years, extendable to five. 

Key approaches and features: 

•  Cost Efficiency: The reverse auction structure allocates subsidies to the 
projects  requiring  the  least  state  support per  tonne,  fostering  cost  discipline 
and efficient use of public funds. 

•  Hybrid Financing: Awardees can sell carbon removal credits on voluntary 
markets,  with  state  aid  being  reduced  by  revenue  from  these  sales.  This 
mechanism  bridges  public  and  private  financing  and  encourages  market 
participation. 

•  Long-Term Subsidies: The 15-year contracts cover both capital (CAPEX) 
and  operational  (OPEX)  costs,  mitigating  the  financial  risks  associated  with 
investments in carbon capture and storage infrastructure. 

•  Competitive, Results-Based Bidding: Developers submit bids indicating 
the cost at which they can deliver verified negative emissions. Contracts are 
awarded  to  the  lowest  bidders  that  meet  established  performance  and 
verification criteria. 

•  Performance-Contingent Payments: Payments are disbursed only after 
successful  demonstration  and  verification  of  negative  emission  outcomes, 
ensuring public funds are tied directly to credible environmental results. 

Challenges identified: 

1.  Additionality and Permanence Risks: Ensuring that carbon sequestered 
is genuinely additional and maintained over time is critical. Projects may claim 
credits without delivering lasting benefits. 

2.  Cost-Effectiveness vs. Environmental Integrity: Balancing competitive 
pricing  with  stringent  environmental  standards  is  essential;  low  bids  may 
compromise environmental outcomes. 

3.  Hybrid Models and International Agreements: Combining state aid with 
voluntary  sales  diversifies  revenue  streams  and  enhances  project  viability. 
Bilateral  agreements  with  countries  like  Norway  and  Denmark  can  secure 
access to storage solutions. 

1.10. California’s Forest Carbon Offsets Buffer Pool 

Description 

California’s  Forest  Carbon  Offsets  Buffer  Pool  is  a  risk-mitigation  mechanism 
within  the  state’s  cap-and-trade  program,  administered  by  the  California  Air 

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Resources Board (CARB). This initiative aims to ensure the permanence of forest 
carbon  offsets  over  a  100-year  timeframe  by setting  aside  a  portion  of  credits 
from  registered  projects  to  cover potential reversals,  such  as  those  caused by 
wildfires or diseases. Projects contribute between 8.7% and 19.2% of their credits 
to the pool based on rigorous risk assessments. However, as of 2025, studies 
indicate significant undercapitalization due to wildfire losses, which have depleted 
approximately 95% of wildfire-specific reserves within a decade. 

Key Features and Innovations: 

Risk-Weighted Contribution Model: Projects allocate a portion of their 
• 
credits to the buffer pool based on specific actuarial risks (such as wildfire and 
disease), creating a collective reserve to cover any potential carbon loss. 

Dynamic  Risk  Categorization:  Contributions  for  wildfire  risks  (ranging 
• 
from  2%  to  4%)  adjust  based  on  active  management  practices,  incentivising 
proactive measures for fire mitigation. 

Liability Scaling: The program ties credit contributions to onsite carbon 
• 
stocks,  resulting  in  a 3:1  liability-to-asset  ratio,  though  this  has  contributed to 
undercapitalization issues. 

Result-Contingent  Credit  Retirement:  The  buffer  pool  automatically 
• 
retires  credits  to  compensate  for  verified  carbon  reversals,  ensuring  that 
ongoing 
long-term  carbon 
sequestration. 

financial  benefits  are 

to  demonstrated 

tied 

Market Integrity and Incentive Alignment: By linking credit issuance to 
• 
verified  results  over  time,  the  mechanism  creates  a  result-based  financing 
structure that aligns public support with measurable environmental outcomes. 

Challenges identified: 

1.  Undercapitalization: Current risks from wildfires and diseases exceed the 
contributions made to the buffer pool, leading to potential insolvency. 

2.  Cross-Fungibility  Risks:  There  is  an  over-reliance  on  stable  risk 
categories to offset more volatile ones, such as wildfires. 

3.  Uncertainty  in  Risk  Quantification:  The  dynamic  nature  of  forest 
ecosystems  complicates  accurate  risk  estimations,  leading  to  inadequate 
calibration of credit contributions. 

4.  Monitoring,  Reporting,  and  Verification  (MRV)  Limitations:  Gaps  in 
data collection or delays in verification can hinder the pool’s ability to respond 
promptly to reversals. 

5.  Need for Adaptive Management: The static nature of current contribution 
rates may not reflect emerging risks. 

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1.11. Switzerland’s KliK Foundation 

Description 

The  Swiss KliK  Foundation,  established under the  Swiss  CO₂  Act,  is a private 
entity aimed at offsetting greenhouse gas emissions from Switzerland’s transport 
sector  by 
financing  climate  protection  projects  both  domestically  and 
internationally.  Since  its  inception  in  2012,  the  foundation  has  fulfilled  legal 
obligations  for  fuel  importers  by  purchasing  certified  emission  reductions 
(attestations)  from  verified  projects  that  promote  clean  technology  in  various 
sectors. By underwriting potential loan defaults, KliK reduces credit risk for banks, 
facilitating 
that  sequester  carbon  and  advance 
environmental sustainability. By 2030, the foundation aims to achieve a reduction 
of 40 million tonnes of CO₂, with half of that target to be met through domestic 
projects and the remainder through international agreements, including initiatives 
in Ghana and Thailand. 

for  projects 

financing 

Key features and innovations: 

•  Certificate-Based  Financing  Model:  Projects  receive  upfront  funding 
based  on  projected  CO₂  reductions,  with  payments  contingent  upon 
independent  verification  and  certification  by  the  Federal  Office  for  the 
Environment  (FOEN).  This  ensures  that  funds  are  distributed  only  after 
quantifiable results are demonstrated. 

•  Performance-Linked  Guarantees:  The  activation  of  guarantees  is 
contingent upon independent verification of carbon reduction or sequestration 
targets,  providing  financial  risk  coverage  only  when  projects  meet  agreed 
performance metrics. 

•  Risk  Mitigation  to  Leverage  Capital:  By  offering  guarantees,  the  KliK 
Foundation  de-risks  investments  for  banks  and  other  financial  institutions, 
facilitating access to lower-cost financing and encouraging private investment 
in carbon farming projects. 

•  Third-Party Verification Mechanism: External assessments are used to 
verify that projects have achieved their carbon reduction milestones, ensuring 
accountability and performance transparency. 

•  Portfolio Approach for Diversification: KliK may implement a portfolio 
strategy  where  guarantees  cover  a  range  of  projects,  spreading  risk  and 
enhancing the resilience of the financing scheme while maintaining a focus on 
outcome-based disbursement. 

Innovative Projects: The foundation funds international projects, such as 
• 
Ghana’s  cookstove  initiative  and  Thailand’s  electric  bus  program,  which 
generate  Internationally  Transferred  Mitigation  Outcomes  (ITMOs)  to  offset 
Swiss transport emissions. 

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Challenges identified: 

1.  Data  Gaps  and  Verification  Challenges:  Inconsistent  measurement 
standards  and  monitoring  processes  complicate  risk  assessment  and 
verification of outcomes. 

2.  Complexity of Project Structures: Diverse stakeholder involvement can 
lead to fragmented financing needs. 

3.  Uncertainty in Revenue Streams: Fluctuating carbon credit prices create 
uncertainty in revenue, which heightens perceived risk.  

1.12. The  European 
Awareness Bond (CAB) 

Investment  Bank’s 

(EIB)  Climate 

Description 

The  European  Investment  Bank  (EIB)  launched  the  Climate  Awareness  Bond 
(CAB)  in  2007  as  the  world's  first  green  bond  aimed  at  financing  projects  that 
contribute to climate change mitigation and adaptation. As of 2024, the CAB has 
successfully raised over €100 billion, with proceeds allocated to key areas such 
as  renewable  energy,  energy  efficiency,  low-carbon  transport,  and  biodiversity 
projects.  The  CAB  aligns  with  the  EIB  Group’s Climate  Bank  Roadmap  2021–
2025,  which  commits  to  mobilising  €1  trillion  for  green  investments  by  2030. 
Recent  innovations  include  the  introduction  of  blockchain-based  issuances  to 
enhance transparency. 

Key features and innovations: 

•  Performance-Linked  Financing  Mechanisms:  The  CAB  employs 
various innovative financing structures, such as: 

▪ 
Interest Rate Incentives: Loans, such as the €600 million loan to  Enel, 
link interest rates to CO₂ reduction targets, providing penalties for unmet goals 
and rewards for achieving emissions reductions. 

▪  Blockchain-Enabled  Bonds:  A  recent  CAB  uses  a  “Proof  of  Climate 
awareness”  protocol,  incentivising  energy-efficient  blockchain  validation  and 
ensuring real-time tracking of environmental impacts. 

•  Outcome-Linked  Allocation:  The  CAB  framework  allocates  funds  to 
projects that demonstrate verifiable climate benefits, creating an implicit result-
based mechanism for financing. 

•  Rigorous Monitoring and Verification (MRV): Projects financed under 
the  CAB  are  subjected  to  robust  MRV  processes,  ensuring  that  carbon 
sequestration outcomes are quantified and independently verified. 

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•  Adaptability  to  Carbon  Removal  Initiatives:  The  CAB's  structure  is 
flexible enough to support a wide range of climate projects, including carbon 
farming initiatives that can provide verifiable data on carbon sequestration. 

Challenges identified: 

1. 
Measurement and Verification Complexity: Establishing a robust MRV 
framework  is  resource-intensive,  requiring  advanced  data  collection  and 
independent verification. 

2. 
Standardization of Performance Metrics: Evolving methodologies and 
a lack of harmonized standards for measuring carbon reductions can complicate 
performance assessments. 

3. 
Market  Familiarity  and  Risk  Management:  The  performance-linked 
nature of the CAB introduces novel financial risks for traditional investors, leading 
to uncertainty in cash flows tied to project outcomes. 

Stakeholder  Alignment:  Ensuring  alignment  between  performance 

4. 
criteria and evolving EU climate objectives requires continuous engagement. 

1.13. European Hydrogen Bank (EHB) 

Description 

The European Hydrogen Bank (EHB) is an EU financing mechanism established 
under  the  Innovation  Fund,  launched  in  2022  to  de-risk  renewable  hydrogen 
production by bridging the cost gap between fossil and renewable hydrogen. It 
operates  through  competitive  auctions,  awarding  fixed  premiums  for  verified 
output over a period of 10 years. As of February 2025, the second auction, which 
launched in December 2024, is active with a budget of €1.2 billion, including a 
€200 million maritime hydrogen basket. The first auction allocated €720 million to 
seven  projects,  primarily  in  renewable-rich  regions  such  as  Iberia  and  the 
Nordics. 

Key features and innovations: 

Contracts  for  Difference  (CfD):  The  EHB  employs  a  CfD  mechanism, 
• 
where successful bidders in the auction are guaranteed a fixed premium on top 
of the market price for hydrogen produced. This ensures that funding aligns with 
actual output, rather than upfront capital expenditure. 

• 

Competitive Auctions: The auction process allows renewable hydrogen 
producers  to  bid  for  support,  ensuring  cost-effectiveness  and  price 
discovery in the emerging hydrogen market. 

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Auction-as-a-Service  (AaaS):  Member  states  can  supplement  EU 
• 
funding  with  national  contributions,  expanding  the  overall  funding  pool  to 
approximately €2 billion. 

•  Output-Based  Subsidies:  Payments  under  the  EHB  are  tied  to  certified 
integrity  and 

renewable  hydrogen  volumes,  ensuring  environmental 
compliance with the Renewable Energy Directive (RED III). 

Resilience Criteria: The EHB imposes mandatory thresholds for locally 
• 
manufactured  electrolyser  components  and  cybersecurity  compliance  to 
strengthen supply chains. 

Challenges identified: 

1.  High  Costs:  Renewable  hydrogen  production  remains  2-4  times  more 
expensive than fossil-based alternatives, despite subsidies. 

2.  Supply  Chain  Bottlenecks:  Overreliance  on  Chinese  electrolyser 
manufacturing may hinder European production capabilities. 

3.  Project Delays: Delays in finalising agreements may risk missing financial 
investment decision (FID) deadlines. 

4.  Market Familiarity and Risk: Investors may be deterred by high capital 
costs and perceived project risks despite the existence of CfDs. 

5.  Auction Complexity: Designing competitive and transparent auctions at 
the EU level is challenging. 

6.  Additionality and Impact Verification: Ensuring that funds are allocated 
to new renewable hydrogen projects that result in genuine emissions reductions 
is vital. 

1.14. France’s Onshore Wind Auctions 

Description 

France's  Onshore  Wind  Auctions  are  a  national  initiative  by  the  French 
government  designed  to  competitively  procure  electricity  from  onshore  wind 
farms  using  a  Contract  for  Difference  (CfD)  mechanism  managed  by  “the 
Commission de Régulation de l’Énergie” (CRE). Through periodic auctions, wind 
farm  developers  bid  for  a  guaranteed  tariff  (price  per  MWh)  for  the  electricity 
produced over a 20-year period. This initiative aims to boost France's renewable 
energy capacity, reduce electricity costs through competition, and contribute to 
national decarbonization targets. The government targets an increase of 33–35 
GW of onshore wind capacity by 2030. 

Key approaches and features of the Auctions: 

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Competitive Bidding: Periodic auctions allow wind farm developers to bid 
• 
for a fixed tariff, encouraging cost-effective energy generation. For example, the 
recent AO 15 auction in July 2024 awarded approximately 1,058.1 MW at an 
average price of €87.80/MWh. 

Contract for Difference (CfD): Successful bidders are awarded a 20-year 
• 
CfD,  guaranteeing  them  a  stable  revenue  stream  and  protecting  them  from 
market  price  fluctuations.  If  the  market  price  is  below  the  agreed  tariff,  the 
government pays the difference, ensuring financial viability. 

Outcome-Based  Payments:  Payments  are  contingent  on  actual 

• 
electricity production, creating a direct link between funding and performance. 

Long-Term Revenue Certainty: The CfD mechanism provides revenue 

• 
certainty for developers, incentivising investment in onshore wind projects. 

Challenges identified: 

1.  Grid Connection and Permitting Delays: Lengthy permitting processes 
and  grid  connection  delays  can  increase  development  times  and  costs, 
deterring investment. 

2.  Auction  Design  Complexity  and  Risk  Allocation:  Complex  auction 
designs can deter participation from smaller developers. 

3.  Ensuring Long-Term Tariff Adequacy: Tariffs need to be set to ensure 
financial viability in the long term, reflecting inflation and market fluctuations. 

Consideration of Non-Price Factors: Current auctions primarily focus on price, 
potentially overlooking other important criteria. 

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Appendix  B:  Detailed  Case  Studies  Of  Private 
Financial Instruments  

1.1.  Frontier  

Description 

Frontier is a private initiative launched in April 2022 by Shopify, Meta, McKinsey, 
Stripe, and Alphabet. It is an advanced market commitment (AMC) that aims 
to  accelerate  the  development  of  permanent  carbon  removal  technologies  by 
guaranteeing  future  purchases.  Frontier  provides  a  financial  incentive  for 
companies  to  invest  in  and  scale  these  technologies,  ensuring  their  market 
viability  and  growth.  Its  ambition  is  to  buy  an  initial  $1  billion  of  permanent 
CDR between 2022 and 2030 and to help create net new carbon removal supply.  

Key approaches and features:  

Frontier  facilitates  purchases  of  permanent  carbon  removals  on  behalf  of 
buyers (Stripe, Google, Shopify, McKinsey, Autodesk, H&M Group, JPMorgan, 
Workday and Salesforce) by: 

1.  Aggregating commitments from buyers to set a total annual demand 
pool (2022 – 2030); 

2.  Carrying out due diligence processes and handles contractualization 
with suppliers; 

3.  Receiving CDR credits, pays suppliers and distributes CDR credits 
to buyers.  

Frontier focuses on BiCRS, Direct Air Capture, field weathering, mineralisation, 
and  ocean  carbon  removal.  They  are  looking  for  permanent  CDR  solutions 
(>1,000 years) that have the potential to be low-cost (<$100 per ton) and high-
volume in the future (>0.5 Gt/year). They have two contracting funding tracks: 

Low-volume  prepurchase  agreements  (>$500k,  paid  before  tons  are 
• 
delivered) to support early-stage suppliers piloting new technologies. To date, 
Frontier has completed four rounds of pre-purchase.  

Larger  offtake  agreements  ($10M  -  $50M),  which  are  commitments  to 
• 
buy  future  tons  at  an  agreed  price  when  delivered.  These  agreements  are 
designed to support more mature suppliers preparing to scale for high volumes 
and will account for the bulk of Frontier’ spend. To date, 12 projects have signed 
offtake agreements with Frontier. 

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As of February 2025, Frontier has contracted $483.4 million in 3 years of activity, 
representing over 1 million tons of carbon from 45 projects. 

Frontier  chooses  to  share  transparently  part  of  its  knowledge  (e.g.,  offtake 
agreement  or  Community  Benefits  Plan  template,  price  paid  per  ton),  which 
influences the market and builds its reputation as a market leader. 

Frontier creates additional supply of CDR credits: 67% of founders in Frontier's 
most  recent  prepurchase  cohort  said  Frontier’s  launch  played  a  role  in  their 
decision to start a carbon removal company, and Frontier has been the first-ever 
customer for 78% of companies in its pre-purchase track and first offtaker for 82% 
of the 2nd track. 

Frontier  brings  confidence  in  the  market:  Frontier’s  purchases  help  attract 
additional investment (portfolio companies raised >$400M in equity). Companies 
can join Frontier or buy from its portfolio companies. 

Challenges identified: 

1.  Geographical focus:  most projects are located in North America (>70% 
of projects) 

2.  Emerging  technologies:  these  technologies  have  a  high  risk  of 
under/non-delivery (10k tons delivered out of 1M tons contracted) 

3.  Expensive  projects:  these  solutions  need  massive  investments  for  a 
limited impact spread today (<50 projects)  

1.2.  Livelihoods 

Description 

The Livelihoods Carbon Funds (LCF) were launched in 2011 with 10 investors 
(e.g.,  Danone,  Schneider  Electric,  Michelin,  Hermès,  La  Poste)  to  support  the 
efforts  of  agricultural and  rural  communities  to  live  in  sustainable  ecosystems. 
The initiative now comprises 4 funds: 

Key approaches and features:  

• 
Livelihoods  Carbon  Fund  #1,  launched  in  2011,  with  10  investors 
(Danone,  Schneider  Electric,  Crédit  Agricole  S.A.,  Michelin,  Hermès,  SAP, 
Groupe Caisse des Dépôts, La Poste, Firmenich, Voyageurs du Monde). The 
fund invested €40 million in nine projects, removing or avoiding 10 million tonnes 
of CO2. 

Livelihoods  Fund  of  Family  Farming,  launched  in  2015  with  Danone, 
• 
Mars, then joined by Firmenich and Veolia, with an investment objective of €85 

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million  over 10  years. This  fund  aims  to  transform  agricultural  supply  chains, 
while improving the living conditions of small-scale farmers.  

Livelihoods  Carbon  Fund  #2,  launched  in  2017  with  Crédit  Agricole, 
• 
Danone, Firmenich, Hermès, Michelin, SAP, Schneider Electric & Voyageurs du 
Monde. Its targets are to invest €100 million and to remove or avoid 12 million 
tonnes of CO2. 

• 
Livelihoods  Carbon Fund  #3,  launched  in 2021  with  14  investors  (Bel 
Group,  Chanel,  Danone,  DEG  Invest,  Eurofins,  Hermès,  L’Occitane,  Mars, 
Mauritius Commercial Bank, McCain Foods, Orange, SAP, Schneider Electric 
et Voyageurs du Monde). Its targets are to invest €150 million and to remove or 
avoid 30 million tonnes of CO2. 

The Livelihoods Funds have adopted the following approaches: 

1.  Obtain firm, long-term commitments (10 to 20 years) from a committed 
group of ten or so corporate investors; 

Identify a network of local partners (NGOs, public institutions and experts) 

2. 
to maximize impact; 

3.  Provide  upfront  financing  to  project  developers  for  large-scale  project 
implementation; 

4.  Receive  result-based  payments  in  the  form  of  carbon  credits  which 
investors can use to offset part of the emissions they cannot avoid.  

Livelihoods  Carbon  Funds  focus  on  agroforestry,  ecosystem  restoration,  rural 
energy (such as cookstoves) and regenerative agriculture. Three funds invest in 
projects  outside  the  value  chain  of  their  investors,  and  the  last  inside  their 
value chains (insetting). 

Challenges Identified: 

1.  Long-term  commitments:  investors need  to  commit  for the  duration  of 
the fund (10 to 20 years). Few buyers are willing to take such a commitment.  
2.  Exposure to risks: By developing its own projects, Livelihoods takes on 
a significant share of the inherent risks associated with project development 
— including reputational risks (which could impact the entire portfolio if a single 
project is called into question), delivery risk (potentially shared with investors 
depending on contractual terms), volatility in carbon credit prices, and more. 

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1.3.  Kita 

Description 

Kita is a private initiative founded in December 2021. Kita operates as a cover 
holder for Lloyd’s of London, and is underwritten by Chaucer Group, Munich Re 
Innovation Syndicate, and RenaissanceRe. 

Key approaches and features:  

Kita recognizes that investing in carbon projects is a challenge, often combining 
long-term  horizons,  emerging  markets,  young  companies  and  nuanced 
processes, with societal, environmental and reputational considerations. These 
factors  make  investment  a  tricky  path  to  take,  but  also  a  necessary  one  to 
guarantee investors and buyers a supply of high-quality carbon credits. To make 
these investments more straightforward, Kita offers 4 insurance products: 

•  Abandonment  &  insolvency  Cover:  protects  against  the  risk  of  a 
counterparty abandoning the project or becoming insolvent, leading to a failure 
to deliver credits.  

Buffer Depletion Protection Cover: protects the buffer against default in 
• 
the instance of unexpectedly high loss levels that might lead to a buffer depletion 
past comfortable levels. 

Carbon Political Risk Cover: protects against broad political and Article 
• 
6  uncertainties  (i.e.  confiscation/nationalisation,  carbon  credit  export  ban, 
revocation  or  dispute  over  carbon 
revocation  of  Letter  of 
Authorisation/Approval,  revocation  of  Corresponding  Adjustment,  political 
violence, forced abandonment).  

rights, 

• 
Carbon  Purchase  Protection  Cover,  launched  in  2023,  is  Kita’s  core 
product. It protects against carbon delivery risk, where the carbon seller fails to 
deliver carbon credits to the Insured on the terms specified in the parties' carbon 
purchase agreement. 

• 
Carbon  Purchase  Protection  Cover  is  an  indemnity  insurance  (i.e., 
comprehensive  compensation  for  assessed  losses  or  damages),  protecting 
buyers  and  investors  of  forward-purchased  carbon  credits  against  under-
delivery due to: 

Unavoidable  risks  (e.g.,  natural  catastrophe,  supply  chain  disruption, 

• 
sequestration failure) 

Counterparty risk (e.g., abandonment, insolvency, fraud, negligence of 

• 
the project developer) 

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Carbon risk (e.g., delayed verification / delivery, delivery failure, shortfall, 

• 
registry failure, methodology change)11 

Clients have the option to receive insurance claims in cash or in replacement 
carbon  credits  thanks  to  Kita’s  proprietary  Carbon  Supplier  Pool.  The 
replacement credits are provided by Kita’s network of providers (e.g., Everland, 
Pachama,  Vertree  and  Respira,  Treeconomy).  Insurance  is  tailored  to  each 
transaction for a period up to 10 years and cost varies from 1-4% of the insured 
value.  

To date, the insurance covers forestry, biochar, Enhanced Rock Weathering 
(ERW) and mangrove projects, either as a single project or as part of a portfolio 
cover. The insurance must be purchased before the carbon credits are delivered. 

Challenges Identified: 

1.  No  carbon  developer  insurance:  Kita  does  not  cover  carbon  project 
developers in the event of underdeliver (which compromise their revenues).  
Lack  of  market  transparency:  insurance  providers  rely  on  historical 
2. 
market  data  to  assess  their  risk  exposure  and  set  premiums.  The  over-the-
counter  nature  of  the  carbon  credit  market,  combined  with  limited  public 
information sharing, can make such analyses less reliable. 

1.4.  Arla Foods: FarmAhead Program 

Description 

Arla  Foods  is a global dairy  cooperative  and  the  fourth  largest dairy  producer 
worldwide, overseeing a herd of 1.5 million cows in seven countries. In 2024, the 
cooperative generated €13.4 billion in revenues. 

Arla  made  an  early  commitment  to  sustainability,  publishing  its  first  climate 
strategy in 2008. Today, Arla Foods’ ambition is to become carbon net zero by 
2050, and is committed to reducing CO2e emissions significantly by 2030: 

• 

63% reduction in production, owned logistics and energy usage; 

30% reduction on farms and of emissions from sourced whey, 3rd party 

• 
logistics and packaging.  

Key approaches and features:  

As  part  of  its  efforts  to  reduce  its  environmental  impact,  Arla  introduced  its 
FarmAhead Technology in 2022 - a point-based system that rewards past and 

11  Other  risks,  such  as  political  and  regulatory  risks  or  post-issuance  risks  (e.g.,  non-permanence, 

reputational damage, post-delivery invalidation), are excluded. 

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future climate and environmental sustainability activities on farms. The aim is to 
motivate and help fund acceleration of the emission reduction on farm.  

1.  Farmers complete a survey (+200 data points) and submit their  climate 
data in self-assessments once per year; 

2.  This data is verified off-site and on-site by an external advisor and a final 
CO2 footprint is validated; 

3.  Farmers are rewarded points for each criterion they achieve. Each point 
that the farmer achieves will trigger 0,03 eurocent per kilo of milk they deliver 
to Arla, in addition to 0,01€/kg for submitting Climate Check data.  

4.  Based  on  their  individual  data,  farmers  receive  a  personalized  action 
plan  focused  on  19  levers  identified  by  Arla  to  further  reduce  their  climate 
impact. Farmers can select the actions most relevant to their farm. 

At  the moment,  80 points  are  available,  triggering  a  maximum  premium  of  2,4 
eurocent per litter of milk. The remaining 20 points will be used to develop new 
actions later in the program. Available points are divided between these actions: 

•  Big  Five:  feed  efficiency  &  monitoring,  fertiliser  use,  land  use,  protein 
efficiency, animal robustness 

•  Sustainable feed: soy use  

•  Biodiversity & carbon farming: grazing, continuous plant cover, perennial 
crops,  permanent  grassland,  soil  sampling,  biodiversity  &  soil  health  check 
submission  

•  Manure handling: biogas/in-house acidification, band spreader, other  

•  Renewable electricity 

•  Knowledge building: participation in events  

Arla  Foods  allocates  up  to  500m€  annually  for  this  program,  enabling  the 
cooperative to accurately track its farmers' emissions, and to encourage them to 
put in place the most effective measures to reduce their carbon footprint. In 2023, 
226m€ have been paid to farmers.  

The program has proved effective in all its areas of implementation: the number 
of points allocated has increased each year in all regions, and the gap between 
the areas with the most and least points has narrowed significantly since 2023. 
This  has  also  been  illustrated  in  Arla's  carbon  footprint,  which  since  2015  has 
found that farmer owners have reduced emissions per kilo of milk by 12%.  

Challenges identified: 

1.  Complexity  of  data  collection:  The  system  relies  on  collecting  over 
hundreds  of  data  points  per  farm,  verified  by  third-party  advisors.  This  can 

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represent a significant administrative burden for farmers and requires a robust 
technical infrastructure. 
2.  Accessibility  of  incentives:  Farms  of  different  sizes  or  with  varying 
resources may not have the same capacity to implement sustainable practices, 
potentially creating disparities in access to bonuses. 
3. 
Farmer buy-in: For the program to be effective, it is crucial that farmers 
understand  the  benefits  and  are  motivated  to  participate  actively,  which  may 
require substantial communication and training efforts. 
Dependency:  Farmers  may  become  dependent  on  the  cooperative  to 
4. 
monetize  their  sustainability  efforts,  which  can  limit  their  flexibility  and 
bargaining power. 

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