Building a Marketplace for CI Credits

Farmers and tech companies are working together to build a system that can sell carbon intensity (CI) scores. For over a decade, farmers like Mitchell Hora, founder and CEO of Continuum Ag, believed they would be able to make a profit from their conservation practices. Now, the market could open early next year, pending an update from the IRS on its Section 45Z federal tax credit proposal.

Hora has been pushing to make 45Z happen and help farmers profit from it. He has worked on independent verification of CI credits, creating a system of measurement and verification. He can even cross-reference CI credits to other environmental assets. 

RELATED: Hora told American Farmland Owner why he believes so strongly in helping farmland owners better understand carbon intensity.

One of the final pieces is how it gets sold.

“How do we actually get them from that field to an end-user to a biofuel producer? And that's what's being built now,” Hora explained.

“Farmers will be able to view and see their (CI) certificates for free, linked through Milpont's system, ready for book and claim or mass balance, easy access for the buyers,” Hora said.

Spencer Connaughton, Founder and CEO of Global Goods Exchange (GGX), established a new company establishing a CI certificate marketplace. He had noticed a pattern of fragmented, ad-hoc markets. People found what worked to stay on top of their bids. For many, that means using SMS, WhatsApp, and email. That inspired Connaughton to find a better way to trade.

“There are buyers, sellers, and brokers of feed ingredients, fertilizers, cover crop seeds, and all of their price discovery, and negotiation is done over the phone,” said Connaughton.

“And it's really disorganized,” he added. “What you really want is an exchange for all these goods, where you can see the full depth of the market for whatever it is you're trading at any given moment.”

In short, he believed there was little infrastructure to be found. And with trillions of dollars’ worth of goods traded every year in the United States, Connaughton wanted to change the marketplace. He built his core business, a system that unifies messaging channels into a single place using AI to organize conversations into dashboards that could track orders and market activity.

Building Infrastructure for CI Credit

Connaughton believed a marketplace for CI scores was possible.

“It turns out that you can take the same infrastructure that we built to handle trading these multi-attribute, multi-stakeholder goods, and you can apply it to 45Z certificates,” he said.

To build the marketplace, GGX partnered with Continuum and MillPont. GGX would manage the marketplace infrastructure independently from certificate providers. Other players could then use their own certificates to trade with others. Users could search for individual CI scores, find eligibility, and file bids. 

Connaughton said, “So it's this open, transparent, accessible, scalable marketplace that is going to allow these transactions to flourish and allow us to move beyond the uncertainty of the current market and into an era where these things are actually tradable.”

Eventually, he said the platform would include risk calculators and portfolio trackers to make trading even easier. 

The system had to be clear, said Dominic Sutton-Vermeulen, an economist with MillPont, so audits will point directly to certificates. Transactions are based on verifications and receipts.

“This is done today globally across many commodity markets,” he said. “And we're emulating the exact same playbook here for the systems that we've developed with GGX.”

Building Up to the Producer

With the system built on a backend of verification and the frontend of infrastructure, Hora pointed to the bigger picture: the producer.

“We've been building all of these systems up to be able to create these CI certificates,” said Hora. “Then, the farmer, you guys are asking them, ‘Now what are we going to do with them? I got these things. I paid for them. Now what?’ And that's where Continuum is signing on to give access to our farmers for free, to be able to sell through that.”

Hora said farmers will learn their eligibility for the different options and then choose when to sell. 

He likened it to how corn works, with ethanol plants looking to buy. “They post their bids, and then farmers, you can see those, or you can work with your broker who's shopping around with lots of different corn buyers,” Hora said. “And when the bid is good, you can go ahead and sell the number of bushels that you want, set up a contract for the future. Same thing here.”

For Hora, this process has been ten years in the making. “We've been building, getting ready for this, and I think now, by joining up with the Depot, that's going to be the final piece that we need to actually get return here, actually get this market to work.”

With final guidelines for 45Z still pending, Hora did not know when the marketplace would be ready to run, but he said he will be ready when it is. If it moves forward as expected, farmers will have a new product to sell and a new marketplace to sell it.

RELATED: This energy leader works to find compromise between farmland owners to help explore new revenue opportunities.