Who will pay for carbon farming in Europe? State of the market and implications for public policy

This report assesses whether and how private financing mechanisms can contribute to scaling up carbon farming in Europe. To this end, it maps the carbon farming market through an in-depth assessment of its market fundamentals at European and international levels. It also examines the key drivers of market development, the main stakeholders involved, and the standards, rules and policies shaping carbon farming and related claims. Building on this analysis, the report provides a common evidence base and identifies key research questions for subsequent work in the CAFAMORE project.

The report is structured around two main private financing channels: first, the Voluntary Carbon Market (VCM) and its evolving demand for carbon farming; second, agricultural value chain schemes, particularly price premiums linked to corporate climate commitments. It then examines how public policies can support, regulate or strengthen these financing channels and create additional demand for carbon farming.

The VCM offers an opportunity, but is unlikely to finance European carbon farming at scale on its own. On the supply side, agricultural carbon farming projects were relatively limited until the early 2020s, but activity has expanded in recent years, with new methodologies and projects emerging, including in Europe. Many of these projects are still under development, and most have not yet issued credits, raising questions about their ability to secure future financing. Analysis of historical demand also highlights the close links between the VCM and compliance markets. Yet the VCM has never reached scale, as voluntary demand remains structurally limited. This demand is increasingly shifting towards carbon removals and higher-integrity credits. At the same time, persistent uncertainty over the relationship between VCM credits and value chain initiatives has hindered the emergence of a stronger and more predictable source of demand.

Value chain schemes are a promising but uncertain source of finance. Science Based Targets (SBTi)-driven Scope 3 commitments have encouraged agri-food companies to introduce price premiums to reward carbon farming practices. Key drivers include commitments by large companies and investors to SBTi-aligned transition pathways, while the need to secure resilient supply chains appears to be an emerging driver. However, these schemes remain heterogeneous and lack transparency, and their impact at the European level has yet to be quantified. Limited downstream willingness to absorb additional costs, the voluntary nature of corporate commitments, the higher costs of European carbon farming, and uncertainty around carbon claims can hinder the effective combination of value chain finance with carbon market mechanisms.

Carbon farming is addressed through several European policies, but the current framework leaves several gaps. The Carbon Removal and Carbon Farming (CRCF) Regulation provides a common certification framework but does not guarantee financing. The recent launch of the EU CRCF Buyers Club is a promising initiative to help develop demand, but will need to be followed by more structural measures to address the longer-term demand gap. In particular, as no single private financing mechanism currently appears capable of delivering the scale of funding needed, EU policies should provide greater certainty around corporate climate claims, giving companies greater visibility and facilitating the combination of different financing and co-claiming mechanisms.

EU and Member State should also explore the role of CRCF-certified activities in delivering Land Use, Land-Use Change and Forestry (LULUCF) objectives and assess whether stronger regulatory demand or alternative funding models are needed. Combining public funding, value chain finance, voluntary markets and potential future compliance mechanisms appears the most promising pathway, provided that competing claims and inefficient allocation of resources are avoided.