On Carbon Removals and Carbon Farming the devil is in…the demand

The implementation of carbon farming practices on European farms and in European forests is a lever for achieving carbon neutrality, but also for farm resilience, the adaptation of forest stands to climate change and for contributing to our strategic independence. 

Certifying and financing low-carbon practices is the objective of the CRCF (Carbon Removals and Carbon Farming) regulation, which will come into effect in 2026. Now seems the right time to draw lessons from six years of experience with a similar standard in France: the “Label Bas-Carbone” (Low Carbon Label – LBC). The results show that striking a balance between scientific rigour and accessibility for stakeholders has led to the development of a substantial range of projects. However, the real challenge is to build sufficient and appropriate demand to finance the projects. There is no miracle solution, but complementary financing channels may emerge. 

The search for a balance between scientific rigour and accessibility has enabled field stakeholders to develop a substantial range of low-carbon projects 

In six years, nearly 2,000 forest owners and 4,000 French farmers have committed to carbon farming practices through the LBC, with an estimated potential impact of 8 Mt CO₂. These mainly involve: 1) forestry projects with afforestation and restoration of degraded forests, and 2) agricultural projects aimed in particular at optimising herd management in cattle farming, as well as fertilisation management and the introduction of intermediate cover crops in arable farming. 

The LBC’s operating model is the result of a collaborative process between stakeholders in the sectors, research and administration to find compromises that guarantee the scientific integrity of the system and its practicality for stakeholders in the field. This co-construction, which has been in place since the LBC’s inception, is one of the reasons for the commitment of stakeholders in the agricultural and forestry sectors, which is worth highlighting: two-thirds of the projects are directly supported by organisations from the sectors, such as agricultural and forestry cooperatives, technical institutes and forest managers. Their role is essential because the projects require technical support that is as close as possible to farmers and forest owners. The LBC has thus also played a major role in increasing the sectors’ expertise on climate issues and in the adoption of low-carbon practices. 

However, demand is currently insufficient to finance all carbon farming projects. 

While the supply of projects has grown exponentially until 2024, the main concerns today relate to project financing. Demand currently covers only half of the LBC approved projects. 

There are two types of demand: 

• Voluntary demand from companies choosing, without any regulatory constraints, to finance projects as close as possible to their territory or sector of activity. 
• Compliance demand, mainly from airlines, which are required to offset in Europe half of their domestic flight emissions.  

This demand finances at least 40% of annual LBC volumes and is therefore a key driver of the French market. 

In general, French credits are pre-financed at a much higher price than international credits: 31€/t CO₂ on average for LBCs, compared with 8 €/tCO₂ internationally. This price difference weighs on demand, even though LBCs remain attractive to willing buyers thanks to the credibility they bring.  

Serious concerns about the financing of agricultural projects… 

The difficulties in financing LBC projects are currently concentrated in the agricultural sector and pose major risks to the future of the scheme. Not only are farmers already engaged in low-carbon practices at risk of not receiving the promised financial support, but a sense of mistrust is also taking hold, slowing down the commitment of new farmers to any low-carbon scheme. 

According to feedback from stakeholders in France, the funding shortfall for agricultural projects can be explained by various obstacles:

• It is difficult for the LBC to mobilise the downstream part of the agricultural value chain. Due to a lack of clarity on the claims associated with LBC carbon credits, agri-food industries prefer to encourage farmers through contractual arrangements such as price premiums.
• Agricultural projects are generally less attractive than forestry projects: 
  • Agricultural credits are more expensive: around 45€/tCO₂ compared to forestry projects, which cost 25-35€/tCO₂; this is a particularly significant obstacle for compliance demand, which is primarily price-sensitive.
  • The narrative associated with low-carbon agricultural projects is more complex and less well known than that of tree planting in forestry projects. This has a direct impact on voluntary financing. 

CRCF: multiplying options to stimulate demand and thus avoid the difficulties encountered by the Label Bas-Carbone 

At European level, the voluntary carbon market is the preferred short-term financing option, although the CRCF was initially developed to channel various types of financing: voluntary carbon market, internal financing within value chains, compliance requirements, public subsidies (e.g. from the CAP), etc. 

However, voluntary demand is likely to remain limited: economic actors are taking a wait-and-see approach to their environmental commitments in a fluctuating economic, regulatory and societal context, which is likely to continue despite the trust and credibility provided by the European Commission’s endorsement of the CRCF. In general, the CRCF is likely to face the same difficulties as LBC, particularly in terms of price: European projects will remain more expensive than international ones. 

Voluntary demand will therefore need to be stimulated, but it will probably never be sufficient: the Commission is considering creating a buyers’ club to facilitate private fundraising. This proposal to bring together economic actors willing to make a long-term voluntary commitment is a concrete and interesting way of stimulating demand, but it is unlikely to be sufficient to cover the entire supply. If the example of the LBC shows us that voluntary demand is not sufficient to finance all approved projects, this will be even more true in the European context, where carbon projects with very ambitious impact targets are already being submitted (particularly under the Verra standard).  

The involvement of public authorities will be essential to ensure that the demand meets the needs:

• The mobilisation of public funds (European or from Member States) to supplement private funds, for example within the framework of the buyer’s club, would constitute significant added value. It would generate leverage on private funds or reduce investors risk, for example by establishing purchase commitments at a minimum price. 
• The prospect of compliance demand must also be explored. The French example shows that imposing obligations on actors in other sectors can help to structure the carbon market. Although the project for an ETS-type market for the agri-food sector is no longer on the agenda, it could resurface in the longer term. In the meantime, other options can be considered, as in the French case.
• Public authorities can also take action to directly support project supply by covering part of the implementation costs, which would help to reduce tCO₂ prices. In France, subsidies are currently available for farm GHG diagnostics, the development of carbon farming action plans and support for their implementation. CAP subsidies could also play this role.
• Finally, public procurement is another lever worth exploring, and the upcoming 2026 revision of the European rules governing it represents an opportunity to be seized. 

The implementation of CRCF is a milestone for the climate transition in the sector, but major points of vigilance remain regarding the actual funding it will provide to farmers, especially if it only relies on the voluntary approach favoured by the European Commission, who would be wise to prepare for a stronger public intervention already now.