The call for nature-based solutions: Agriculture’s growing contribution to the net zero cause

March 28, 2022

In the chilly waters off the coast of Tasmania grows a plant that might prove to be the tipping point in the fight against a particularly potent source of global warming: methane emissions from cattle and other livestock.

There, a red seaweed by the name of asparagopsis cleans and de-acidifies the ocean by absorbing nutrients and carbon dioxide through photosynthesis. But its application on land may be even more impactful – adding just small amounts to livestock feed has proven to reduce their methane emissions by up to 98%. (Source: Journal of Cleaner Production, June 2020)

It’s a significant development considering that 16 percent of global greenhouse gas (GHG) emissions come from livestock (Source: Seaforest). Agriculture overall is a major contributor to climate change, estimated to generate around 12% of GHG emissions each year. (Source: Climate Watch. Washington, DC: World Resources Institute) Fortunately, it’s also the sector that is among the cheapest to address. Compared to capital intensive contributors such as transportation, buildings, and utilities, agriculture offers low-cost carbon abatement and removal methods at scale.

A big reason for agriculture’s role is the emergence of nature-based solutions such as asparagopsis. While next-generation machinery and automation in agriculture are helping greatly in the fight against global warming, some of the biggest contributors to reducing emissions are from natural processes in the sun, soil, and seas. From enacting no-tilling policies that enrich the carbon content of the soil, to using different crop seed varieties to boost production with fewer inputs, to reducing the reliance on nitrogen-rich fertilizers, farmers are starting to make significant progress on the climate front as they increase their yields and meet booming global demand for food and fiber.

“We know that we have a finite amount of resources in land and water and that it has a role to play in removing carbon and other harmful emissions from the atmosphere,” Elizabeth O’Leary, Head of Agriculture and Natural Assets at Macquarie Asset Management, said at a recent investor forum. “But it’s also got a job to do in terms of feeding and clothing and building the world. So what this means for us, practically speaking, is we’re shifting our thinking around resource efficiency and the highest and best use of our farmland.”

Capital intensity and CO2 abatement cost

Source: McKinsey Pathways to a Low Carbon Economy, Version 2 of the Global Greenhouse Gas Abatement Curve. (Chart is for illustrative purposes only.) 2. The capital intensity of abatement refers to the additional upfront investment relative to the business-as-usual methodology, divided by the total amount of avoided emissions over the lifetime of the asset. The abatement cost is the average cost of avoiding 1 tonne of CO2 by 2030.

The road to net zero

As one of the world’s largest agriculture investment managers, Macquarie is in a position to make strides in devising climate mitigation solutions at scale for others to emulate – and also taking the role seriously. In 2020, Macquarie committed to achieving net-zero emissions by the year 2040, 10 years ahead of the deadline adopted under the Paris Agreement at COP 21.

The opportunity extends well beyond one company’s climate objectives, however. There is the potential to produce excess carbon credits that others can buy to meet their own net-zero objectives. Already, 61% of countries have committed to achieving net zero by 2050, along with a fifth of the companies on Forbes Global 2000 list. (Source: United Nations) Many of these pledges will need to be fulfilled by buying carbon offsets, putting agriculture in a prime spot given how cheap it is to produce credits, relative to other sources.

“There’s a growing recognition within the agricultural community that productivity, profitability and sustainability can go hand in hand,” O’Leary said. “And those outside the sector are increasingly willing to pay for the environment. The world now sees active management of the landscape as a global necessity.”

Of course, in order to get credit for emissions reductions, farms must start with a baseline. According to the widely utilized Greenhouse Gas Protocol, emissions are categorized as either Scope 1, 2, or 3. On farms, Scope 1 emissions capture all direct on-site agricultural operations. Scope 2 emissions come from the production of purchased electricity, while Scope 3 emissions are associated with all inputs used in production, such as fertilizers, herbicides, and veterinary services.

In 2017 well ahead of announcing its net-zero goal, Macquarie engaged in a baselining effort to establish its starting Scope 1-3 emissions across its farm portfolio spanning 11 million acres. Then, in 2018, it teamed with the Clean Energy Finance Corporation (CEFC) and Commonwealth Scientific and Industrial Research Organization (CSIRO) to support innovation and the development of sustainable farm management practices in Australia. One of the first achievements to come out of that collaboration was FarmPrint, a tool allowing farmers to input information about their operations to calculate the intensity of their current emissions footprint. FarmPrint tabulates the ratio of emissions relative to land area and the volume of crop output that is produced for an individual farm, and then tracks changes to the emissions footprint as different farming methods are implemented over time.

The proving grounds

Among the solutions Macquarie has utilized to help its farms boost productivity and lower their emissions, technology has played a prominent role. GPS satellites have proved instrumental in helping farms create precise maps of their properties by soil type, enabling them to differentiate per meter based on soil acidity, nutrition, and compaction, ensuring fertilizers and pesticides are only used where needed, and in exact quantities. Precision farming is also being advanced by pilot projects involving electric-drive autonomous tractors, programmed to stick to the same tracks to keep soil compaction down.

But many of the gains have been realized from allowing Mother Nature to simply do her part. One of the most promising developments has been in the area of soil management. Historically, tilling has been farming’s most significant contributor of GHG emissions, since it leads to the release of the carbon locked within.

Macquarie has worked with many of the farms in its portfolio to enact no-tilling and crop-stubble retention policies, which allow the soil to build its carbon reserves while reducing emissions from tilling equipment and building resilience in crop yields during dry seasons. Restoring native vegetation corridors, supporting local plant and animal populations, and preventing erosion are making a noticeable impact as well.

Macquarie works with individual farms to better understand their soil conditions, weather, and operating needs. Rather than a blanket solution, customized approaches are taken that account for these differences and maximize emissions reductions potential. “The moves our farms are implementing come down to farming smarter, not harder,” O’Leary said. “You can see the rewards in real time. I remember driving through the countryside to one of our farms during the drought of 2019 and it was this lush green oasis amid a barren brown landscape.”

It’s the same philosophy with livestock, where little changes can go a long way to improving emissions loads. According to Sea Forest, the asparagopsis producer in which Macquarie invests, animals whose diets contain just 0.2% of its red-seaweed supplement can reduce their methane emissions up to 98%, while accounting for 20% of the energy they derive from feed. Sea Forest recently moved to large-scale commercial production, becoming the first producer in the world to develop both marine- and land-based methods of cultivation.

With more than a quarter million head of beef cattle and over 350,000 head of sheep, Macquarie’s partner farms are an ideal real-life laboratory for such nature-based innovation, since scale helps spread the cost of pilot initiatives. Paraway, Macquarie’s wholly owned pastoral farming operating company is trying other approaches as well, including genetic improvements in the herd and improving pasture utilization to prevent overgrazing and keep carbon locked in.

A climate and economic imperative

The net-zero push is adding to what is already a compelling investment case for those seeking diversification and growth through farm holdings. As Macquarie and its agricultural partners moves ahead of the market to change the emissions profile of cropping and livestock operations, the opportunity is building to generate additional sources of return.

As explained by Michael Johnson, a senior director with the agriculture group, this represents a shift being driven at the point of sale. Customers are increasingly demanding products that have the environment in mind, and willing to pay up for them. And now companies the world over are jumping on board to help meet their net-zero commitments. As carbon trading gains traction on a global basis and companies covet the carbon credits that the agriculture sector produces so efficiently, it could lead to a material shift in the sources of farm operating returns.

“This is what the market is asking for,” Johnson said. “The consumer is saying, ‘I’m willing to pay a premium for climatefriendly, carbon-neutral products that are going to make a difference. So there’s a climate change imperative, but there’s also a really strong economic imperative to drive value.”

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