Most agricultural technology companies do not want to discuss the paradox of the systems that are created to provide incentives for sustainable farming; however, they ultimately create disincentives for the most transparent of the farmers.
This is referred to as the perverse incentive problem and is an inherent part of the foundational structure of all carbon-based tracking platforms.
Carbon-Based Tracking Systems
Most traditional carbon-tracking systems measure a farm's environmental footprint by calculating the number of activities that the farmer documents in order to determine the farm's overall carbon footprint. The more activities that a farmer documents — fuel usage, fertilizer applications, equipment operations — the lower the farm's overall carbon footprint.
From the surface level, this appears to be a very logical method for determining a farm's environmental footprint, and therefore, the farm's carbon footprint: document all of the activities that occur on the farm, calculate the total carbon footprint, and then generate a carbon score.
However, the logic breaks down at this point.
Broken Logic
Consider two farmers that are both growing the same crop. Farmer A documents five events during the production cycle. As a result, his calculated carbon footprint is relatively low — not due to the fact that he is using cleaner methods, but simply because there is less data recorded.
On the other hand, Farmer B documents fifteen events during the same time frame. He documents every irrigation event, every chemical application, and every piece of equipment that is operated during the production cycle. His calculated carbon footprint is significantly higher — not because he is farming worse, but simply because he is providing more documentation.
As a result of this, Farmer A is viewed as having a lower carbon footprint than Farmer B — even though Farmer B may actually be farming using cleaner methods. In a carbon-based system, Farmer A is rewarded for being less transparent than Farmer B.
This is not merely a hypothetical scenario. There have been studies published in peer-reviewed climate policy journals that show farmers have actual concerns regarding the creation of perverse incentives within carbon-based market programs. Additionally, early adopters of conservation practices are especially concerned that existing requirements can create disincentives for them as they have already implemented many beneficial farming practices.
Industry-Wide Issue
This is not merely a concern of one single platform. The Institute for Agriculture and Trade Policy (IATP) conducted research and produced a report detailing some of the fundamental structural issues that exist within how carbon-based markets interact with agriculture. The IATP noted that many of the current incentive structures in place create disincentives for farmers to fully document their activities, and thus, they end up rewarding less documentation than better practices.
Ultimately, the outcome is that farmers quickly discover that the less they document, the better their score will be. Therefore, the system creates disincentives for farmers to be completely transparent and honest, and instead, rewards a lack of documentation (which is the opposite of what consumers, regulators, and the environment desire).
Why This Applies to Your Farm
If you are utilizing a carbon-based tracking system (and/or if you are considering doing so), you need to ask yourself: Does this system reward me for documenting as many events as possible, or does it punish me for being completely transparent and documenting everything?
The implications of this extend far beyond a simple score on a dashboard:
- Consumers lose: Consumers are provided with an incomplete picture of how their food was grown.
- Regulators lose: Data collected for compliance purposes is unreliable when the incentive is to report less information.
- Farmers lose: Those who spend the time and effort to document everything are scored worse than those who do not.
- The environment loses: Complete environmental impact assessments require complete and detailed documentation of all of a farm's activities.
Transparency-Based Solution
The solution is not to discontinue tracking altogether, but to reverse the incentive of the tracking system.
A transparency-based approach tracks something fundamentally different than the amount of carbon generated by the farm's activities — namely, how completely and thoroughly the farmer documents their activities.
In a transparency-based system:
- Documenting more events = Higher transparency score. You are rewarded for your comprehensive documentation efforts — not penalized.
- Carbon calculations still take place — they just serve as supporting documentation — rather than the sole focus of the tracking system.
- Consumers use the documentation completeness of a farm as a trust indicator, thereby aligning the incentives of farmers with the interests of consumers.
Therefore, Farmer B — who documented 15 events — would likely receive a significantly higher transparency-based score than Farmer A — who only documented 5 events. The system provides incentives for exactly the type of behavior that consumers, regulators, and the environment desire: Complete and Honest Documentation.
Repositioning Carbon Data
This is not to say that carbon data is irrelevant. Carbon data remains essential for:
- B2B Sustainability Reporting
- Compliance with Regulatory Requirements (EPA/USDA Requirements)
- Internal Benchmarking and Improvement
- Carbon Credit Programs Where Applicable
The difference lies in the primary incentive of the tracking system. When transparency-based scoring drives farmer behavior as opposed to minimizing carbon emissions, you get better data across the board — including more accurate carbon calculations, since farmers are documenting everything, rather than selectively excluding certain activities.
Transitioning to a New System
If you are currently utilizing a carbon-based tracking system, or if you are beginning from scratch, you should look for the following characteristics in a transparency-based tracking system:
- Does it reward you for documenting more events? A good transparency-based tracking system should reward you for documenting as many events as possible.
- Is carbon data present — but secondary? Good transparency-based tracking systems should allow you to view carbon calculations as supporting evidence for your claim — rather than punishing you for your thoroughness.
- Will consumers be able to view your documentation completeness? Transparency-based tracking systems should provide consumers with a clear indication of whether or not you are providing complete documentation — as well as provide you with the ability to clearly demonstrate your commitment to transparency.
- Are Emission Factors Based on Verified Sources? Look for data that is based upon verified sources such as the EPA, USDA, or other government agencies. Avoid data that is based upon proprietary "black boxes".
Farms that consistently provide consumers with a clear understanding of their commitment to transparency through their documentation will be best positioned to meet the increasing demand for transparency-based metrics from consumers, regulators, and markets.
Stop Being Penalized for Honesty
Document more. Score higher. Not the other way around.
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