Economy

Rabobank is tapping into a new revenue model: carbon banking

1. How exactly does it work?

Small farmers, in sub-Saharan African countries, among others, plant avocado and mango trees on their property. When those trees grow, they absorb CO2. The farmers can sell these CO2 rights to large companies that emit a lot of CO2. That provides the farmers with money.

In addition to CO2 storage, the fruit in the trees also has to yield something over time. In addition, crops can be grown under those trees, or the trees can provide shade for livestock.

Global emissions

The trees planted also ensure that water is better retained and that the quality of the soil improves, according to Rabobank. Nowadays there is often talk of monoculture, where only one crop is grown. If trees are added to this, the quality of the soil benefits.

In 2025, a total of 15 million farmers, who have an average of only 1 hectare of land, must collectively store 150 megatonnes of CO2 per year in the trees on their land, is the plan. That is 0.5 percent of the annual global emissions. Ultimately, that should grow to 1 gigaton of CO2.

2. Who is the plan attractive to?

The standards for CO2 emissions are getting stricter. For example, the European Union wants to reduce CO2 emissions by 55 percent by 2030 compared to 1990. Large companies, for example in Europe, can buy the CO2 rights of African farmers in this case to offset their own emissions.

Most companies are working to reduce their emissions, but they cannot reduce them so dramatically overnight.

Most of the money they pay for the ‘CO2 credits’ ends up with farmers in developing countries.

3. What are the benefits of carbon banking for Rabobank?

Rabobank mediates between farmers and large companies and that is why the bank asks for 5 percent of the revenues. In doing so, the bank ensures that it taps into another source of income.

The interest margin is still the most important source of income. However, the current low interest rates are working to the disadvantage of Rabobank. For example, Rabobank’s net interest income fell by 3 percent in 2020.

4. Is this product not extremely susceptible to fraud?

Farmers who plant the trees could cut the trees and still collect money is a point of criticism. Rabobank is therefore working with Microsoft, and that concern can measure the amount of biomass using satellite data, among other things, so that it can be checked exactly how many trees have grown from year to year.

As a result, farmers should receive the compensation to which they are entitled and large companies know that they are paying for the amount of CO2 that is actually stored. That should rule out fraud.

5. Is it a good idea?

“Forests play an important role in the climate and can contribute to solving the climate problem,” says Gert-Jan Nabuurs, professor at Wageningen University and lead author of the sixth IPCC report of the UN organization Intergovernmental Panel on Climate. Change.

This contains the state of affairs of climate change and the options for combating climate change.

“The private sector is also looking for its role in this and Rabobank’s plan fits in well with this. However, the carbon market is still very volatile,” says Nabuurs. “In the carbon market, the development of the price is very uncertain, but also how it will be counted, in other words: which measures can you include in your accounting.”

Challenge

He also warns that tree growth is not very easy to predict. “There is no one solution for every farmer, you have to find the right trees for the soil and the right combinations of trees and other crops.”

In addition, it is often difficult to maintain such projects in the longer term, says Nabuurs. It is therefore important that local farmers can share in the yield. “If you don’t bring the locals with you, it will be quite a challenge.”

‘The perfect labia’

Hans de Geus, RTL Z stock market commentator, is cynical. “We also call this ‘eco-colonialism’. You place the consequences of our overconsumption on the developing countries. They may be able to produce less food for themselves.”

According to De Geus, the problem is also that you ‘facilitate the fairytale that you can compensate everything and leave it to a market’. “For polluters such as Shell and KLM, it is the perfect shame to continue growing emissions. Rabobank must provide green agriculture anyway, with or without CO2 rights.”

Environmental organization Urgenda finds it difficult to respond, because they do not yet know all the details. A spokesperson does say: “It takes on average ten years to improve the soil in such a way that it absorbs more CO2 and it takes about 40 years before trees are big enough to really contribute, we don’t have that much time.”

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