How EU regulation could unlock the soil carbon market for European farmers and investors – Christian Holzleitner

Christian Holzleitner is an economist by training who has spent his career studying one question: when does a market work, and when do you need regulation? That question took him through the EU’s Emissions Trading System, the Innovation Fund, the Modernization Fund, and finally to a unit at DG CLIMA that sits at the intersection of all of them — Land Economy and Carbon Removals. He is one of the architects of the EU’s Carbon Removal and Carbon Farming Regulation (CRCF), the framework designed to create a common certification standard that works for both public subsidies and private carbon credit buyers, and to stop farmers from having to report the same information five times for five different schemes.

Five years ago, many people in the regenerative agriculture space thought that paying farmers for soil carbon storage would rewire the agricultural system in a heartbeat. It has turned out to be considerably more difficult. The voluntary carbon market has not delivered the financing that was hoped for, and the soil carbon credit market in Europe has not scaled at the speed needed. The question this conversation addresses: is regulation part of the answer? The solar market suggests yes. Germany’s feed-in tariffs, later adopted in Spain and across the continent, created the demand certainty that turned a technology few had heard of into an industry. Carbon farming may need the same scaffolding.

In this episode we get into why Christian sees a European-regulated market as fundamentally different from the international voluntary carbon market, how the Innovation Fund’s competitive call model could be adapted for carbon farming, what the EU ETS reform means for demand outside the agricultural value chain, why portfolios of small certified projects are the path to pension fund investment, why peatland rewetting in Finland is the landscape-scale intervention that excites him most, and what he would do if he could get a single line into the EU’s next seven-year budget.

This podcast is part of the Carbon Series supported by the OGCR project, with aims to create a trusted open source framework and make sure the benefits of carbon are shared across generations.

THE EU IS LOOKING TO REGULATE THE SOIL CARBON MARKET

The core problem the CRCF is designed to solve is bureaucratic. Farmers already report their practices. The common agricultural policy requires it. Then food companies wanting to demonstrate sustainability credentials require it again, under different definitions and formats. Then a third scheme arrives, and a fourth. A farmer ends up reporting the same information five times to five different parties, none of whose systems are compatible. The CRCF is an attempt to create a single monitoring, reporting, and verification framework that works for everyone simultaneously: CAP payments, private carbon credit buyers, and the regulatory requirements of the EU’s broader sustainability architecture. EU is not reinventing anything. They are taking the best of what already exists in voluntary markets and adapting it for the European legislative context.

“The important thing is that we find one monitoring reporting system that works both for the public and the private. What I understand is where farmers are fed up or not happy is if they have the rules from the common agricultural policy telling them, ‘You have to do this and this’ — then come the big corporates and say, ‘I want to show my sustainability credentials, so do this and this’ — and then a farmer has to report five different times the same thing.” — Christian Holzleitner

HOW TO BUILD A FUNCTIONAL MARKETPLACE

The model for a functioning European carbon farming market has two sides that need to be built simultaneously. On the supply side: credible certification under the CRCF, providing buyers with confidence that the tonnes they are purchasing represent real, additional, and durable carbon storage or emission avoidance. On the demand side: both insetting (within the agricultural value chain, from traders to brands to retailers) and offsetting (from outside the value chain, particularly from hard-to-abate sectors). Christian’s near-term practical ambition is to find a public-private financing structure — combining CAP funding, regional public investment, and private credit purchases — that can demonstrate a working model at scale in one or two European regions before the next multiannual financial framework is locked in. The blueprint he wants to test: a cooperative or regional entity bundles multiple certified farms, food companies pay 30–40 euros per tonne for a portion of the credits, public money covers the remaining funding gap, and the off-take agreement gives the farmer the long-term certainty — ten to twenty years — needed to make the management change worth the investment.

“What I would like to try over the next year or two is where we can find, with some of our member States, how we can get such a public-private financing model going.” — Christian Holzleitner

WHAT WE CAN LEARN FROM THE RENEWABLE ENERGY SECTOR

The feed-in tariff is Christian’s model. Germany introduced it for solar in the early 2000s; the cost of solar panels was far above market price, the market on its own would not have created demand, and the feed-in tariff covered the gap between cost and market price until the technology scaled and the gap closed. The Innovation Fund, which Christian helped design, runs on the same logic for hydrogen, carbon capture, sustainable aviation fuel, and waste-to-energy: competitive calls for projects, evaluation on innovation and business plan quality, and a grant covering the funding gap. His question is whether the same model can work for carbon farming at a European level: a competitive call for carbon removal projects, evaluated on methodology robustness and business plan viability, with public money covering the gap between the cost of credible carbon storage and the price the market is currently willing to pay.

“We say, look, there are three or four billion euros. Who can deliver the best project? How innovative is the technology? How much emissions can you save? How many removals can you generate? And then we also ask: how’s your business plan? Do you already have an off-take agreement?” — Christian Holzleitner

WHAT WE CAN LEARN FROM EXISTING CARBON MARKETS

The EU ETS is the most developed carbon pricing mechanism in the world. Every CFO and every bank has heard of net zero, the EU taxonomy, science-based targets, and greenhouse gas protocol. Carbon, for all its limitations as a metric for ecological health, is a language the financial sector already speaks. Christian’s argument is not that carbon is the only metric that matters — he is explicit that it is a means, not an objective — but that it is currently the most legible financial signal available for driving investment into sustainable land management. The ETS reform includes, for the first time, a proposal to use a portion of ETS revenues to finance carbon removals, initially focused on industrial removals and biogenic carbon capture, but with an explicit pathway toward including carbon farming as a source of permanent removals by 2034.

“We are proposing that we would use parts of the revenues to finance removals. And we are saying that over the next years until 2034, we’ll look into how could we create what we now technically call a permanent removal also from carbon farming.” — Christian Holzleitner

WHY WE NEED LARGER PROJECTS AND PROJECT PORTFOLIOS TO MAKE THE MARKET WORK

An individual farmer’s carbon credits are not interesting to a pension fund. The due diligence costs of evaluating a small project are the same as for a large one, and below a certain threshold institutional investors simply will not engage. The path to getting patient capital into European carbon farming runs through aggregation: bundling many small, CRCF-certified projects into diversified portfolios that are large enough to justify the due diligence and offer the risk diversification that institutional investors need. A portfolio combining peatland credits from Finland, biochar from Germany, agroforestry from France, and improved forest management from Romania is a fundamentally different investment proposition from any single project — and the European diversity of farming systems and climate zones is a structural advantage that larger markets cannot replicate.

“If we have a certain size, then it gets really interesting for the big banks and financial institutions to get in. Because this would be, for me, one of the ultimate benefits of creating a European market — that this gets to investment sizes where big financial institutions, like pension funds, who have patient capital, are interested in chipping in.” — Christian Holzleitner

WHY WORKING AT A LANDSCAPE SCALE COULD BE KEY

The intervention Christian finds most compelling is also the most complex: peatland rewetting. Europe has vast areas of drained peatland, particularly in northern and eastern Europe, that are now significant sources of CO2 and methane emissions. Rewetting them is one of the highest-impact land-use changes available on the continent, but it requires coordination across multiple landowners, water management infrastructure investment, and a long-term commitment that no individual farmer can make or finance alone. Landscape approaches — where a regional authority or cooperative coordinates across a catchment or watershed — make this possible. They also make it possible to address multiple environmental objectives simultaneously: carbon sequestration, water quality (the Baltic Sea pollution connection is direct), biodiversity recovery, and flood management. Christian points to Finland as a place where landscape-scale approaches to peatland forestry and water management are being actively developed.

“What would be super powerful is the rewetting of peatlands. We have a lot of them. And this is really where you need a landscape approach. You can address a lot of challenges at the same time.” — Christian Holzleitner

OTHER POINTS DISCUSSED:

Koen and Christian also talked about

Farmers squeezed in the value chain — the hourglass: input companies capture margin at the top, brands and retailers at the bottom, farmers in the middle; carbon market revenue that reaches the farmer must be additional and meaningful, not a rounding error on a single cash crop; the rotation problem (Dan Barber’s rotation risotto is referenced) means the whole farming system needs financing, not just the headline product
Permanence and liability challenges — soil carbon can be reversed by drought, tillage, or management changes; the permanence fund concept is one proposed solution, where a portion of credit revenues is held in reserve against reversal risk
Need for buyer cost-sharing — the EU buyer club concept: a blueprint for purchase agreements that spreads the cost of carbon credit purchases across multiple food system actors — traders, brands, retailers — so no single company bears a disproportionate cost while competitors free-ride; Christian’s argument is that even 30–40 euros per tonne spread across the value chain is pocket change to most large food companies
The CFO conversation — Christian’s most important point for investors: most large financial institutions already have a carbon market unit; the missing piece is a task force that connects the carbon market team with the lending team and the investment team, and asks how these things can be interconnected for agricultural and forestry investment.

RELEVANT SOURCES AND LINKS

Referenced in the conversation:

Dan Barber’s rotation risotto — the argument that paying a premium for one cash crop does not finance the whole rotation (worth linking to his work at Blue Hill or the Perennial Grain Project)
LULUCF (Land Use, Land Use Change and Forestry)

Related podcast episodes to cross-reference:

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Funded by the European Union. Views and opinions expressed are however those of the author(s) only and do not necessarily reflect those of the European Union or European Research Executive Agency. Neither the European Union nor the granting authority can be held responsible for them.

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The above references an opinion and is for information and educational purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.

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