How Hemp Producers Can Unlock Potential In Carbon Credit Markets (Op-Ed)

“For hemp producers, entering the carbon credit market may provide a strategy for long-term sustainability and market resilience.”

By Amy M. Rubenstein, Dentons

As the cannabis and hemp industries evolve (including most recently through an amendment to the 2018 Farm bill that redefines “hemp”), producers should seek innovative ways to diversify income and align their businesses with sustainability goals.

One promising developments is integrating carbon credit generation into hemp cultivation practices. With its impressive carbon sequestration capabilities, hemp presents an untapped opportunity to access carbon credit markets, including tax incentives through IRS Section 45Q and credits in both voluntary and compliance markets.

Why Hemp Producers Should Care About Carbon Credits

Producers growing hemp for cannabinoids like Delta-8 THC, CBD and other intoxicating or therapeutic compounds face regulatory challenges and volatile market prices. The amended hemp definition in the federal spending bill compounds these issues and may push producers to find alternatives to monetize their hemp crops.

If producers can show a qualifying end-use, they may be able to open up a new and increasingly valuable revenue stream while improving their environmental footprint.

Hemp’s rapid growth rate and high biomass density make it particularly effective at capturing carbon dioxide, which is the foundation for generating carbon offsets.

Hemp’s Carbon Sequestration Power

To the Lincoln University Hemp Institute, “hemp is an ideal annual crop for carbon negative supply chains for food, feed, fiber and fuel.”

According to the British Hemp Company, every metric ton of hemp cultivated can absorb approximately 1.63 metric tons of CO₂ from the atmosphere.

Dr. Darshil Shah of the University of Cambridge has stated that industrial hemp can capture more carbon per hectare than forests or commercial crops like cotton or wheat.

And unlike tree-planting offset schemes, hemp grows in four to six months, meaning it can be cycled multiple times per year for carbon drawdown. Its deep root system not only locks carbon into the soil but also improves soil structure and fertility over time, making future harvests more productive—and more carbon efficient.

For hemp producers, especially those already investing in regenerative farming practices to improve cannabinoid yields and terpene profiles, these environmental benefits can be converted into quantifiable financial returns in the form of carbon credits.

Carbon Credit Markets: Voluntary vs. Compliance

There are two main avenues for selling carbon credits:

1. Voluntary Markets: These allow hemp growers to generate and sell carbon credits directly to companies, individuals or organizations looking to offset emissions as part of sustainability goals. Hemp-based credits are increasingly gaining attention here. Registries like Verra and Gold Standard are developing new agricultural methodologies to accommodate crops like hemp.
2. Compliance Markets: These are government-regulated systems like California’s Cap-and-Trade program or the European Union Emissions Trading System. While more complex to access, these markets offer higher and more stable credit prices. Hemp credits are not yet mainstream in compliance markets, but advocacy is growing for broader agricultural inclusion.

One voluntary carbon credit example for hemp comes from Hempitecture, a U.S.-based company that builds sustainable construction materials from hemp, with a methodology being reviewed Verra.

Each metric ton of carbon sequestered becomes a credit that a company can then purchase to reduce its overall carbon footprint. These credits have a marketplace, with a lower price commanded for the voluntary markets than the compliance markets.

IRS Section 45Q: A Primer for Hemp Cultivators

IRS Section 45Q provides tax credits for each metric ton of CO₂ captured and either permanently stored or used in an approved application. While IRS initially created this tax credit for large-scale industrial operations, recent interpretations and guidance suggest a growing openness to biological carbon sequestration—including agriculture-based solutions like hemp.

However, for hemp to qualify under 45Q, a few key requirements must be met:

1. The CO₂ captured must be measured and verified using approved protocols.
2. The storage must be permanent or used in a qualifying end-use (e.g., biochar, building materials).
3. Entities must establish Monitoring, Reporting and Verification (MRV) systems to document sequestration.

Because requirement #2 presents a challenge currently for intoxicating or therapeutic hemp-derived compounds (i.e., whether the carbon is captured permanently in that use case), most intoxicating hemp growers may find voluntary carbon markets (described above) to be a more immediate fit if 45Q’s requirements cannot be met. However, as intoxicating hemp producers may pivot when the new hemp definition becomes effective, using 45Q may become more attractive.

It should be noted that IRS requirements under 45Q, which require compliance and monitoring standards (both during and after construction and placed in service), must be followed closely but still can allow flexibility on the use of the tax credit. Still, staying informed on IRS interpretations of 45Q is smart business—especially as policy continues to evolve as the 45Q credit has evolved and expanded under different administrations.

Creating Hemp-Based Carbon Credits: Navigating Compliance and Opportunity

Growers with sizable hemp acreage who want to turn hemp’s carbon sequestration into tradable credits must:

1. Measure carbon capture using accepted methodologies (such as COMET-Farm or Cool Farm Tool);
2. Work with a carbon project developer or aggregator.
3. Register with a verified carbon registry.
4. Undergo third-party validation and periodic verification.
5. Maintain long-term documentation and reporting.

According to CarbonCredits.com, projects involving hemp are now being registered and monetized, with some platforms even exploring blockchain-based credit systems that tokenize offsets, allowing them to be traded more easily and transparently.

While intoxicating hemp often has been separated from industrial-use hemp in regulations, it still qualifies for carbon credit opportunities as long as the cultivation methods meet the criteria for verifiable carbon sequestration. In the next year, this separation also may fade for hemp producers.

From a marketing perspective for any hemp product, emphasizing environmental stewardship through carbon capture can also be appealing to eco-conscious investors and consumers.

Challenges to Consider

Before diving in, there are important caveats:

• Verification costs can be substantial. Grouping together with other growers through a project developer can help.
• Lack of clear hemp-specific methodologies. While some exist for soil carbon or biomass sequestration, few are tailor-made for intoxicating hemp crops.
• Regulatory ambiguity. Federal policy still creates friction between cannabis-related operations and traditional agricultural benefits like USDA support or federal tax credits.

Despite these issues, the carbon credit space continues to mature rapidly, and hemp growers are well-positioned to take early advantage.

The Future: Hemp as a Dual-Use Crop for Profit and Planet

For hemp producers, entering the carbon credit market may provide a strategy for long-term sustainability and market resilience.

As more carbon registries develop agriculture-friendly protocols, and as public awareness of climate-smart agriculture grows, early adopters in the hemp space will reap financial and reputational benefits. Consumers seeking eco-friendly products may seek out products that have attributes like carbon capture.

By aligning cultivation with carbon sequestration strategies and pursuing certification in voluntary or eventually compliance markets, hemp growers can play a pivotal role in fighting climate change—all while growing a better bottom line.

Amy M. Rubenstein is a partner in the Health Care practice at Dentons US LLP.

Photo courtesy of Max Jackson.

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