Financial Incentives for Carbon Farming in the European Union: Policy Evidence and Opportunities

The European Union’s 2025 report, “Support to the Design of Policy Options for Financial Incentives for Carbon Farming”, prepared by Deloitte for the Directorate-General for Climate Action (DG CLIMA), provides a comprehensive assessment of how financial mechanisms can accelerate the deployment of carbon farming practices under the EU’s Carbon Removals and Carbon Farming Certification Regulation (CRCF). The report marks a critical step in shaping a high-integrity European carbon market, designed to mobilize both public and private capital towards sustainable land management.

1. Background and Policy Context

The European Green Deal and the European Climate Law (Regulation (EU) 2021/1119) enshrine the Union’s commitment to achieving net-zero greenhouse gas (GHG) emissions by 2050. To reach this objective, the EU must significantly scale up carbon removals alongside emissions reductions. The CRCF, adopted in 2024, introduces a unified certification framework for carbon removals and carbon farming, establishing quality standards through the QU.A.L.ITY criteria — Quantification, Additionality, Long-term storage, and Sustainability.

These criteria aim to ensure that certified carbon farming credits represent verifiable, permanent, and socially responsible climate benefits. The CRCF framework lays the foundation for a voluntary, transparent market that rewards climate-positive agricultural practices such as agroforestry, peatland restoration, and regenerative soil management.

2. The Current Market Challenge

Although the regulatory environment is maturing, the carbon farming market remains underdeveloped. The report identifies a set of structural barriers that hinder both project development and private sector participation. Among the most significant are high measurement, reporting, and verification (MRV) costs, uncertainty in credit use cases, and price volatility across emerging European markets.

A survey of corporate buyers revealed that 73% of respondents viewed carbon farming as critical to achieving their net-zero commitments, yet over 60% expressed concerns about reputational risks and the absence of harmonised crediting methodologies. European carbon credits are estimated to cost €70–€120 per tonne of CO₂e, compared to €8–€15 per tonne for many international voluntary offsets — a disparity that limits competitiveness without robust price stabilization instruments.

The report concludes that, without targeted financial incentives and structured demand aggregation, the European carbon farming market will remain niche and fragmented.

3. Methodological Approach

The study’s methodology combined quantitative data analysis and stakeholder consultation. A total of 41 financial mechanisms were reviewed — 14 public and 27 private or blended schemes — representing diverse approaches to carbon project financing. In addition, interviews with corporate buyers from sectors including finance, agrifood, energy, and manufacturing provided qualitative insights. The consultation process culminated in a stakeholder workshop held in Brussels in May 2025, attended by over 300 participants from across Europe, including policymakers, investors, NGOs, and project developers.

This mixed-method design allowed for triangulation of evidence to identify best practices and assess the scalability, replicability, and governance needs of different financing models.

4. Determinants of Financial Mechanism Success

The study identified five determinants that influence the success of financial mechanisms supporting carbon farming.First, de-risking instruments such as insurance, guarantees, and technical assistance were deemed critical to attract risk-averse investors and reduce exposure to under-delivery or reversal of carbon sequestration.Second, blended finance structures that combine public grants with private equity or debt were shown to leverage capital effectively; in comparable climate finance schemes, a 3:1 private-to-public leverage ratio was achieved.Third, hybrid reward models that mix upfront effort-based support with performance-linked payments increase farmer participation.Fourth, long-term contractual commitments improve the permanence of results and facilitate integration with national CAP eco-schemes.Finally, price stability mechanisms, such as pre-purchase contracts or forward markets, are essential to provide predictability and prevent credit price collapse.

5. Financial Mechanisms Evaluated

Four potential financing mechanisms were analyzed in detail: the Buyers’ Club, Reverse Auctions, Carbon Fund, and Debt-Oriented Investment Vehicle. Each model was assessed against six criteria: scalability, cost efficiency, governance feasibility, integrity alignment, market stimulation, and risk management.

Of these mechanisms, the Buyers’ Club emerged as the most effective, offering the greatest potential for scalability, transparency, and alignment with the CRCF framework.

6. The Buyers’ Club Model and Its Expected Outcomes

The Buyers’ Club, modeled on Advance Market Commitment (AMC) principles, aggregates forward demand from public and private actors. It enables pre-purchase agreements that provide upfront capital for early-stage projects and forward offtake contracts that secure long-term market demand.

The proposed pilot phase (2026–2030) aims to generate between 1 and 2 million tonnes of CO₂e in verified carbon removals and to mobilize at least €3 of private investment for each €1 of public funding. The mechanism would focus initially on agroforestry systems, peatland rewetting, and regenerative arable rotations, supported by robust monitoring, reporting, and verification (MRV) technologies.

Governance would be ensured through an independent secretariat under European Commission oversight, with open calls for project proposals, transparent contractual frameworks, and integration with digital MRV systems.

This model is expected to enhance price stability, facilitate aggregation of smallholder projects, and increase confidence among institutional buyers by offering verified, high-quality credits with measurable biodiversity co-benefits.

7. Implications for Bulgaria and Agriventures’ Role

For Bulgaria, the findings of the report hold significant strategic implications. The country’s agricultural landscape — characterized by small and medium-sized farms, diverse crop systems, and untapped soil carbon potential — is well-positioned to benefit from emerging EU carbon finance mechanisms. However, the development of this market requires national readiness, including data infrastructure for carbon monitoring, accredited certification bodies, and intermediaries capable of aggregating projects to achieve economies of scale.

Agriventures plays an active role in this process by analyzing EU carbon farming regulations, supporting the alignment of national agricultural policy with EU-level climate instruments, and advising innovators and startups in the agrifood and bioeconomy sectors. The organization promotes knowledge transfer between research institutions, farmers, and investors to encourage the adoption of regenerative agriculture and soil carbon sequestration practices.

By bridging scientific analysis and practical implementation, Agriventures aims to ensure that Bulgarian stakeholders are active contributors to the development of a transparent and fair European carbon removals market.

The 2025 DG CLIMA report provides robust evidence that well-designed financial incentives can transform carbon farming from a niche initiative into a central pillar of Europe’s decarbonization strategy. The Buyers’ Club model offers the most promising approach, combining demand aggregation, risk mitigation, and blended finance to unlock investment at scale.

If implemented successfully, the mechanism could channel hundreds of millions of euros into climate-smart land management, supporting both the EU’s 2040 climate targets and the resilience of European rural economies.

For Bulgaria, embracing these instruments offers a pathway toward a more competitive, sustainable, and climate-resilient agricultural sector. Agriventures will continue to provide scientific analysis, stakeholder dialogue, and policy insight to ensure that Bulgaria remains at the forefront of Europe’s transition to a carbon-neutral food system.

See the full report here: https://op.europa.eu/en/publication-detail/-/publication/69a3abd7-9a8f-11f0-97c8-01aa75ed71a1/language-en