TOKYO -- Japanese trading house Sumitomo Corp. has entered into a memorandum of agreement with U.S. agricultural startup Indigo Ag in the greenhouse-gas emissions allowance business utilizing agricultural land to store carbon dioxide.
Sumitomo's new business launch comes as it seeks to cultivate a novel market that could help address climate change.
By using organic fertilizers and improving soil, the two companies will increase the amount of CO2 that can be absorbed into the ground and then sell the amount that has been reduced from the atmosphere as an emissions allowance. It is estimated that soil improvement has the potential to absorb 500 billion tons of CO2, which is close to the carbon absorption of methods such as forest conservation and afforestation.
Over 1,000 farmers have already participated in Indigo's business in the U.S. The Massachusetts-based company plans to expand its agricultural land to 16 million hectares in 2024, with storage estimates of up to 64 million tons of CO2.
Indigo has the know-how to measure the amount of carbon in the ground using satellite photography, sensors attached to agricultural machinery and sample surveys of soil. The company then measures how much the CO2 contained in soil has increased.
Since the measurement method has been certified by an international private certification body, it can now be used for emissions allowance trading. The startup plans to sell the first emissions allowances to companies by the end of this year, with 12 companies in Europe and North America, including Canadian e-commerce company Shopify and U.S. investment bank JP Morgan Chase, having already decided to buy them.
Sumitomo will launch the venture as a new business and will oversee sales in Asia including Japan from 2022. The trading house plans to sell emissions allowances to Japanese electric power and gas companies, along with its current offering of liquefied natural gas, to support decarbonization efforts. Joint research will also be conducted on CO2 storage in paddy fields.