REGENA: Financial Engineering for Carbon Farming

Our work develops the financial engineering module of the REGENerative Agriculture (REGENA) Production Function, with Soil Organic Carbon (SOC) as ecosystem service and contract underlying index, contributing to the global literature and business practices. Specifically, we design and engineer a 30-year Net Present Value (NPV) intergenerational ecological bond instrument tailored for carbon farming (CF) as a part of regenerative practices. With SOC constituting a fundamental soil health indicator for the European Union Soil Observatory (EUSO), we model the flow of value from atmospheric CO2 removal and its metabolism into SOC within a stochastic SOC Value at Risk (VaR) framework. We assess the SOC VaR in five experimental plots in five Mediterranean countries in South Europe and North Africa for three different treatments in each plot. In turn, the SOC VaR is incorporated into an adjusted Shannon entropy index (H(X)ADJ) to estimate the coefficient of a positive, net-zero, or negative carbon balance and further assess the risk-adjusted discount rate. The monetary value per gram of carbon per kilogram of soil (g C/kg Soil) signifies a clear advantage of combined regenerative treatments. Finally, three selected extensions of our work are discussed, such as the application of the framework to other nutrients, the establishment full cost–benefit accounting methods for monetizing the environmental benefits of CF to upscale investments and the lifecycle accounting of ecosystem services.