Executive summary
Growing public concern about climate change is transforming expectations for the food and agriculture industry. Governments, investors, and consumers are pressuring companies to dramatically reduce greenhouse gas (GHG) emissions, and the livestock and dairy sectors are a central focus due to their significant methane footprint and their ability to deliver meaningful climate mitigation. As consumer packaged goods companies (CPGs) set ambitious Scope 3 and net-zero commitments, on-farm GHG reductions have become essential to meeting these goals—and to maintaining the competitiveness of U.S. agriculture in global markets.
Carbon markets are emerging as a powerful tool to finance climate-smart agriculture. While compliance and voluntary offset markets play important roles, the greatest long-term impact for livestock and dairy will come from supply chain inset markets. Insets enable companies to directly fund the adoption of GHG-reducing practices within their own value chains, generating measurable and attributable Scope 3 reductions. These programs support interventions such as improved feed strategies, manure management technologies, energy efficiency, and enhanced cropping systems—all of which can significantly lower the emissions intensity of livestock and dairy production.
As the regulatory environment evolves, scrutiny of climate claims, carbon accounting, and verification standards is intensifying. Global frameworks—including the GHG Protocol, Science Based Targets Initiative (SBTi), and emerging regional regulations—are pushing corporations toward more rigorous, transparent, and auditable reporting. This is accelerating industry movement away from traditional avoided-emissions offsets and toward supply chain insets, where reductions can be clearly linked to a company’s own product footprint.
Key drivers for inset markets
- Regulatory Scrutiny: Evolving regulations and non-governmental guidance (e.g., EU legislation, FTC Green Guides updates, and SBTi rules) are increasing scrutiny on environmental claims based on offsets, strongly favoring corporate action that directly reduces supply chain (Scope 3) emissions.
- Offset Limitations: Inset markets circumvent the complex challenges of additionality and double counting that plague voluntary offset markets, particularly for “avoided emissions” projects (e.g., fertilizer and feed management). By funding reductions directly within their value chain, CPGs effectively and directly lower their GHG footprints.
- Market Competition: Compliance markets, such as the California Low Carbon Fuel Standard (LCFS), offer credit prices that food companies often cannot match, leading to an increasing preference for insets to secure and claim GHG reductions directly related to their products.
Livestock and dairy supply chains present significant reduction opportunities. In dairy, over 60% of farm-level emissions stem from enteric methane and manure-related methane and nitrous oxide. In beef, the majority of emissions occur in the cow-calf phase, with additional opportunities in feedlot operations through enteric-reducing feed additives and operational improvements. Targeting these hotspots through inset programs offers CPGs a direct pathway to achieving SBTi-aligned goals—while providing producers with new revenue streams and risk-mitigated pathways to adopt climate-smart practices.
While carbon markets and emissions-claim frameworks are still developing, one trend is clear: supply chain insets will become a primary mechanism for financing and scaling GHG-reducing technologies and practices in livestock and dairy. To fully participate in this emerging opportunity, producers will need to understand which interventions fit their operations, the data and verification requirements of inset programs, and the financial and operational conditions necessary to make practice changes viable.
Supply chain insets represent a durable and economically significant path forward—one that aligns climate ambition with agricultural resilience, producer livelihoods, and a lower-carbon future for livestock and dairy.