GIC Group promotes climate protection with commodities plus CO2

Roughly only three percent of US farmers now participate in carbon credit programs offered by the private sector. Rick Gilmore, CEO of the US consulting firm GIC Group, wants to incentivize more farmers to adopt GHG reduction on-farm sustainable practices. For the past six years, he has been working on a new tool to combine environmental protection and income opportunities for US farms: commodities plus carbon (CPCs). These are futures contracts, which, as insets, combine the market price of carbon credits and cash crop prices, to mitigate climate risk through good agricultural practices. “The CPC strategy is to use futures contracts to incentivize good agricultural practices. It is a market approach to reducing carbon emissions and promoting sustainable agriculture,” Gilmore explained in an interview with MBI Infosource.

The agricultural sector, which includes the entire value chain and related services, is responsible for about 11 percent of global greenhouse gas emissions. According to Gilmore, the greenhouse gas quotas attributable to the agricultural value chain are as high as 31 percent in livestock farming and fisheries, 27 percent in crop production, 24 percent in land use and 18 percent in supply chains.

Soil degradation is a major cause of these dramatic changes and contributes to the problem of reducing carbon emissions and meeting the challenge of sustainability. COVID-19 and the global economic slowdown have also led to a loss of revenue for the entire agriculture/agro-industry value chain.?

CPC is based on new futures contracts for crops, food and feed. Rick Gilmore believes that CPC contracts should maximize the benefits of new technologies and good agricultural practices in reducing and sequestering CO2. “We are also creating a new hedging instrument for strategic, high-volume commodities on the futures markets,” the manager explained.

The roadmap for the introduction of CPCs comprises three phases. In Phase I, data collection, data verification and authorization are carried out with securitization measures from mass balance certification, blockchain, and on-site verification as required. GIC Group has conducted several pilots in cash transactions and focus groups.? It is now in pre-launch for the initial contracts and has an infrastructure in place for measurement, monitoring, reporting and verification (MRRV).??In Phase II, OTC transactions will be set up and negotiations for listings will be initiated. In Phase III, the effects of the listed CPC contracts will be documented.

Gilmore wants to generate income for the farmers through premium prices based on-farm emission levels below a net zero benchmark. “The lower their emissions, the higher the premiums”, he says.? The CPC futures contract allows the grower to lock in the premium without a service charge since the revenue from CPC transactions listed on commodity exchanges will be shared with the new company established by GIC and its investors.? CPC corn and CPC soybeans is now under negotiations with a major US exchange.??Gilmore is currently negotiating the framework conditions. At the same time, he is putting out feelers in Europe. “Once the CPCs are on the market in the US, interest will come from Europe,” he is convinced.

Three CPC contract rollouts – soy, corn and cocoa – are to take place in the first year, three rollouts (SRW wheat, HRW wheat and sorghum) in the second year, three (canola, lean hogs and ethanol) in the third year, two (live cattle and feeder cattle) in the fourth year and two (hemp and cannabis) in the fifth year. The trading volume is based on a ten-year period, forecasted using average five-year growth rates.

Gilmore is not a big fan of carbon offsets which have been, he says, decidedly unsuccessful in moving us to “net zero” due to a lack of standards and compliance regulations to ensure the integrity of the credits.? That is why there has been an increased interest in CPC as an inset approach for agriculture.? Rather, he criticizes a lack of transparency in connection with inadequate reporting standards, a lack of guaranteed use of proceeds and complaints about greenwashing. “Companies continue to emit the same amounts of greenhouse gases that are offset by purchasing credits. That's greenwashing and often outright fraud.” Gilmore misses initiatives for direct payments to farms to reduce CO2. In his view, a lack of market incentives hinders both the scaling and the potential for the private sector to reduce emissions.

Rick Gilmore is an old hand in American agribusiness. Through his carbon advisory business he has developed two carbon indices to value carbon credits (CERs) and emission reduction units (EUAs) associated with carbon emissions from agricultural industries. These two indices – the GIC Ag CER Index and the GIC Ag EUA Index – provide financial investors and agricultural companies alike with an independent pricing tool that can be traded worldwide. They also provide US food producers and agriculture-related sectors with an effective benchmark for assessing their carbon offset potential and/or liabilities in anticipation of a US cap-and-trade system.

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