Futures Market for Ag Carbon Offsets under Mandatory and Voluntary Emission Targets

Abstract

Increasing concerns about climate change have prompted actions, both by governments and the private sector, aimed at curbing the emissions of greenhouse gases (GHGs). An important number of such initiatives involve the trading of GHG allowances and offsets. An allowance permits its holder to emit a specified amount of GHGs, whereas an offset is a certified reduction in GHG emissions that can be used to compensate for GHG emissions elsewhere. Recently, carbon offsets have attracted the attention of decisionmakers in agriculture for their alleged potential to enhance farmers’ profits, as some agricultural activities can generate offsets by capturing GHGs (e.g., methane capture from manure management, soil carbon sequestration, and fertilizer use reduction). The purpose of this article is to provide some background information on these markets and discuss the potential of the futures market for GHG offsets recently launched by the Chicago Mercantile Exchange (CME) Group to act as a catalyzer of the market for agricultural offsets.