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A Carbon/GHG Index for Agriculture
Summary of remarks by
Dr. Richard Gilmore
The GIC Group
February 18, 2010
On February 18, Dr. Richard Gilmore, President of the GIC Group, gave a presentation on “A Carbon/GHG Index for Agriculture.” Dr. Gilmore outlined the GIC Agriculture Carbon Index, providing an overview of the function and substance of the Index. He said that the Index was designed to serve as a discovery mechanism for the valuation process. While other composite indices were heavily weighted in favor of oil, there was no index that measured the drivers of agriculture.
In the development of the Index, Dr. Gilmore indicated that GIC went through every project in the European Union Allowances (EUA) system. He argued that agriculture should treat EUA, Clean Development Mechanism (CDM), the secondary market, and opportunities in trading these credits as another revenue stream.
Dr. Gilmore described the five factors that are built into the Index growth model: 1) Domestic output per country/region (region in case of EU-27); 2) inflation; 3) composite index of commodity prices; 4) land endowment: arable land (including crop land, grasslands, pastures, and forest land); and 5) annual fertilizer utilization/consumption. He indicated that GIC is working to incorporate a sixth factor into the growth model that would focus on efficiency.
In addition to serving as a sector-specific carbon price discovery tool, Dr. Gilmore also noted that the Index is also a hedging instrument for carbon offsets and allowances, is a due diligence tool for balance sheet valuation in M&A transactions, and is an instrument for estimating and valuing agriculture-related carbon mitigation technologies.
Questions and Answers
U.S. Cap-and-Trade Regime
Dr. Gilmore was asked about how the status of cap-and-trade in the United States would impact the Agriculture Carbon Index. He responded that the Index was developed prior to the knowledge that cap-and-trade could possibly become law in the United States. He acknowledged that U.S. participation would be a “welcomed addition” and the volumes for the index would clearly be “much greater” because the U.S. is the number one driver when it comes to carbon emissions. However, Dr. Gilmore stressed that the Index does not depend on U.S. participation.
Political Obstacles for International Climate Change Agreements
In response to a question about the political challenges to reach a comprehensive climate change agreement with India, Brazil, China, and other countries, Dr. Gilmore pointed out that this was a broad question that cuts across many industries and is not agriculture-specific.
Richard Gilmore, President and CEO of the GIC Group, founded GIC Trade, Inc./GIC Group in 1980. He has a PhD in trade economics and extensive experience in policy analysis, trade, investment, and market research for agro-industries. Dr. Gilmore has served as a member of the Presidential Business Development Missions under late Secretary of Commerce Ron Brown's leadership. He formerly served as Senior Economist on the Senate Foreign Relations Committee, where his responsibilities included drafting legislation, committee investigations, analysis and report writing concerning trade and investment issues, and U.S. foreign assistance programs. Subsequently, he was a Rockefeller Fellow and wrote and edited books and several articles. His most recent articles have been devoted to Ag biotech issues. Dr. Gilmore has also worked as a Trade Economist for the U.S. Department of Agriculture, Economic Research Service, Foreign Trade and Development Section. He currently serves on the supervisory Board of Novoplant, an animal health biotech company and is a member of the International Business Advisory Network (IBAN), NESsT, an international philanthropic, non-profit organization providing financing and financial and management services to civil society organizations.
Rapporteur: Matthew Hoekstra
National Economists Club
P.O. Box 19281
Washington, DC 20036
703-493-8824
info@national-economists.org
