Inset markets: a concept to discover

Carbon markets raise many questions and arouse a bit of mistrust. However, some of them contribute to a sustainable reduction in greenhouse gases while encouraging collaboration: these are the inset markets.

By promoting extreme weather events, disrupting biodiversity and weakening our water resources, climate change represents one of the greatest threats to our very existence. Solving this crisis will require imagination and the use of every tool at our disposal.

Although often denounced, carbon markets represent an interesting avenue. At the very least, they put a price on greenhouse gases (GHGs), showing companies the financial benefits of reducing them.

There are two main models. The oldest is the classic carbon market, or offset market. The second is a new model that is attracting a great deal of interest in the agri-food sector: the inset market. The difference between the two lies in the type of commitment that participating organizations make to reduce their GHGs, and how they subsequently trade these reductions on the market.

The Kyoto Protocol: the birth of carbon markets

The idea of creating carbon markets spread in the 1990s, during the Kyoto Protocol negotiations. The goal: to enable companies to reduce their GHG emissions by purchasing carbon reductions or sequestration that… others have achieved.

While these transactions sometimes arouse skepticism, they do have some utility. Let’s imagine a company that has reduced its GHGs as much as possible by optimizing its operations. By purchasing “carbon credits” (or “offsets”), it offsets the emissions it is unable to eliminate, due, for example, to the limitations of existing technologies.

Credits with limited impact

Today, carbon credits are widespread. Cement manufacturers, oil companies and banks, for example, reduce their emissions by purchasing reductions resulting from tree planting, peatland preservation, renewable energy financing and so on.

On paper, this works perfectly: the GHG reduction achieved through a tree plantation in Africa, for example, wipes out the emissions of the bank that buys it. But on a global scale, the effect of this transaction on the fight against climate change is more uncertain, since the GHGs emitted by the bank are equivalent to the GHGs eliminated thanks to the trees planted in Africa.

Ultimately, this type of reduction is therefore insufficient to meet the enormous challenge of climate change. This is all the more true because, in the opinion of many, offset credits take up too much space in companies’ sustainable development strategies. Supposed to be a last resort, these credits are at the forefront of their GHG reduction efforts, preventing them from reducing their emissions at source. If everyone adopted the same strategy, we’d quickly run out of places to plant trees, preserve peat bogs or finance renewable energies.

Inset carbon markets: another model

Around five years ago, another carbon market model emerged: the inset market. This type of market does not trade carbon credits. It fosters companies that reduce their greenhouse gas emissions by making fundamental changes to their business model. This approach increases the likelihood of a permanent and sustainable reduction in emissions, while benefiting farms, food processors and consumers.

In concrete terms, companies that engage in this type of market examine not only their own emissions, but also the ones generated by the manufacture of the inputs they purchase, or by the general public’s use of their products. In other words, they broaden their analysis to include GHGs that occur upstream or downstream of their internal processes. This could be the milk purchased by a cheese-maker, for example, or the trays in which a berry grower packs his strawberries, or even the GHGs emitted by a refrigerator sent to landfill.

These “external” emissions of companies, known as Scope 3, are therefore added to their Scope 1 or Scope 2 emissions, which are generated directly by their offices or factories, or by the production of the energy they consume. This type of more global approach is still very rare. According to a recent report, barely 15% of companies include Scope 3 emissions in their sustainable development strategies!

A concrete example: Liberté brand yogurt

A good example of an inset market is the work that a hundred Quebec dairy farms will soon carry out with agri-food processor General Mills. This large U.S.-based company has a plant in Quebec, where it uses milk from local farms to manufacture its Liberté brand yogurt.

In 2015, General Mills committed to reducing its emissions by 30% by 2030 and 100% by 2050. To achieve this, the company is not content to simply buy offset credits: it supports the dairy farms in its value chain to help them reduce their GHGs and, therefore, reduce its own Scope 3 emissions. In concrete terms, this has required General Mills to review its business model and start financing a large part of its Quebec partners’ climate transition, including training and agronomic services.

Benefits for the entire value chain

General Mills’ commitment benefits its entire value chain. First and foremost, the farm, which should benefit in the short term from greater resilience to climate change and, in the medium term, from a carbon asset it can capitalize on.

Subsequently, the GHG reductions generated in the field or barn are transposed throughout the processing chain, right up to the low-carbon product sold in the store. As the International Platform for Insetting writes, insetting deepens and strengthens relationships between companies and their suppliers, aligning them around the same goals. Ultimately, this helps build trust between stakeholders and enhances transparency. Inset markets therefore deserve to be known and popularized among agri-food processors, as they represent an interesting avenue for them and for the farms they work with, from both an economic and an environmental point of vue.