Rostin Behnam, President Joe Biden’s pick to chair the Commodity Futures Trading Commission, says the derivatives regulator should have some input in the development of agricultural carbon markets to ensure they operate fairly.
Behnam appeared before the Senate Ag Committee – which has jurisdiction over CFTC – for a confirmation hearing Wednesday and offered thoughts on how the agency could play a role in protecting carbon markets from manipulation and other fraudulent practices.
“We’re creating a financial market where credits are going to be bought and sold, and it’s important to have a market that has integrity, that has transparency, and that’s free from fraud and manipulation,” Behnam said. “If you can create that, then the outcome of what you’re trying to accomplish – sequestering carbon and getting money to producers and ranchers, farmers, and foresters pockets – will be accomplished,"
Several market options have emerged to offer farmers payments for the carbon they sequester in the soil through climate-smart practices. Capitol Hill has also gotten involved, primarily through the Senate-passed Growing Climate Solutions Act, which would create a system for USDA to certify farmer advisers and third-party verifiers of carbon credits. The bill passed the Senate in 92-8 in June and is now pending in the House.
Carbon markets "could certainly benefit from the experience and expertise that the CFTC has as a commodity regulator,” Behnam said. “I think the last thing you would want … is to see the market side of that effort fail, because if it does … the driving point of the bill itself will not be accomplished."
Behnam, a former Senate Ag aide who was senior counsel to Chairwoman Debbie Stabenow, D-Mich., is currently serving as CFTC’s acting chairman and has been a commissioner since 2017. Biden nominated him for another term on the commission in September, when he also picked Kristin Johnson and Christy Goldsmith Romero as CFTC commissioners. If all three are confirmed, Democrats would gain a 3-1 majority.
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During Wednesday's hearing, Behnam also argued that the agency needed to monitor the impacts that climate change could have on the financial system.
“As the climate is changing and we’re seeing a more broad-based effort from the private sector to address climate change – both the physical impacts and the transition risks – we as an agency need to keep up with that,” Behnam said. He specifically citing the impact of weather on grain trading and the affect of spring floods on planting.
“These are all issues that I think are directly related to the agency,” he said.
He stopped short of suggesting that the CFTC should take action on the subject, absent market fraud or manipulation that might be involved. But he said “these are external events that we have to identify, observe, and manage from a markets perspective. My opinion is just to be mindful of these chokepoints.”
In 2020, Behnam issued a report that said that climate change is “impacting, and is projected to impact, not only commercial agriculture in the United States, but also the ecological systems and biodiversity that agricultural systems rely on for everything from the provision of clean water to healthy forests."
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