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Economics of Sequestering Carbon in the U.S. Agricultural Sector
Jan Lewandrowski, Mark Peters, Carol Jones, Robert
House, Mark Sperow, Marlen Eve, and Keith Paustian
Technical Bulletin No. (TB1909), March 2004
Increasing the quantity of carbon sequestered—or stored—in
soils is an alternative to reducing atmospheric emissions of
carbon and other greenhouse gases (GHG) in the context of an
overall strategy to mitigate global climate change and its impacts.
Under relatively constant management and environmental conditions,
rates of carbon additions through photosynthesis and of carbon
emissions through decomposition tend to equilibrate and the
amount of organic carbon in soil stabilizes at a new equilibrium.
Since wide-scale cultivation began in the 1800s, the stock of
carbon in U.S. agricultural soils has declined, on average,
by about one-third. Soil science studies have estimated the
technical possibilities for sequestering additional carbon.
This study explores the economic potential of sequestering additional
carbon in the U.S. agricultural sector by providing farmers
with incentives to expand the adoption of land uses and production
practices that increase the quantity of carbon stored in soils
and vegetation.
What Is the Issue?
In February 2002, the President directed the Secretary of Agriculture
to develop recommendations for incentives to encourage adoption
of production practices and land uses that extract carbon from
the atmosphere and sequester it in soils and vegetation. Economics
of Sequestering Carbon in the U.S. Agricultural Sector examines
the economic implications of carbon-based incentives that might
be used to expand such land uses and production practices in
the U.S. farm sector. Two primary issues are addressed:
- How much of the estimated "technical" potential
for additional carbon sequestration is economically feasible?
- How cost effective are alternative incentive structures
that might be used to encourage carbon- sequestering activities?
How Was the Study Conducted?
To assess the economic potential to sequester carbon in the
farm sector, we adapted the ERS U.S. Agricultural Sector Model
(USMP) to include sequestration and emissions parameters associated
with switching into and out of land uses and production practices
that build carbon levels in soils and vegetation. From the sequestration/emission
parameters, we could implement alternative designs for carbon-based
incentive payments to farmers. The three sequestering activities
studied were afforesting croplands and pasture, shifting cropland
to permanent grasses, and increasing the use of production practices
(particularly no-till) and rotations that raise soil-carbon
levels. Model simulations were run reflecting 15-year sequestration
contracts for four alternative payment designs and six alternative
payment levels for additional sequestered carbon. Estimates
of carbon sequestration potential are developed for payment
structures with asset price payments, which compensate farmers
for (presumed) permanent carbon sequestration, and with rental
price payments, which compensate farmers for storing carbon
for a finite time period.
What Did the Study Find?
Agriculture can provide low-cost opportunities to sequester
additional carbon in soils and biomass. At a price
of $10 per metric ton for permanently sequestered carbon, the
ERS model estimates that from 0.4 to 10 million metric tons
(MMT) of carbon could be sequestered annually; and at $125 per
ton, from 72 to 160 MMT could be sequestered, enough to offset
4 to 8 percent of gross U.S. emissions of greenhouse gases in
2001.
The different sequestration activities become economically
feasible at different carbon prices. The model predicted
that farmers would adopt cropland management (primarily conservation
tillage) at the lowest carbon price, $10 per metric ton permanently
sequestered carbon, and would convert land to forest as the
price rose to $25 and beyond. The model predicted farmers in
most regions would not convert cropland to grassland up through
a $125 carbon price, in part because conversion to forest was
more profitable with its higher sequestration rate per acre.
The estimated economic potential to sequester carbon
is lower than previously estimated technical possibilities.
Soil scientists have estimated that increased adoption of conservation
tillage on U.S. cropland has the technical potential to sequester
as much as 107 MMT additional carbon annually. The ERS model
estimates economic potential by factoring into farmers' adoption
decisions the tradeoff between the additional costs of sequestering
practices relative to the additional returns from per ton carbon
payments. We estimate that farmers could sequester up to an
additional 28 MMT by adopting conservation tillage on additional
lands at the top carbon price studied, $125 per ton. For the
other activities studied—afforestation and, particularly,
conversion to grassland—the estimated economic potential
also was less than the previously estimated technical potential.
Incremental sequestration from agricultural activities
can continue for decades. Conversion to conservation
tillage could sequester additional soil carbon for 20-30 years,
at which point a new equilibrium level of soil carbon will be
attained. But carbon may be released relatively rapidly if farmers
shift back to conventional tillage. Additional sequestration
from afforestation may continue for many more decades, depending
on region, species of trees, and harvest decisions.
Payments for carbon sequestration may exceed their
value if sequestration is not permanent. To have the
same greenhouse gas mitigation value as a unit of carbon emissions
reduction, a unit of additional carbon sequestration must remain
stored in soils or biomass permanently. If a subsidy program
makes per ton payments equal to the value of permanent sequestration,
overpayments will occur if subsequent changes in land use or
management practices release carbon back into the atmosphere—unless
compensation is adjusted for the releases. "Rental"
payment mechanisms, which pay farmers to store carbon for specific
periods by maintaining carbon-sequestering practices, can help
avoid this problem, particularly for contract renewals after
the period when a new equilibrium level of soil carbon is reached
and no more carbon is being added to the soil.
An incentive system that includes both payments for
carbon sequestration and charges for carbon emissions may be
substantially more cost effective than a system with payments
only. For example, at a carbon price of $125 per ton
for permanently sequestered carbon, changes in tillage practices
account for an estimated 7 MMT of additional sequestered carbon
with a rental payment system that includes both payments and
charges. Annual government expenditures for storage of this
carbon during the 15-year contract period total $300 million.
In contrast, when the incentives include only carbon payments,
a price of $125 per ton results in half the sequestered carbon
(3.5 MMT), while annual government expenditures increase tenfold
to $1.5 billion.
Adding a cost-share subsidy does not appear to improve
the cost effectiveness of incentive systems. A 50-
percent cost-share for cropland conversion to forestry or grasslands
would increase sequestration at low carbon payment levels but
not at high payment levels. The implications for cost at the
different prices per ton are minimal.
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