Dynamics and the economics of carbon sequestration: common oversights and their implications

  • Tas ThamoEmail author
  • David J. Pannell
  • Marit E. Kragt
  • Michael J. Robertson
  • Maksym Polyakov
Original Article


Accurate assessment of the cost of carbon sequestration is important for the development of mitigation policies globally. Given that sequestration in soils or vegetation is a lengthy process, such assessment requires financial discounting and making realistic assumptions about changes over time in the rate of sequestration, the price of carbon, and the opportunity cost incurred by adopting sequestration practices. Our objective is to demonstrate how these assumptions affect estimates of the cost of sequestration-based mitigation strategies. Using an Australian case study of soil carbon sequestration, our estimates of the carbon price required for financial viability are highly sensitive to dynamic assumptions, varying by a factor of four with different assumptions. Yet the influence of these time-related assumptions is poorly acknowledged in the literature, with many studies either failing to disclose their assumptions, or employing questionable assumptions and methods. Recommended global strategies are for researchers to report their assumptions related to dynamics much more transparently and to improve their research methods and the realism of their assumptions when analysing the economics of carbon sequestration. We recommend that policymakers become better aware of the issues created by dynamics, so that they are able to validly interpret assessments of the cost of sequestration and to ensure that they design policies in a way that facilitates fair comparison of the costs of mitigation strategies that operate over different timescales.


Carbon sequestration Economics Dynamics Discounting Carbon price Assumption Time 


  1. Antle JM, Capalbo SM, Mooney S et al (2001) Economic analysis of agricultural soil carbon sequestration: an integrated assessment approach. J Agr Resour Econ 26:344–367Google Scholar
  2. Antle J, Capalbo S, Mooney S et al (2003) Spatial heterogeneity, contract design, and the efficiency of carbon sequestration policies for agriculture. J Environ Econ Manag 46:231–250. doi: 10.1016/s0095-0696(02)00038-4 CrossRefGoogle Scholar
  3. Arrow KJ, Cropper ML, Gollier C et al (2012) How should benefits and costs be discounted in an intergenerational context? Resour Futur Discus Pap 12:53Google Scholar
  4. Arrow K, Cropper M, Gollier C et al (2013) Determining benefits and costs for future generations. Science 341:349–350. doi: 10.1126/science.1235665 CrossRefGoogle Scholar
  5. Boyland M (2006) The economics of using forests to increase carbon storage. Can J For Res 36:2223–2234. doi: 10.1139/x06-094 CrossRefGoogle Scholar
  6. De Jong BHJ, Tipper R, Montoya-Gómez G (2000) An economic analysis of the potential for carbon sequestration by forests: evidence from southern Mexico. Ecol Econ 33:313–327. doi: 10.1016/s0921-8009(99)00162-7 CrossRefGoogle Scholar
  7. Department of the Environment (2015a). Emissions Reduction Fund. Cited 21 May 2015Google Scholar
  8. Department of the Environment (2015b). Sequestering carbon in soils in grazing systems. Australian Government. Cited 29 May 2015Google Scholar
  9. Diagana B, Antle J, Stoorvogel J et al (2007) Economic potential for soil carbon sequestration in the Nioro region of Senegal’s Peanut Basin. Agr Syst 94:26–37. doi: 10.1016/j.agsy.2005.08.010 CrossRefGoogle Scholar
  10. Doraiswamy PC, McCarty GW, Hunt ER Jr et al (2007) Modeling soil carbon sequestration in agricultural lands of Mali. Agr Syst 94:63–74. doi: 10.1016/j.agsy.2005.09.011 CrossRefGoogle Scholar
  11. Flugge F, Abadi A (2006) Farming carbon: an economic analysis of agroforestry for carbon sequestration and dryland salinity reduction in Western Australia. Agroforest Syst 68:181–192. doi: 10.1007/s10457-006-9008-7 CrossRefGoogle Scholar
  12. Gollier C, Weitzman ML (2010) How should the distant future be discounted when discount rates are uncertain? Econ Lett 107:350–353. doi: 10.1016/j.econlet.2010.03.001 CrossRefGoogle Scholar
  13. Grace PR, Antle J, Ogle S et al (2010) Soil carbon sequestration rates and associated economic costs for farming systems of south-eastern Australia. Aust J Soil Res 48:720–729CrossRefGoogle Scholar
  14. Harper RJ, Beck AC, Ritson P et al (2007) The potential of greenhouse sinks to underwrite improved land management. Ecol Eng 29:329–341. doi: 10.1016/j.ecoleng.2006.09.025 CrossRefGoogle Scholar
  15. Henry M, Tittonell P, Manlay RJ et al (2009) Biodiversity, carbon stocks and sequestration potential in aboveground biomass in smallholder farming systems of western Kenya. Agr Ecosyst Environ 129:238–252. doi: 10.1016/j.agee.2008.09.006 CrossRefGoogle Scholar
  16. Hertzler GL (2006) Compounding and discounting under risk: net present values and real options values. In: Pannell DJ, Schilizzi SGM (eds) Economics and the future: time and discounting in private and public decision making. Edward Elgar, Cheltenham, UKGoogle Scholar
  17. Ingram JSI, Fernandes ECM (2001) Managing carbon sequestration in soils: concepts and terminology. Agr Ecosyst Environ 87:111–117. doi: 10.1016/s0167-8809(01)00145-1 CrossRefGoogle Scholar
  18. Karky BS, Skutsch M (2010) The cost of carbon abatement through community forest management in Nepal Himalaya. Ecol Econ 69:666–672. doi: 10.1016/j.ecolecon.2009.10.004 CrossRefGoogle Scholar
  19. Keating BA, Carberry PS, Hammer GL et al (2003) An overview of APSIM, a model designed for farming systems simulation. Eur J Agron 18:267–288. doi: 10.1016/s1161-0301(02)00108-9 CrossRefGoogle Scholar
  20. Kingwell R (2009) The carbon challenge for mixed enterprise farms. Paper presented at the New Zealand Agricultural and Resource Economics Society’s Annual Conference, Nelson, 27–28 August 2009Google Scholar
  21. Kingwell RS, Pannell DJ (1987) MIDAS, a bioeconomic model of a dryland farm system. Pudoc, WageningenGoogle Scholar
  22. Kragt ME, Pannell DJ, Robertson MJ et al (2012) Assessing costs of soil carbon sequestration by crop-livestock farmers in Western Australia. Agr Syst 112:27–37. doi: 10.1016/j.agsy.2012.06.005 CrossRefGoogle Scholar
  23. Lam SK, Chen D, Mosier AR et al (2013) The potential for carbon sequestration in Australian agricultural soils is technically and economically limited. Sci Rep 3:2179. doi: 10.1038/srep02179 CrossRefGoogle Scholar
  24. Lawes RA, Kingwell RS (2012) A longitudinal examination of business performance indicators for drought-affected farms. Agr Syst 106:94–101. doi: 10.1016/j.agsy.2011.10.006 CrossRefGoogle Scholar
  25. Lewandrowski J, Peters M, Jones C et al. (2004) Economics of sequestering carbon in the US agricultural sector. USDA Economic Research Service, Tech. Bulletin No. 1909Google Scholar
  26. Luedeling E, Sileshi G, Beedy T et al (2011) Carbon sequestration potential of agroforestry systems in Africa. In: Kumar BM, Nair PKR (eds) Carbon sequestration potential of agroforestry systems. Springer, NetherlandsCrossRefGoogle Scholar
  27. McKenney DW, Yemshanov D, Fox G et al (2006) Using bioeconomic models to assess research priorities: a case study on afforestation as a carbon sequestration tool. Can J For Res 36:886–900. doi: 10.1139/x05-297 CrossRefGoogle Scholar
  28. Moulton RJ, Richards KR (1990) Costs of sequestering carbon through tree planting and forest management in the United States. U.S. Department of Agriculture Forest Service Gen. Tech. Report WO-58Google Scholar
  29. Ndjondo M, Gourlet-Fleury S, Manlay RJ et al (2014) Opportunity costs of carbon sequestration in a forest concession in central Africa. Carbon Balance Manag 9:1–13CrossRefGoogle Scholar
  30. Newell RG, Stavins RN (2000) Climate change and forest sinks: factors affecting the costs of carbon sequestration. J Environ Econ Manag 40:211–235. doi: 10.1006/jeem.1999.1120 CrossRefGoogle Scholar
  31. Nielsen ASE, Plantinga AJ, Alig RJ (2014) New cost estimates for carbon sequestration through afforestation in the United States. Gen. Tech. Rep. PNW-GTR-888. USDA Forest Service, Portland, ORCrossRefGoogle Scholar
  32. Pannell DJ, Schilizzi S (eds) (2006) Economics and the future: time and discounting in private and public decision making. Edward Elgar Publishing, Cheltenham, UKGoogle Scholar
  33. Pautsch GR, Kurkalova LA, Babcock BA et al (2001) The efficiency of sequestering carbon in agricultural soils. Contemp Econ Policy 19:123–134. doi: 10.1111/j.1465-7287.2001.tb00055.x CrossRefGoogle Scholar
  34. Petersen EH, Schilizzi S, Bennett D (2003) Greenhouse gas and groundwater recharge abatement benefits of tree crops in south-western Australian farming systems. Aust J Agric Resour Econ 47:211–231CrossRefGoogle Scholar
  35. Popp M, Nalley L, Fortin C et al (2011) Estimating net carbon emissions and agricultural response to potential carbon offset policies. Agron J 103:1132–1143. doi: 10.2134/agronj2010.0517 CrossRefGoogle Scholar
  36. Quiggin J (2008) Stern and his critics on discounting and climate change: an editorial essay. Clim Chang 89:195–205. doi: 10.1007/s10584-008-9434-9 CrossRefGoogle Scholar
  37. Richards KR, Stokes C (2004) A review of forest carbon sequestration cost studies: a dozen years of research. Clim Chang 63:1–48. doi: 10.1023/b:clim.0000018503.10080.89 CrossRefGoogle Scholar
  38. Robison LJ, Barry PJ (1996) Present value models and investment analysis. Academic Page, Northport ALGoogle Scholar
  39. Rootzén JM, Berndes G, Ravindranath NH et al (2010) Carbon sequestration versus bioenergy: a case study from South India exploring the relative land-use efficiency of two options for climate change mitigation. Biomass Bioenerg 34:116–123. doi: 10.1016/j.biombioe.2009.10.008 CrossRefGoogle Scholar
  40. Sasaki N, Yoshimoto A (2010) Benefits of tropical forest management under the new climate change agreement—a case study in Cambodia. Environ Sci Policy 13:384–392. doi: 10.1016/j.envsci.2010.04.007 CrossRefGoogle Scholar
  41. Seidl R, Rammer W, Jäger D et al (2007) Assessing trade-offs between carbon sequestration and timber production within a framework of multi-purpose forestry in Austria. For Ecol Manag 248:64–79CrossRefGoogle Scholar
  42. Silver WL, Ostertag R, Lugo AE (2000) The potential for carbon sequestration through reforestation of abandoned tropical agricultural and pasture lands. Restor Ecol 8:394–407. doi: 10.1046/j.1526-100x.2000.80054.x CrossRefGoogle Scholar
  43. Stern NH (2007) The economics of climate change: the Stern review. Cambridge University Press, UKCrossRefGoogle Scholar
  44. Takimoto A, Nair PKR, Alavalapati JR (2008) Socioeconomic potential of carbon sequestration through agroforestry in the West African Sahel. Mitig Adapt Strateg Glob Chang 13:745–761. doi: 10.1007/s11027-007-9140-3 CrossRefGoogle Scholar
  45. Teklewold H (2012) The impact of shadow prices and farmers’ impatience on the allocation of a multipurpose renewable resource in Ethiopia. Environ Dev Econ 17:479–505CrossRefGoogle Scholar
  46. Thamo T, Pannell DJ (2016) Challenges in developing effective policy for soil carbon sequestration: perspectives on additionality, leakage, and permanence. Clim Pol. doi: 10.1080/14693062.2015.1075372 Google Scholar
  47. Thamo T, Kingwell RS, Pannell DJ (2013) Measurement of greenhouse gas emissions from agriculture: economic implications for policy and agricultural producers. Aust J Agric Resour Econ 57:234–252. doi: 10.1111/j.1467-8489.2012.00613.x CrossRefGoogle Scholar
  48. Torres AB, Marchant R, Lovett JC et al (2010) Analysis of the carbon sequestration costs of afforestation and reforestation agroforestry practices and the use of cost curves to evaluate their potential for implementation of climate change mitigation. Ecol Econ 69:469–477. doi: 10.1016/j.ecolecon.2009.09.007 CrossRefGoogle Scholar
  49. Tschakert P (2004) Carbon for farmers: assessing the potential for soil carbon sequestration in the Old Peanut Basin of Senegal. Clim Chang 67:273–290. doi: 10.1007/s10584-004-1821-2 CrossRefGoogle Scholar
  50. Van’t Veld K, Plantinga A (2005) Carbon sequestration or abatement? The effect of rising carbon prices on the optimal portfolio of greenhouse-gas mitigation strategies. J Environ Econ Manag 50:59–81. doi: 10.1016/j.jeem.2004.09.002 CrossRefGoogle Scholar
  51. Weitzman ML (1998) Why the far-distant future should be discounted at its lowest possible rate. J Environ Econ Manag 36:201–208. doi: 10.1006/jeem.1998.1052 CrossRefGoogle Scholar
  52. West T, Six J (2007) Considering the influence of sequestration duration and carbon saturation on estimates of soil carbon capacity. Clim Chang 80:25–41. doi: 10.1007/s10584-006-9173-8 CrossRefGoogle Scholar
  53. Wilman EA (2011) Carbon sequestration in agricultural soils. J Agr Resour Econ 36:121Google Scholar

Copyright information

© Springer Science+Business Media Dordrecht 2016

Authors and Affiliations

  • Tas Thamo
    • 1
    Email author
  • David J. Pannell
    • 1
  • Marit E. Kragt
    • 1
  • Michael J. Robertson
    • 2
  • Maksym Polyakov
    • 1
  1. 1.Centre for Environmental Economics and Policy, School of Agricultural and Resource EconomicsUniversity of Western AustraliaCrawleyAustralia
  2. 2.CSIRO Agriculture FlagshipFloreatAustralia

Personalised recommendations