The Design of Markets for Soil Carbon Sequestration

Authors

  • Timothy Capon,

    Corresponding author
    1. Department of Agricultural and Resource Economics, Faculty of Agriculture and Environment, University of Sydney, Sydney, NSW
    • CSIRO Ecosystem Sciences, Canberra, ACT, Australia
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  • Michael Harris,

    1. Department of Agricultural and Resource Economics, Faculty of Agriculture and Environment, University of Sydney, Sydney, NSW
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  • Andrew Reeson

    1. CSIRO Ecosystem Sciences, Canberra, ACT, Australia
    2. Department of Agricultural and Resource Economics, Faculty of Agriculture and Environment, University of Sydney, Sydney, NSW
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  • We acknowledge the financial support of the NSW Department of Industry and Investment and the NSW Department of Environment, Climate Change and Water. The authors acknowledge the support of agency staff who edited and commented on earlier versions of this review. The conclusions of this review do not necessarily represent the views of the NSW Department of Industry and Investment and the NSW Department of Environment, Climate Change and Water. We would also like to acknowledge the contributions of anonymous reviewers. Any remaining errors or omissions are solely the responsibility of the authors.

Correspondence: Timothy Capon, CSIRO Ecosystem Sciences, GPO Box 1700, Canberra, ACT 2601, Australia. Email: tim.capon@csiro.au

Abstract

There is great potential for soil carbon sequestration to contribute to climate change mitigation. However, there are a number of difficulties in measuring and verifying soil carbon sequestration for market-based policies for soil carbon sequestration. In particular, measurement costs and other transaction costs will ultimately determine the practicality of any policy. The relationship between soil carbon spatial heterogeneity, measurement precision and measurement costs is central to the design of contracts for soil carbon sequestration. Importantly, these factors determine the practicality of policy alternatives and the efficiency of alternative contract designs. The details of contract design change the incentives faced by landholders as well as the allocation of risk between sellers and buyers. For example, some contract designs link payments to alternative land management practices whereas others link payments to directly measured outcomes. Research in soil science provides the knowledge necessary to link land use and management to sequestration and the measurement approaches required to verify sequestration. Careful consideration of these factors in market design is needed to determine whether potential benefits outweigh the costs of implementing any policy intended to promote soil carbon sequestration.

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