Poverty, Risk and the Adoption of Soil Carbon Sequestration

In this paper we explore the incentives of low income agricultural producers to adopt soil carbon sequestration, focusing particularly on the impact of risk. A dynamic optimization model of the farm level decision to adopt conservation is then presented, where farmers’ optimize over the expected utility of profits from agricultural and carbon sequestration activities. Carbon sequestration adoption impacts on agricultural productivity are modeled as a combination of the technological impacts of adopting a new farming system and the productivity impacts of changes in soil carbon on agricultural output. Comparative static results indicate that increases in the price for carbon sequestered in the soil and the discount rate have an unambiguous impact on equilibrium soil carbon levels with the former leading to higher carbon levels and the latter leading to lower levels. The impact of increases in the price of agricultural output and risk aversion are ambiguous, depending on the relative strength of the productivity and technology effects of adoption. The paper concludes with a discussion of the implications of the theoretical and empirical findings for the design of payment mechanisms to induce low income farmers to participate in carbon markets.