Overview of Carbon Sequestration Economics and Policy Kenneth

For the past dozen years there has been a growing interest in the possibility of mitigating the global warming effects of carbon dioxide by increasing the carbon stocks of biomass and soils. The earliest economics studies examined the costs of capturing and storing carbon in forest ecosystems (for a review of these studies see Richards and Stokes 2000). Over time, the potential for cost-effectively storing carbon on agricultural lands has also emerged as a focus of research (Lal et al. 1998; Antle et al. 2002). Through the course of the research on carbon sequestration and policy two themes have emerged. First, because of the nature of the analyses it has been difficult to compare the results of the many studies that report estimates of the cost of carbon sequestration in terms of dollars per ton. Second, it appears that it will be more difficult to implement a market-based large-scale carbon sequestration program than many had imagined. These two issues have led to significant confusion in the discussions of carbon sequestration economics and policy. In fact, the two issues are intertwined. It is impossible to meaningfully model the costs of a carbon-sequestration program absent a careful description of how the program would be implemented. The purpose of this paper is to provide an overview of the issues and challenges involved in analyzing the costs and program design for carbon sequestration. While the focus is on forest carbon sequestration, many of the observations apply to sequestration on agricultural lands as well. Similarly, many of the issues are couched in terms of implementing a domestic carbon sequestration program, but apply equally well to the design of an international program. The discussion is divided into two parts. The first section examines some of the pitfalls of comparing the results of carbon sequestration cost studies and suggests some simple ways in which analysts could make their results more useful. It also highlights three areas in carbon sequestration cost estimation where additional research would be particularly useful. The second section of the paper reviews issues related to the implementation of a carbon sequestration program, including which policy tools are available and which have received the most attention, some of the challenges for using those policy tools, and one alternative that has received little attention, but may become necessary. The final section of the paper provides conclusions.