The economics of soil C sequestration

Abstract. Carbon is a critical component of soil vitality and of our ability to produce food. Carbon sequestered in soils also provides a further regulating ecosystem service, valued as the avoided damage from global climate change. We consider the demand and supply attributes that underpin and constrain the emergence of a market value for this vital global ecosystem service: markets being what economists regard as the most efficient institutions for allocating scarce resources to the supply and consumption of valuable goods. This paper considers how a potentially large global supply of soil carbon sequestration is reduced by economic and behavioural constraints that impinge on the emergence of markets, and alternative public policies that can efficiently transact demand for the service from private and public sector agents. In essence this is a case of significant market failure. In the design of alternative policy options we consider whether soil carbon mitigation is actually cost-effective relative to other measures in agriculture and elsewhere in the economy, and the nature of behavioural incentives that hinder policy options. We suggest that reducing cost and uncertainties of mitigation through soil-based measures is crucial for improving uptake. Monitoring and auditing processes will also be required to eventually facilitate wide-scale adoption of these measures.