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Uncertainty Discounting for Land-Based Carbon Sequestration

Author

Listed:
  • Kim, Man-Keun
  • McCarl, Bruce A.

Abstract

The effect of stochastic factors on soil carbon makes the quantity of carbon generated under a sequestration project uncertain. Hence, the quantity of sequestered carbon may need to be discounted to avoid liability from shortfalls. We present a potentially applicable uncertainty discount and discuss difficulties that might arise in empirical use. We insist that the variance in historical crop yields across geographical areas is used to derive a proxy variance for forming an uncertainty discount for carbon projects. Application of our approach suggests that project level uncertainty discounts would be 15-20% for the East Texas region.

Suggested Citation

  • Kim, Man-Keun & McCarl, Bruce A., 2009. "Uncertainty Discounting for Land-Based Carbon Sequestration," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 41(1), pages 1-11, April.
    • Handle: RePEc:cup:jagaec:v:41:y:2009:i:01:p:1-11_00
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    Cited by:

    1. Suzi Kerr, 2013. "Managing Risks and Tradeoffs Using Water Markets," Working Papers 13_13, Motu Economic and Public Policy Research.
    2. McCarl, Bruce A. & Attavanich, Witsanu & Musumba, Mark & Mu, Jianhong E. & Aisabokhae, Ruth, 2011. "Land Use and Climate Change," MPRA Paper 83993, University Library of Munich, Germany, revised 2014.
    3. Kim, Man-Keun & Peralta, Denis & McCarl, Bruce A., 2014. "Land-based greenhouse gas emission offset and leakage discounting," Ecological Economics, Elsevier, vol. 105(C), pages 265-273.
    4. Gren, Ing-Marie & Carlsson, Mattias & Elofsson, Katarina & Munnich, Miriam, 2012. "Stochastic carbon sinks for combating carbon dioxide emissions in the EU," Energy Economics, Elsevier, vol. 34(5), pages 1523-1531.
    5. Santiago Bucaram & Mario Andrés Fernandez & Diego Grijalva, 2016. "Sell the oil deposits!: A financial proposal to keep the oil underground in the Yasuni National Park, Ecuador," WIDER Working Paper Series wp-2016-14, World Institute for Development Economic Research (UNU-WIDER).
    6. Bruce A McCarl & Thomas W Hertel, 2018. "Climate Change as an Agricultural Economics Research Topic," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 40(1), pages 60-78.
    7. Kocoloski, Matt & Mullins, Kimberley A. & Venkatesh, Aranya & Michael Griffin, W., 2013. "Addressing uncertainty in life-cycle carbon intensity in a national low-carbon fuel standard," Energy Policy, Elsevier, vol. 56(C), pages 41-50.
    8. Gren, Ing-Marie & Tirkaso, Wondmagegn, 2021. "Costs and equity of uncertain greenhouse gas reductions – fuel, food and negative emissions in Sweden," Energy Economics, Elsevier, vol. 104(C).
    9. Springborn, Michael & Yeo, Boon-Ling & Lee, Juhwan & Six, Johan, 2013. "Crediting uncertain ecosystem services in a market," Journal of Environmental Economics and Management, Elsevier, vol. 66(3), pages 554-572.
    10. Gren, Ing-Marie & Zeleke, Abenezer Aklilu, 2016. "Policy design for forest carbon sequestration: A review of the literature," Forest Policy and Economics, Elsevier, vol. 70(C), pages 128-136.
    11. Amy W. Ando & Shibashis Mukherjee, 2012. "Benefits of pollution monitoring technology for greenhouse gas offset markets," Economics Bulletin, AccessEcon, vol. 32(1), pages 122-136.
    12. Santiago Bucaram & Mario Fernandez & Diego Grijalva, 2016. "Sell the oil deposits! A financial proposal to keep the oil underground in the Yasuni National Park, Ecuador," WIDER Working Paper Series 014, World Institute for Development Economic Research (UNU-WIDER).
    13. Jason P. H. Jones & Zidong M. Wang & Bruce A. McCarl & Minglu Wang, 2017. "Policy Uncertainty and the US Ethanol Industry," Sustainability, MDPI, vol. 9(11), pages 1-14, November.

    More about this item

    JEL classification:

    • H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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