Steering Carbon Farming Transition: An Agent-Based Exploration of Incentive Mechanisms

Carbon farming comprises land-use practices that enhance carbon sequestration and reduce greenhouse gas emissions while improving soil quality and long-term agricultural sustainability. Despite its potential as a nature- based solution to climate change, its large-scale adoption is hindered by high upfront costs, monitoring challenges, and carbon permanence risks. This paper develops an agent-based model to study the adoption dynamics of carbon farming under alternative policy designs. Farmers allocate land across different agricultural practices, including conventional farming, crop rotation, and afforestation, each characterized by distinct economic and environmental implications. The model is used as a laboratory to study the agricultural transition under different incentive mechanisms: action-based subsidies, result-based payments linked to carbon sequestration, and hybrid mechanisms. Simulation results highlight important trade-offs. Action-based subsidies promote rapid adoption but may increase policy costs and threaten food production. Result-based schemes ensure economic sustainability but generate weaker environmental improvements. The paper provides policy-relevant insights into how incen- tive design shapes the diffusion and effectiveness of carbon farming, contributing to the debate on climate policy within the EU agricultural sector.