If agricultural producers are allowed to participate in a national cap-and-trade system to curb greenhouse gas 

(GHG) emissions, the opportunity to sell carbon off sets could prompt farmers to manage their land in a way 

that increases the amount of carbon stored in soil organic matter and plant biomass, including residue. (See 

box, “Agriculture and Carbon Off sets.”) Farmers who own the land they farm, however, may be in a better 

position to generate off sets than those who rent their land.

Because carbon is sequestered over time, off set agreements would likely require that sequestration practices 

be maintained for 5-10 years. For agricultural producers who rent land, insecure land tenure could be a 

barrier to long-term investment and/or farming practice commitments. Renters may be less interested than 

landowners in the long-term productivity of the soil and, therefore, less willing than owners to adopt practices 

that sequester carbon and preserve long-term productivity (e.g., long-term no-till or grass cover), especially if 

such practices might reduce current returns to the farm. 

Th e reluctance of renters to make long-term conservation investments has been observed in a number of 

previous studies (e.g., Soule et al., 2000). Even if renters are willing to take action, they would be unable 

to sign long-term carbon off set agreements—or adopt the necessary practices—without a long-term lease. 

Landowners who want the fl exibility to change renters or alter rental rates and other contract terms may 

be reluctant to enter into long-term leases. For example, landowners who rent land for cash may want to 

consider bids from other producers when crop prices or Government payments rise. Landowners who receive 

a share of the crop as rent may prefer the option to replace farmers who fail to achieve expected yields. Even 

if some farmers and landowners work together to generate carbon off sets on rented land, the complexity of 

the associated lease agreements and the negotiation challenges will continue to act as a deterrent. By contrast, 

farm operators who own their land will have greater incentives to engage in long-term conservation and will 

face fewer barriers to signing long-term contracts to generate carbon off sets. 
Claassen, Roger, and Mitchell 

Morehart. Agricultural Land 

Tenure and Carbon Offsets, EB14, U.S. Department of Agriculture, Economic Research 

Service, September 2009. 

Recommended citation 

format for this publication:

ECONOMIC BRIEF Agricultural Land Tenure and Carbon Offsets

UNITED STATES DEPARTMENT OF AGRICULTURE

Could land tenure be a limiting factor in generating agricultural carbon offsets? The answer depends, in 

part, on the intersection of land tenure patterns and carbon sequestration potential. If a large proportion of 

farmers who own all or most of the land they farm are willing to offer extensive opportunities to generate 

carbon emission offsets, tenure is less likely to be a limiting factor. This report assesses the intersection 

of land tenure and carbon sequestration potential based on an assumed scenario for generating carbon 

offsets. (See box, “Carbon Sequestration Potential: Definition, Data, and Methods.”) While we do not 

know how large carbon offset payments will be or how individual farm operators will respond to them, 

a rough approximation of the distribution of potential carbon sequestration is possible based on current 

land uses and practices. Whether land tenure will actually be a limiting factor can be assessed only in the 

context of future market demand for offsets and the ability of agriculture to generate offsets within the 

legal framework that may be established for carbon offset trading. 

Land Tenure and Carbon Sequestration Potential 

We separate farms and ranches into four tenure classes (fig. 1). High-tenure operators, for example, own 

at least 80 percent of the land they farm or ranch; low-tenure operators own less than 20 percent.

Carbon sequestration in U.S. agriculture (for offsets or other purposes) will be determined by (1) the 

amount of carbon that can be sequestered per acre through adoption of carbon sequestering practices 

2

The agriculture and forestry sectors have the ability to remove 

carbon dioxide from the atmosphere and store (“sequester”) it 

in soils and plant matter. While agriculture is generally excluded 

from environmental regulations, its ability to offset greenhouse 

gas (GHG) emissions from regulated sources means agriculture 

could play an important role in climate policies.

Proposals to combat climate change generally include a national 

GHG cap-and-trade system that caps the GHG emissions of 

producers or distributors of fossil fuels and large energy users, 

but allows these firms to buy and sell excess emissions. Regulated 

firms could either reduce their pollution levels below the cap or 

purchase additional emissions allocations from other firms. The 

ability to trade emissions allows regulated firms to minimize the 

total cost of pollution control. Costs could be reduced further if 

regulated firms could buy offsets from unregulated landowners 

willing to provide low-cost mitigation through soil and biomass 

sequestration.

While agricultural participation in a cap-and-trade market might 

be cost effective, implementation poses major challenges. The 

extent to which farmers would be willing to participate depends 

on a host of program design issues, including eligibility criteria, 

baseline standards (below which credits would not be generated), 

allowable interactions with USDA conservation programs, and 

farm characteristics and offset prices. This publication examines 

farms that may be in the best position to participate in a cap-andtrade system. 

Agriculture and Carbon Offsets

Figure 1

Potential carbon sequestration, by land tenure and practice type

Note: Percentages do not add to 100 because of rounding. 

Source: ERS tabulations based on USDA’s 2002 Agricultural Resource Management Survey, conducted by the

National Agricultural Statistics Service and the Economic Research Service, and Eve et al., 2002.

0 5 10 15 20 25 30 35 40 45

Land use change

Production practice

change

Less than 20 percent (low-tenure)

20-60 percent

60-80 percent

Above 80 percent (high-tenure)

Percent of carbon sequestration potential

Land owned
3

and (2) the number of acres on which farmers are willing to adopt such practices. Carbon sequestration 

potential diff ers across practices and regions and depends on previous land use. On average, conversion of 

cropland to permanent cover (e.g., grass or trees) yields larger per acre increases in sequestered carbon than 

do changes in production practices (e.g., conservation tillage) on cultivated cropland. As a source of carbon 

sequestration off sets, land-use change may also be easier to confi rm and enforce than changes in tillage or 

other crop production practices.

About two-thirds of estimated carbon sequestration potential comes from landuse change: shifting cultivated 

cropland to grass cover for conserving use (e.g., Conservation Reserve Program (CRP)) or for use as hay or 

pasture. On high-tenure farms, three-quarters of sequestration potential is derived from land-use change 

(fi g. 1). Given the correlation between high-tenure farms and land in permanent grass cover or CRP, hightenure farms are generally assigned higher carbon sequestration potential. In this simple simulation, hightenure farms account for about 45 percent of the sector’s carbon sequestration potential (fi g. 1). 

An examination of the intersection between land tenure and farming practice patterns shows why hightenure farms may be in the best position to adopt carbon-sequestering practices. Th ese farms and ranches 

maintain a relatively large proportion of land in hay and pasture (fi g. 2). Th is land-use pattern may signal 

willingness to pursue low-intensity production consistent with carbon sequestration goals. Unlike producers 

in other land tenure categories, these farmers and ranchers focus more on livestock production and account 

for more than half of all livestock sales (fi g. 3). Th ese farms may be in the best position to utilize additional 

pasture and hay land created by carbon sequestration incentives. High-tenure farms are also more likely 

than other farms to enroll land in the CRP, accounting for about two-thirds of CRP acreage (fi g 2). Because 

it provides fi nancial incentives for farmers and landowners to establish conservation cover on cultivated 

land and to maintain the cover for at least 10 years, CRP may be a good barometer of willingness to 

participate in carbon off set markets. CRP rules also require landowners to off er tenants the opportunity to 

participate in the CRP contract and receive CRP payments. 

In contrast to the high-tenure group, farms in the two low-tenure groups (those owning 0-20 percent and 

20-60 percent of the land they operate) are far more likely to use land in cultivated crop production and 

less likely to enroll land in the CRP (fi g. 2). Farms in these two tenure classes account for more than 70 

percent of cultivated cropland and more than 60 percent of crop production (by value). Low-tenure farms 

include roughly 40 percent of hay and cropland pasture acreage, roughly 40 percent of livestock production 

(by value), and only 20 percent of CRP acres. Th ese farms tend to focus more on crop production and are 

reluctant to retire land rather than farm it. 

Figure 2

Land use, by tenure class

0 20 40 60 80 100 120

Conservation Reserve Program (CRP)

Hayland

Cropland pasture

Cultivated cropland

Less than 20 percent (low-tenure)

20-60 percent

60-80 percent

Above 80 percent (high-tenure)

Source: ERS tabulations based on USDA’s 2002 Agricultural Resource Management Survey, 

conducted by the National Agricultural Statistics Service and the Economic Research Service.

Million acres

Land owned
ECONOMIC RESEARCH SERVICE

Agricultural Land Tenure and Carbon Offsets ECONOMIC BRIEF

4

Carbon sequestration potential is the amount of carbon that could 

be sequestered (held) within farmland in response to financial 

incentives generated by a GHG offset market. In the broadest 

sense, carbon sequestration potential can be estimated as the total 

number of farmland acres where emission reduction practices 

could be applied, multiplied by an estimate of the amount of 

carbon sequestration per acre. For our purposes, we assume that, 

at least initially, incentives will induce relatively small or marginal

changes in land use and production practices on individual farms 

and ranches. 

Specifically, we assume that all farmers increase their use of carbon 

sequestering practices by 10 percent. For example, a producer who 

has 20 percent of land in pasture would increase grazing acreage 

to 22 percent by shifting land from crop production. A simple 

index value for potential carbon sequestration can be created by 

multiplying the shifted acreage by the coefficients reported in 

table 1. Similar values can be calculated for marginal (10 percent) 

changes in other carbon sequestering practices. By summing 

all of these calculations, we arrive at an overall index of carbon 

sequestration potential. This index is intended for illustrative 

purposes only; actual land use or production practice changes will 

depend on a host of economic, policy, and bio-physical factors.

High levels of sequestration are reported for the conversion of 

cultivated cropland to grass or tree cover, relative to changes in 

cropland management in table 1. Land-use data, based largely on 

the implementation of farm commodity programs, also may make 

it easy to confirm that offsets are being generated on land that was 

previously in crop production, at least for the 75 percent of U.S. 

cropland on farms that receive Federal farm commodity program 

payments. 

Reported coefficients also show larger carbon sequestration for 

pasture and hayland than for land enrolled in the Conservation 

Reserve Program (CRP), under the assumption that CRP lands 

are never harvested. CRP land can, however, be used for hay 

or grazing under certain conditions, possibly increasing carbon 

sequestration. Hay and pasture may also receive fertilizer, 

potentially creating additional GHG emissions. Nonetheless, 

our larger point remains valid—land-use change is likely to yield 

larger and more readily verifiable GHG reduction than changes in 

crop production practices. 

Data on land use and farm practices come from the Agricultural 

Resources Management Survey (ARMS) conducted jointly by 

USDA’s Economic Research Service and National Agricultural 

Statistics Service. The ARMS data are based on an annual survey of 

34,000 farms that elicits information on farm businesses and farm 

households. Farm-specific weights can be used to expand estimates 

to the full farm population. For each observation (surveyed farm), 

ARMS data include information on land use, land tenure, CRP 

participation, production practices, and production of crop and 

livestock commodities. The 2002 ARMS data are used because 

data from that year provide a full accounting of agricultural land 

use, including pasture and rangeland.

Carbon Sequestration Potential: Definition, Data, and Methods

Table1

Descriptive statistics for carbon sequestration coefficients

Appalachian 

States

Corn 

Belt

Delta 

States

Lake 

States

Mountain 

States

NortheastNorthern 

Plains

Pacific 

States

Southeast

Southern 

Plains

Metric tons of carbon per acre per year

Change from conventional 

tillage to reduced tillage 0.06 0.09 0.11 0.07 0.06 0.06 0.06 0.05 0.04 0.06

Change from conventional 

tillage to no tillage 0.13 0.17 0.21 0.15 0.13 0.13 0.13 0.10 0.08 0.13

Increased residue through 

use of manure or cover crops 0.13 0.17 0.21 0.15 0.08 0.13 0.13 0.10 0.08 0.13

Change from cultivated 

summer fallow to continuous 

cropping

0.00 0.00 0.00 0.15 0.08 0.00 0.13 0.10 0.00 0.13

Retire land from cultivated 

crop production (CRP) 0.19 0.25 0.30 0.21 0.12 0.19 0.19 0.14 0.11 0.18

Conversion of cultivated 

cropland to pasture or hay 0.38 0.50 0.59 0.42 0.23 0.38 0.37 0.29 0.23 0.36

Source: Eve, M.D., M. Sperrow, K. Howerton, K. Paulson, and R.F. Follet. “Predicted Impact of Changes on Soil Carbon Storage for Each Cropland Region of 

the Conterminous United States,” Journal of Soil and Water Conservation 57,4 (July-August 2002): 196-204.
ECONOMIC BRIEF Agricultural Land Tenure and Carbon Offsets

UNITED STATES DEPARTMENT OF AGRICULTURE 5

The propensity of high-tenure farms toward hay, pasture, and CRP land use may be explained in a number 

of ways. First, these farms may be on land that is less productive when used for crops. Low-productivity land 

could also explain why high-tenure farms focus on livestock production that can effectively utilize pasture 

and hay, relative to other tenure classes (fig. 3). Land productivity could also explain their willingness to 

enroll formerly cultivated land in the CRP. An alternate explanation is that small, rural residence farms, 

which account for 72 percent of all high-tenure farms (fig. 4), are engaged in agricultural production only 

as a side venture and are more likely than other farms to be engaged in cow-calf operations (Hoppe et al., 

2007). Such farms may be more willing than others to place land in retirement (CRP) or low-intensity 

use (pasture or hay) because their income derives mostly from off the farm. 

From a carbon sequestration perspective, however, the largest share of sequestration potential is on large 

farms. Half of the total carbon sequestration potential is concentrated on just 7 percent of farms (high 

and medium-high carbon potential farms in fig. 5) that tend to be located in the Northern Plains and 

Mountain regions. While small in number, these farms operate 38 percent of all farmland. On average, 

they operate three times the acreage of the remaining 93 percent of farms that account for the other half 

of potential carbon sequestration. This “high sequestration potential” group is similar to (and overlaps 

with) the high-tenure group in that it accounts for a large share of hay and cropland pasture (52 percent) 

and CRP enrollment (58 percent). As a group, its relatively high participation in CRP demonstrates a 

willingness to participate in environmental land-use change programs.

Figure 3

Value of livestock and crop production, by tenure class 

Less than 20 percent (low-tenure)

20-60 percent

60-80 percent

Above 80 percent (high-tenure)

Source: ERS tabulations based on USDA’s 2002 Agricultural Resource Management Survey, 

conducted by the National Agricultural Statistics Service and the Economic Research Service.

Value of production (billion $)

0 5 10 15 20 25 30 35 40 45

Value of crops

Value of livestock

Land owned

Figure 4

Farms by tenure and typology 

Less than 20 percent (low-tenure)

20-60 percent

60-80 percent

Above 80 percent (high-tenure)

Source: ERS tabulations based on USDA’s 2002 Agricultural Resource Management Survey, 

conducted by the National Agricultural Statistics Service and the Economic Research Service.

Percent of farms

Land owned

0 10 20 30 40 50 60 70 80

Rural residence farms

Intermediate farm

Commercial
References

Hoppe, Robert A., Penni 

Korb, Erik J. O’Donoghue, 

and David E. Banker. 

Structure and Finances of 

U.S. Farms: Family Farm 

Report, 2007 Edition, EIB24, p. 9, U.S. Department 

of Agriculture, Economic 

Research Service, June 

2007. 

Soule, M.J., A. Tegene, 

and K.D. Wiebe. “Land 

Tenure and the Adoption 

of Conservation Practices,” 

American Journal of 

Agricultural Economics 

82:993-1005, 2000. 

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Photo credit: Jupiterimages

Agricultural Land Tenure and Carbon Offsets ECONOMIC BRIEF

ECONOMIC RESEARCH SERVICE

Conclusions

If the United States adopts a national cap-and-trade system to curb GHG, and if agricultural producers are 

allowed to sell carbon off sets, participation is likely to require long-term commitments. Land ownership 

could play a role in the participation decisions of agricultural producers. A large share of agricultural 

carbon sequestration potential is on high-tenure farms. As a group, these farms are more likely to focus 

on livestock production. Th ey may also be more willing than nonlivestock farms to convert marginal 

cropland to grazing use. High-tenure farms are also more likely to enroll land in CRP, direct evidence of 

their willingness to accept payments for land use change. While it is not yet known whether or to what 

extent farmers will be eligible to participate in a carbon off set market, previous land-use and farming 

practice decisions suggest that high-tenure farm operators will account for a large part of the agricultural 

sector’s carbon sequestration potential. If so, distribution of farmland ownership should not be a limiting 

factor in the sector’s participation in climate change programs for the foreseeable future. 

Th e analysis presented here is illustrative. We assumed that the price signals from a national cap-and-trade 

system would encourage farm operators to make marginal changes in their operations, but would not 

encourage nonoperator landlords to make radical changes in their rental arrangements. If carbon off set 

prices are high enough (relative to applicable agricultural commodity prices), landowners may choose 

to alter their leasing arrangements, taking land out of production or placing restrictions on the farming 

practices operators can adopt. In this case, the sector’s carbon sequestration potential could be more 

broadly distributed than this analysis indicates. Additional research is needed to better quantify the role of 

land tenure in producer response to carbon sequestration-related incentives for land use and production 

practice change. 

6

Figure 5

Carbon sequestration potential, farms, and farmland, 

by farm-level sequestration potential

Farms

Farmland

Carbon sequestration potential

0 10 20 30 40 50 60 70 80

Low

Medium-low

Medium-high

High

1

 Individual farms, ranked by their carbon sequestration potential. The top set of bars indicates that the 

2 percent of farms with the highest level of sequestration potential account for roughly 30 percent of the 

agricultural sector’s total carbon sequestration potential, as measured in this simulation.

Source: ERS tabulations based on USDA’s 2002 Agricultural Resource Management Survey, conducted 

by the National Agricultural Statistics Service and the Economic Research Service.

Percent of overall carbon sequestration potential, farmland, or farms

Farm-level

sequestration potential1