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National Agricultural Library Cataloging Record:

 Economics of sequestering carbon in the U.S. agricultural sector.

 (Technical bulletin (United States. Dept. of Agriculture) ; no. 1909)

 1. Carbon sequestration--Economic aspects--United States.

 2. Greehouse gas mitigation. 

 3. Cropland conversion program--Economic aspects--United States.

 4. Afforestation--Economic aspects--United States.

 5. Tillage--Economic aspects--United States. I. Lewandrowski, Jan.

 II. United States. Dept. of Agriculture. Economic Research Service.

 III. Title.

SD387.C37
Economics of Sequestering Carbon in the U.S. Agricultural Sector. By Jan

Lewandrowski, Carol Jones, and Robert House, Resource Economics Division,

Economic Research Service, U.S. Department of Agriculture; Mark Peters,

Agricultural Marketing Service, U.S. Department of Agriculture; Mark Sperow, West

Virginia University; and Marlen Eve and Keith Paustian, Natural Resource Ecology

Laboratory and Colorado State University. Technical Bulletin No. 1909.

Abstract

Atmospheric concentrations of greenhouse gases can be reduced by withdrawing

carbon from the atmosphere and sequestering it in soils and biomass. This report

analyzes the performance of alternative incentive designs and payment levels if

farmers were paid to adopt land uses and management practices that raise soil carbon

levels. At payment levels below $10 per metric ton for permanently sequestered

carbon, analysis suggests landowners would find it more cost effective to adopt

changes in rotations and tillage practices. At higher payment levels, afforestation

dominates sequestration activities, mostly through conversion of pastureland. Across

payment levels, the economic potential to sequester carbon is much lower than the

technical potential reported in soil science studies. The most cost-effective payment

design adjusts payment levels to account both for the length of time farmers are

willing to commit to sequestration activities and for net sequestration. A 50-percent

cost-share for cropland conversion to forestry or grasslands would increase sequestration at low carbon payment levels but not at high payment levels.

Keywords: Carbon sequestration, greenhouse gas mitigation, afforestation, conservation tillage, no-till, incentive design, leakage, carbon stock, and permanence. 

Acknowledgments

For helpful discussions and reviews, the authors wish to thank Ralph Alig, Richard

Birdsey, Joel Brown, Susan Capalbo, William Hohenstein, James Hrubovcak,

Michael Jawson, Maurice Mausbach, John Reilly, Uwe Schneider, and Tristram

West, as well as participants in the Forestry and Agriculture Greenhouse Gas

Modeling Forums and the USDA Symposium on Natural Resources Management

to Offset Greenhouse Gas Emissions. We also thank our ERS colleagues Keith

Wiebe, Kitty Smith, Robbin Shoemaker, and Olivia Wright for their time and

assistance at many stages during the development of this report and the research

that led up to it. Finally, John Weber, the editor, and designers Wynnice PointerNapper and Victor Phillips, Jr., provided excellent publication support.

1800 M Street NW

Washington, DC 20036-5831 April 2004
ii ● Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 Economic Research Service/USDA

Contents

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .v

Chapter 1: Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

Chapter 2: Conceptual Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

U.S. Total Emissions and Agricultural Sector Emissions of 

Greenhouse Gases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

Potential Activities for Mitigation of GHG Emissions in the 

U.S. Agricultural Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

Comparing Reductions in Carbon Emissions With Increases 

in Carbon Sequestration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

Design of an Incentive Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9

Conceptual Framework for the ERS Analysis . . . . . . . . . . . . . . . . . . . . . . . . .13

Chapter 3: Literature Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15

Discussion of Past Studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15

Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19

Chapter 4: Empirical Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21

Carbon Sequestration Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23

Economic Incentives for Carbon Sequestration: Basic Features for 

Each Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25

Model Baseline and Simulation Scenarios . . . . . . . . . . . . . . . . . . . . . . . . . . .29

Chapter 5: Empirical Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31

Scenario 1: Rental Payment for Net Sequestration, No Cost-Share 

—Reference Policy Scenario . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31

Scenario 2: Asset Payment (Assuming Permanent Sequestration) for 

Net Sequestration, No Cost-Share—Traditional Approach 

to Permanence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38

Scenario 3: Rental Payment for Net Sequestration, With Cost-Share 

Supplement—Standard Conservation Program Feature . . . . . . . . . . . . . . .40

Scenario 4: Rental Payment for Gross Sequestration,

No Cost-Share—Exploring the Leakage Issue . . . . . . . . . . . . . . . . . . . . . . .41

Directions for Future Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42

Chapter 6: Summary of Findings and Implications for Policy . . . . . . . . . . . .44

Asset or Rental Basis of Incentive Payments . . . . . . . . . . . . . . . . . . . . . . . . .44

Level of Incentive Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45

Symmetry of Incentive Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46

Type of Incentive Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47

Limitations in the Present Analysis Leave Questions . . . . . . . . . . . . . . . . . . .47

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48

Appendix 1: Methods, Assumptions, and Key Results of Selected 

Carbon Sequestration Studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51

Appendix 2: Afforestation of cropland and pasture by region,

policy scenario, and carbon-payment level . . . . . . . . . . . . . . . . . . . . . . . . .59
Economic Research Service/USDA Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 ● iii

List of Tables

2.1: Selected U.S. greenhouse gas emissions . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

2.2: Estimated potential annual carbon sequestration for selected 

changes in land use and production practices in U.S. agriculture . . . . . . . . .5

2.3: Hypothetical net carbon emissions from reducing farm fuel use

or expanding no-till for a 4-year period . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6

2.4: Ratio (λa) of value for temporary sequestration to value for emissions 

reduction for selected discount rates and sequestration periods . . . . . . . . . .9

4.1: USMP commodity coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23

4.2: Selected carbon-sequestration rates by USMP region, for changes in 

land use or production practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26

4.3: Estimated quantities and value of timber per acre at end of 

15-year carbon sequestration program, by farm-production region . . . . . . .27

5.1: Average annual change in total carbon sequestered by practice/

land-use change, for alternative policy scenarios and 

carbon-payment levels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32

5.2: Acres changing land use or tillage practice as a result of contract,

by policy scenario and carbon-payment level . . . . . . . . . . . . . . . . . . . . . . .33

5.3: Estimated commodity market impacts, by policy scenario and 

carbon-payment level . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35

5.4: Estimated changes in annual farm income and agricultural sector 

welfare, by policy scenario and carbon-payment level . . . . . . . . . . . . . . . .38

National Agricultural Library Cataloging Record

 Economics of sequestering carbon in the U.S. agricultural sector.

 (Technical bulletin (United States. Dept. of Agriculture) ; no. 1909)

 1. Carbon sequestration--Economic aspects--United States.

 2. Greehouse gas mitigation. 

 3. Cropland conversion program--Economic aspects--United States.

 4. Afforestation--Economic aspects--United States.

 5. Tillage--Economic aspects--United States. I. Lewandrowski, Jan.

 II. United States. Dept. of Agriculture. Economic Research Service.

 III. Title.

SD387.C37
iv ● Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 Economic Research Service/USDA

List of Figures

2.1: Agricultural emissions and carbon sequestration in 2001 by activity . . . . . . .4

2.2: Estimated potential carbon sequestration . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

2.3: Accumulation of carbon stock and incremental change per acre of 

fully stocked southern pine timberland under average management 

after cropland conversion to forest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8

4.1: USMP model regions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22

4.2: Selected carbon sequestration rates by USMP region, for changes in 

land use or production practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26

4.3a: Estimated quantities of timber per acre at end of 15-year carbon 

sequestration program, by farm-production region . . . . . . . . . . . . . . . . . .27

4.3b: Estimated values of timber per acre at end of 15-year carbon 

sequestration program, by farm-production region . . . . . . . . . . . . . . . . . .27

5.1: Annual net carbon sequestration—Scenario 1: Rental 

payments on net sequestration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31

5.2: Commodity price changes—Scenario 1: Rental payments

on net sequestration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34

5.3: Annual net carbon sequestration—Asset (scenario 2) versus

rental (scenario 1) net sequestration payments . . . . . . . . . . . . . . . . . . . . .39

5.4: Annual net carbon sequestration—Actual payments in 

scenario 1 and scenario 2 interpreted as rental payments . . . . . . . . . . . . .40

The U.S. Department of Agriculture (USDA) prohibits discrimination in its programs and 

activities on the basis of race, color, national origin, sex, religion, age, disability, political 

beliefs, sexual orientation, or marital or family status. (Not all prohibited bases apply to all 

programs.) Persons with disabilities who require alternative means for communication 

of program information (Braille, large print, audiotape, etc.) should contact USDA's 

TARGET Center at (202) 720-2600 (voice and TDD).

To file a complaint of discrimination, write USDA, Director, Office of Civil Rights, Room 

326-W, Whitten Building, 14th and Independence Ave., SW, Washington, DC 20250-

9410, or call (202) 720-5964 (voice and TDD). USDA is an equal opportunity provider 

and employer.
Economic Research Service/USDA Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 ● v

Summary

Strategies that have been proposed to mitigate global climate change typically

focus on reducing energy-related emissions of greenhouse gases (including carbon

dioxide) into the atmosphere. But atmospheric concentrations of greenhouse gases

also can be reduced by withdrawing carbon from the atmosphere and storing, or

sequestering, it in soils and biomass. In examining the economics of sequestering

carbon in the U.S. farm sector through changes in agricultural land use and

management practices, this study focuses on two questions:

● How much of the estimated “technical” potential for carbon sequestration

is economically feasible?

● How cost effective are alternative designs for incentive payments that

might be used to encourage carbon-sequestering activities?

Model-based findings reflect the provision of financial incentives to landowners

for sequestering carbon through changes in land use (converting cropland to forest

or grassland) and cropland management practices (adopting conservation tillage or

alternative crop rotations):

● Agriculture can provide low-cost opportunities to sequester additional 

carbon in soils and biomass. At a price of $10 per metric ton for permanently

sequestered carbon, the ERS model estimates that from 0.4 to 10 MMT of carbon could be sequestered annually from adoption of the land-use changes or

management practices analyzed; and at $125 per ton, from 72 to 160 MMT

could be sequestered, enough to offset 4 to 8 percent of gross U.S. emissions of

greenhouse gases in 2001. 

● The different sequestration activities studied become economically feasible

at different carbon prices. The model predicted that farmers would adopt cropland management (primarily conservation tillage) at the lowest carbon price, $10

per metric ton permanently sequestered carbon, and would convert land to forest

as the price rose to $25 and beyond. The model predicted farmers in most

regions would not convert cropland to grassland up through a $125 carbon price

(in the absence of other incentives, such as Conservation Reserve Program payments), in part because conversion to afforestation was more profitable with its

higher sequestration rate per acre. These estimates are comparable with estimates in earlier studies.

● The estimated economic potential to sequester carbon is lower than previously estimated technical possibilities. Soil scientists have estimated that

increased adoption of conservation tillage on U.S. cropland has the technical

potential to sequester as much as 107 million metric tons (MMT) additional carbon. The ERS model estimates economic potential by factoring into farmers’

adoption decisions the tradeoff between the additional costs of sequestering

practices, relative to the additional returns from the per ton carbon payments. We

estimate that farmers could sequester up to an additional 28 MMT by adopting

conservation tillage on additional lands at the top carbon price we studied, $125

per ton. For the other activities studied—afforestation and, particularly, for 

conversion to grassland—the estimated economic potential also was less than 

the literature estimates of technical potential.
vi ● Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 Economic Research Service/USDA

● Incremental sequestration from agricultural activities can continue for

decades. Conversion to conservation tillage could sequester additional soil carbon

for 20-30 years, at which point a new equilibrium level of soil carbon would be

attained. But carbon may be released relatively rapidly if farmers shift back to 

conventional tillage. Additional sequestration from afforestation may continue for

many more decades, depending on region, species of trees, and harvest decisions. 

These findings have implications for policy:

● Payments for carbon sequestration may exceed their value if sequestration

is not permanent. To have the same greenhouse gas mitigation value as a unit

of carbon emissions reduction, a unit of additional carbon sequestration must

remain stored in soils or biomass permanently. If a program makes per ton payments equal to the value of permanent sequestration (“asset” payments), overpayments will occur if subsequent changes in land use or management practices

release carbon back into the atmosphere—unless compensation is adjusted for

the releases. “Rental” payment mechanisms, which pay farmers to store carbon

for specific periods by maintaining carbon-sequestering practices, can help avoid

this problem—particularly for contract renewals after the period when a new

equilibrium level of soil carbon is reached and no more carbon is being added to

the soil.

● An incentive system that includes both payments for carbon sequestration

and charges for carbon emissions may be much more cost effective than a 

system with payments only. For example, at a carbon price of $125 per ton of

permanently sequestered carbon, changes in tillage practices account for 7 MMT

of additional sequestered carbon with a rental payment system that includes both

payments and charges. Annual government expenditures for storage of this carbon

during the 15-year contract period total $300 million. In contrast, when the incentives include only carbon payments, a price of $125 per ton results in half the

sequestered carbon (3.5 MMT), while annual government expenditures increase

tenfold to $1.5 billion. 

● Adding a cost-share subsidy does not appear to improve the cost effectiveness

of incentive systems. A 50-percent cost-share for cropland conversion to forestry

or grasslands would increase sequestration at low carbon payment levels but not at

high payment levels. The implications for cost per ton are minimal.
Economic Research Service/USDA Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 ● 1

Chapter 1: Introduction

Increasing the quantity of carbon sequestered—or

stored—in soils and biomass is an alternative to

reducing emissions of carbon and other greenhouse

gases (GHG) in an overall strategy to mitigate global

climate change and its negative economic and environmental effects. In February 2002, the President

directed the Secretary of Agriculture to develop

recommendations for incentives designed to encourage

owners of agricultural and forest lands to adopt

production practices and land uses that extract carbon

from the atmosphere and sequester it in terrestrial

sinks. This report provides information useful for evaluating the economic implications of several frequently

discussed designs for incentive programs that might be

used to expand such land uses and production practices in the U.S. farm sector. 

Recent studies indicate that U.S. agricultural soils are

now being managed as a modest carbon sink—

accounting for net sequestration of 4 million metric

tons (MMT) of carbon annually (U.S. EPA, 2003).1 It

is generally believed that these soils could be managed

to store significantly more carbon. Sperow et al.

(2003) estimate that U.S. croplands could be managed

to sequester an additional 60-70 MMT of carbon per

year. Lal et al (1998) put this figure at 75-208 MMT.

Follett et al. (2001) estimate that U.S. grazing lands

could be managed to sequester an additional 29-110

MMT of carbon per year. These studies do not

consider the option of sequestering carbon by shifting

marginal croplands and grazing lands to forest. Hence,

even in the absence of afforestation, the estimates in

these studies suggest it may be technically possible to

sequester an additional 89-318 MMT of carbon annually on U.S. croplands and grazing lands. Based on

2001 emissions, this level of carbon sequestration

would offset between 5 and 17 percent of gross U.S.

GHG emissions.2

From a policy standpoint, it is important to note that the

carbon sequestration assessments of Sperow et al., Lal et

al., and Follett et al. do not take into account the cost to

store the additional carbon in agricultural soils. The

marginal cost of sequestering additional units of carbon

would be expected to rise as the quantity sequestered

increases. Consequently, the cost of increasing the

carbon content of all agricultural soils to the levels

suggested by these studies could be very high. Further, it

may be more cost effective to sequester carbon by

changing the use of some lands now engaged in

commodity production, for example, by shifting cropland or pasture to forest. 

This study explores the economic potential of the U.S.

farm sector to store additional carbon, and the resulting

implications for land-use changes and the economic

well-being of producers and consumers. To assess this

potential, we adapt the U.S. Agricultural Sector Model

(USMP) to include sequestration and emissions parameters associated with switching into and out of land uses

and production practices that build carbon levels in soils

and biomass. The cropland management and grassland

conversion parameters are based on the Intergovernmental Panel on Climate Change (IPCC) GHG inventory

procedures (1997). Forestry parameters are from U.S.

Forest Service estimates (Birdsey, 1996). With this information as a base, we incorporate incentive payments for

afforesting croplands and pasture, shifting cropland to

permanent grasses, and increasing the use of production

practices (particularly no-till) and rotations that raise

soil-carbon levels. We run model simulations reflecting

four alternative payment structures and six alternative

payment levels for additional carbon sequestration from

adoption of these activities. 

Economics of Sequestering Carbon 

in the U.S. Agricultural Sector

Jan Lewandrowski, Mark Peters, Carol Jones,

Robert House, Mark Sperow, Marlen Eve, and Keith Paustian

1 For perspective, the U.S. Environmental Protection Agency

(2003) estimates 2001 net sequestration in U.S. forests at 207

MMT of carbon. 

2 For 2001, the U.S. Environmental Protection Agency (2003) estimates gross U.S. emissions of greenhouse gases at 1,892 MMTCE,

including carbon emissions of 1,580 MMT. 
2 ● Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 Economic Research Service/USDA

To provide context, we first review the GHG emissions profiles of the United States and the U.S. farm

sector, and existing evidence on the technical potential of farm-sector activities to sequester carbon. We

then discuss two key issues in establishing comparability between the GHG mitigation options of carbon

sequestration and carbon emissions reduction—

“permanence” and “C-stock equilibrium.” The

permanence issue refers to the potentially temporary

GHG mitigation effect of carbon sequestration relative to GHG emissions reduction, and the C-stock

equilibrium issue refers to the finite period of time

that terrestrial systems can accumulate additional

carbon under a new management system. Key issues

in incentive design include defining the scope of the

incentives and the scope of the GHG accounting,

choosing the carbon measure (net or gross emissions) on which payments are based, and selecting

the set of farmers eligible to receive incentive

payments. The resolution of these design issues have

important implications for the cost effectiveness of

any incentives to store additional carbon in agricultural soils and biomass and the degree to which

those incentives may encourage responses that result

in offsetting carbon emissions. 

U.S. Total Emissions and 

Agricultural Sector Emissions 

of Greenhouse Gases

The decades-long upward trend in GHG emissions

for the United States as a whole and for the U.S.

agricultural sector continued during the recent period

1990-2001 (table 2.1). Gross emissions for 2001 are

estimated at 1,892 million metric tons carbon equivalent (MMTCE) (U.S. EPA, 2003), which implies an

average annual increase of 1.1 percent during 1990-

2001. Carbon dioxide (CO2) emissions represent 82

percent of all U.S. GHG emissions in 2001. Although not evident in the table, about 98 percent of

gross CO2 emissions are attributed to the combustion

of fossil fuels. The other major GHGs, methane

(CH4) and nitrous oxide (N2O), represent 9 percent

(CH4) and 6 percent (N2O) of total 2001 U.S. GHG

emissions on a carbon-equivalent basis.1, 2

Agricultural sector emissions of carbon dioxide,

methane, and nitrous oxide account for about 9 percent

of all U.S. GHG emissions. However, the pattern of

emissions in agriculture is quite different than in other

sectors. Carbon dioxide emissions represent a small

share of total agricultural GHG emissions, while the

shares of nitrous oxide (60 percent) and methane (31

percent) are far more significant. In terms of agricultural

activities, soil management emits the greatest amount of

GHG, with an estimated 80 MMTCE of nitrous oxide

emissions (primarily from applications of nitrogen

fertilizers) (fig. 2.1). In contrast, soil management

currently represents a “net sink” for carbon, sequestering 4 MMTCE in 2001. Thus, soil management emits

a net total of 76 MMTCE. Livestock activities generate

the next two highest emissions levels in agriculture,

with enteric fermentation (i.e., digestion by ruminant

livestock) emitting 31 MMTCE of methane and manure

management emitting 11 MMTCE of methane and 5

MMTCE of nitrous oxide. Fuel combustion on farms,

accounting for 14 MMTCE of carbon dioxide emissions, and rice production, accounting for 2 MMTCE of

methane, are the next highest GHG-emitting activities. 

Potential Activities for Mitigation of GHG

Emissions in the U.S. Agricultural Sector

For cropland, the activities with the highest potential 

for storing carbon are afforestation, conversion of cropland to perennial grasses, and switching from conventional tillage to conservation tillage (particularly no-till)

Chapter 2: Conceptual Issues

1 GHGs vary in their contribution to global warming. To make

cross-gas comparisons, the IPCC developed the concept of global

warming potential (GWP) values. GWP values (on a mass basis)

are expressed relative to CO2 and for a 100-year time horizon. CO2

is assigned a value of 1, CH4 a value of 23, and N2O a value of

296 (IPCC, 2001b). 

2 U.S. EPA (2003) presents emissions in teragrams of CO2 equivalents (Tg CO2 Eq). Since 1 Tg = 1 MMT, we can see that multiplying TgCO2 Eq by 0.2727 yields MMTCE, million metric tons of

carbon equivalent. 
Economic Research Service/USDA Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 ● 3

(fig. 2.2). These activities also rank relatively high in

sequestration per acre—1, 2, and 5, respectively—

among the cropland activities listed in table 2.2. Activities with lower carbon-storing potentials include

changing crop rotations, expanding the use of winter

cover crops, eliminating periods of summer fallow,

changing fertilizer management, using more organic soil

amendments (i.e., manure, sludge, and byproducts),

improving irrigation methods, shifting land to conservation buffers, and restoring wetlands. 

For grazing lands, afforestation ranks highest in both

per acre carbon sequestration and total potential

carbon sequestration. Generally, pasture-management

activities have high per acre sequestration rates but

low total carbon-storing potentials. This finding

reflects the comparatively limited areas of pastureland

in the United States on which these GHG-mitigating

activities are, or could be, practiced. For example,

Follett et al. (2001) estimate current levels of pasture

management at 32 million acres using additional

manure applications, 6 million acres planted with

improved grass varieties, and 25 million acres using

improved grazing practices. For each activity, potential

expansion is estimated at 13 million acres. Conversely,

rangeland management has a low per acre sequestration rate but a high total carbon-storing potential

because the contiguous United States has about 260

million acres of rangeland.

Outside of agricultural soil management, the next

greatest sources of farm-sector GHG emissions are

Table 2.1—Selected U.S. greenhouse gas (GHG) emissions 

1990 1995 2000 2001

Million metric tons carbon equivalent

Total U.S. emissions:

Carbon 1,364.6 1,454.8 1,604.5 1,580.4

Methane 175.6 177.3 167.3 165.2

Nitrous oxide 108.4 117.5 117.2 115.8

HFCs, PFCs, and SF6 25.7 27.1 33.0 30.3

Total U.S. gross emissions 1,674.4 1,776.8 1,922.0 1,891.7

Land-use change and forestry carbon sequestration* -292.6 -290.2 -227.6 -228.6

Total U.S. GHG net emissions** 1,381.9 1,486.6 1,694.4 1,663.1

Agricultural sector emissions:

Carbon:

Fossil fuel combustion 12.6 15.5 13.7 13.7

Total - agricultural sources 12.6 15.5 13.7 13.7

Percent of U.S. total carbon emissions 2.1 2.2 2.1 2.1

Agricultural soils - sequestration* -3.6 -4.1 -3.8 -4.1

Percent of U.S. total carbon sequestration 1.2 1.4 1.7 1.8

Methane:

Enteric fermentation 32.2 33.5 31.6 31.3

Manure management 8.5 9.9 10.4 10.6

Rice cultivation 1.9 2.1 2.0 2.1

Crop residue burning 0.2 0.2 0.2 0.2

Total - agricultural sources 42.8 45.7 44.3 44.2

Percent of U.S. total methane 24.4 25.8 26.5 26.8

Nitrous oxide:

Soil management 73.0 77.5 80.3 80.3

Manure management 4.4 4.5 4.9 4.9

Crop residue burning 0.1 0.1 0.1 0.1

Total - agricultural sources 77.6 82.2 85.4 85.4

Percent of U.S. total nitrous oxide 71.5 69.9 72.9 73.7

Total U.S. agriculture GHG net emissions** 133.05 143.44 143.47 143.39

* Carbon sequestered as a result of agricultural and forestry activities, involving both land-use change and land management.

Negative values imply sequestration.

** Total carbon-equivalent emissions minus land-use change and forestry carbon sequestration, in million metric tons carbon equivalent.

Source: U.S. Environmental Protection Agency (2003). See http://www.epa.gov/globalwarming/publications/emissions
4 ● Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 Economic Research Service/USDA

livestock enteric fermentation (methane) and manure

management (methane and nitrous oxide). The technical and economic options for reducing emissions

from these sources appear to be limited at this time.

Substituting biofuels for fossil fuels on a continuous

basis could reduce the rate of increase in atmospheric

carbon over time. While every unit of fossil fuel

consumed emits new stocks of carbon into the atmosphere, biofuel emissions are at least partially derived

from recycling carbon already in the atmosphere via

the production of biofuel crops.3 Lal et al. (1998) estimate the average per acre reduction in net carbon

emissions associated with biofuel crops at 1.42 metric

tons (mt) for fuel substitution and 0.4 mt in additional

soil carbon. They estimate a total GHG-mitigation

potential of 39 MMT per year from shifting 10 million

acres of idle cropland into biofuel crop production. 

Comparing Reductions in Carbon 

Emissions With Increases in 

Carbon Sequestration

Conceptual discussions in the climate change literature

often acknowledge that a unit of carbon emissions

reduction and a unit of carbon sequestration may have

very different contributions to net GHG mitigation

over time. Studies cite two reasons for this variance in

effect. First, to be equivalent with emissions reductions, carbon sequestration must be maintained for a

period equal to the time emitted carbon remains in the

atmosphere, which is referred to as “permanence.”4

Second, after undergoing a change from one management practice to another (e.g., from conventional

Figure 2.1

Agricultural emissions and carbon sequestration

in 2001 by activity

Source: U.S. Environment Protection Agency (2003).

See website http://www.epa.gov/globalwarming/publications/emissions

MMTCE

C seq.

N20 emissions

C emissions

CH4 emissions

Soil 

mgmt.

Enteric

fermentation

Manure

mgmt.

On-farm fuel

combustion

Rice

cultivation

0

20

40

60

80

Ag GHG

Total U.S. GHG

Ag carbon seq.

Total U.S. terrestrial 

carbon seq.

-4

14

11

16

31

76

2

Ag share of total

U.S. GHG

gross emissions = 9%

Ag share of total

carbon seq. = 2%

80

5

3 Bioenergy crops include corn (used to produce ethanol), soybeans (used to produce biodiesel), switch grass (used to generate

electricity), and several fast-growing tree species (used to generate

electricity). With the first three crop types, the carbon would be

recycled in about a year. For tree species, the recycle time may be

5-10 years. Also, energy is an input in the production of ethanol

and biodiesel. Carbon emissions related to this energy use would

need to be accounted for in calculating the net GHG emissions

reductions associated with increasing the use of these products. 

Figure 2.2

Estimated potential carbon sequestration

Source: See table 2.2.

Grazing land

Carbon (MMT)

Afforestation

Grassland conversion

Conservation tillage

Crop rotations*

Fertilizer, manure use

Improved irrigation

Afforestation

Rangeland management

Pasture fertilizer, manure use

Pasture land management

0 50 100 150 200 250 300

Cropland use change

Cropland mgmt. practices

* Includes winter cover crops and elimination of summer fallow.

Maximum carbon 

potential

Minimum carbon 

potential

4 A 100-year time horizon is frequently employed, for example, in

the IPCC calculation of global warming potential by EPA in its

GHG inventory (U.S. EPA 2003, p. ES-9).
Economic Research Service/USDA Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 ● 5

tillage to conservation tillage), terrestrial systems tend

to move to new equilibrium carbon levels over time.

Terrestrial systems then accumulate additional carbon

from activity changes for a finite period, until they

reach a new “C-stock equilibrium.”5 In empirical

work, the treatment of permanence and C-stock equilibrium can greatly affect the economic analysis of

carbon sequestration incentives. Many previous studies

have simply treated carbon sequestration and emissions reductions as being equivalent—implicitly or

explicitly assuming that any sequestration induced by

incentives will be permanent. 

Temporary Versus Permanent 

Terrestrial Sequestration 

To illustrate the potential differences in GHG mitigation

between emissions reduction and carbon sequestration,

we use an example of a farm under one baseline emisTable 2.2—Estimated potential annual carbon sequestration for selected changes in land use and 

production practices in U.S. agriculture 

Land-use change or Estimated per Total potential Included in

management practice acre sequestration sequestration Source this analysis

Mt per acre MMT Per acre/total potential

Cropland:

Land-use changes:

Afforestation of cropland1, 2 0.79 - 1.72 83 - 181 Birdsey (1996)/footnote 2 Yes

Croplands shifted to perennial grasses1, 2 0.25 - 0.51 26 - 54 Eve et al. (2000)/footnote 2Yes

Conservation buffers3 0.13 - 0.25 1 - 2 Footnote 3/Lal et al. (1998) No4

Restoration of wetlands5 0.10 5 Lal et al./see footnote 4 No

Production practice changes:

Conservation tillage and residue

management

6 0.09 - 0.18 35 -107 Eve et al./Lal et al. Yes

Improved crop rotations and winter

cover crops 0.04 - 0.12 5 - 15 Lal et al. Yes

Elimination of summer fallow 0.08 1 - 3 Lal et al. Yes

Improved fertilizer management 0.02 - 0.06 6 - 18 Lal et al. No 

Use of organic manure and byproducts7 0.20 - 0.50 3 - 9 Follett et al. (2001)/Lal et al. No

Improved irrigation management 0.04 5 - 11 Lal et al. No

Grazing land:

Afforestation of pasture 0.73 - 2.09 8 - 22 Birdsey/footnote 2Yes

Rangeland management 0.05 - 0.15 5 - 16 Follett et al. No

Pasture management:

Improved use of fertilizers 0.10 - 0.20 2 - 4 Follett et al. No

Use of organic manure 0.20 - 0.50 3 - 9 Follett et al. No

Planting of improved species 0.10 - 0.30 1 - 3 Follett et al. No

Grazing management 0.30 - 1.30 5 - 20 Follett et al. No

1 Estimated average annual carbon sequestration over first 15 years of growth. 2 Moulton and Richards (1990) identify 105.5 million acres of cropland and 10.6 million acres of pasture where erosion exceeds the

erosion tolerance rate. The total technical potential for afforestation assumes a complete conversion of these lands to trees. The total 

technical potential for grasses assumes a complete conversion of the 105.5 million acres of cropland to perennial grasses. The technical 

potential sequestration values are obtained by multiplying these acreages by the associated per acre sequestration rates. 3 Conservation buffers are vegetated strips 5-50 meters in width used to reduce water pollution and erosion. The per acre values shown

here are derived from the total values from Lal et al. (1998) and their assumption that 7.9 million acres of conservation buffers will be in

place by 2020. 4 Activities were omitted from the analysis when there was a lack of farm-level data on adoption cost. Without such data, it is not possible to

assess the net returns associated with undertaking an activity relative to alternative production possibilities. 5 Heimlich and Claassen (1998) estimate that there are 47.4 million acres of former wetlands and cropped wetlands that are suitable for

restoration. The total potential sequestration is derived by multiplying the per acre sequestration from Lal et al. by 47.4 million acres. 6 Per acre sequestration rates here assume conversion from conventional tillage to no-till. 7 Per acre sequestration is Follett et al.'s (2001) estimate for application of manure on pasture.

Source: Listed in table.

5 In the literature, this concept has often been erroneously referred

to as “saturation.” In soil science, saturation refers to an ultimate

limit for the ability of soils to stabilize organic carbon irrespective

of management change (Six et al., 2002). This true saturation level

is likely several times greater than the total carbon found in most

agricultural soils and is thus not a limiting condition for soil carbon sequestration in the near term.
6 ● Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 Economic Research Service/USDA

sions scenario and two GHG mitigation scenarios—one

assuming a decrease in farm fuel use (i.e., an emissionsreduction activity) and the other assuming a shift to notill (i.e., a carbon-sequestering activity). For simplicity,

we assume that each activity lasts 4 years and that all

carbon stored as a result of shifting to no-till is released

to the atmosphere when conventional tillage is

resumed.6 In the baseline scenario, the farm emits 10 mt

of carbon annually (table 2.3). The first mitigation

scenario assumes that the farmer accepts a payment to

decrease fuel use. The decrease in fuel use reduces

carbon emissions by 1 metric ton for each year the

program is in effect. Furthermore, the reduction in the

stock of atmospheric carbon achieved during the 4 years

the program is in effect remains even after the program

ends and both annual fuel use and related carbon emissions return to baseline levels (i.e., 10 mt per year). In

this sense, activities that reduce emissions—even those

with a finite duration—create “permanent” GHG-mitigation benefits. 

In the second mitigation scenario, the farmer accepts a

payment to shift from conventional tillage to no-till for

a period of 4 years. When the program stops, the

farmer switches back to conventional tillage. In each

year that the farmer uses no-till, 1 metric ton of carbon

is sequestered in the soil. However, when the land is

returned to conventional tillage at the start of year 5,

the carbon added to the soil as a result of using no-till

is released back to the atmosphere. So the stock of

atmospheric carbon is temporarily lowered by the use

of no-till but shifts back to the baseline accumulation

path in year 5. Hence, the “temporary” GHG mitigation benefits gained from 4 years of sequestration

activity are only a portion of the “permanent” benefits

gained from the 4 years of emissions reduction. 

Generally, for a unit of carbon sequestered in soil or

biomass in year t to have the same climate change mitigation effect as a similar unit of emissions reduction in

year t (and to be of equal mitigation value), the unit

sequestered must remain in the soil or biomass for a

period of about 100 years. In agricultural studies with

one decision point, this means either assuming that

sequestered carbon is stored permanently in sinks or

designing the incentive as a “rental” payment, based on

the duration of the rental commitment period. Carbonsequestration studies typically specify payment structures that require participants to commit to sequestration

activities for periods of at least 15-20 years. Such

commitment periods, however, are substantially shorter

than the time carbon remains in the atmosphere, leaving

the temporary-permanent ton equivalency issue 

unresolved.

The scenarios in the example assume a modeling framework with a single decision point. In a framework that

allows for multiple decision points through time, a third

option is available: linking payments and charges to a

long-term, real-time accounting system for sequestration

and emissions. In this setup, farmers can receive

payments when adopting activities that reduce net emissions and be charged when adopting activities that

increase emissions. However, most empirical studies of

the farm sector’s potential to sequester carbon employ

static modeling frameworks with one-time decisionmaking. In such cases, analysts need to state clearly

whether they are assuming farmers continue or cease

sequestration activities at the end of the commitment

6 This assumption is probably somewhat extreme for most real

world situations but represents a reasonable simplification. Soil

scientists generally agree that a large majority—but not all—of the

carbon sequestered in U.S. soils as a result of converting conventionally tilled cropland to conservation tillage or grasses for a

period of several years would be released to the atmosphere relatively quickly when conventional tillage resumes. Scientific studies

that estimate such losses are scarce, but several studies on related

topics support this view. In a study of soils in Lower Saxony, Germany, that had been managed with conservation tillage for 20

years, Stockfisch et al. (1999) found that all of the associated

increase in soil organic matter was lost with a single application of

conventional tillage. In a study of Wisconsin cropland that had

been planted to grasses for several years, Lindstrom et al. (1998)

found that the associated soil erosion benefits disappeared rapidly

with resumption of conventional tillage. Finally, studies have

demonstrated relatively large releases of CO2, termed a CO2

“burp,” from soils in the period just after intensive tillage

(Reicosky et al., 1997; and Reicosky, 1997). 

Table 2.3—Hypothetical net carbon emissions 

from reducing farm fuel use or expanding

no-till for a 4-year period

Year Net

emissions

Activity 1 2 3 4 5 5-yr total

Metric tons

Baseline emissions 10 10 10 10 10 50

Change from baseline

emissions from

mitigation activities

Reduce fuel use -1 -1 -1 -1 0 46

Expand no-till -1 -1 -1 -1 +4 50

Source: Economic Research Service, USDA.
Economic Research Service/USDA Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 ● 7

period. More importantly, any payment for a unit of

carbon sequestration needs to accurately reflect the net

GHG mitigation achieved relative to an equivalent unit

reduction in carbon emissions. 

Carbon Stock Equilibration in 

Terrestrial Systems 

Organic carbon is maintained in soils through a dynamic

process. Plants convert carbon dioxide into tissue during

photosynthesis; after a plant dies, a portion of the stored

carbon is left behind in the soil by decomposing plant

residue and a larger portion is emitted back into the

atmosphere. Decomposition rates tend to be proportional

to the amount of organic matter in the soil. Hence, over

time and under relatively constant environmental and

management conditions, rates of carbon additions and

emissions tend to equilibrate and the amount of organic

carbon in soils stabilizes at a constant, or steady-state,

level (i.e., the C-stock equilibrium). If the relationship

between additions and losses changes due to a change in

soil management, the soil will gradually move to a new

C-stock equilibrium. For example, if a shift from

conventional tillage to reduced tillage increases the

amount of crop residues returned to the soil and/or

decreases the decomposition rate of organic matter, soil

carbon will increase over time until a higher C-stock

equilibrium is reached. Typically, the absolute gains in

carbon per unit of time will diminish as the stock

approaches the new equilibrium. Further increases after

this point would require additional changes in management (e.g., switching to no-till). 

Carbon stocks and potential rates of accumulation vary

significantly across ecosystems with land use (e.g.,

forest, grassland, or cropland), management practices

(e.g., tillage system, crop rotation, use of fallow and

cover crops, nutrient applications, and irrigation

management), geographic location, and local environmental factors (e.g., climate and soil characteristics).

Due to past management practices, most agricultural

soils have relatively depleted stocks of soil carbon,

compared with native ecosystems, and thus can readily

respond to improved management. Soil science studies

generally find that agricultural ecosystems could be

managed to accumulate additional soil carbon for

periods of 15-60 years (U.S. EPA, 1991; Paustian et al.,

1998; Dumanski et al., 1998; Bruce et al., 1998; and

West and Post, 2002). For example, in summarizing

more than 67 long-term agricultural experiments, West

and Post find that it may take 23-30 years for soils to

achieve a new C-stock equilibrium following a shift

from conventional tillage to no-till, with the highest

annual increments to soil carbon occurring between

years 5 and 10. For shifts to crop rotations that enhance

soil carbon (e.g., eliminating fallow periods or including

hay in continuous rotation systems), soils may not

approach a new equilibrium for 40-60 years.

In forest ecosystems, newly planted pine forests in the

Southern United States tend to reach C-stock equilibrium after about 90 years, with maximum accumulation

rates occurring between 15 and 25 years (Birdsey, 1996).

New ponderosa pine and douglas fir forests in the West

take more than 120 years to reach this equilibrium, with

maximum accumulation rates occurring between 35 and

60 years. Figure 2.3 presents an average time profile of

carbon sequestration for an acre of cropland in the

Southeast after conversion to fully stocked southern pine

under average management intensity. Carbon accumulation over the first 5 years is relatively modest (averaging

0.91 mt per year) but grows at an increasing rate over a

period of 15 years. Between years 10 and 15, the

average annual sequestration rate is three times higher

than it is over the first 5 years. A lengthy period of positive but declining sequestration rates follows year 15.

Assuming no timber harvests, the system reaches its Cstock equilibrium of 113.2 mt per acre after about 90

years. Of the carbon in the system, about 72.3 mt are

contained in trees, 33.6 mt are contained in soil, and the

balance is stored in understory vegetation and litter.7

The C-stock equilibrium issue has two important

implications for empirical analyses of the economic

potential to sequester carbon in the farm sector. First,

the finite periods of time in which terrestrial systems

can accumulate additional carbon place a finite limit

on the GHG-mitigation potential of any carbonsequestering activity at any given location. In contrast,

an emissions-reduction activity will continue to reduce

emissions relative to a pre-activity baseline every year

the activity is maintained. Second, because annual

carbon accumulation eventually will decline toward

zero, incentive payments based on annual increments

of carbon sequestration will eventually fall to zero. In

empirical work then, it is important to be clear about

the modeling assumptions regarding landowner

responses when sequestration payments fall to zero.

7 If the trees are harvested, most of the carbon contained in

removed biomass and logging residues, and some of the soil carbon, is returned to the atmosphere within a few years. The exception is the carbon stored in long-lived wood products (e.g., furniture and structures). 
8 ● Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 Economic Research Service/USDA

Similarly, it is important to be clear about the assumptions regarding the actions landowners will take at the

end of a commitment period, even if the new C-stock

equilibrium has not been reached—because in the

absence of a subsequent contract period, payments

again fall to zero.

Defining Alternative Payment Structures To

Address the Permanence Issue

Our discussions of permanence and C-stock equilibrium

highlight the need to establish an equivalency between a

unit of sequestered carbon and a unit of emissions

reduction—both for conducting empirical analyses of

carbon sequestration incentives and for designing

carbon-sequestration policies. To that end, we develop a

rental payment incentive and define a rental value for a

commitment period. A series of rental contract

payments for sequestering a ton of carbon through time

will be equivalent, in present discounted value terms,

with the asset price per ton of net emissions reduction

or permanent carbon sequestration. 

We employ a carbon accounting system based on

metric tons of carbon stored per year, over defined

(commitment) time periods. If adoption of a given

sequestration activity results in an average annual

addition to soil carbon during the contract period of s

mt, the metric tons of carbon sequestered in the soil

relative to baseline in years 1, 2, 3, and n are, respectively s, 2s, 3s, and ns.

8 For simplicity, we abstract

from the longrun decay function of atmospheric

carbon and assume an infinite time horizon for the

atmospheric impacts of emissions (and so, too, of

emissions reductions). If we make the simplifying

assumption of a constant value (or payment level) for

emissions reduction,9 we can think of the rental

payments for temporary sequestration in terms of the

simple annuity formula. We denote the payment for 1

metric ton of sequestration for 1 year (paid in the year

of sequestration) as a and define it as:

(1) a = rP

where P = payment for permanent reduction 

in carbon emissions of 1 mt, and

r = discount rate 

In equation 1, the value of a metric ton of temporary

sequestration for 1 year is the value of a metric ton of

permanent emissions reduction, P, discounted by the

factor r. With this payment structure, payments do not

cease when land in a given use or production practice

8 We adopt an annual average framework because the IPCC

sequestration parameters we employ for soil represent annual averages over a 20-year period, and the cost parameters have been

annualized as well. This is a reasonable simplification because the

decision is for the commitment period, not a year-by-year basis. 

9 This is not a necessary condition—the formula can be adjusted

readily for a varying carbon price. 

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95

0

20

40

60

80

100

120

Mt/acre

Source: Birdsey (1996).

Accumulation of carbon stock and incremental change per acre of fully stocked southern pine 

timberland under average management after cropland conversion to forest

Figure 2.3

C stock in trees

C stock in understory

C stock in soils

Years
Economic Research Service/USDA Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 ● 9

reaches C-stock equilibrium because the payments are

for carbon storage above baseline levels, not for new

additions to the carbon stock. Payments cease only

when the carbon is released back into the atmosphere—for example, when a farmer stops using no-till

and returns to conventional tillage. Analogously, if a

metric ton of carbon is sequestered and held for 10

years, then the present discounted value (PDV) in year

1 would be:

where the discount factor applied to permanent emissions reduction is (1 - e-10r). 

Next, consider the discount factor for a pattern of

temporary carbon sequestration accumulated over a

fixed commitment period of J years (where J is less

than the time needed to reach C-stock equilibrium)

relative to a matched time path of permanent emissions reductions. For simplicity, assume that the rate of

carbon accumulation over the commitment period is 1

mt per year. Hence, for the commitment period, the

time path of carbon sequestration is 1 mt in year 1, 2

mt in year 2, etc. In the last year of the program, the

amount sequestered will be J mt. In contrast, emissions

reductions of 1 metric ton per year will have an essentially permanent effect on the atmosphere. Hence, the

ratio of the value of the temporary sequestration relative to the value of the permanent emissions reductions

during the same time period is:

Assuming that the value of permanent carbon emissions reductions is constant over time, the value of this

ratio is affected by choices of years for length of

sequestration commitment period and discount rate

(table 2.4).10

In summary, alternative assumptions regarding the

permanence and C-stock equilibrium issues motivate

alternative payment structures for carbon sequestration. The asset price payment structure assumes the

carbon will be sequestered permanently and so values

a unit of carbon sequestration in year t equally with a

similar unit of carbon emissions reduction in year t.

With this structure, farmers receive payments based on

the additional carbon sequestered in each year. On the

other hand, the rental payment structure is based on

the assumption that, at some point in the future,

sequestered carbon may be released back into the

atmosphere—thereby reducing its GHG-mitigation

value relative to reductions in carbon emissions. The

rental approach makes payments for total additional

carbon based on that portion of the market value of

permanent sequestration that occurs during the

contract period. The rental approach will pay for the

value of all sequestered carbon that actually occurs

regardless of how long that carbon is stored in soils or

biomass. The asset-price payment approach, on the

other hand, could result in significant overpayments if

the assumption of permanence is incorrect.

Design of an Incentive Program

An overarching policy design issue is evaluating the

optimal path of GHG concentration level in the atmosphere over the next several centuries, balancing the

costs and benefits of achieving different paths of atmospheric concentration levels of greenhouse gases through

time. The analysis required to address this issue is both

extraordinarily complex and subject to substantial

unknowns.

In this report, we focus on two more narrow aspects of

designing an incentive program. First, by evaluating

the economic potential for different agricultural activities to sequester carbon, we can highlight the activities

that will yield the greatest amount of sequestration at a

given carbon incentive level. Further, our analysis is

designed to contribute to an evaluation of the least-cost

mix of terrestrial carbon sequestration and GHG emissions-reduction activities to achieve any desired level

of GHG mitigation.

10 If the carbon price is expected to decrease (increase) over time,

the ratio of the value of temporary sequestration to the value of

permanent emissions reduction will rise (fall). That is, temporary

sequestration today will be worth more (less) relative to permanent

emissions reduction. 

() ( ) 2 rP e dt rt

=0

10 − ∫

t

( ) 3 = 

P

=0

=0

λα

P rt e dt

e dt

-rt

t

J

-rt

t

∫

∫

∞

Table 2.4—Ratio (λa) of value for temporary

sequestration to value for emissions reduction for

selected discount rates and sequestration periods

Carbon sequestration period (years)

Discount rate 1 5 10 15 20

.05 .050 .145 .254 .354 .443

.10 .100 .280 .469 .620 .738

Source: Economic Research Service, USDA.
10 ● Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 Economic Research Service/USDA

Second, we evaluate the cost effectiveness of alternative designs for incentives to promote carbon sequestration in agriculture. In this section, we consider the

implications of three types of choices regarding the

coverage of incentives for the cost effectiveness of

achieving additional carbon net sequestration, relative

to the baseline level. The first is the scope of the

incentives, and of the associated accounting—in terms

of geographical regions, economic sectors, mitigating

activities, and GHGs covered. The second and third

address what measure of carbon sequestration (net

emissions reduction) the payments will cover. Will

they be limited to net sequestration (gross sequestration net of any land-based emissions), or will they

cover all gross sequestration? And will they be limited

to additional carbon sequestration (beyond the preincentive program baseline), or will they compensate

early adopters of carbon-sequestering practices too?

Defining the Scope of the Incentives and 

the Scope of Accounting

In analyzing any set of incentives to encourage farmers

to adopt land uses and production practices that

sequester carbon in soils and biomass, it is important

to note two potential issues related to program scope.

First, designs that limit activities covered by incentives

may exclude more cost-effective options for achieving

a given level of mitigation. As a result, the estimated

costs of achieving a given level of carbon sequestration/GHG mitigation may be substantially higher than

what is really possible.11

Second, if the incentives being analyzed induce

actions that decrease carbon sequestration and/or

increase GHG emissions in noncovered GHGs, activities, sectors, or regions, the estimated net sequestration/GHG mitigation attributed to the incentives may

be overstated—perhaps significantly. The scope of

GHG accounting, however, need not be limited to

the scope of activities included in the incentives. 

If the scope of GHG accounting is broad enough to

encompass—at least most of—the induced effects,

the accounting will more accurately reflect the net

sequestration/ GHG mitigation attributable to the

incentives.

“Leakage” refers to decreasing carbon sequestration or

increases in GHG emissions that are induced by price

changes associated with market adjustments in

response to carbon incentives. The term leakage is

used because the increase in net emissions results from

activities, gases, or sectors that are not covered by the

program or entities in the covered sector that are not

participating in the program.12

In the context of farm-sector incentives to increase

the use of carbon-sequestering land uses and production practices, leakage can occur both within and

outside the farm sector. For example, a program to

afforest large areas of marginal cropland and pasture

can cause leakage in the forest sector due to its

impact on forest harvest and land-use decisions.

Forestry is an alternative economic use for tens of

millions of acres now in crop or livestock

production.13 Large-scale conversions of agricultural

lands to forest could create expectations of higher

timber supplies and lower timber prices in the future.

A sufficient fall in the expected longrun returns to

forestry could induce landowners to shift timber

harvests (and associated carbon emissions) forward.

Further, the lower expected returns could also induce

forest owners to reduce forest management activities

and lower future replanting rates, thereby lowering

carbon sequestration rates per acre.14 The higher net

emissions (or leakage) in the forest sector would

partially offset the sequestration gains in the agricultural sector covered by the incentives.

12 For completeness, we acknowledge that some activities induced

by, but not included in, such a set of incentives may also sequester

carbon or reduce GHG emissions. From an incentive design standpoint, such outcomes would be desirable since more GHG mitigation would be achieved than paid for. The GHG mitigation literature, however, suggests that leakage would be much more common

than sequestration and/or GHG emissions reductions outside the

incentive coverage. Given this consensus and the negative implications that leakage has for policy design—namely, getting less

GHG mitigation than is paid for—we focus solely on leakage in

this analysis. 

13 Parks and Hardie (1995) and Moulton and Richards (1990) both

identify about 116 million acres of cropland and pasture in the contiguous 48 States suitable for growing hardwood or softwood trees.

The Parks and Hardie estimate is derived from the 1987 National

Resources Inventory data and a map of tree species ranges. The

Moulton and Richards estimate reflects agricultural lands where erosion exceeds the erosion tolerance rate. Moulton and Richards also

identify an additional 149.7 million acres of cropland and pasture

that are suitable for conversion to forest but are not suited to sustained agricultural production (including wet soils). 

14 The degree to which forest sector responses to farm sector

afforestation programs might offset carbon sequestered in agriculture

is addressed in several studies reviewed in chapter 3 of this report.

11 To illustrate, Reilly et al. (1999) estimate the cost of reducing

U.S. GHG emissions by 650 MMTCE would be 60 percent lower

if all GHGs are included relative to a carbon-only strategy.
Economic Research Service/USDA Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 ● 11

Leakage within agriculture can be illustrated by the

potential effect of farmers’ responses to incentives to

eliminate fallow periods from rotations. Farmers may

increase soil carbon by eliminating fallow; however,

if farmers keep the affected lands in production and

apply additional fertilizer, the GHG-mitigation benefits

of the carbon-sequestration activities would be at least

partially offset by higher N2O emissions. If GHG

accounting is limited to carbon, the estimated changes

in net GHG emissions may be misleading. The net

effects of an incentive may not be accurately assessed

unless accounting reflects all GHG emissions across

all markets and activities that are directly and indirectly affected by the incentives.

What To Pay for—Gross Versus 

Net Sequestration? 

The payment basis for carbon incentives has important

implications for leakage. Conceptually, one option is to

have symmetric incentives—positive payments for

sequestration and negative payments for emissions from

land use and land management activities. The system

would provide payments for net sequestration across the

covered sectors/activities—that is, for carbon sequestration, net of carbon emissions from changing land use

and land management activities. A tradable permit

system could provide symmetric incentives for

sectors/activities and regions subject to emissions limits.

For activities with emissions limits, emissions and

sequestration would be tracked on a periodic basis. Yet,

energy production is generally the primary activity

considered for emissions limits in the economic literature on tradable permit systems for greenhouse gases;

the transactions costs of imposing limits on agriculture

are generally considered to be prohibitive. 

Consequently, the literature generally discusses agricultural activities as a potential source of sequestration offsets against energy emissions in a tradable

permit system, where the energy emissions are

subject to an emissions limit (but the agricultural

activities are not). In an offset system, symmetric

incentives could be realized only for entities that

participate in the offset program, and only if the

offset program requires entitywide accounting for

sequestration and emissions. Analogously, a voluntary subsidy program for carbon sequestration could

provide symmetric incentives for entities that enroll

in the program only if the program requires entitywide accounting for sequestration and emissions,

rather than accounting only on enrolled acres.

In this context, adoption of carbon-emitting activities by

entities elsewhere in the sector or the economy, which

are not enrolled in the program, will not be subject to

negative incentives. Such responses might occur, for

example, when program-induced shifts of cropland to

forestry reduce the supply of crops; as a result, crop

prices will increase in order to ration the smaller supply.

Farmers may respond to rising product prices by

bringing currently idle land into production, which

would generate additional carbon emissions without a

negative incentive for such emissions. If the carbon

accounting in a GHG emissions offset or subsidy

program covered only the fields where sequestering

activities are adopted, the accounting would likely overstate net sequestration and understate the marginal costs

of sequestration from the payment system.

An alternative system would base payments on gross

sequestration of carbon in soils or biomass as a direct

result of adopting a covered activity, without any

deduction for emissions from the participating entity.

To illustrate how payments for gross sequestration

could reduce the cost effectiveness of a given set of

carbon-sequestration incentives, we consider a farmer

with two 1,000-acre parcels—one managed with

conventional tillage and the other with no-till. Under a

gross-sequestration payment system, the farmer can

receive payments for any land shifted from conventional tillage to no-till. The farmer could achieve eligibility for program payments under two courses of

action that have very different implications for net

incremental carbon sequestration. First, the farmer

could expand the use of no-till to both parcels. In this

case, the farmer will be managing an additional 1,000

acres of land with no-till relative to the pre-program

baseline and will be generating additional net carbon

sequestration on those acres.

Second, the farmer could simply switch tillage practices on the two parcels so that the one initially

managed with conventional tillage is now managed

with no-till, and vice versa. In this case, the farmer

potentially could claim payments for half of the land

in any period, but the additional carbon stored on the

land shifted to no-till is largely offset by increased

carbon tillage. In other words, no additional net

carbon sequestration will occur in this case.

For voluntary programs, once a piece of land is enrolled

in the program, rules could be established to prevent

compensation for the repeated switching in the second

case. Under gross sequestration, switching land from 
12 ● Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 Economic Research Service/USDA

Expanding the Scope of Sequestration Incentives

In general, increasing the scope of carbon-sequestration incentives will decrease both the marginal cost

per unit of carbon sequestered and the total program

cost of achieving a given level of sequestration. To

make this point more concrete, we consider a stylized

set of incentives to increase the quantity of carbon

sequestered in agricultural soils and biomass. We

focus on the greater efficiency of including multiple

sequestration activities, but the logic generalizes to

multiple geographic areas, economic sectors, and

greenhouse gases.

The figure below shows hypothetical marginal cost

(MC) curves for carbon sequestered by afforesting

(AF) agricultural land or by expanding the use of notill (NT). Also shown is the MC curve for carbon

sequestered using both activities (AF+NT). As we

have drawn the MC curve for no-till sequestration,

any positive price for sequestered carbon will result in

some additional use of no-till. In many areas of the

United States, no-till, reduced tillage, and conventional tillage systems are practiced in close

proximity—often on the same farm. In these areas, the

expected returns to the different tillage systems are

relatively close and it is reasonable that relatively

small incentives would induce some expanded use of

no-till. 

Conversely, no afforestation occurs until the price of

sequestered carbon exceeds PAF, min. The conversion

of pasture or cropland to forest requires a minimum of

site preparation and tree establishment costs.

Afforestation payments would have to cover these

costs, as well as any income that might be lost by

taking the land out of commodity production, before

farmers would shift these lands into trees. Note also

that the MC curve for expanding no-till rises faster

than the MC curve for afforestation. As a result, the

least-cost mix of sequestration activities will vary

with the amount of carbon sequestration desired. 

Consider the case where the program goal is to

sequester Q1 metric tons (mt) of carbon in the farm

sector. As drawn, sequestering Q1 metric tons of

carbon can be accomplished by paying farmers only

to adopt no-till, only to afforest agricultural land, or to

undertake a combination of the two activities. If the

program only pays for expanding no-till, the MC of

sequestering Q1 mt carbon will be Pc per mt and total

payments will equal Areas (A+B+C). If the program

only pays for afforestation, the MC of sequestering Q1

mt carbon will be Pb and total payments will equal

Areas (A+B). Hence, if only one activity is to be

targeted, the more cost-effective option for sequestering Q1 mt of carbon is to pay farmers to shift land

into trees. Opening the program to both activities,

however, lets low-cost suppliers of carbon from each

activity respond to the incentives. As a result, Q1 mt

of carbon can be sequestered at a MC of Pa - with 

q1, AF mt sequestered by afforestation and (Q1-q1, AF

= q1, NT ) mt sequestered by expanding no-till. Total

payments in this case are equal to Area (A).

Note, however, that a multiple-activity program does

not necessarily mean that all targeted activities will

occur. For example, if the carbon payment were less

than PAF min, afforestation will not be competitive and

the only sequestration activity observed will be some

additional use of no-till.

Illustrative marginal cost curves for sequestering

carbon through no-till and afforestation

MCNT + AF

Area A

MCAF

MCNT

Area B

Area C

Pa

PAF, min

q1, AF q1,NT Q1

Q

mt C seq.

$

Source: Economic Research Service, USDA.

Pb

Pc

0

program goal
Economic Research Service/USDA Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 ● 13

no-till to conventional tillage may be economically

rational for other reasons. Consider, for example, the

case where, in the baseline, no-till systems produce

lower yields per acre than conventional tillage but the

no-till cost advantage compensates for the revenue

differential. As crop prices rise due to the offset program,

for example due to converting cropland to forestry, the

lost revenues from maintaining no-till will increase and

at some point no-till may no longer be advantageous.

Further, declining supplies and associated price increases

would provide incentives for entry of idle land into crop

production, resulting in additional carbon emissions. 

Establishing accounting for net sequestration across

the whole entity enrolled in a voluntary program,

rather than simply for the enrolled acres, will tend to

capture some of the price-induced increases in emissions. However, some farms will find no advantage to

joining the program because their most profitable

response will be to increase net emissions. (The structure of the incentive will influence the size of this

group of farms.) Consequently, accounting for sectoral

gains in net carbon sequestration based on entities

participating in the offset program—rather than on all

entities in the sectors eligible for offset—will tend to

overstate the sequestration gains and understate the

true costs incurred per ton of net carbon sequestered in

the offset sectors. 

Eligibility for Sequestration Payments—

New Adopters Versus All Adopters (Including

“Good Actors”)

In terms of eligibility requirements, two payment

options relating to the additionality of carbon sequestration dominate both policy discussions and published

studies. The first option pays all farmers who practice

the activities covered by the incentives regardless of

how long they have been practicing the activities.

Hence, if a payment were offered to encourage farmers

to expand the use of—say, conservation tillage—all

farmers managing with conservation tillage would be

eligible for the payment. This option is referred to as

the “good actor” approach because it is perceived as

not penalizing farmers who undertook the desired

activity before the compensation policy was available.

The alternative “new adopters” option limits sequestration payments to farmers not engaged in the desired

land uses and production practices at the time of the

program baseline. As a result, payments only cover

additional carbon sequestration relative to the preprogram baseline.

Supporters of the good-actor payment criterion argue

that it avoids “moral hazard,” in which farmers already

engaged in desired practices revert to undesirable land

uses and production practices to qualify for incentives.

This rationale requires the assumption that it is not

possible to avoid this situation by observing and penalizing such behavior.15 Those in favor of the new-adopter

criterion argue that it does not pay farmers for having

made changes in land uses or production practices that

they previously concluded were economically rational;

instead, it limits payments to farmers who require an

additional incentive to economically rationalize the

adoption of the desired uses and practices. 

From an incentive design perspective, the newadopters criterion will generally be less costly—

perhaps significantly so—than the good-actor

criterion, particularly if the moral hazard issue can be

resolved. For example, the United States has approximately 450 million acres of privately owned cropland

and 352 million acres of privately owned grassland

(i.e., pasture or range) (Vesterby and Krupa, 2001). In

a program providing incentives to shift economically

marginal cropland to permanent grasses under the

new-adopter criterion, owners of any of the 450

million acres of cropland that shift into grasses would

be eligible for the incentive payments. Under the

good-actor criterion, not only would owners of these

acres be eligible to receive payments but so, too,

would owners of at least some of the 352 million acres

of privately owned pasture and range that remained in

those uses. The same issue could arise with providing

farmers incentives to afforest cropland and pasture, or

incentives to shift from conventional to conservation

tillage. At present, about 420 million acres of privately

owned forest land and over 100 million acres of cropland in the United States are managed with some form

of conservation tillage (Vesterby and Krupa, 2001;

USDA, ERS, 1998). 

Conceptual Framework for the 

ERS Analysis 

Due to limitations in the data available for our

analysis, we were forced to limit the scope of our

15 “Moral hazard” refers to situations where an incentive or policy

actually encourages behavior detrimental to the objectives of the

incentive or policy. The classic example is insurance, which once

obtained, reduces people’s incentive to act in ways that decrease the

probability of incurring a loss—and in the extreme, may encourage

people to act fraudulently to collect on the insurance. 
14 ● Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 Economic Research Service/USDA

analysis along several dimensions. The scope of our

analysis covers the major carbon-sequestering activities in the agricultural sector. Among the three major

agricultural GHGs, we limit our analysis to carbon.

Our analysis simulates payments offered to producers

to adopt specific carbon-sequestering land uses and

production practices: shifting cropland or grazing

land (i.e., pasture or range) to forest, shifting cropland to perennial grasses, switching from conventional to conservation tillage (particularly no-till),

shifting to carbon-sequestering crop rotations,

expanding the use of winter cover crops, and eliminating periods of summer fallow. The cropland and

grazing land activities included in our analysis represent about 80 percent of the technical carbon-sequestration potential for all management activities listed

in table 2.2. The primary reason for omitting activities from our analysis is a lack of data on the farmlevel costs of adoption. Without data on adoption

costs, we cannot assess the net returns associated

with undertaking a given activity relative to alternative production possibilities and, therefore, cannot

assess the likelihood of adoption of certain activities.

Our GHG accounting is also limited to carbon in the

agricultural sector. Consequently, our analysis does not

track leakage related to GHG emissions in response to

the program in other economic sectors (notably

forestry) or to other GHG gases (notably methane and

nitrous oxide) in agriculture. We account for farmsector carbon leakage by comparing performance of

incentives based on net sequestration, relative to those

based on gross sequestration. 

Decisionmaking in the model regarding production

activities (input mix, output choice, production technology, and crop rotation) is done at the region level,

not at the individual farm level. Consequently, net

sequestration payments are made on a sectorwide

basis, not on the basis of voluntary farm participants;

as a result, there is full symmetry in the treatment of

land-based carbon emitted or sequestered as a result of

the program. We examine the impact of different treatments of the permanence issue by designing a rental

carbon payment system to complement a carbon assetprice payment system. 
Economic Research Service/USDA Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 ● 15

Recent studies have estimated the potential farmsector impacts of strategies to increase the quantity of

carbon sequestered in agricultural soils and biomass.

Findings in these studies suggest farm-sector sequestration activities that might be economically feasible

at different prices. A review of the accounting and

modeling procedures employed in the studies reveals

how researchers have addressed permanence, C-stock

equilibrium, and leakage, and, where possible, highlights the economic implications of alternative treatments (app. 1). 

The general approach in past studies has been to

construct a hypothetical situation in which farmers

are paid to change land uses and/or production practices to store additional carbon in soils and biomass.

Most of the analyses focus on a single carbonsequestering activity. Parks and Hardie (1995), Alig

et al. (1997), Stavins (1999), and Plantinga et al.

(1999) assess the sequestration potential of

afforesting marginal agricultural lands. Antle et al.

(2001) look separately at shifting cropland to grasses

and reducing summer fallow. Pautsch et al. (2001)

focus on expanding the use of no-till systems.

McCarl and Schneider (2001) and McCarl et al.

(2003) present more comprehensive assessments in

which carbon sequestration is part of agriculture’s

larger potential to mitigate GHG emissions. In these

studies, farmers can adjust land uses, crop choices,

and management practices in ways that increase

carbon sequestration, decrease GHG emissions (i.e.,

CO2, CH4, and N2O), or increase production of

biofuel crops. 

Discussion of Past Studies

In a 1995 study, Parks and Hardie simulate a strategy

to afforest marginal agricultural lands patterned on

USDA’s Conservation Reserve Program (CRP). The

strategy assumes farmers enroll lands in year 1 for a

period of 10 years, receive a 50-percent cost-share

payment to plant trees, and receive an annual payment

to offset lost agricultural revenue. Region-specific

carbon-sequestration values for lands converted to

forests are developed by disaggregating 116.1 million

acres of private nonprime farmland deemed suitable

for forest into 433 regions, which are then linked to a

map of forest types. Sequestration is defined narrowly

to include only carbon stored in trees. Agricultural

and forest rents reflect the discounted returns to lands

in each use in each region. Thus, the decision to move

land from agriculture to forest is based on a comparison of the longrun returns in each use. 

The study is limited in its treatments of permanence,

C-stock equilibrium, and leakage. It is assumed that

10 years after agricultural lands are planted to trees,

timber production becomes the profit-maximizing

land use. At that point, farmers will maintain the

forests without additional Government payments. By

assumption, the study sidesteps the permanence

issue. Additionally, because the carbon accounting

terminates at 10 years—which is shorter than the

optimal rotation period in most regions—the study

fails to address the issue of permanence raised by

potential harvests. The 10-year timeframe of the

analysis also sidesteps the C-stock equilibrium

issue—since it takes decades for a newly planted

forest to reach a carbon equilibrium state. Finally,

because the model does not include any carbon-emitting activities that might occur in the farm or forest

sectors in response to the afforestation incentives, the

analysis does not consider the potential for agricultural- or forest-sector carbon leakage. 

Parks and Hardy present results for four scenarios

assuming an afforestation program funded at $456.2

million annually. The first two scenarios target both

cropland and pasture under the enrollment criteria of

minimizing the cost per ton of carbon sequestered

and minimizing the cost per acre enrolled (based on a

fixed per acre payment). The last two scenarios

consider the same enrollment criteria but limit enrollment eligibility to cropland. The most cost-effective

strategy bases payments directly on carbon

sequestered and has the broadest land eligibility criterion. For the two scenarios that target both cropland

and pasture, afforestation is 0.9 million acres less and

carbon sequestration is 3.3 MMT more under the

criterion of minimizing costs per ton sequestered than

under the criterion of minimizing costs per acre (app.

1). More generally, for the strategy that targets

carbon directly, the supply curve for sequestered

carbon rises gradually from a level of 18.1 MMT and

a marginal cost of $85 per mt to a sequestration level

Chapter 3: Literature Review 
16 ● Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 Economic Research Service/USDA

of 90.7 MMT and a marginal cost of $465 per MT.1

For levels of sequestration above 90.7 MMT, the

supply curve turns up sharply, suggesting an upper

limit to the amount of carbon that can be economically removed from the atmosphere by afforesting

agricultural lands.2 When afforestation incentives are

limited to cropland, enrollment and sequestration

levels drop by over 55 percent, indicating that most

afforestation would occur on lands now in pasture.

Alig et al. also analyze CRP-type incentives that

would pay farmers to shift marginal agricultural lands

to forest. Their framework—the Forest and Agricultural Sector Optimization Model (FASOM)—is an

intertemporal market and spatial equilibrium model in

which agriculture and forestry compete for the use of

land. FASOM’s forestry sector consists of nine

geographic regions and various categories reflecting

differences in product class, land ownership, forest

type, site productivity, and management intensity. The

model’s agricultural component is a version of McCarl

and Schneider’s Agricultural Sector Model (ASM).

Model simulations run for 90 years, but policy impacts

are only reported for 50 years. Producers maximize the

return to land by shifting land between agriculture and

forestry and by changing forest management intensity

(endogenous forest management decisions include

harvest age, management intensity, and forest type).

FASOM runs on a decadal time step, allowing land to

shift between agriculture and forestry every 10 years as

the relative returns to these uses change over time. It

addresses the permanence and leakage issues in that

decisions on afforestation, deforestation, and forest

management are endogenous to the model and the associated activities are tracked over time. Hence, the model

accounts for changes in the net levels of carbon sequestration that occur over the years in each simulation.

Conceptually, the C-stock equilibrium issue is reflected

in the model’s timber growth functions, although in the

simulations, forests are typically harvested before this

equilibrium is reached. In this study, sequestration

incentives are based on gross rather than net sequestration—meaning landowners are rewarded for adopting

practices that sequester carbon but are not penalized for

adopting practices that emit carbon.

Among the model’s simulations, the scenario with a

fixed carbon flux target of 1.6 gigatons per decade has a

relatively large economic impact. Over the 90-year

simulation, the present value of losses for U.S. forest

and agricultural consumers are $7.5 billion and $76.4

billion, respectively, while the present value of gains for

U.S. forest and agricultural producers are $6.6 billion

and $39.6 billion, respectively. During the first 50 years

of the simulation, many owners of private forestland

shift to earlier timber harvests, and some of this land

moves into agricultural production. Overall, 59 million

acres shift between the two sectors—with a net increase

in forest area of 19 million acres. Alig et al. conclude

that afforesting agricultural lands could be an effective

component of a national GHG-mitigation strategy, but

that the net carbon sequestration achieved will be much

overstated if the program does not account for emissions from related forest-sector responses. 

Plantinga et al. and Stavins also focus solely on the

afforestation of agricultural lands. These studies develop

econometric land-use models based on behavioral data.

The methodologies lack an explicit link between

afforestation of agricultural lands and related responses

in forest product markets but do capture the impacts of

various difficult-to-measure factors (e.g., becoming

familiar with forestry) that make decisions to shift agricultural land into forest more “sticky” than if based

strictly on maximizing expected profits. As in Alig et

al., land moves between agriculture and forestry over

time, and so these studies track changes in net carbon

sequestration as land shifts between the two sectors—

that is, they account for permanence and leakage.

Stavins bases incentives on the net carbon sequestration

from land-use decisions, while Plantinga et al. base

incentives on gross sequestration. Again, C-stock equilibrium could be addressed in the model’s timber

growth functions, but forests are generally harvested

before equilibrium is reached. 

Plantinga et al. estimate separate models for Maine,

Wisconsin, and South Carolina using data from

various years between 1971 and 1996. The dependent

variables are the share of county land in agriculture

relative to the share in forest, and the share of county

land in other uses relative to the share in forest. Independent variables include agricultural rents per acre

(stated as the present discounted value of all net

1 The figures $85 and $465 are obtained by setting T=20 tons (i.e.,

18.1 mt) and T=100 (i.e. 90.7 mt), respectively, in the MC equation

in Parks and Hardie (p. 130) and dividing the results by 0.8051 (to

convert to 1997 dollars). 

2 We do not mean to imply here that any particular level of

sequestration is economical. Only that the shape of the MC curve

implies an upper limit to quantity of carbon that would be 

economical to sequester. 
Economic Research Service/USDA Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 ● 17

returns from agricultural uses over the simulation

period), forest rents per acre (stated as the present

discounted value of timber revenues), population, and

land quality. Afforestation incentives are again

patterned on the CRP and offer landowners annual

payments to convert agricultural lands to trees for a

period of 10 years starting at the beginning of each

decade. Simulations start in 2000 and run for 60 years.

Although not included in the simulation, program

costs are adjusted to reflect a one-time tree establishment payment. 

Results are presented for four scenarios reflecting

different assumptions about population growth, timber

harvest, and payment structure. Across scenarios and

regions, results indicate that the marginal cost of

carbon sequestration increases almost linearly with the

level of sequestration. Marginal costs are generally

lowest when population is held constant, sequestration

payments are uniform across States, and harvesting is

not allowed on enrolled lands. For this scenario and a

payment of $45.09 per mt carbon, the States would

have total sequestration of 1.36 MMT (Maine), 12.89

MMT (South Carolina), and 27.22 MMT (Wisconsin)

(with future sequestration discounted at 5 percent).3 At

the same payment level but allowing for timber

harvests, the discounted sequestration levels decrease

to 1.04 MMT (Maine), 11.53 MMT (South Carolina),

and 22.69 MMT (Wisconsin). 

Stavins models the shares of county land in forest and

in agriculture as functions of agricultural rents, farm

production costs, existing forest area, conversion costs,

and net returns to forestry. The model is estimated

with panel data for 36 parishes/counties in Louisiana,

Arkansas, and Mississippi covering the period 1935-

1984. Model simulations run for 90 years, and the

sequestration incentives include a payment for

afforestation and a charge for deforestation. 

For the three Delta States, Stavins finds that the

marginal cost of sequestering carbon rises gradually to a

sequestration level of about 6.35 MMT per year. At this

level, the marginal cost of sequestration is about $79.86

per mt, net afforestation is 4.6 million acres, and the

carbon payment/charge is about $109.81 per acre.

Marginal costs rise steeply for sequestration levels

above 6.35 MMT annually, becoming nearly asymptotic

at about 14.52 MMT per year. Stavins concludes that

sequestration would be competitive with abatement at

lower levels of net emissions reduction. 

Shifting from afforestation, Antle et al. and Pautsch et

al. assess the economic feasibility of paying farmers to

sequester carbon in agricultural soils by eliminating

fallow periods from crop rotations, expanding grasslands, and increasing the use of no-till systems. The

methodologies differ from the afforestation studies in

two key respects. First, the geographic scopes are

smaller—Pautsch et al. is limited to Iowa and Antle et

al. focus on a subregion of Montana. Second, the crop

production models used in these works are estimated

with field-level data, which precludes these frameworks from comparing sequestration opportunities

across regions. Still, the use of field-level data allows

site-specific factors—or spatial heterogeneity—to be

considered in the design and evaluation of incentives

to encourage farmers to adopt the desired land uses

and production practices.

Neither Antle et al. nor Pautsch et al. explicitly

addresses C-stock equilibrium, leakage, or permanence. The studies omit the C-stock equilibrium issue

because the timeframes of the scenarios are less than

the period needed for most of the affected lands to

reach new carbon equilibrium levels. Leakage is

omitted because all land-management changes reflect

changes to carbon-sequestering uses or practices.

Regarding permanence, both studies implicitly assume

that farmers continue the new land uses or production

practices when the payments end. 

Antle et al. assess the potential costs of paying farmers

in Montana’s dryland grain region to sequester carbon

by switching from crop-fallow to continuous cropping

rotations and by shifting cropland into permanent

grass. The study analyzes each activity separately. In

the scenarios, farmers commit to maintaining the new

land use or production practice for a period of 20

years. Antle et al. develop econometric production

models for wheat, barley, and permanent grass in both

continuous crop and crop-fallow rotations using 1995

data for 425 farms and 1,200 fields. These models are

then incorporated into a producer-decision framework

that allocates land among the different rotations in

response to payments to switch additional land to

continuous cropping or permanent grasses. The study

estimates changes in soil carbon by running the land3 These dollar and sequestration values were obtained from the

graphs in Plantinga et al. (pp. 820-21). We convert the results—

presented in 1995 dollars and short tons—to 1997 dollars and 

metric tons. 
18 ● Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 Economic Research Service/USDA

use changes obtained in the model simulations through

the Century crop-ecosystem model. 

Three findings in Antle et al. are especially noteworthy.

First, eliminating fallow periods appears to be a costeffective method of carbon sequestration while

expanding grasslands does not—at least in eastern

Montana. Over a 20-year simulation, sequestering about

7 MMT of carbon by expanding grasslands requires an

annual rental payment of $51.77 per acre and costs the

Government $3.15 billion (not discounted). By contrast,

sequestering the same amount of carbon by increasing

continuous cropping requires an annual payment of

$4.14 per acre and costs the Government $206.34

million (again, not discounted).

Second, a comprehensive GHG-mitigation strategy can

include activities that sequester relatively small amounts

of carbon but at a very low cost. At the highest payment

level, switching from crop-fallow rotations to continuous cropping sequesters less than 19 MMT of carbon

over the 20-year simulation. While this amount represents only a fraction of the sequestration potential of

afforestation, two-thirds, or about 12 MMT, could be

captured for an annual payment of $8 per acre. 

Finally, for a given activity, the cost of sequestering

carbon can vary significantly within a region due to

site-specific biophysical and economic characteristics.

Across locations in the study area, the marginal cost of

sequestering carbon ranges from $51.15 to $511.51 per

mt in the permanent grassland simulation and from

$12.28 to $143.22 per mt in the continuous cropping

simulation. While it is difficult to account for differences among fields and farms in national agricultural

sector models, policymakers should note the potential

for cost savings if sequestration incentives are

designed with flexibility to take advantage of heterogeneity among locations in each region. 

Pautsch et al. examine the cost of paying farmers in

Iowa to expand use of no-till systems under alternative

payment and program eligibility structures. Payment

schemes include a uniform per acre payment and a

variable per acre payment based on the amount of

carbon sequestered. Program eligibility options include

paying all users of no-till systems and limiting

payments to new adopters. 

Using field-level soil and weather data, county-level

crop yield data, and State-level price and cost data,

Pautsch et al. develop an econometric model in which

the probability of adopting no-till is a function of net

returns to conventional tillage, local soil characteristics, and regional temperature and precipitation variables. Production possibilities include 14 rotations

consisting of mixes of corn, soybeans, wheat,

sorghum, and hay. As in Antle et al., the changes in

area under no-till are fed into a biophysical model to

estimate changes in soil carbon. 

Two findings in Pautsch et al. highlight the importance

of payment structure and eligibility criteria in determining the costs associated with incentives to increase

the quantity of carbon stored in agricultural soils. First,

the average cost per metric ton of carbon sequestered is

lower when per acre payments to adopt no-till are based

on carbon sequestered rather than set at a fixed level.

Parks and Hardie also support this finding, but to a

lesser degree; in Pautsch et al., the average cost per unit

sequestered is about four times lower under the pricediscriminating structure than under the fixed payment

structure. Second, cost savings are considerable when

eligibility is limited to new adopters. In this analysis,

paying all farmers who typically use no-till doubles the

average cost per unit of carbon sequestered relative to

paying only new adopters. 

McCarl and Schneider expand the focus beyond a single

carbon-sequestering activity, developing a comprehensive GHG-mitigation strategy that pays farmers to

change land uses, crop mixes, crop-management practices, and livestock-management practices in ways that

increase carbon sequestration, decrease GHG emissions

(i.e., CO2, CH4, or N20), or increase biofuel crop

production. Their ASMGHG model—a market and

spatial equilibrium mathematical programming framework—depicts production and consumption in 63 U.S.

regions for 22 traditional crop commodities, 3 biofuel

crops, 29 livestock commodities, and more than 60

processed agricultural products. In responding to relative changes in input prices, farmers can adjust tillage,

fertilization, irrigation, manure treatment, and feed

mixes. The study uses the biophysical Environmental

Policy Integrated Climate (EPIC) model to calculate

changes in carbon sequestration associated with changes

in crop management activities. Thirty-year simulations

of FASOM (see Alig et al., 1999) provide data on land

shifting from agriculture to forestry and the associated

quantities of carbon sequestered. Changes in emissions

associated with livestock management are based on

EPA data. 

McCarl and Schneider simulate ASMGHG with

carbon valued at $0.0 (i.e., the baseline), $9.60,
Economic Research Service/USDA Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 ● 19

$48.10, $96.20, and $480.80 per MT.4 These values

are treated as a subsidy when farmers switch to activities that reduce GHG emissions and a charge when

farmers change to activities that increase emissions.

By design, the framework pays farmers only for the

net GHG mitigation that results from their response 

to the full set of incentives. Additionally, the link

between the agricultural and forestry sectors allows

ASMGHG to reflect the forest sector’s response to the

afforestation of agricultural lands—at least in the long

run. Hence, the framework explicitly accounts for

carbon leakage through forest-sector activities. While

McCarl and Schneider do not explicitly address the

permanence and C-stock equilibrium issues, they

adapt the framework to address these issues in McCarl

et al. (2003). 

For carbon valued at $9.60, $48.10, $96.20, and

$480.80 per MT, net carbon sequestration is, 51.80,

146.40, 238.50, and 395.50 MMT, respectively, while

net GHG mitigation is equivalent to 53.90, 154.10,

255.70, and 425.90 MMT of carbon, respectively.

McCarl and Schneider conclude that paying farmers to

sequester carbon, reduce GHG emissions, and increase

biofuel crop production would positively affect farmers

and negatively affect U.S. consumers. For carbon valued

at $9.60, $48.10, $96.20, and $480.80 per MT, farm

welfare increases $ 0.40, $4.30, $13.40, and $76.90

billion, respectively, while U.S. consumer welfare

decreases $0.40, $5.20, $18.50, and $104.60 billion,

respectively. More generally, at low carbon prices soil

carbon sequestration, afforestation, and CH4 / N2O

emissions reduction dominate GHG-mitigation activities. At high carbon prices, the dominant mitigation

activities are afforestation and biofuel production.

Regardless of the value assigned to carbon, CH4 and

N2O emissions reduction activities make a relatively

small contribution to GHG mitigation.

More recently, Jones et al. (2002) and McCarl et al.

(2003) identified approaches for treating permanence

and C-stock equilibrium in static models that do not

implicitly assume sequestration is permanent.5 As

described in chapter 2 of this report, this approach

employs a series of annual payments based on a payas-you-store principle. In essence, a discount—based

on the length of the contract period for carbon sequestration and the choice of discount rate—is applied to

the value of a unit of emissions reduction to determine

the value of a unit of carbon sequestration during the

contract period. Our analysis also employs this

approach to valuing sequestered carbon. 

Conclusions

Differences in scope (including geographic region,

sector, activity, and GHG coverage), methodology, and

underlying assumptions make it difficult to directly

compare the results of previous studies of the economic

potential to sequester carbon in agriculture. Recognizing

these limitations, however, the literature does provide

some insights regarding carbon-sequestering land uses

and production practices that may be competitive at

different carbon prices and the levels of carbon that

might be sequestered at those prices. Additionally, the

studies reveal how researchers have addressed permanence, C-stock equilibrium, and leakage. 

Taken collectively, the studies reviewed here suggest

that the farm sector’s economic potential to sequester

additional carbon is significantly less than amounts

deemed technically possible in soil science-based

assessments. For example, for the United States as a

whole, the studies cited in table 2.2 estimate the technical potential for sequestering carbon at 35-107 MMT

per year for expanding conservation tillage and 6-18

MMT per year for eliminating summer fallow and

changing rotations. In contrast, for expanding no-till in

Iowa, Pautsch et al. estimate the cost of sequestering 1

MMT of carbon at about $200 per MT. On the

national scale, McCarl and Schneider estimate the

maximum economic potential of about 70 MMT per

year for all farm-sector soil management activities at a

carbon price of $500 per MT. 

The most noteworthy divergence between soil science

and economic assessments concerns conversions of

cropland to permanent grasses. From a national

perspective, Eve et al. (2000) estimate the technical

potential of converting cropland to grassland at

between 26 and 54 MMT of carbon per year. In

contrast, economic assessments by Antle et al. and

McCarl and Schneider find that sequestering carbon

via this land use change would not be competitive with

other carbon-sequestering activities. 

4 Money values in McCarl and Schneider are in 2000 dollars. We

have converted their values to 1997 dollars. To obtain the values

reported in McCarl and Schneider, multiply the values reported

here by 1.04. 

5 The Jones et al. citation refers to a presentation at the Forestry and

Agriculture Greenhouse Gas Modeling Forum in Shepherdstown,

WV (October 9-11, 2002). This presentation and the paper by

McCarl et al. are not included in appendix 1 because of similarities

to, respectively, the present analysis and McCarl and Schneider. 
20 ● Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 Economic Research Service/USDA

The published studies indicate that the most cost-effective mix of carbon-sequestering activities will depend

on the level of carbon payment offered—or equivalently, the target quantity of total sequestration to be

achieved by the program. Across studies, changes in

production practices—such as expanding no-till and

shifting to carbon sequestering rotations—dominate

farm sector responses at very low payment levels.

Afforestation becomes the dominant sequestration

activity at a carbon payment between $20 and $100

per MT, depending on the specific features of the

context modeled. McCarl and Schneider, the one study

that considers multiple GHGs, finds that CH4 and N2O

emissions reduction activities become feasible as

carbon payments approach $50 per MT. Above

payments of $100 per mt, additional emissions reductions from these activities become very limited at any

price. McCarl and Schneider also find that production

of biofuel crops starts to become economically attractive at a payment of about $50 per mt and joins

afforestation as a dominant GHG-mitigation activity at

payments above $75 per mt. 

The treatment of permanence, C-stock equilibrium,

and leakage in previous studies is noteworthy for

several reasons. First, the finite time period for annual

increments to the carbon stock in agricultural soils is

generally sidestepped, without comment. In the

predominant static frameworks, the sequestration

programs generally end before affected soils or forests

reach their new carbon equilibrium levels. The longrun

dynamic models employed for forestry explicitly

address the issue because they typically incorporate a

carbon-stock accumulation function by age of timber. 

Treatment of permanence varies in previous studies.

Studies that employ dynamic frameworks generally

track changes in net carbon storage over time;

however, some of the forestry modeling has not

employed negative charges for emissions from terrestrial storage. In dynamic models, permanence can be

incorporated in sequestration incentives by paying

landowners when they switch to land uses or production practices that sequester carbon and charging them

when they switch to uses and practices that emit

carbon. In static models, permanence can be accounted

for by using the rental price for a specified commitment period, derived from the full asset value

employed for permanent sequestration. In our analysis,

which employs a static model, we follow this approach

to account for the temporary nature of carbon sequestration in the design of sequestration incentives. 

The literature also varies in the treatment of leakage.

By design, models that are limited to a single land use

or production practice cannot account for leakage

related to changes in other land uses or production

practices. Similarly, single-sector models cannot

account for leakage related to changes in land uses or

production practices in other economic sectors. Past

farm sector studies (Parks and Hardie, Antle et al., and

Pautsch et al.) have generally focused on a single

carbon-sequestration activity, and the carbon

accounting has not included activities outside of the

incentive program to check for leakage. With such

limited coverage of activities, the potential for leakage

from other activities in agriculture or forestry is great.

In contrast, the forestry literature, which uses dynamic

longrun models in which agriculture and forestry are

linked via competition for land (Alig et al., Stavins,

and Plantinga et al.), has examine the issue. These

studies generally find that forest sector responses to

farm sector carbon sequestration incentives can be an

important source of leakage—particularly at higher

carbon payment levels. 

Our framework is limited to the agricultural sector, but

it does account for the net effect on sequestered carbon

after farmers have adjusted for land-use changes

among crop, grass, or forest land and for a variety of

crop land-management practices. It does not, however,

capture forest-sector leakage, so we acknowledge the

potential for upward bias in our sequestration results

relative to a full accounting of the agriculture and

forestry sectors. With respect to past studies, we note

that the magnitude of forest-sector leakage is critically

linked to assumptions previous researchers have

employed regarding the longrun (50-100 years) time

paths of income growth, population growth, technological change, price expectations, and consumer preferences. Different assumptions about the longrun time

paths of these variables can have very different implications for the longrun demand for land in the two

sectors and thus very different implications concerning

potential leakage. 

Finally, researchers to date have formulated hypothetical incentives—often based on those in USDA’s

CRP—which are then incorporated into economic

models and simulated for various exogenously specified carbon payments. The result is to trace out

scenario-specific supply curves for sequestered carbon.

Our analysis will also trace out a farm-sector supply

curve for sequestered carbon. 
Economic Research Service/USDA Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 ● 21

The empirical framework for this study, the U.S. Agricultural Sector Model (USMP), is a spatial and market

equilibrium model built to assess a wide range of

economic, environmental, and policy issues of interest to

U.S. agriculture. USMP simulates farm-sector impacts

resulting from changes in commodity market conditions,

agricultural technologies, and Government policies

related to commodity production, resource use, environmental quality, and trade. Because adjustment paths are

not modeled, USMP simulation results are properly

interpreted as a comparison between an initial baseline

and a new medium-run equilibrium state.1

USMP can be used to carry out analysis relative to any

base year between 1988 and 2010 inclusive. Simulations begin by calibrating the model’s acreage, tillage

practice shares, domestic production, domestic

consumption, imports and exports, input and output

prices, and corresponding spatial information to the

desired historical year or to approximate conditions in a

USDA baseline year.2 In response to changes in farm

policy or market conditions, the model endogenously

determines new equilibrium levels of its variables after

all output and input markets have fully adjusted. Agriculture’s response to price changes involves all

producers adjusting their input use, output choices, and

production levels such that the marginal value of

product produced per unit of input equals the marginal

input cost for all inputs and the net returns to the last

units of production are equal across all commodities. 

Reported farm-sector impacts include changes in

regional commodity production, national commodity

prices, national commodity consumption, use of production inputs, farm income, agricultural producer and

consumer surplus, participation in Government

commodity programs, Government program expenditures, and environmental indicators.3 The model is

linked with regularly updated USDA production practices surveys (USDA, ERS, 1992; and USDA, NASS,

1996), the USDA multiyear baseline, and geographic

information system databases, such as the National

Resources Inventory (NRI) (USDA, NRCS, 1994).

USMP depicts the U.S. farm sector in considerable

geographic, commodity market, and production-enterprise detail (fig. 4.1, table 4.1). The model disaggregates the 48 contiguous States into 45 regions defined

by the intersection of the 10 USDA farm-production

regions and 26 land-resource regions. Crops include

corn, sorghum, oats, barley, wheat, rice, cotton,

soybeans, hay, and silage. Collectively, these 10 crops

account for about 75 percent of the value of U.S. agricultural production (USDA, OCE, 1999).4 USMP also

includes 16 primary livestock commodities (the most

important being dairy, swine, beef cattle, and poultry)

and over two dozen processed and retail products

(including dairy, pork, fed beef, nonfed beef, poultry,

soy meal, soy oil, and livestock feed). With respect to

enterprise management, USMP has nearly 1,000

production activities reflecting alternative choices of

input mixes, output choices, production technologies

(e.g., choice of tillage system), and crop rotations. The

model also includes 70 production activities that

process primary farm commodities into intermediate

and final demand products. 

USMP’s objective function is to maximize the sum of

consumer and producer surplus across all commodity

markets. The input markets for cropland, pasture land,

family labor, hired labor, and irrigation water are

modeled at the regional level with upward-sloping

supply curves—that is, input supplies increase

(decrease) when their prices increase (decrease).

Twenty-three other farm-input markets—including

fuels, fertilizers, pesticide, seed, machinery, and

custom operations—are modeled at the national level.

In national input markets, supply functions are

perfectly elastic—implying input supplies can change

without affecting input prices.5

Chapter 4: Empirical Framework

1 The elasticities that determine supply and input use changes in

USMP are medium-run elasticities.

2 The USDA Long-Term Agricultural Baseline provides annual

projections for various market variables related to U.S. agriculture

through the 2010. Detailed information about the baseline can be

obtained at USDA, OCE (2001), and at http://usda.mannlib.cornell.edu/data-sets/baseline

3 USMP is modeled in the General Algebraic Modeling System

(GAMS) as a nonlinear programming problem with solutions

obtained using the MINOS nonlinear optimizer solver. The model

consists of some 2,000 equations and 5,400 variables.

4 Due to limited production data, fruits, vegetables, and sugar are

not included in USMP. These crops are the only major commodity

groups not included in the model. 

5 Conceptually it would be straightforward to model these input markets with upward-sloping supply curves, but there is generally limited

empirical work on which to base the choice of supply elasticity.
22 ● Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 Economic Research Service/USDA

USMP production units reflect representative farm

enterprises for the relevant geographic areas (e.g., a

State or region). Hence, production activities in each

USMP region are composites of the different production techniques that are actually practiced in the particular geographic area. Production activities are

generally represented by fixed-coefficient production

functions. In the case of crop enterprises, fertilizer

inputs per acre (and their corresponding yields) are

variable coefficients. For livestock operations, the

mixes of feed input and the feed rations vary with

changes in feed grain and livestock prices (subject to

various physical requirements of the different livestock). For crop commodities, production activities are

differentiated by tillage practice, multiyear crop rotation, dryland or irrigated system, participation in

Government farm programs, and other characteristics. 

Final product markets are modeled at the national

level. On the demand side, USMP distinguishes

between the demands for domestic consumption,

export, commercial stocks, and Government stocks.

Government farm programs in USMP include production flexibility contract payments, target prices,

acreage reduction, acreage flexibility, acreage diversion, conservation reserve, and Commodity Credit

Corporation (CCC) loan programs.6 Participation in

USMP model regions

Figure 4.1

A - NW Forest, Forage, and Spec. Crops K - N. Lake States Forest and Range

B - NW Wheat and Range L - Lake States Fruit, Truck, and Dairy

C - Cal. Subtrop. Fruit, Truck, and Spec. Crops M - Central Feed Grains and Livestock

D - Western Range and Irrigated N - East and Central Farming and Forest

E - Rocky Mountain Range and Forest O - Mississippi Delta Cotton and Feed Grains

F - N. Great Plains Spring Wheat P - S. Atl. & Gulf Slope Cash Crops, Forest, Lvst.

G - W. Great Plains Range and Irrigated R - Northeast Forage and Forest

H - W. Great Plains Winter Wheat and Range S - North Atlantic Slope Diversified Farming

I - SW. Plateaus and Plains Range and Cotton T - Atlantic & Gulf Coast Lowland Forest and Crop

J - SW. Prairies Cotton and Forage U - Fla. Subtropical Fruit, Truck Crop, Range

Land Resource Regions

The model disaggregates the 48 contiguous States into 45 regions defined by the intersection of the 10 USDA farm-production regions 

and 26 land-resource regions. USMP model region nomenclature is the concatenation of abbreviations for farm production and land 

resource region, e.g., CBM is Corn Belt M, LAM is Lake States M.

Farm Production Regions

MND

CBM

MNE

MNG

STP

NTR

APN

PAD

LAK

NPF

SPH

SPI

NPH

SPJ

PAA

NPG

PAC

PAB

APP

DLP

NPM

LAM

STU

DLO

LAL

MNB

CBN

MNF

NTS

SPD

SPP

STT

DLN

STN

SPT

NTN

MNH APT

DLT

PAE

SPN

NTL

LAF

APS

CBR

SPM

CBL

NTT

CBO

APO

SPG

NPN

NT - Northeast

LA - Lake States

CB - Corn Belt

NP - Northern Plains

AP - Appalachia

SE - Southeast

DL - Delta States

SP - Southern Plains

MN - Mountain

PA - Pacific

6 Historically, not all of these programs are in effect in any 

given year. 
Economic Research Service/USDA Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 ● 23

farm programs is voluntary and is determined endogenously in response to market forces affecting the costs

and returns associated with commodity production,

participation costs, and program benefits. 

Carbon Sequestration Rates

Changes in soil-carbon levels that result from changes

in land uses or production practices are determined by

a variety of relatively local factors—including climatic

conditions, soil characteristics, historical land-use

patterns, and current management practices (Lal et al.,

1998). Data derived from field experiments are not

available in sufficient detail to account for all of these

factors across the full range of U.S. agricultural soils.

Therefore, this study uses a less precise but more

broadly applicable approach based on the IPCC

methodology for estimating the effects of changes in

land uses and/or production practices on the quantity

of carbon stored in agricultural soils (IPCC, 1997). 

Cropland Management and Land-Use 

Change to Grassland

The IPCC methodology was developed for use in

national assessments as a first-order approach to estimating changes in soil-carbon levels. It uses simple

assumptions about the effects of land use and management changes on soil-carbon stocks. The framework is

based on a 20-year inventory period and the top 30 cm

of the soil profile. The IPCC methodology also provides

guidelines and default values for estimating initial soilcarbon stocks for land in different uses as well as

changes in soil carbon levels related to changes in land

uses or production practices that occur over the inventory period. Because experimentally derived parameters

are not available for much of the United States, we

applied the default-factor values provided in the IPCC

documentation, which take into account differences in

climate, soil, disturbance history, tillage intensity,

productivity, and residue management. Estimates of

average annual sequestration rates are obtained by

subtracting soil carbon stocks at the start of the inventory period from soil carbon stocks at the end of the

inventory period and dividing the results by 20. 

Climate regions in the IPCC inventory are delineated

based on average annual temperature, precipitation, and

potential evapotranspiration. Of the eight IPCC climatic

regions, six are represented in the contiguous United

States (i.e., cold temperate moist, cold temperate dry,

warm temperate moist, warm temperate dry, subtropical

moist, and subtropical dry) (Eve et al., 2001). Soil categories in the IPCC inventory are groups of taxonomic

soil orders based on a soil’s ability to store and stabilize

organic carbon. The default IPCC guidelines contain

five categories of mineral soils and one category of

organic soils (IPCC, 1997). 

To establish a set of initial soil-carbon levels for lands in

different uses, we first derive a composite native soil for

each of the 10 farm production regions. Each of these

soils is a weighted average of all of the agricultural soils

represented in the 1997 National Resources Inventory

(NRI) data points within that region (USDA, NRCS,

2000).7 Next, based on the six representative IPCC soil

groupings, IPCC assigns each composite native soil a

native soil (i.e., undisturbed) carbon stock. The IPCC

Table 4.1—USMP commodity coverage

Farm-produced Farm-produced Processed

crops livestock products

Barley Whole farm milk Eggs

Corn Cull dairy cows for slaughter Broilers

Cotton Cull dairy cows for veal Turkeys

Hay Feeder pigs Evaporated milk

Oats Cull sows for slaughter Fluid milk

Rice Slaughter hogs Manufactured

Silage Beef feeder calves milk

Sorghum Beef feeder yearlings Nonfat dry milk

Soybeans Cull beef calves for slaughter Butter

Wheat Cull beef cows for slaughter American cheese

Cull bulls for slaughter Other cheese

Fed beef for slaughter Ice cream

Fed beef for commercial Ethanol

feedlots Soybean meal

Nonfed beef for slaughter Soybean oil

Other livestock Other oilseed

Items not otherwise specified meal

Animal protein

High-protein

beanmeal feed

Fed beef

Nonfed beef

Veal

Pork

Corn oil

Gluten meal

Gluten feed

Distillers dried

grains

Livestock feed

mixes

Source: Economic Research Service, USDA.

7 The NRI data describe soil conditions and track land-use changes

at over 800,000 locations across the United States. While aggregating these sites to the Farm Production Region level obscures significant variations among soils in each region, it does at least capture

more aggregate differences in productivity and climatic conditions.
24 ● Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 Economic Research Service/USDA

base factors (i.e., default parameters that account for the

effect of the historical land use on soil-carbon stocks)

are then used to determine initial carbon levels for soils

that have been under long-term cultivation and in longterm grasslands. 

The IPCC methodology assigns native soils a base

factor of 1.0 and soils under long-term cultivation a

base factor of 0.7 (0.6 for wetland soils). That is, the

methodology assumes that long-term cultivation

decreases native soil-carbon levels by about 30

percent. Continuous hay or pasture is not explicitly

reflected in the IPCC framework. We assume that

lands in hay or pasture will accumulate soil carbon but

will not return to their native soil-carbon levels

without improved management. Hence, the methodology assigns a base factor of 0.9 (i.e., 10 percent less

carbon than in native soils)—which is the average of

the base factor values for soils under long-term cultivation and improved pasture. Improved pasture—that

is, pasture being managed for increased biomass

production through fertilizer use, irrigation, or species

selection—is included in the IPCC with a default base

factor of 1.1 (i.e., 10 percent more carbon than soils

under native conditions).

In addition to assigning base factors, the IPCC

methodology assigns tillage factors and input factors.

tillage factors are used to estimate the longrun impacts

of tillage management on soil carbon. The default

tillage factor for conventional tillage is 1.0 (i.e., no

longrun change in soil carbon over the inventory

period). Changing from conventional tillage to no-till

is assumed to increase soil carbon by 10 percent over

the 20-year inventory period (a tillage factor of 1.1).

Reduced tillage (more than 30 percent residue

remaining at planting, but less than no-till) also

increases soil carbon but to a lesser degree than no-till.

For temperate climate zones, the IPCC tillage factor

for reduced till is 1.05. In subtropical climates, the

tillage factor values are somewhat lower. 

Input factors are used to measure longrun effects of

residue management on soil carbon. Input factor values

reflect the level of biomass input to the soil. A

crop/fallow rotation is considered low input because

residue is only being produced every second year (input

factor of 0.9). Continuous annual cropping is considered

medium input, with an input factor of 1.0. Increasing

soil residue by adding a winter cover crop or putting

hay into a crop rotation is considered high input (input

factor of 1.1). To estimate changes in soil carbon on

lands that shift from crop production to grasses, we use

the base factor for continuous pasture (i.e., we assume

these lands will return to 90 percent of their native soilcarbon levels over a 20-year period).

Given the set of initial soil-carbon conditions for lands

in different uses in each farm production region, we

apply the IPCC’s default tillage and input factors to

develop a “from-to” table showing changes in annual

soil-carbon levels associated with shifting “from” any

possible rotation-tillage system in USMP “to” another

possible rotation-tillage system (table 4.2). The “from”

management systems are assumed to have been in

place long enough for soil-carbon levels to be in a

steady state and the “to” management systems are

assumed to have been adopted for long-term use. If

land use or production practice does not change during

the inventory period, the IPCC framework assumes no

change in soil carbon. If land use or production practice does change, change in the opposite direction

results in an equal and opposite impact on soil-carbon

stocks. Because of the relatively large quantities of

potentially affected land, the values most relevant to

this analysis are the values for shifting cropland into

permanent grasses and changing from continuous

cropping with conventional tillage to continuous cropping with no-till. 

Land-Use Change to Forest

For each USMP region, we develop estimates of carbon

sequestered by afforesting agricultural lands from data

in Birdsey (1996). Birdsey disaggregates the 48

contiguous States into eight forest regions and reports

per acre carbon accumulation in forests for selected tree

species in each region.8 Carbon accumulation values are

reported in 5-year intervals from year 0 (conversion

from pasture or cropland to forest) to year 120 and

reflect fully stocked timberland under average management conditions. Carbon values are presented for trees,

soils, understory, litter, and total ecosystem.

For this analysis, we assigned to each USMP region

the tree species associated with the most geographically similar region in the Birdsey study. For regions

8 Birdsey focuses on commercially valuable species. Specifically,

southern pine in the Southeast and South Central regions, white/red

pine and fir/spruce in the Northeast and Lake State regions,

white/red pine and oak/hickory in the Central States, ponderosa

pine in the northern and southern Rocky Mountain regions, and

douglas fir and ponderosa pine in the Pacific Coast.
Economic Research Service/USDA Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 ● 25

with multiple tree species, we selected the species with

the highest value for accumulated ecosystem carbon

over the first 15 years of forest growth (i.e., the duration of our commitment period). We then took this

accumulated carbon value and divided it by 15 to

obtain an average annual rate of carbon sequestration

(table 4.2, fig. 4.2). Hence, our values for carbon

sequestered on lands shifted from cropland or pasture

to forest reflect average per acre annual sequestration

in trees, soils, understory, and litter over the first 15

years of growth. 

Economic Incentives for Carbon 

Sequestration: Basic Features for 

Each Activity

In calculating the net returns to the activities covered

by our carbon sequestration incentives (see box on

structure of incentives) we employ a 15-year contract

period for adoption of carbon-sequestrating land uses

and production practices. This timeframe follows

previous studies and is consistent with the historical

tendency to limit farmer commitment periods in

USDA conservation programs.9 We assume farmers

will participate when the net economic returns to

shifting land into the carbon-sequestering land uses or

production practices for 15 years exceed the net

economic returns of allocating land to the next most

profitable use for 15 years.10 Reflecting the mediumrun nature of USMP simulations, this calculation

reflects any price increases (or decreases) induced by

farm-sector adjustments to the incentives. 

Land-Use Change to Forest

The net value of the afforestation option will be the

sum of the sequestration payments plus the present

discounted value of the standing timber at the end of

15 years minus the costs of establishing trees. To

simplify the modeling exercise, we annualize these

benefits and costs, which allows us to capture their

collective net effect on producer decisions with a

single number. 

Our analysis does not offer the afforestation incentive

in the Southern Plains, Northern Plains, or the Mountain regions because natural conditions do not favor

forest growth throughout much of these regions. Establishing forests in these regions would require relatively

costly human interventions (e.g., fire-suppression

activities), compared with regions in which we offer

the afforestation incentive. Nor does our analysis offer

incentives to convert lands currently enrolled in CRP.

CRP objectives include reducing soil erosion,

improving water quality, and enhancing wildlife

habitat—not all of which are necessarily compatible

with increasing carbon sequestration. Including CRP

lands in our analysis would conflate the costs and

benefits associated with carbon sequestration with

those associated with the other environmental goods

and services provided by CRP (particularly in cases

where there are tradeoffs). Consequently, we focus our

carbon sequestration incentives on land currently in

crop or livestock production. 

We derived expected per acre timber quantities, prices

per 1,000 cubic feet, and per acre values of timber at

the end of the contract period by region and prior land

use from various sources (table 4.3, figs. 4.3a-b). The

timber quantities on converted pasture and converted

cropland are from Birdsey (1996). Expected timber

prices in each region reflect average prices for timber

harvested from Federal forests between fiscal years

1996-1997 and 1999-2000 (inclusive).11 The per acre

timber values are the products of the timber quantities

and their associated prices. 

Current estimates of forest-establishment costs are not

generally available for most regions of the country but

9 Conservation programs in the Farm Security and Rural Investment Act of 2002 (i.e., the 2002 Farm Act) that contain longrun

land retirements include the Conservation Reserve Program (CRP)

and the Wetlands Reserve Program (WRP). The CRP is by far the

larger program with over 33.6 million acres enrolled as of August

2001 (USDA, FSA, 2001). CRP contracts run for 10 years. WRP

enrollment is presently about 1 million acres. WRP easements run

for 30 years or perpetuity. Additionally, except in the Pacific

region, all of the forest types used in this analysis reach their maximum annual carbon accumulation rate between 15 and 20 years.

Differences in the 15- and 20-year rates, however, are typically less

than 0.25 mt per acre per year. Given these marginal differences

and the demonstrated preference for shorter land-retirement programs, we selected 15 years as the length of our contract period. 

10 To be more precise, USMP does not operate strictly on the basis

of profit maximization. It also includes a set of parameters that

reflect the “stickiness” of decisionmaking regarding choices of

rotations and tillage systems, in response to changes in costs and

returns. That is, these parameters dampen what otherwise might be

large-scale shifts in input use and/or commodity production in the

model when costs or returns change by very small amounts but

certain economic thresholds are crossed. 

11 These prices are available on the U.S. Forest Service website:

http://www.fs.fed.us/land/fm/s_h/s_hindex.htm
26 ● Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 Economic Research Service/USDA

Table 4.2—Selected carbon-sequestration rates by USMP region, for changes in land use or 

production practice

Region From cropland From pasture From CAC* From conventional till Forest species

to forest to forest to grassland to conservation till planted (for afforestation)

—————— Metric tons per acre per year —————

Appalachia/ N 1.724 1.028 0.383 0.134 Southern pine

Appalachia/ P, S, and T1.573 0.938 0.383 0.134 Southern pine

Corn Belt/ L, M, N, O0.938 0.847 0.491 0.170 White/red pine

Corn Belt/ R 1.210 1.119 0.491 0.170 White/red pine

Delta States 1.724 1.028 0.506 0.178 Southern pine

Lake States 1.331 1.240 0.425 0.150 White/red pine

Mountain States** 0.249 0.085 --

Northeast 1.210 1.119 0.384 0.134 White/red pine

Northern Plains** 0.378 0.134 --

Pacific States/A and D0.817 0.877 0.312 0.109 Douglas fir

Pacific States/B, C, and E0.786 0.726 0.312 0.109 Ponderosa pine

Southeast 1.573 0.938 0.329 0.113 Southern pine

Southern Plains** 0.394 0.138 --

Note: See figure 4.1 for USMP regions.

* Continuous annual cropping (CAC) reflects use of conventional tillage and moldboard plow. Depending on the region, CAC includes

some combination of soybeans, corn, sorghum, silage, oats, wheat, barley, peas, barley, and rice. Sequestration values are generally 

lower for rotations with cotton or fallow periods and higher for rotations with hay.

** Our analysis does not offer afforestation incentives in these regions.

Sources: IPCC inventory method for cropland and grassland carbon levels (IPCC, 1997); Birdsey (1996) for forest carbon levels.

See text for detailed explanation.

Metric tons/year

Note: See figure 4.1 for USMP regions.

CAC = continuous annual cropping.

Sources: IPCC inventory method for cropland and grassland carbon levels (IPCC, 1997); Birdsey (1996) for forest carbon levels. 

See text for detailed explanation. 

Selected carbon sequestration rates by USMP region, for changes in land use or production practice

Figure 4.2

Appalachia/N

Appalachia/P,S, and T

Corn Belt/L,M,N,O

Corn Belt/R

Delta States

Lake States

Mountain States

Northeast

Northern Plains

Pacific States/A & D

Pacific States/B,C, & E

Southeast

Southern Plains

0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

Cropland to forest Pasture to forest CAC to grassland Conventional till to no till
Economic Research Service/USDA Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 ● 27

Table 4.3—Estimated quantities and values of timber per acre at end of 15-year carbon sequestration 

program, by farm-production region

From cropland From pastureland

Region Price Timber quantity Timber value Timber quantity Timber value

$/1,000 cu. ft. 1,000 cubic feet Dollars 1,000 cubic feet Dollars

Appalachia 790.18 1.295 1,023.28 0.634 500.97

Corn Belt 485.24 .461 223.70 .461 223.70

Delta 790.18 1.293 1021.70 .632 499.39

Lake States 485.24 .644 312.99 .644 312.49

Northeast 485.24 .522 253.30 .522 253.30

Pacific 696.92 .295 205.59 .443 308.74

Southeast 790.18 1.295 1023.28 .634 500.97

Note: Quantities and dollar values are per acre.

Sources: Timber quantity source is Birdsey (1996). Timber prices source is http://www/fs.fed.us/land/fm/s_h/s_hindex.htm.

Prices reflect average prices for timber harvested from Federal forests between fiscal years 1996-1997 and 1999-2000 (inclusive).

Source: Birdsey (1996).

Estimated quantities of timber per acre at end of 15-year carbon sequestration program, 

by farm-production region

Figure 4.3a

Timber quantity on converted cropland Timber quantity on converted pasture

Appalachia Corn Belt Delta States Lake States Northeast Pacific States Southeast

0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1,000 cubic feet

Prices reflect average prices for timber harvested from Federal forests between fiscal years 1996-1997 and 1999-2000 (inclusive).

Source: http://www/fs.fed.us/land/fm/s_h/s_hindex.htm

Estimated values of timber per acre at end of 15-year carbon sequestration program, 

by farm-production region

Figure 4.3b

Timber value on converted cropland Timber value on converted pasture

Appalachia Corn Belt Delta States Lake States Northeast Pacific States Southeast

0

200

400

600

800

1,000

1,200

$/acre
28 ● Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 Economic Research Service/USDA

are published biannually for the South. The total cost

of seedlings, prescribed burning, and hand planting in

the Southeast in 1998 averaged about $93.29 per acre

(DuBois et al., 1999). To estimate regional forestestablishment costs, we used State-level data on the

value and quantity of timber harvested from National

Forests in 1998 (USDA, FS, 1999) to derive a share of

harvest-weighted timber price for each farm production region and then also for the Southeast as defined

by the Forest Service. To generate estimates of forest

establishment cost differentials for each region, we

divided the farm production region prices by the Forest

Service Southeast region price; these ratios were

multiplied by the Southeast cost estimate of $93.29 to

obtain an estimated forest-establishment cost in each

farm production region. 

Land-Use Change to Grasslands 

The net value of the grassland-conversion option will

be the sum of the annualized sequestration payments

net of the sum of annualized grassland establishment

costs. In our simulation scenarios, we assume no

revenue from the sale of co-products, such as forage or

hunting opportunities, for lands converted to permanent grass.12 All cropland is considered eligible for

conversion to grasses. Pasture land, which has the

same carbon-sequestration rates as grassland in our

carbon-sequestration methodology, is not eligible for

conversion. Again, our analysis does not allow incentives to convert grasslands enrolled in the CRP. Estimates of grassland-establishment costs are based on

CRP data. Estimates of the carbon-sequestration rates

that provide the basis for the incentive payments are

based on the IPCC inventory methodology. 

Structure of Carbon Sequestration Incentives in USMP Simulations

Generic features

● Farmers commit to adopt carbon-sequestering

land uses and production practices for 15 years.

Commitment period begins in 2010.

● Sequestration payments are only offered for

bringing new lands into forests, grasses, or carbon-sequestering production practices. Hence,

forest land that stays in forest, grassland that

stays in grass, and cropland that is in, and

remains in, no-till count for zero additional

sequestration.

Afforestation

● Establishment costs—annualized over 15 years.

● Value of standing timber at the end of 15 years. 

● Payment for carbon sequestered.

● Ineligible lands: Southern Plains, Northern Plains,

or Mountain regions (throughout much of these

regions, natural conditions do not favor forest

growth). 

● No double enrollment in CRP. 

Land-use change to grassland

● Establishment costs—annualized over 15 years

(estimates based on CRP data).

● No value from sale of co-products (not used by

livestock for forage).

● Payment for carbon sequestered.

● Eligible land: all cropland in all regions. 

● No double enrollment in CRP. 

Changing production practices (i.e., adopting conservation tillage on carbon-sequestering rotations)

● Costs of production by rotation and by tillage 

system.

● Revenue from sale of crops (reflecting potential

yield/acre effects).

● Payment for carbon sequestered.

● Eligible land: all land in all regions where conservation tillage or carbon-sequestering rotations are

currently practiced.

12 This assumption is consistent with the CRP, which limits (and

until 2002 generally prohibited) grazing or haying on enrolled

lands. Allowing lands covered by this incentive to be grazed or

hayed would make this incentive more attractive to landowners. It

would also, however, require that we specify how these lands are

managed—since management practices would affect the net

sequestration achieved. Given the example of the CRP, and the

finding in Antle et al. (2001) and McCarl and Schneider (2001)

(see chapter 3 in this report) that this land-use change would not

be competitive with other carbon-sequestration activities, we simplify our analysis and omit co-products on croplands converted to

grasses.
Economic Research Service/USDA Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 ● 29

Cropland Management

For each cropland-management activity that receives a

sequestration payment, the net value of the option to

the farmer will be the expected net revenue from the

sale of crops (reflecting any changes in yields or

acreage) plus the annualized payment for net carbon

sequestration minus the baseline net revenue of

production. For each activity, eligible lands include all

lands in regions where that activity is currently practiced. Again, estimates of the carbon-sequestration

rates that provide the basis for the incentive payments

are based on the IPCC inventory methodology. 

Model Baseline and 

Simulation Scenarios

Our carbon-sequestration incentives are assumed to

begin in 2010. To establish the baseline scenario, we

calibrate USMP to approximate the supply, demand,

production, acreage, tillage, Government program,

input cost, and other conditions projected in the USDA

baseline for 2010.13 Simulation results should be interpreted as reflecting differences relative to 2010, when

there are no new incentive programs targeting carbon

sequestration. To trace out the marginal cost curve for

sequestered carbon, we run each scenario with six

alternative payment levels—these payments are based

on the assumption that the value of a metric ton of

carbon emissions reduction is $10, $25, $50, $75,

$100, and $125.14 Each year during the contract

period, participants are paid for the additional metric

tons of carbon they sequester that year.

With USMP calibrated to reflect the agricultural-sector

conditions projected in the USDA baseline for 2010,

we simulate four alternative incentive scenarios (see

box on simulation scenarios). In scenario 1, our reference scenario, carbon payments are for carbon rental,

compensating for storage during the commitment

period only. The incentive program covers a 15-year

contract period. At the 5-percent discount rate

employed in the analysis, 15 years of storage is equivalent to 0.354 times the “full” asset value for carbonemissions reduction (see table 2.5). Hence, for carbon

emissions reductions valued at $10, $25, $50, $75,

$100, and $125 per metric ton, payments to farmers

for 15 years of storage are $3.54, $8.85, $17.70,

$26.55, $35.40, and $44.25, respectively, per mt of

carbon sequestration. (For permanent storage, the

present discounted value of the total payments farmers

will receive under the rental payment format will equal

the full asset value of permanent carbon sequestration

paid at the time the carbon was put in storage.) For

purposes of clarity, in comparing the results of

different scenarios, we will refer to the six payment

levels in terms of the full asset value of emissions

reductions or permanent carbon sequestration—that is,

$10, $25, $50, $75, $100, and $125 per metric ton. 

Another key feature of scenario 1 is that payments

reflect net carbon sequestration. In other words, the

farm sector is credited for changes in land uses and/or

practices that sequester carbon and is debited for

related changes in land uses and production practices

that increase carbon emissions. Scenario 1 serves as a

reference scenario because of its incentive structure: It

accounts for the permanence issue (it pays only for the

13 Calibration of USMP to the USDA baseline projections for 2010

is not exact. The differences between prices and quantities in

USMP’s 2010 baseline and the USDA’s 2010 estimates for most

commodities are less than 1 percent. The major exceptions to this

are for beef, pork, and dairy where USMP price and quantity values more closely approximate the USDA’s estimates for 2005.

14 In our analysis, carbon payment levels are set exogenously and

provided to USMP as given. The range of payments analyzed was

chosen to be consistent with the payment levels considered in previous studies. 

Summary of Simulation Scenarios

Scenario 1: Reference scenario.

Rental payment for net sequestration during

contract period only, with no cost-share 

supplement. 

Scenario 2: A common approach to permanence in

the early literature.

Asset-value payment (assuming permanent

sequestration) for net sequestration, no costshare supplement. 

Scenario 3: A standard feature of USDA conservation subsidy programs.

Rental payment for net sequestration, with costshare supplement.

Scenario 4: Exploring the potential for emissions

“leakage” within cropland management.

Rental payment for gross sequestration, no costshare supplement.
30 ● Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 Economic Research Service/USDA

value of sequestration occurring during the commitment period), it accounts for farm-sector leakage (it

pays only for net sequestration), and it is consistent

with the C-stock equilibrium issue (again, it pays only

for the value of sequestration occurring during the

commitment period).

Scenario 2 employs an incentive structure similar to

structures employed in many previous studies (app. 1).

Specifically, rather than receiving rental payments

covering storage during the contract period only,

farmers receive full payments for permanent storage.

As in scenario 1, farmers receive payments when the

carbon is added to the soils or biomass, and farmers

are paid only for net sequestration. 

The payment structure in scenario 2 implicitly assumes

that any sequestering activity that receives a payment

is permanent. Still nothing prevents farmers from

reverting to carbon-emitting land uses and production

practices when their contracts expire. In this case,

society would receive less carbon sequestration—and

emissions offsets—than it paid for. Specifically,

society would pay for permanent carbon storage but

receive a sequestration stream in which the carbon

sequestered in year 1 is stored for 15 years, the carbon

sequestered in year 2 is stored for 14 years, and so

forth until year 15, when the incremental carbon

sequestered is stored only for 1 year. 

On the other hand, the sequestration outcomes of the

rental program are independent of the assumption

about permanence. If sequestration is maintained

permanently, farmers will ultimately receive the same

present discounted value of sequestration payments. A

comparison of the costs between scenarios 1 and 2

provides insights on the cost effectiveness of implementing carbon sequestration incentives based on the

assumption of permanence, if that assumption turns

out to be faulty.15

Scenario 3 reverts to the rental payment structure but

adds a 50-percent cost-share payment to help

landowners offset the startup costs of the desired

land-use changes—that is, afforesting cropland or

pasture and converting cropland to grasses.16 We

include this scenario because USDA conservation

programs often include cost-share assistance to help

farmers establish conservation practices. For

example, the CRP allows for a 50-percent cost-share

payment to help landowners cover tree-establishment

costs in afforestation agreements, in addition to the

annual land rental payment. Hence, scenario 3 will

provide insights on the cost effectiveness of adding a

cost-share payment to the annual per ton carbon

payment for different levels of carbon payments. To

simplify the modeling, we annualize the value of the

cost-share payment for the afforestation activity and

add it to the yearly per ton payment and the annualized end-of-program timber value. Payments are

again based on net sequestration. 

Scenario 4 drops the cost-share provision and keeps

the rental payment structure but offers payments for

gross sequestration rather than net sequestration. In

other words, the per ton carbon payments credit

farmers for changes in land uses and/or practices that

sequester carbon but do not penalize them for related

changes in land uses and production practices that

increase carbon emissions. With this scenario, we can

explore the potential for farm-sector carbon leakage

related to activities that farmers undertake in

response to, but which are not included in, the

sequestration incentive set. These activities include

switching lands under conventional tillage to no-till

while simultaneously switching to conventional

tillage on land currently under no-till, or shifting

lands into trees or grasses while simultaneously

bringing idle land into production. 

15 The differential costs of using this payment system when the

true assumption is one of permanence most likely will be reflected

in a different time path of transaction costs because payments will

be made throughout the full storage period, rather than simply in

the years in which carbon is accumulating. The result is likely to

be higher total transaction costs.

16 Historically, USDA has not provided farmers with cost-share

payments for changes in production practices. Hence, our analysis

does not consider cost-share payments for changes in tillage practices or rotations. 
Economic Research Service/USDA Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 ● 31

Empirical results were obtained from running USMP

under the four farm-sector incentive scenarios for

carbon sequestration described in chapter 4 of this

report. Tables 5.1-5.4 detail selected results for the

four simulation scenarios that capture alternative

designs for carbon-sequestration incentives. Results of

the simulation scenarios represent changes relative to

the 2010 baseline, that is, they reflect impacts beyond

those that would occur in a 2010 world with no new

carbon sequestration incentives. 

Scenario 1: Rental Payment for Net

Sequestration, No Cost-Share—

Reference Policy Scenario

Table 5.1, scenario 1 suggests that U.S. agriculture has

significant economic potential to store additional

carbon—although the amounts sequestered are well

below the levels estimated to be technically possible in

soil science studies (see table 2.2). For permanent

sequestration valued at $10, $25, $50, $75, $100, and

$125 per mt, farmers receive rental payments of $3.54,

$8.85, $17.70, $26.55, $35.40, and $44.25 per mt of

carbon sequestered during the 15-year contract period.

[Remember, if they were to sequester the carbon

permanently, the present discounted value of their

receipts would be the full asset value for permanent

sequestration per ton.] At these carbon prices, the farm

sector is estimated to sequester 0.4, 6.3, 30.3, 42.8,

54.3 and 72.0 MMT of carbon per year. At the lowest

carbon price, neither of the land-use change options

appears to be economically attractive: all net sequestration (i.e., 0.4 MMT) results from the expanded use

of conservation tillage (fig. 5.1). At all higher payment

levels, however, afforestation accounts for 86-94

percent of total sequestration. 

The dominance of afforestation reflects the significantly higher per acre carbon payments relative to

those for other activities—due to the significantly

higher per acre sequestration rates associated with

shifting land into trees (see table 4.2 and fig. 4.2).

Between 68 and 77 percent of the carbon from

afforestation comes from conversion of pasture, with

the share from cropland generally increasing as the

payment level rises. Pasture is generally less productive than cropland, so this pattern is consistent with

farmers afforesting more marginal lands first. No

payment level in this scenario is sufficient to induce

farmers to sequester carbon by converting cropland to

permanent grasses.1

As the asset value for permanent sequestration

increases from $10 to $125 per mt, annual carbon

sequestration from expanding conservation tillage

increases from 0.4 to 7.5 MMT. Some of the carbon

sequestered through additional use of conservation

tillage, however, is offset by other cropland management decisions that increase carbon emissions. These

other activities include shifting land from conservation

tillage to conventional tillage, switching to rotations

with higher emissions, and bringing idle land into crop

production.2 Net emissions from these activities,

reflected in the category “other changes in cropland

Chapter 5: Empirical Analysis

1 It is important to note, however, that the simulations only incorporate incentives for land-use change to grassland—we do not take

into account any continuing sequestration that may occur due to

past land-use change, until a new C-stock equilibrium is reached.

Nor do we capture the sequestration potential for improved management of range or pasture because we lack cost data for the associated activities. 

2 To track flows in and out of conservation tillage, we report the

sequestration impacts of changes into conservation tillage in the

“changes to conservation tillage” category, and the impacts of

changes out of conservation tillage in the “other changes in cropland management” category, along with the net impacts on carbon

sequestration of rotation changes.

Figure 5.1

Annual net carbon sequestration

Scenario 1: Rental payments on net sequestration

Source: Economic Research Service, USDA.

C sequestration (MMT)

Afforestation

Grassland

Total net sequestration

Ag soil management

0

10

20

30

40

50

60

70

80

0 25 50 75 100 125

C price ($/mt)-asset value for permanent sequestration
32 ● Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 Economic Research Service/USDA

management,” increase from 0.0 to 0.5 MMT over the

range of carbon values analyzed. 

Table 5.2 reports the effects of land-use and landmanagement changes associated with the carbonsequestration quantities reported in table 5.1. For

cropland management, at asset carbon prices of $10,

$25, $50, $75, $100, and $125 per mt with scenario 1,

farmers shift, respectively, 2.1, 5.2, 10.5, 15.9, 20.3,

and 27.9 million acres from conventional tillage to

conservation tillage. The net effect of these croplandmanagement decisions on carbon sequestration,

however, is partially offset by the reverse shift of some

cropland—between 0.3 and 7.3 million acres—from

conservation tillage to conventional tillage. (We

discuss the shift from conservation tillage to conventional tillage in more detail for scenario 4). 

The ability of very modest carbon payments to induce

additional use of conservation tillage reflects the

sizable set of producers who base decisions to use one

system over another on marginal economic considerations. In many areas, conservation and conventional

tillage systems exist side by side. In these cases, it is

Table 5.1—Average annual change in total carbon sequestered by practice/land-use change, for alternative

policy scenarios and carbon-payment levels

Price per metric ton of permanent carbon sequestration*

Activity $10 $25 $50 $75 $100 $125

Million metric tons

Scenario 1: Rental payment on net sequestration, with no cost-share:

Afforestation 0.0 5.4 28.5 39.9 49.7 65.0

From cropland 0.0 1.7 6.7 10.6 13.3 18.5

From pasture 0.0 3.7 21.8 29.3 36.4 46.4

Additional grasses 0.0 0.0 0.0 0.0 0.0 0.0

Changes to conservation tillage** 0.4 1.0 2.0 3.2 5.0 7.5

Other changes in cropland management 0.0 -0.1 -0.2 -0.3 -0.4 -0.5

Total 0.4 6.3 30.3 42.8 54.3 72.0

Scenario 2: Asset payment on net sequestration, with no cost-share:

Afforestation 8.5 38.4 72.4 103.1 125.2 133.1

From cropland 2.6 10.2 20.2 26.6 33.1 40.1

From pasture 6.0 28.2 52.2 76.6 92.1 93.1

Additional grasses 0.0 0.0 0.0 0.0 0.0 0.0

Changes to conservation tillage** 1.1 2.9 8.5 14.0 20.0 27.6

Other changes in cropland management -0.1 -0.2 -0.5 -1.0 -1.0 -0.7

Total 9.5 41.1 80.4 116.1 144.2 160.0

Scenario 3: Rental payment on net sequestration, with cost-share:

Afforestation 2.8 16.6 34.3 41.1 54.9 68.4

From cropland 0.1 3.2 7.7 10.9 14.4 18.8

From pasture 2.7 13.4 26.6 30.2 40.5 49.6

Additional grasses 0.0 0.0 0.0 0.0 0.0 0.0

Changes to conservation tillage** 1.0 1.4 2.1 2.8 3.5 4.3

Other changes in cropland management -0.1 -0.1 -0.2 -0.2 -0.2 -0.4

Total 3.7 17.9 36.2 43.7 58.2 72.3

Scenario 4: Rental payment on gross sequestration, with no cost-share:

Afforestation 0.0 5.4 28.5 39.6 47.4 61.1

From cropland 0.0 1.7 6.7 10.6 13.3 18.5

From pasture 0.0 3.7 21.7 29.0 34.1 42.6

Additional grasses 0.0 0.0 0.0 0.0 0.0 0.0

Changes to conservation tillage** 31.8 32.1 32.5 32.9 34.1 34.4

Other changes in cropland management -31.7 -31.6 -31.6 -31.5 -31.3 -30.9

Total 0.1 5.9 29.4 41.0 50.3 64.6

* Corresponding payments to farmers during the 15-year contract period are $3.54, $8.85, $17.70, $26.55, $35.40, and $44.25 per mt in rental

payment scenarios 1, 3, and 4 and $10, $25, $50, $75, $100, and $125 per mt in asset payment scenario 2.

** These rows report gross sequestration from changes to conservation tillage. Emission increases from changes out of conservation

tillage are in “other changes in cropland management.”

Source: Economic Research Service, USDA.
Economic Research Service/USDA Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 ● 33

Table 5.2—Acres changing land use or tillage practice as a result of contract, by policy scenario 

and carbon-payment level

Price per metric ton of permanent carbon sequestration*

Activity Base $10 $25 $50 $75 $100 $125

Total acres (mil.) Change in acres (mil.)

Scenario 1: Rental payment on net sequestration, with no cost-share:

Change to forest land:

From cropland 0 0.0 1.1 4.4 6.9 8.7 12.7

From pasture 0 0.0 4.1 24.2 32.3 40.4 51.9

Total change to forest 00.0 5.2 28.6 39.2 49.1 64.6

Total change to grassland 0 0.0 0.0 0.0 0.0 0.0 0.0

Cropland - tillage changes:

From conventional to conservation tillage 0 2.1 5.2 10.5 15.9 20.3 27.9

From conservation to conventional tillage 0 0.3 0.9 1.7 2.9 3.9 7.3

Net change to conservation tillage 1.8 4.3 8.8 13.0 16.4 20.6

Scenario 2: Asset payment on net sequestration, with no cost-share:

Change to forest land:

From cropland 0 1.7 6.6 13.8 18.1 22.5 27.4

From pasture 0 6.7 31.2 58.6 87.5 105.4 106.1

Total change to forest 08.4 37.8 72.4 105.6 127.9 133.5

Total change to grasslands 0 0.0 0.0 0.0 0.0 0.0 0.1

Cropland - tillage changes:

From conventional to conservation tillage 0 5.8 14.6 29.9 42.6 54.3 66.9

From conservation to conventional tillage 0 0.8 2.4 6.9 8.4 12.0 14.2

Net change to conservation tillage 5.0 12.2 23.0 34.2 42.3 52.7

Scenario 3: Rental payment on net sequestration, with cost-share:

Change to forest land:

From cropland 0 0.1 2.1 5.0 7.1 9.7 12.9

From pasture 0 2.9 14.9 29.5 33.3 45.7 56.3

Total change to forest 0 3.0 17.0 34.5 40.4 55.4 69.2

Total change to grassland 0 0.0 0.0 0.0 0.0 0.0 0.0

Cropland - tillage changes:

From conventional to conservation tillage 0 3.2 4.9 9.1 13.4 16.8 21.0

From conservation to conventional tillage 0 1.7 1.3 2.0 2.9 2.6 3.3

Net change to conservation tillage 1.5 3.6 7.1 10.5 14.2 17.7

Scenario 4: Rental payment on gross sequestration, with no cost-share:

Change to forest land:

From cropland 0 0.0 1.1 4.4 6.9 8.7 12.7

From pasture 0 0.0 4.1 24.1 31.9 38.1 48.1

Total change to forest 00.0 5.2 28.5 38.8 46.8 60.8

Total change to grassland 0 0.0 0.0 0.0 0.0 0.0 0.0

Cropland - tillage changes:

From conventional to conservation tillage 0 76.8 80.3 79.1 81.5 81.3 82.7

From conservation to conventional tillage 0 76.1 78.1 74.8 74.2 73.1 72.6

Net change to conservation tillage 0.7 2.2 4.3 7.3 8.2 10.1

* Corresponding payments to farmers are $3.54, $8.85, $17.70, $26.55, $35.40, and $44.25 per mt in scenarios 1, 3, and 4 

and $10, $25, $50, $75, $100, and $125 per mt in scenario 2.

Source: Economic Research Service, USDA.
34 ● Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 Economic Research Service/USDA

expected that the returns to the different tillage

systems would be fairly similar and that relatively

small carbon payments would be sufficient that some

farmers currently using conventional tillage would

maximize profits by shifting to conservation tillage. 

Across the payment levels analyzed, afforestation of

cropland and pasture increases from 0.0 to 64.6 million

acres. At payment levels of $100 per mt and below, the

Delta States, the Southeast, and Appalachia account for

the large share of acres shifting to forest (between 82

and 100 percent) (app. 2). At $100 per mt, some

afforestation occurs in all regions in which it is considered feasible, including the Pacific. 

Across the carbon-payment range analyzed, U.S. timberland acreage—now estimated at 503.7 million acres

(Vesterby and Krupa, 2001)—increases from 0 to 13

percent. Within USMP, we cannot currently identify at

what point substantial program-induced price and output

effects would occur through carbon-sequestration activities in forestry markets. At least for the higher carbonpayment levels, not accounting for potential carbon

leakage in the forestry sector probably results in an overestimate of net sequestration. 

With respect to commodity markets, the carbon-sequestration incentives simulated in scenario 1 typically result

in lower output and higher prices (fig. 5.2, table 5.3).

This pattern is consistent with the observed shifts of

land out of crop and livestock production and into trees.

Commodity market impacts, however, are quite modest

for carbon payments up to $75 per mt—production

declines are all less than 1.7 percent and price increases

are all less than 1.4 percent. At a payment of $100 per

mt, some price and production impacts start to become

more substantial. The price of rice increases 2.4 percent,

production of rice drops 2.5 percent, and production of

sorghum drops 2.9 percent. At a payment level of $125

per mt, four of the nine commodities in table 5.3 have

price increases between 2.4 and 4.1 percent and three

have production declines between 2.9 and 5.6 percent.

Among the commodity markets, the most affected are

the major feed grains (corn and sorghum), rice (for

crops), and fed beef (for livestock). The effects on the

markets for wheat, soybeans, pork, and milk are relatively small.

Table 5.4 reports the impacts on agricultural-sector

welfare and Government spending under alternative

policy scenarios. Aggregate producer welfare impacts

are shown as changes in net farm income and domestic

producer surplus. In USMP, net farm income nets out

variable costs while producer surplus nets out both

variable and fixed costs. For payment levels of $50 per

mt and below, increases in net farm income in scenario

1 are less than 2.0 percent. As payments increase from

$75 to $125 per mt, net farm income increases from

3.3 to 7.6 percent. 

For full carbon payments of $10, $25, $50, $75, $100,

and $125 per mt, Government payments to farmers

total $1.3 million, $55.7 million, $537.1 million,

$1,137.1 million, $1,924.4 million, and $3,181

million, respectively. For context, annual outlays

during 1989-2000 for USDA’s CRP varied between

$1.40 billion and $1.73 billion, including rental

payments, cost-share assistance, and technical assistance for the 29.2 to 35.1 million enrolled acres during

the period (USDA, FSA, 2001).

The higher commodity prices and lower production

levels associated with carbon payments to producers

hurt U.S. consumers of agricultural products. This

impact is measured by changes in domestic consumer

surplus, which is the difference between the amount

that consumers would be willing to spend and the

amount they actually have to spend for a specific

quantity of a good. Reductions in consumer surplus

indicate a decline in consumer welfare. Across the

payment levels, however, declines in domestic

consumer surplus are relatively modest—between 0.0

and 0.2 percent (or never more than $1.9 billion). 

Figure 5.2

Commodity price changes

Scenario 1: Rental payments on net sequestration

Source: Economic Research Service, USDA.

Percent change

Sorghum

Fed beef

Rice

Wheat

C price ($/mt)-asset value for permanent sequestration

-0.5

0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

0 25 50 75 100 125

Pork
Economic Research Service/USDA Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 ● 35

Table 5.3—Estimated commodity market impacts, by policy scenario and carbon-payment level 

Price per metric ton of permanent carbon sequestration*

Activity $0 $10 $25 $50 $75 $100 $125

Baseline —————— Percent change from baseline ——————

(units noted)

Scenario 1: Rental payment on net sequestration, with no cost-share:

Commodity production:

Corn 11.234 bil. bu 0.0 0.0 - 0.1 -0.1 -0.3 -0.5

Sorghum 0.670 bil. bu -0.1 -0.3 -1.0 -1.6 -2.9 -5.6

Wheat 2.545 bil. bu 0.0 0.0 0.1 0.0 -0.3 -1.0

Rice 0.194 bil. cwt -0.1 -0.3 -0.8 -1.4 -2.5 -4.2

Soybeans 3.245 bil. bu 0.0 0.0 0.1 0.0 -0.7 -1.5

Cotton 17.50 mil. bales -0.1 -0.2 -0.5 -0.9 -1.6 -2.9

Fed beef 152.20 mil. cwt 0.0 -0.2 -0.3 -0.4 -0.5 -0.6

Pork 189.80 mil. cwt 0.0 0.0 0.0 0.0 0.0 0.0

Milk 1,794.00 mil. cwt 0.0 0.0 0.0 0.0 0.0 -0.1

Commodity prices:

Corn $2.60 bu 0.02 0.04 0.00 0.07 1.02 2.67

Sorghum $2.35 bu 0.09 0.21 0.35 0.74 1.72 3.15

Wheat $3.70 bu -0.02 -0.04 -0.06 -0.04 0.27 0.98

Rice $7.71 cwt 0.12 0.29 0.75 1.38 2.38 4.01

Soybeans $6.30 bu -0.01 0.01 0.20 0.34 1.04 1.87

Cotton $312.00 bale 0.07 0.17 0.40 0.71 1.33 2.35

Fed beef $334.04 cwt 0.00 0.21 0.61 0.79 1.01 1.30

Pork $262.93 cwt 0.00 0.01 0.02 0.04 0.15 0.34

Milk $14.30 cwt 0.00 -0.02 -0.07 -0.50 0.80 0.29

Scenario 2: Asset payment on net sequestration, with no cost-share:

Commodity production:

Corn 11.234 bil. bu 0.0 -0.1 -0.7 -1.7 -3.0 -4.1

Sorghum 0.670 bil. bu -0.4 -1.5 -6.6 -10.1 -14.4 -17.4

Wheat 2.545 bil. bu 0.0 0.0 -1.3 -3.9 -8.4 -12.1

Rice 0.194 bil. cwt -0.3 -1.4 -5.3 -8.3 -11.6 -16.0

Soybeans 3.245 bil. bu 0.0 0.0 -1.9 -4.2 -7.9 -11.2

Cotton 17.50 mil. bales -0.2 -0.8 -3.3 -5.7 -9.5 -16.1

Fed beef 152.20 mil. cwt -0.4 -0.4 -0.7 -1.1 -1.5 -1.9

Pork 189.80 mil. cwt 0.0 0.0 -0.1 -0.1 -0.2 -0.3

Milk 1,794.00 mil. cwt 0.0 0.0 -0.2 -0.4 -0.7 -0.9

Commodity prices:

Corn $2.60 bu 0.04 0.06 3.53 7.79 13.35 17.15

Sorghum $2.35 bu 0.22 0.68 3.68 7.77 13.47 17.29

Wheat $3.70 bu -0.04 -0.04 1.27 3.82 8.16 11.73

Rice $7.71 cwt 0.32 1.30 5.07 7.94 11.06 15.23

Soybeans $6.30 bu 0.03 0.32 2.29 4.49 8.18 11.31

Cotton $312.00 bale 0.19 0.67 2.71 4.68 7.76 13.14

Fed beef $334.04 cwt 0.35 0.77 1.46 2.23 3.11 3.76

Pork $262.93 cwt 0.01 0.03 0.44 0.91 1.58 2.05

Milk $14.30 cwt -0.02 -0.06 0.41 0.97 1.64 2.10

See notes at end of table. Continued--
36 ● Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 Economic Research Service/USDA

Table 5.3—Estimated commodity market impacts, by policy scenario and carbon-payment level—Continued

Price per metric ton of permanent carbon sequestration*

Activity $0 $10 $25 $50 $75 $100 $125

Baseline —————— Percent change from baseline ——————

(units noted)

Scenario 3: Rental payment on net sequestration, with cost-share:

Commodity production:

Corn 11.234 bil. bu 0.0 0.0 -0.1 0.0 -0.2 -0.4

Sorghum 0.670 bil. bu -0.1 -0.3 -0.8 -1.2 -1.7 -2.8

Wheat 2.545 bil. bu 0.0 0.0 0.0 -0.1 -0.2 -0.6

Rice 0.194 bil. cwt 0.0 0.0 -0.1 -0.3 -1.0 -1.3

Soybeans 3.245 bil. bu 0.0 0.1 0.2 0.1 -0.3 -0.9

Cotton 17.50 mil. bales 0.0 -0.1 -0.2 -0.4 -0.9 -1.2

Fed beef 152.20 mil. cwt 0.0 -0.2 -2.0 -0.4 -0.5 -0.6

Pork 189.80 mil. cwt 0.0 0.0 0.0 0.0 0.0 0.0

Milk 1,794.00 mil. cwt 0.0 0.0 0.0 0.0 0.0 0.0

Commodity prices:

Corn $2.60 bu -0.03 -0.12 -0.25 -0.28 0.12 1.19

Sorghum $2.35 bu 0.05 0.06 0.21 0.55 1.16 1.64

Wheat $3.70 bu 0.00 -0.01 0.01 0.08 0.22 0.58

Rice $7.71 cwt 0.01 0.04 0.08 0.32 1.00 1.20

Soybeans $6.30 bu 0.00 0.06 0.14 0.18 0.65 1.27

Cotton $312.00 bale 0.03 0.07 0.15 0.32 0.70 0.98

Fed beef $334.04 cwt 0.06 0.35 1.78 0.81 1.01 1.25

Pork $262.93 cwt 0.00 0.00 0.00 0.00 0.06 0.18

Milk $14.30 cwt -0.01 -0.05 -0.09 -0.06 0.04 0.20

Scenario 4: Rental payment on gross sequestration, with no cost-share:

Commodity production:

Corn 11.234 bil. bu 0.0 0.0 -0.1 -0.1 -0.1 -0.2

Sorghum 0.670 bil. bu -0.1 -0.2 -0.8 -1.1 -1.5 -2.1

Wheat 2.545 bil. bu 0.0 -0.1 -0.2 -0.3 -0.4 -0.7

Rice 0.194 bil. cwt -0.1 -0.3 -0.5 -0.8 -1.1 -2.0

Soybeans 3.245 bil. bu 0.0 0.0 0.1 0.2 0 .1 -0.3

Cotton 17.50 mil. bales 0.0 0.0 0.0 0.0 -0.1 -0.4

Fed beef 152.20 mil. cwt 0.0 0.0 -0.3 -0.4 -0.5 -0.5

Pork 189.80 mil. cwt 0.0 0.0 0.0 0.0 0.0 0.0

Milk 1,794.00 mil. cwt 0.0 0.0 0.0 0.0 0.0 0.0

Commodity prices:

Corn $2.60 bu 0.01 0.00 -0.08 -0.05 0.08 0.68

Sorghum $2.35 bu 0.05 0.11 0.11 0.21 0.51 0.90

Wheat $3.70 bu 0.04 0.09 0.17 0.27 0.41 0.68

Rice $7.71 cwt 0.10 0.26 0.52 0.77 1.06 1.87

Soybeans $6.30 bu -0.02 -0.01 0.12 0.17 0.23 0.70

Cotton $312.00 bale 0.00 0.00 0.00 0.00 0.06 0.32

Fed beef $334.04 cwt 0.00 0.09 0.60 0.78 0.92 1.10

Pork $262.93 cwt 0.00 0.00 0.01 0.02 0.03 0.11

Milk $14.30 cwt 0.00 -0.02 -0.07 -0.06 -0.02 0.09

bu = bushel. cwt = hundredweight.

* Corresponding payments to farmers are $3.54, $8.85, $17.70, $26.55, $35.40, and $44.25 per mt in scenarios 1, 3, and 4 

and $10, $25, $50, $75, $100, and $125 per mt in scenario 2.

Source: Economic Research Service, USDA.
Economic Research Service/USDA Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 ● 37

Table 5.4—Estimated changes in annual farm income and agricultural sector welfare, by policy 

scenario and carbon-payment level 

Price per metric ton of permanent carbon sequestration*

Activity $0 $10 $25 $50 $75 $100 $125

Baseline —————— Percent change from baseline ——————

(units noted)

Scenario 1: Rental payment on net sequestration, with no cost-share:

Net farm income: $76.937 bil. 0.0 0.2 1.9 3.3 4.9 7.6

Value of crop production $80.027 bil. 0.0 0.0 0.1 0.1 0.3 0.6

Variable crop production costs $44.695 bil. 0.1 0.2 0.3 0.4 -0.1 -1.0

Value of livestock production $110.667 bil. 0.0 0.0 0.4 0.5 0.8 1.2

Variable livestock production costs $74.064 bil. 0.0 0.0 -0.2 -0.3 0.1 0.6

Payments to farmers for:

New rotations and tillage systems

(in mil. $) $0.0 1.3 8.0 32.1 77.2 164.0 306.9

Planting trees/grasses (in mil. $) $0.0 0.0 47.7 505.0 1,059.9 1,760.4 2,874.1

Surplus measures:

Domestic consumer surplus $832,469.8 mil. 0.00 -0.01 -0.05 -0.07 -0.13 -0.22

Domestic producer surplus $53,371.2 mil. 0.00 0.10 1.00 1.94 4.14 7.45

Foreign consumer surplus $25,759.1 mil. -0.01 -0.06 -0.28 -0.45 -1.21 -2.40

Foreign producer surplus $954.3 mil. 0.00 0.15 1.03 1.34 1.73 2.30

Scenario 2: Asset payment on net sequestration, with no cost-share:

Net farm income: $76.937 bil. 0.4 3.0 9.2 17.7 27.9 37.3

Value of crop production $ 80.027 bil. 0.1 0.1 0.8 1.5 2.2 2.2

Variable crop production costs $44.695 bil. 0.2 0.4 -1.4 -3.4 -6.8 -10.1

Value of livestock production $110.667 bil. 0.1 0.5 1.4 2.3 3.5 4.3

Variable livestock production costs $74.064 bil. -0.1 -0.2 0.9 2.2 3.9 5.1

Payments to farmers for:

New rotations and tillage systems

(in mil. $) $0.0 9.8 67.5 399.8 977.0 1,912.5 3,357.6

Planting trees/grasses (in mil. $) $0.0 85.5 960.3 3,619.0 7,735.6 12,519.4 16,645.2

Surplus measures:

Domestic consumer surplus $832,469.8 mil. -0.01 -0.07 -0.26 -0.50 -0.81 -1.05

Domestic producer surplus $53,371.2 mil. 0.17 1.78 9.41 19.89 34.42 48.00

Foreign consumer surplus $25,759.1 mil. -0.08 -0.43 -2.98 -6.06 -10.42 -13.96

Foreign producer surplus $954.3 mil. 0.24 1.31 2.66 4.28 5.91 7.19

Scenario 3: Rental payment on net sequestration, with cost-share:

Net farm income: $76.937 bil. 0.1 0.9 2.5 3.4 5.1 7.4

Value of crop production $80.027 bil. 0.0 0.0 0.0 0.0 0.0 0.2

Variable crop production costs $44.695 bil. 0.1 0.1 0.3 0.4 0.1 -0.5

Value of livestock production $110.667 bil. 0.0 0.2 0.5 0.5 0.1 1.1

Variable livestock production costs $74.064 bil. 0.0 -0.1 -0.3 -0.4 0.0 0.3

Payments to farmers for:

New rotations and tillage systems

(in mil. $) $0.0 3.0 11.1 33.4 69.8 115.6 171.4

Planting trees/grasses (in mil. $) ** $0.0 9.9 147.1 607.9 1,091.4 1,945.1 3,026.0

Surplus measures:

Domestic consumer surplus $832,469.8 mil. 0.00 -0.02 -0.05 -0.06 -0.10 -0.16

Domestic producer surplus $53,371.2 mil. 0.04 0.41 1.22 2.01 3.74 6.34

Foreign consumer surplus $25,759.1 mil. -0.01 -0.08 -0.19 -0.25 -0.69 -1.41

Foreign producer surplus $954.3 mil. 0.10 0.58 1.24 1.39 1.77 2.27

See notes at end of table. Continued--
38 ● Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 Economic Research Service/USDA

Since the United States is a major importer and

exporter of agricultural products, changes in U.S.

commodity prices and production would also affect

foreign producers and consumers. These impacts are

measured in USMP as changes in foreign producer

surplus and foreign consumer surplus. Following the

pattern of domestic impacts, foreign consumers are

negatively affected by the carbon payments while

foreign producers benefit. Across payment levels,

reductions in foreign consumer surplus range from

0.01 to 2.4 percent. In relative terms, the negative

impacts of the carbon payments are significantly

higher for foreign consumers than for U.S. consumers.

Conversely, foreign producers receive no carbon

payments so their gains are relatively small, compared

with gains of domestic producers. 

Scenario 2: Asset Payment (Assuming 

Permanent Sequestration) for Net 

Sequestration, No Cost-Share—Traditional

Approach to Permanence

Scenario 2 most closely represents the traditional static

approach to modeling incentive payments to encourage

farmers to adopt carbon-sequestering land uses and/or

production practices, developed in the early economic

literature on farm sequestration (see Parks and Hardie,

1995: Antle et al., 2001; and Pautsch et al., 2001). The

payment structure implicitly assumes that a unit of

carbon sequestered in a given year will be permanently

removed from the atmosphere. From this perspective, a

unit of carbon sequestration has the same GHG-mitigation value as a similar unit of carbon emissions

reduction. Hence, in scenario 2, farmers receive

payments equal to the full asset value of permanent

carbon sequestration rather than the 15-year rental

payments they received in scenario 1. 

Because payments to farmers per mt of carbon

sequestered in scenario 2 are 2.8 times the amount

received in scenario 1 (i.e., 1 / 0.354 = 2.8), the anticipated effect of using the “full” (i.e., emissions reduction) values will be to increase the levels of

sequestration activities and of economic impacts for the

various payment levels relative to the levels observed

for scenario 1. Inspection of tables 5.1-5.4 and figure

5.3 reveals this to be the case. As we would expect, the

empirical results for the $25 per mt simulation of

scenario 2 (which represents a carbon asset value of

$71) are very similar in direction and magnitude to

results for the $75 per mt simulation of scenario 1. 

Annual net carbon sequestration in scenario 2 ranges

from 9.5 MMT for a payment level of $10 per mt to

160.0 MMT per year for a payment of $125 per mt,

Table 5.4—Estimated changes in annual farm income and agricultural sector welfare, by policy 

scenario and carbon-payment level—Continued

Price per metric ton of permanent carbon sequestration*

Activity $0 $10 $25 $50 $75 $100 $125

Baseline —————— Percent change from baseline ——————

(units noted)

Scenario 4: Rental payment on gross sequestration, with no cost-share:

Net farm income: $76.937 bil. 0.1 0.6 2.7 4.4 5.9 8.1

Value of crop production $80.027 bil. 0.0 0.0 0.1 0.1 0.1 0.3

Variable crop production costs $44.695 bil. 0.0 0.1 0.1 0.2 0.2 -0.1

Value of livestock production $110.667 bil. 0.0 0.0 0.4 0.5 0.7 0.9

Variable livestock production costs $74.064 bil. 0.0 0.0 -0.2 -0.3 -0.2 0.1

Payments to farmers for:

New rotations and tillage systems

(in mil. $) $0.0 112.8 284.2 575.6 873.6 1,207.5 1,523.9

Planting trees/grasses (in mil. $) $0.0 0.0 47.7 503.7 1,050.8 1,678.2 2,703.8

Surplus measures:

Domestic consumer surplus $832,469.8 mil. 0.00 -0.01 -0.05 -0.06 -0.08 -0.12

Domestic producer surplus $53,371.2 mil. 0.18 0.58 1.92 3.25 4.79 7.24

Foreign consumer surplus $25,759.1 mil. 0.00 -0.04 -0.22 -0.32 -0.45 -0.96

Foreign producer surplus $954.3 mil. 0.00 0.15 1.04 1.35 1.61 2.04

* Corresponding payments to farmers are $3.54, $8.85, $17.70, $26.55, $35.40, and $44.25 per mt in scenarios 1, 3, and 4 

and $10, $25, $50, $75, $100, and $125 per mt in scenario 2.

** Includes cost-share payments.

Source: Economic Research Service, USDA.
Economic Research Service/USDA Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 ● 39

compared with a range of 0.4 to 72.0 MMT per year for

scenario 1 (table 5.1). The increases in carbon sequestration relative to scenario 1 are the result of farmers

responding to the higher payment levels by making

more changes in land uses and production practices. 

Unlike scenario 1, afforestation dominates sequestration activities in scenario 2 at all payment levels—

although there is a general decrease in the share of

sequestration accounted for by afforestation in

scenario 2 as the payment level increases. Relative to

scenario 1, afforestation accounts for a larger share

of total carbon sequestration for payments of $10

and $25 per mt and a smaller share of the total

sequestration for payments of $50 per mt and above.

Turning to land-use change, land afforested increases

from 8.4 million acres at a payment of $10 per mt to

133.5 million acres at a payment of $125 per mt. As

in scenario 1, afforestation is dominated by land

shifting out of pasture; however, the share of

afforested lands related to pasture conversions is

somewhat smaller in scenario 2—at least when

permanent sequestration is valued at $25 per mt or

more (70-74 percent in scenario 2 versus 78-85

percent in scenario 1).

Regional patterns of afforestation differ significantly

between scenarios 1 and 2 (app. 2). While the Delta

States, Appalachia, and the Southeast still provide

virtually all of the afforested acres at payment levels

of $10 and $25 per mt, at $50 per mt, the quantity of

additional pasture available for conversion to trees in

these regions starts to become more limited. At

payment levels of $50 per mt and above, the Pacific

region becomes the largest supplier of afforested

acres, and, producers in the Lake States and the Corn

Belt become much more active—that is, relative to

scenario 1—with afforestation. 

With respect to cropland management, carbon

payments of $10, $25, $50, $75, $100, and $125 per

mt induce farmers to shift, respectively, 5.8, 14.6, 29.9,

42.6, 54.3, and 66.9 million acres from conventional

tillage to conservation tillage systems (table 5.2).

Across payment levels, these amounts are about 2.5

times the acres that make this shift relative to the associated discount payment levels in scenario 1. The

carbon sequestration on lands moving from conventional to conservation tillage, however, is offset somewhat by emissions from land moving in the opposite

direction. Shifts from conservation to conventional

tillage systems increase from 0.8 million acres for a

payment of $10 per mt to 14.2 million acres for a

payment of $125 per mt. When carbon emissions from

these land management changes are added to the net

emissions related to changes in rotations, net carbon

sequestration from cropland management is 1.0, 2.7,

8.0, 13.0, 19.0, and 26.9 MMT for payment levels of

$10, $25, $50, $75, $100, and $125 per MT, respectively. Cropland management assumes a larger share of

total sequestration activity as the carbon payment

increases, rising from about 10 percent of total net

sequestration at $10 per mt to about 17 percent of total

net sequestration at a payment of $125. 

As in scenario 1, conversion of cropland to grassland

is not economically attractive across the range of

carbon payments analyzed. However, the “full” carbon

payment of $125 per mt in scenario 2 appears to be a

threshold price for conversions of cropland to permanent grasses. At that payment level, 100,000 acres of

cropland in the Southern Plains shift to grasses,

resulting in about 0.032 MMT of carbon sequestration.

In understanding the limited appeal of grasslands, it is

important to note that while the per ton carbon

payments significantly increase the incentives to

convert cropland to grasses, the opportunity costs of

removing cropland from production also significantly

increase due to the crop price increases. While the

actual carbon payments to farmers are much higher in

scenario 2 relative to scenario 1, the increases in

commodity prices are much higher as well—because

larger quantities of land are being afforested leading to

greater decreases in commodity production. 

Figure 5.3

Annual net carbon sequestration

Asset (S2) versus rental (S1) net sequestration payments

Source: Economic Research Service, USDA.

C sequestration (MMT)

Total net seq (S2, asset)

Ag soil seq (S1, rental)

C price ($/mt)-asset value for permanent sequestration

0

25

50

75

100

125

150

175

200

0 25 50 75 100 125

Total net seq (S1, rental)

Ag soil seq (S2, asset)
40 ● Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 Economic Research Service/USDA

These results strongly reinforce the scenario 1 finding

that, while technically feasible, conversion of cropland

to grassland does not appear to be an economically

feasible option to sequester carbon in the farm sector.

This finding is consistent with studies by Antle et al.

and McCarl and Schneider.

In scenario 2, commodity market impacts are still

quite modest for carbon payments of $10 and $25

per mt—all production declines are less than 1.5

percent and all price increases are less than 1.3

percent (table 5.3). At $50 per mt, commodity

market impacts start to become more pronounced. Of

the nine commodities shown in table 5.3, three have

price increases larger than 3 percent and three have

production declines greater than 3 percent. For

carbon payments of $100 per mt and above, doubledigit decreases in production and increases in prices

are common. The commodity markets most affected

by the sequestration incentives are corn, sorghum,

rice, and cotton. Conversely, the markets for wheat,

pork, and milk are relatively unaffected. 

The farm sector income and welfare impacts associated

with scenario 2 are also magnified versions of their

counterpart impacts in scenario 1 (table 5.4). Table 5.4

highlights how costly it could be to design a set of

carbon sequestration incentives based on an assumption

of permanent carbon storage but without actually incorporating any features to ensure permanent storage. For

payment levels of $10, $25, $50, $75, $100, and $125

per mt, annual program costs are $100 million, $1.03

billion, $4.02 billion, $8.17 billion, $14.43 billion, and

$20.00 billion, respectively. These amounts are 73.3,

18.5, 7.5, 7.6, 7.5, and 6.3 times higher than the associated payment levels in scenario 1. In addition to the

higher program costs, there are also additional costs to

consumers of U.S. agricultural commodities associated

with the higher commodity prices. Focusing on U.S.

consumers, the decreases in consumer surplus for

payments of $10, $25, $50, $75, $100, and $125 per mt

are, respectively, $83.3 million, $583 million, $2.2

billion, $4.2 billion, $6.7 billion, and $8.7 billion. For

the associated payments, these represent increased costs

to U.S. consumers of about $83 million, $500 million,

$1.6 billion, $3.6 billion, 5.6 billion, and 6.9 billion

relative to scenario 1. 

Alternatively, we can reinterpret the actual payments

in scenario 2 within a rental payment framework (as

per scenario 1) or we can reinterpret the actual

payments in scenario 1 in a “full” payment framework

(as per scenario 2). Viewed this way, the sequestration

results of the two scenarios can be combined to form a

single supply schedule for carbon—with the two alternative interpretations.

Reinterpreting actual payment levels in scenario 2 of

$10, $25, $50, $75, $100, and $125 as rental

payments, we calculate the associated full prices by

multiplying each by 2.8 (1/.354), yielding full prices

of $28, $70, $140, $210, $280, and $350 per mt. The

axes for the combined supply function in figure 5.4 are

labeled from the rental payments perspective. We

could alternatively interpret the graph within a full

payments perspective by dividing all the prices on the

horizontal axis by 2.8.

Scenario 3: Rental Payment for Net 

Sequestration, With Cost-Share 

Supplement—Standard 

Conservation Program Feature

Scenario 3 employs the reference scenario rental

payments structure but augments the incentive

package in scenario 1 to include a cost-share subsidy

to partially offset the upfront costs of establishing

trees on cropland or pasture or establishing permanent grasses on cropland. Assistance is set at 50

percent of the cost of establishing trees and grasses.3

Figure 5.4

Annual net carbon sequestration

Actual payments in S1 and S2 interpreted as rental payments

Source: Economic Research Service, USDA.

C sequestration (MMT)

Total net seq (S1)

Ag soil seq (S1)

C price ($/mt)-asset value for permanent sequestration

Total net seq (S2)

Ag soil seq (S2)

0

25

50

75

100

125

150

175

0 50 100 150 200 250 300 350

3 USDA’s largest conservation program, the CRP, includes a 50-

percent cost-share payment for planting trees, establishing grasses,

and other approved vegetative practices (USDA, FSA, 2001). 
Economic Research Service/USDA Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 ● 41

As discussed in chapter 4, cost sharing the establishment of desired land uses and management practices

is a common component of USDA conservation

programs, including CRP, WRP, and WHIP.

Not surprisingly, the addition of the cost-share subsidy

results in more carbon sequestration, more afforestation, and higher levels of total payments to producers

in scenario 3 than in scenario 1. The differences in the

quantities of carbon sequestered and land afforested,

however, are only pronounced at lower payment levels.

For example, annual net carbon sequestration in

scenario 3 is 3.7, 17.9, 36.2, 43.7, 58.2, and 72.3

MMT for carbon payments of $10, $25, $50, $75,

$100, and $125 per mt, respectively (table 5.1). These

values are 9.3, 2.8, 1.2, 1.0, 1.1, 1.0 times the associated sequestration values in scenario 1. A similar

pattern is evident in the results for afforestation. This

pattern is not surprising, since the cost-share is a fixeddollar amount per acre; consequently, the cost-share

increases the total payments available to a much

greater extent at low carbon prices. As in scenario 1,

afforestation is concentrated in the Southeast, the Delta

States, and Appalachia, with the Pacific becoming a

source of afforested acres at carbon-payment levels of

$100 per mt and above (app. 2).

The major economic impact associated with adding

cost-share assistance to scenario 1 is a significant

increase in the cost of the sequestration program. Relative to scenario 1, cost-share assistance increases net

carbon sequestration 3.3, 11.6, 5.9, 0.9, 3.9, and 0.3

MMT for payment levels of $10, $25, $50, $75, $100,

and $125 per mt, respectively (table 5.1). The associated increases in total payments to farmers, however,

are $11.6 million, $102.5 million, $104.2 million,

$24.1 million, $136.3 million, and $16.4 million. Also

worth noting is that the effect of cost-share assistance

on net farm income essentially disappears at carbon

payments above $75 per mt. For payments of $10,

$25, $50, $75, $100, and $125 per mt, net farm

income increases, respectively, 0.0, 0.2, 1.9, 3.3, 4.9,

and 7.6 percent in scenario 1, and, 0.1, 0.9, 2.5, 3.4,

5.1, and 7.4 percent in scenario 3 (table 5.4).

Scenario 4: Rental Payment for 

Gross Sequestration, No Cost-Share—

Exploring the Leakage Issue

Scenario 4 differs from scenario 1 in that the incentive

payments are based on gross, rather than net, increases

in carbon sequestration. That is, scenario 4 pays the

farm sector when land is shifted into a carbon-sequestering land use or production practice but does not debit

these payments for any related land-based emissions

due to shifting cropland out of conservation tillage,

switching to rotations that release additional carbon, or

bringing idle land into crop production. A comparison

of the impacts of scenarios 1 and 4 suggests the consequences of ignoring the potential for feedback effects on

market prices, which, in turn, can lead to farm-sector

choices that result in emissions from the covered activities. Again, we note that our model is limited to the

agricultural sector, so potential leakage due to related

activities in the forest sector is not included in the GHG

accounting. 

For carbon values of $10, $25, $50, $75, $100, and

$125 per mt, net carbon sequestration in scenario 4 is

0.1, 5.9, 29.4, 41.0, 50.3, and 64.6 MMT, respectively

(table 5.1). Across payment levels, these values range

between 0.3 and 7.4 MMT less than annual net sequestration values reported for scenario 1. The similarity in

the net sequestration values is due to similarities in

afforested acres, which typically account for more than

90 percent of all sequestration in both scenarios. Relative to scenario 1, acres of cropland moving into trees in

scenario 4 are nearly identical for all payment levels,

though acres of pasture moving to trees shows modest

decreases at payment levels of $100 per mt and above

(table 5.2). Since afforestation decisions in our simulations cannot be offset by related decisions to harvest

other forests, forest-related land-use change is strictly a

carbon-sequestering activity in our accounting. It is not

surprising then that afforestation decisions are largely

unaffected by the change in incentives between

scenarios 1 and 4. Hence, we focus here on the results

relating to changes in cropland management. Within

that set of activities in scenario 4, net carbon sequestration falls by about 50 percent across the range of carbon

payments.

For carbon payments of $10, $25, $50, $75, $100, and

$125 per mt, total payments to farmers for changes in

tillage systems and rotations are, respectively, $112.8

million, $284.2 million, $575.6 million, $873.6 million,

$1,207.5 million, and $1,523.9 million in scenario 4.

These amounts range from 10.8 to 87.0 times the total

payments values in scenario 1. Land-management

changes help explain the smaller quantities of net

sequestration and higher program costs in scenario 4.

For carbon payments of $10, $25, $50, $75, $100, and

$125 per mt, farmers in scenario 4 shift, respectively,

76.8, 80.3, 79.1, 81.5, 81.3, and 82.7 million acres from
42 ● Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 Economic Research Service/USDA

conventional to conservation tillage systems. These

land-management decisions are a direct response to the

carbon-sequestration incentives. At the same time,

however, farmers also shift 76.1, 78.1, 74.8, 74.2, 73.1,

and 72.6 million acres out of conservation into conventional tillage systems. Unlike scenario 1, scenario 4

does not adjust the payments farmers receive for any

land-based emissions that result from scenario-driven

shifts of land to uses or production practices with higher

carbon emissions. Hence, there is no penalty for moving

land from conservation to conventional tillage, whereas

there is an opportunity cost associated with leaving

many lands in conservation tillage. 

At this point, we need to ask whether the large shifts

out of conservation tillage suggested by scenario 4 are

likely to occur. Based on profit calculations, the shifts

both to and from conservation tillage make sense as

responses to both carbon incentive and crop price

effects, as we outline in the paragraph that follows.

However, this component of the model may not incorporate sufficient “stickiness” in the choice of tillage at

a particular site, so we may be overpredicting the gross

shifts from conventional to conservation and from

conservation to conventional. The model does incorporate stickiness in the net changes among tillage

options. Consequently, the “excessive” responsiveness

would not affect the estimates of net sequestration but

would affect the estimates of program cost (which are

based on gross sequestration). 

The relative profitability of conventional tillage versus

conservation tillage depends on a variety of site-specific

factors that affect yields and cost differentials. These

factors include soil temperature and moisture conditions

at planting time (conventional tillage allows soils to

warm up and/or dry out quicker), length of growing

season (crops with longer growing seasons need to be

planted earlier and so in many areas rotations include 2

or 3 years of conservation tillage and one of conventional tillage), and farmer experience with conservation

tillage (these systems tend to be management intensive

and require sufficient time to learn). 

In USMP, crop yields by rotation, tillage system, and

region are derived from the biophysical Environmental

Policy Integrated Climate (EPIC) model. The yields

represent 7-year averages after the crop-rotation tillagesystem region combination has been established for at

least 5 years. For many region-rotation combinations,

these yields are higher with conservation tillage

systems, but on average yields tend to be lower. In the

crop budgets used in the model, the direction of the cost

differential also varies but tends to favor conservation

tillage. For systems in which conservation tillage has

lower costs but lower yields, crop price will affect the

likelihood of revenue loss exceeding the cost gain: as

crop prices rise conventional tillage tends to become

more profitable. Thus, increasing carbon prices (from 0)

will encourage shifts toward conservation tillage. And

increasing crop prices due to shifts of cropland to forest

lands will provide incentives to shift from conservation

tillage to conventional tillage on lands where the cost

advantage of conservation is outweighed by the revenue

disadvantage as crop prices rise. 

Commodity market impacts in scenario 4 tend to be

somewhat muted versions of their counterparts in

scenario 1 (table 5.3). Without a penalty for land-based

emissions, it is profitable for farmers to bring some

idle lands into commodity production. As a result, the

decline in total cropland is not as large as in scenario

1, and the decreases in commodity production and

increases in commodity prices are also more moderate. 

Finally, scenarios 1 and 4 are similar with respect to

changes in net farm income and agricultural sector

welfare relative to the baseline. In scenario 4, the

larger increases in program payments for changes in

tillage systems are offset by smaller increases in net

revenues from crop and livestock production (due to

smaller decreases in quantities produced and smaller

increases in prices) and marginally smaller payments

for afforestation. Hence, the main consequences of

ignoring the leakage issue in the design of a farm

sector carbon-sequestration program will be that, at a

given carbon price, the quantity of net carbon sequestration will be lower and the program cost will be

higher. Both effects increase the per ton cost of net

carbon sequestration. 

Directions for Future Research

The changes in land uses and production practices

considered in this analysis are likely candidates for

incentives to increase the quantity of carbon stored in

agricultural soils and biomass. However, to address the

questions of the economic potential for overall GHG

mitigation in the agricultural sector, it would be

informative to extend the analysis in several directions. 

First, it would be useful to expand the scope of the

incentive payments to include a broader set of mitigation

activities, particularly rangeland and pasture land
Economic Research Service/USDA Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 ● 43

management, as well as a broader set of GHGs, particularly methane and nitrous oxide. 

Second, it would be useful to link a framework such as

ours with a forest sector model to account for potential

carbon leakage related to forest-sector responses to

afforestation decisions on agricultural lands. As noted

in chapter 3, agriculture and forestry often compete for

the services of land resources. Several studies have

looked at this competition and concluded that the

shifting of millions of acres of cropland and pasture

into trees would change timber harvest patterns in

ways that would increase carbon emissions (see app.

1). These studies indicate that ignoring this leakage

altogether could result in crediting agricultural

afforestation programs with significantly more sequestration than actually occurs. 

Finally, any assessment of the relative cost-effectiveness

of different incentives to change agricultural land uses

and production practices to mitigate GHG emissions

needs to reflect the associated institutional costs associated with measuring, monitoring, and crediting the

carbon sequestered for the different policy approaches.

The carbon sequestration activities analyzed here—and

those not analyzed (see table 2.2)—pose a wide variety

of challenges with respect to carbon accounting and

contract compliance over time. Hence, the costs associated with implementing and administering these activities within a Government carbon-sequestration program

are likely to vary significantly. To date, however, all

economic studies that have assessed potential to

sequester carbon in the farm sector—including our

study and those summarized in chapter 3—have

assumed a costless institutional process. 
44 ● Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 Economic Research Service/USDA

Strategies that have been proposed to mitigate global

climate change typically focus on reducing energyrelated emissions of greenhouse gases (including

carbon dioxide) into the atmosphere. But atmospheric

concentrations of greenhouse gases (GHG) can also be

reduced by withdrawing carbon from the atmosphere

and storing—or sequestering—it in soils and biomass.

In examining the economics of sequestering additional

carbon in the U.S. farm sector through changes in agricultural land use and management practices, this study

focused on two questions:

● How much of the estimated “technical potential” for

carbon sequestration is economically feasible?

● How cost effective are alternative incentive structures that might be used to encourage carbon

sequestering activities?

To address these questions, we adapted ERS’s U.S. Agricultural Sector Model to include financial incentives to

agricultural producers for additional carbon sequestered

as a result of changes in land use (e.g., converting cropland to grassland or forest) or cropland management

practices (e.g., using conservation tillage or alternative

crop rotations). We analyzed how land use and management practices change as financial incentives vary in four

policy-relevant dimensions:

● Asset or rental basis—Comparing “asset” payments that implicitly assume carbon is permanently

sequestered with “rental” payments for carbon storage over a specified period of time,

● Level—Comparing payments ranging from $10 to

$125 per ton of carbon permanently sequestered,

● Symmetric or one-sided—Comparing a scenario in

which producers are paid for carbon sequestered

with a scenario in which producers are paid for carbon sequestered and charged for carbon emitted, and

● Type—Comparing scenarios in which carbon payments are augmented with a cost-share subsidy for

converting cropland or pasture to forest or converting

cropland to grassland.

In brief, we find that the asset or rental basis and the

level of incentive payments are critical in determining

how much carbon is sequestered, how it is

sequestered, how long it is sequestered, where it is

sequestered, and at what cost it is sequestered. But

even at the highest level of incentive payments considered, less than two-thirds of the technical potential for

carbon sequestration is economically feasible. Further,

incentive systems in which producers are paid for

carbon sequestered and charged for carbon emitted are

much more cost effective than systems without charges

for emissions. However, adding a cost-share subsidy

for changes in land use does not substantially improve

cost effectiveness relative to a system based on

payments per ton of carbon sequestered.

Asset or Rental Basis of 

Incentive Payments 

The effect of changes in land use or land-management

practices on atmospheric concentrations of GHGs

depends on the length of time for which carbon is

sequestered. Cropland converted from conventional

tillage to conservation tillage is estimated to sequester

additional carbon for a period of 20-30 years until a

new carbon equilibrium is reached. The additional

carbon will remain stored in the soil or biomass as

long as the land remains in conservation tillage, but

most of it will be quickly released into the atmosphere

if the land goes back into conventional tillage. Similarly, cropland converted to forest will sequester additional carbon for 20-70 years, depending on timber

growth rates and harvest decisions, but most of the

additional carbon may be released if/when the timber

is harvested.

A unit of carbon sequestration in soil or biomass is

equivalent to a unit of GHG emissions reduction if

(and only if) the carbon remains sequestered permanently. This requires maintaining the carbon-sequestering activity permanently—either with a one-time

permanent commitment or with a series of contracts

extending through time.

Early research on the economics of carbon sequestration assumed that agricultural producers who received

incentives to switch to carbon-sequestering land uses

or management practices would maintain those practices permanently after the new carbon equilibrium

was reached (and the incentive payments ceased). If

producers switched out of the sequestering activities

after payments ceased, however, the additional carbon

Chapter 6: Summary of Findings and Implications for Policy
Economic Research Service/USDA Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 ● 45

would be released. Traditional research on agricultural

carbon sequestration, which was based on this assumption, would then overestimate the amount of additional

carbon sequestered, and incentive programs based on

this assumption would overpay producers for the

amount of additional carbon actually sequestered.

More recent research considers a system in which

producers receive proportionally smaller “rental”

payments to store additional carbon for a finite

contract period. Payments cease at the end of the

contract period, on the assumption that the sequestering activity then will be discontinued (and the additional carbon released). If producers continue the

sequestering activity after the contract ends, however,

the additional carbon remains stored in the soil or

biomass. Research based on this assumption would

then underestimate the amount of additional carbon

sequestered, and incentive programs based on this

assumption would underpay producers for the amount

of additional carbon actually sequestered. If rental

contracts are renewed indefinitely, payments will equal

those provided under the “asset payment” system.

Unlike with the asset payment system, however,

permanent sequestration will be assured under a series

of indefinitely renewed rental contracts.

The difficulty in choosing between the two assumptions/payment systems is that we do not know how

many producers would actually continue carbonsequestering activities after incentive payments cease.

Continuation would depend on a combination of farm,

producer, and market conditions. We analyze both

systems to estimate a range of possible outcomes.

Lastly, adoption of agricultural activities that sequester

carbon will add to the stock of carbon in soil or biomass

for decades, but only until a new carbon equilibrium is

reached. Permanent maintenance of the sequestering

activities will store the added carbon permanently. But

even permanent terrestrial sequestration can only serve

as a “bridge” until new (low- or no-carbon) energy technologies are developed and adopted. Carbon sequestration in soil and biomass cannot offset increasing

emissions of GHGs indefinitely.

Level of Incentive Payments

The amount of carbon that can feasibly be sequestered

through changes in agricultural land use or management

practices depends not only on the asset or rental basis of

incentive payments but also on the level of incentive

payments. We evaluated a range of incentive levels

corresponding to payments of $10 to $125 per ton of

permanent carbon sequestration. 

We used two alternative payment systems to estimate

how much carbon would be sequestered under 15-year

contracts for a range of incentive levels. Under the asset

payment system, producers receive the full $10 to

$125 per ton over the 15-year contract period (on the

assumption that they will continue the sequestering

activities after the contract ends and the additional

carbon will be permanently sequestered). Under the

rental payment system, producers receive a share of

the value of permanent sequestration in exchange for

15 years of storage of additional carbon (on the

assumption that to discontinue the sequestering activities after the contract ends, they will require additional

payments). At a 5-percent discount rate, the corresponding rental payments amount to $4 to $44 per ton of

carbon over the contract period.

In the absence of incentive payments, about 4 MMT of

additional carbon are currently sequestered in agricultural soils in the United States each year. With incentive payments corresponding to $10 per ton of

permanent carbon sequestration, results suggest that

producers would change land-use and land-management practices to the extent that an additional 0.4

MMT would be sequestered under the rental payment

system per year and an additional 10 MMT would be

sequestered under the asset payment system. Within

this range, the actual amount of additional sequestration would depend on the extent to which producers

continue carbon-sequestering activities after incentive

payments cease. Similarly, results suggest that additional sequestration would range from 72 to 160 MMT

with incentive payments corresponding to $125 per ton

of permanent carbon sequestration. Permanent sequestration at these levels would offset 4 to 8 percent of

gross U.S. GHG emissions in 2001.

Total program payments during the contract period

range from $95 million to $2 billion per year under

the asset payment system, for net increases in carbon

sequestration ranging from 10 to 160 MMT per year.

If producers discontinue carbon-sequestering land

uses and management practices after the 15-year

contract period ends, the program will have generated

carbon sequestration worth only one-third of its

payments—because most of the carbon will be

released when the activities are terminated, and we

estimate that 15 years of carbon storage has only one
46 ● Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 Economic Research Service/USDA

third the emissions-mitigating value of permanent

carbon sequestration. At the $125-payment level, the

overpayment would be approximately $1.3 billion. By

contrast, the rental payment system pays only for the

time carbon remains sequestered. If producers discontinue carbon-sequestering activities after contracts

end, no overpayment will have been made. Likewise,

if producers continue to renew their contracts and

maintain their carbon-sequestering activities, the

rental system will incur the same total cost as the

asset payment system but will have ensured permanent sequestration.

The level of incentive payments also affects the type

and geographic distribution of changes in land use and

management practices because different sequestering

activities become economically feasible at different

incentive levels. At low levels of incentive payments

(corresponding to less than $25 per ton of permanent

carbon under the rental payment system), we estimate

that increased use of conservation tillage would be the

dominant source of additional sequestration. This effect

reflects the fact that returns from conservation tillage

systems are already close to returns from conventional

tillage systems in many areas. At higher incentive

payment levels, afforestation becomes the dominant

source of additional carbon sequestration in agriculture.

Land is drawn first from pasture. As incentives increase,

an increasing share of afforested land is drawn from

cropland (which is generally more productive than

pasture). Only at incentive levels of $125 per ton with

the asset payment system is a small amount of cropland

converted to grassland (assuming no additional incentive, such as Conservation Reserve Program payments).

This pattern of adoption is consistent with earlier

economic studies using a variety of models and data

sources (e.g., Antle et al., 2001, and McCarl and

Schneider, 2001).

Regionally, most of the increase in conservation tillage

occurs in the Great Plains, Corn Belt, and Lake States.

Most afforestation occurs in the Southeast, the Delta

States, and Appalachia. The small amount of cropland

conversion to grassland (about 100,000 acres) occurs

in the Southern Plains.

Incentive levels are thus critical in determining how

much carbon will be sequestered, how it will be

sequestered, and where it will be sequestered. Even at

the highest incentive levels we analyzed, the economic

potential to sequester additional carbon in agricultural

soils and biomass is much less than the technical potential as indicated by soil science and forestry studies.

Estimated economic potentials are lower than estimated

technical potentials because our analysis incorporates

the costs and returns associated with different activities

and models the choices that farmers might make under

different incentive systems. We assume that producers

will adopt carbon-sequestering land uses and management practices that are technically feasible only if they

are also economically feasible.

For conservation tillage, soil science studies (Lal et al.,

1998, and Eve et al., 2000) estimate a technical annual

carbon sequestration potential of 35-107 MMT. By

contrast, at incentive levels corresponding to $125 per

ton of additional carbon permanently sequestered, we

estimate that only about one-fourth (7-27 MMT) of

this technical potential would be economically

feasible. For afforestation, estimates derived from

Birdsey (1996) suggest a technical potential of 91-203

MMT; we estimate that only about two-thirds of this

potential (65-133 MMT) would be economically

feasible at incentives corresponding to $125 per ton of

carbon permanently sequestered. Technical and

economic potentials diverge the most for land use

change from cropland to permanent grasses: Eve et al.

(2000) estimate a technical potential of 26-54 MMT,

whereas we estimate that virtually none of this would

be economically feasible even at the highest incentive

levels considered.

Symmetry of Incentive Payments

Our reference scenario incorporates both “carrots” (in

the form of incentive payments to producers for additional carbon sequestered through changes in land use

and management practices) and “sticks” (in the form

of payments by producers for carbon emissions from

changes in activities). For comparison, we analyzed a

scenario using carrots alone.

Conservation tillage is the only activity that can be

reversed in our model, so the choice of tillage practice

is the only choice we analyze that could generate carbon

emissions. In the carrots-only scenario, net carbon

sequestration through conservation tillage is lower and

program costs significantly higher across all payment

levels. At incentive levels corresponding to $125 per ton

of carbon permanently sequestered, a carrots-only

system would sequester an additional 3.5 MMT at a

cost of $1.5 billion. By contrast, at equivalent incentive

levels, a system with both carrots and sticks would

sequester an additional 7 MMT at a cost of $300
Economic Research Service/USDA Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 ● 47

million—twice as much carbon at one-tenth the average

cost per ton.

Type of Incentive Payments

In another set of simulations, we included a 50-percent

cost-share subsidy for converting cropland to forest or

grassland, in addition to the incentive payments per ton

of carbon sequestered. Adding a cost-share subsidy does

not appear to improve substantially the cost effectiveness

of the incentive system. The cost-share subsidy would

increase sequestration at low carbon-payment levels but

not at high payment levels, and the incremental cost for

the incremental sequestration does not appear to be

lower than for the simple system. Furthermore, since the

cost-share applies only to land-use change activities, it

distorts the mix of carbon sequestration activities away

from changes in cropland management.

Limitations in the Present Analysis 

Leave Questions

Our findings are consistent with the hypothesis that

carbon sequestration in agricultural soils and biomass

is a low-cost technology for reducing the atmospheric

concentration of greenhouse gases. These GHG mitigation activities can serve as a bridge from the present

to a time when new (low- or no-carbon) energy technologies are developed and adopted, or, alternatively,

when technologies for the capture, separation, and

storage of energy-related carbon emissions in other

sinks become cost effective. If future research on GHG

implications of land-management activities in the agricultural sector shows, for example, that nitrous oxide

emissions could increase with carbon sequestration in

some activities, our results would overstate the net

reduction in total GHG emissions. Also, given that

afforestation appears to have the greatest potential for

additional sequestration, better understanding of

market linkages between agriculture and forestry over

an extended period is extremely important. McCarl et

al. (2003) suggest that the long-term dynamics are

complicated due to the feedback effects of substantially increasing the supply of timber and, consequently, dampening timber prices.

Finally, our analysis does not incorporate the institutional costs associated with measuring, monitoring,

and crediting the carbon sequestered for the different

policy approaches. Though the costs are likely to vary

significantly depending on the features of the program

and the range of activities covered, at this point we

know very little about the cost structures. Full consideration of transaction costs would likely show, in most

cases, that our present estimates of cost effectiveness

are higher than what would be experienced in realworld situations.
48 ● Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 Economic Research Service/USDA

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Economic Research Service/USDA Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 ● 51

Appendix 1:

Methods, Assumptions, and Key Results of Selected Carbon Sequestration Studies

Parks and Hardie (1995)

Empirical framework: Optimization model that differentiates U.S. farm lands by expected net returns to agriculture, expected net returns to forestry, and potential to sequester carbon in trees. Develops supply curves for

carbon sequestration on U.S. agricultural lands by exhausting a fixed budget to subsidize land-use change to

forest under various sequestration program designs. 

Geographic scope: 116.1 million acres of privately owned U.S. cropland and pasture classified as nonprime farmland and suited to forest. Land is disaggregated into 433 regions with each

region linked to a forest type and thus a potential to sequester carbon. 

Baseline time period: A composite year reflecting the period 1985-90. 

Land base: Private agricultural land classified as not irrigated and not prime farmland. 

Activities analyzed: Shifting marginal cropland and pasture to forest.

Incentives analyzed: Derives carbon prices by exhausting fixed sequestration budget.

Program design and incentive structure:

● Afforestation program modeled after CRP. All land enrolled in year 1 for 10 years, after which the program

ends. Program provides 50 percent of tree-establishment costs paid in year 1 and annual rental payments equal

to forgone agricultural rents. 

● Pays for carbon in trees only.

● Scenarios analyzed:

S1: eligible land—cropland and pasture/objective—minimize cost per acre,

S2: eligible land—cropland and pasture/objective—minimize cost per ton of carbon,

S3 and S4—objectives similar to S1 and S2 but limited to cropland.

Assumptions, modeling issues, and special features:

● Land allocated to the use with the highest expected net return.

● Treatment of time—static. Model features a one-time decision to afforest lands without considering 

the implications of potential future harvest.

● Permanence—not explicitly considered. After 10 years, forestry is assumed to be the land use with the 

highest expected return (so annual payments are not needed to keep land in trees). 

● C-stock equilibrium (CSE)—not explicitly considered. Afforestation program ends before CSE occurs. 

Key results:

● For a program with a present value of $4.60 billion and targeting both cropland and pasture:

S1: Over 10-year program period, enrollment is 23.1 million acres, carbon sequestration is 40.8 MMT 

per year, average discounted costs = $112.54 per mt. 

S2: Over 10-year program period, enrollment is 22.2 million acres, carbon sequestration is 44.1 MMT 

per year, average discounted costs = $104.20 per mt. 

● For scenario S2, the marginal cost (MC) of sequestration rises slowly from 0 to 100 mt per year then increases

sharply.

● Enrollment and sequestration levels decrease more than 50 percent and costs more than double when only

cropland is targeted.
52 ● Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 Economic Research Service/USDA

Alig et al. (1999)

Empirical framework: Optimization model linking U.S. agriculture and forestry sectors through competition for

privately owned land. Agriculture modeled using ASM (see McCarl and Schneider). Forestry sector has nine

geographic regions, six product classes, two private land ownership classes, four forest types reflecting species

composition, three site productivity classes, four management intensity classes, and six classes reflecting land’s

ability to shift between sectors. Model is simulated in 10-year time steps, with ASM solved statically at each step. 

Geographic coverage: Contiguous 48 States. 

Baseline period: U.S. agricultural and forest sectors initially calibrated to 1990 conditions. Model is

then simulated in 10-year time steps through 2079, with no afforestation incentives

to set the baseline. Policy results are tracked through 2039. 

Land base: All agricultural and forest land in the contiguous 48 U.S. States. 

Activities analyzed: Shifting land between agriculture and forestry. 

Incentives analyzed: Sets payments to afforest agricultural lands at levels needed to achieve exogenously

specified afforestation levels. 

Program design and incentive structure:

● Programs start in 1990 and runs through 2079. 

● Carbon-sequestration program modeled as subsidy for afforestation. 

● Pays for incremental ecosystem carbon (carbon in trees, woody debris, understory, floor, and soil). 

Trees can be harvested with no deforestation penalty. 

● Scenarios:

S1: Force 12.1 million acres of agricultural land to shift to forest in decade 1 (1990-99). 

S2: Constant carbon flux of 1.61 gigatons per decade.

S3: Flux set 0.4 gigatons above baseline in each decade. 

S4: Flux starts at baseline level and increases 0.2 gigatons above baseline in each succeeding decade.

Assumptions, modeling issues, and special features:

● Land allocated to the use with the highest expected net return.

● Afforestation and forest management decisions affect sequestered carbon levels. 

● Framework accounts for interactions between the agricultural and forestry sectors. 

● Management of public forests specified exogenously and held fixed.

● Existing farm programs assumed to end after 1 decade.

● Treatment of time: Dynamic, using 10-year time steps and 4-percent discount rate.

● Permanence: Reflected in carbon accounting but not in pricing of sequestration incentives. 

● CSE: Forests generally harvested before CSE occurs. 

Key results:

● Policies to afforest agricultural lands will generate offsetting deforestation activities in the forest sector.

Over time, many lands will move back and forth between agriculture and forestry.

● Across the three carbon flux scenarios (S2-S4) 

Net transfers of land from agriculture to forest, relative to the baseline, range between 8.4 million acres 

and 21.4 million acres over the period 1990-2039. 

Over the 90-year simulation, in terms of the net present value:

Society welfare decreases between $22.7 billion and $55.8 billion,

Domestic agricultural producers gain between $13.5 billion and $44.3 billion,

Domestic agricultural consumers lose between $34.4 billion and $83.9 billion,

Domestic forest producers and consumers gain and lose depending on the scenario.
Economic Research Service/USDA Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 ● 53

Stavins (1999)

Empirical framework: Econometric model describing the shares of county land in forest and in agriculture.

Explanatory variables include agricultural rents, farm production costs, existing forest area, tree-establishment

costs, conversion to cropland costs, and net returns for a one-time forest harvest. Simulates afforestation

programs by exogenously increasing forest rents and deforestation costs. Uses changes in forest area and age to

estimate changes in carbon sequestered. Estimates regional marginal cost curve for sequestered carbon by

subtracting baseline sequestration from sequestration at different levels of an afforestation subsidy/deforestation

tax.

Geographic scope: Delta States (Louisiana, Arkansas, and Mississippi).

Baseline period: Model estimated with panel data for 36 counties/parishes covering period 1935-84.

Baseline scenario derived by simulating the model over 90-year period with the

afforestation payment/deforestation tax set equal to zero.

Land base: Agricultural and forest land

Activities analyzed: Shifting agricultural land into forest. 

Incentives analyzed: Exogenously specifies a range of afforestation payments/deforestation penalties.

Program design and incentive structure

● Carbon-sequestration program modeled as subsidy for afforestation and a tax for deforestation. 

● Pays for ecosystem carbon (carbon in trees, woody debris, understory, floor, and soil). 

● Model simulations run for 90 years. 

Assumptions, modeling issues, and special features:

● Landowners maximize the expected longrun return to land. 

● Framework accounts for factors that may make landowners require a premium to shift land to forest. 

● Sequestered carbon given in present value terms to account for the time profile of sequestration.

● Treatment of time: Dynamic using annual time step and 5-percent discount rate. 

● Permanence: Explicitly accounted for—agents paid when they afforest and penalized when they deforest. 

● CSE: Not an issue. Trees can be harvested at any time (and generally are harvested before reaching CSE). 

Key results:

● For Delta States, MC of sequestering carbon rises gradually and linearly to 6.4 million mt per year. At that

level: MC = $79.86 per mt, net afforestation is 4.6 million acres, carbon tax/subsidy = $109.87 per acre. 

● Above 6.4 million mt, MC of carbon sequestration increases steeply becoming nearly asymptotic at about 

14.5 million mt.

● For low levels of net GHG emission reduction, sequestration costs are similar to abatement cost.
54 ● Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 Economic Research Service/USDA

Plantinga et al. (1999)

Empirical framework: Econometric land-use model describing the shares of county land in forest, agriculture,

and other uses. Key explanatory variables include agricultural and forest rents, population density, and two

measures of land quality. Simulates afforestation programs by exogenously increasing forest rents. Uses changes

in forest area to estimate changes in carbon sequestered. 

Geographic scope: Models estimated for Maine (ME), South Carolina (SC), and Wisconsin (WI).

Baseline time period: Data cover period 1971-96. Baseline scenario derived by simulating the model over 60-

year period with afforestation payments set equal to zero. 

Land base: Private agricultural and forest land in ME, SC, and southern two-thirds of WI.

Activities analyzed: Shifting agricultural land into forest.

Incentives analyzed: Exogenously specifies a range of afforestation payments.

Program design and incentive structure:

● Afforestation program modeled after CRP. 

● Starts in 2000 and runs for 60 years in 10-year steps. 

● Landowners decide to enroll, leave program, or reenroll at the start of each decade.

● Provides annual fixed payment and one-time tree establishment costs paid in year of enrollment. 

No penalty for deforestation. 

● In each State, enrollment capped at 25 percent of its agricultural land. 

● Scenarios analyzed:

S1—Constant 1995 population, uniform payments, harvests allowed.

S2—Constant 1995 population, uniform payments, harvests not allowed.

S3—Increasing population, variable payments, harvests not allowed. 

S4—Increasing population, uniform payments, harvests allowed. 

Assumptions, modeling issues, and special features:

● Landowners maximize the expected longrun return to land. 

● Framework accounts for factors that may make landowners require a premium to shift land to forest. 

● Without afforestation, net sequestration on agricultural lands is zero. 

● Land in urban/other uses held fixed implying only agricultural land shifts to forest. 

● Sequestered carbon given in present value terms to account for the time profile of sequestration. 

● Treatment of time: Dynamic in 10-year time steps and 5-percent discount rate.

● Permanence: Not accounted for—agents are paid to afforest but are not penalized for deforesting. 

● CSE: Not an issue. Forests in ME, SC, and WI do not reach CSE in 60 years. 

Key results:

● Across scenarios, the MC of carbon sequestration rises (almost) linearly from the origin. At 25 percent 

enrollment cap, the MC of sequestration varies:

From $107.10 to $135.28 per mt in ME (sequestration = 3.176 million mt),

From $50.73 to $101.46 per mt in SC (sequestration = 14.518 million mt),

From $84.55 to $107.10 per mt in WI (sequestration = 54.444 million mt). 

● S1 is almost always least-cost scenario.

● Lake States and Midwest are the most cost-effective areas to afforest; the Northeast is the least 

cost effective.
Economic Research Service/USDA Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 ● 55

Antle et al. (2001) 

Empirical framework: Field-level econometric production models for winter wheat, spring wheat, and barley

in continuous cropping and crop-fallow rotations and permanent grass. Incorporates these models into a simulation model that sets farmer decisions on land allocation and input use in response to exogenous policy shocks. 

A crop ecosystem model (Century) then determines the net effect on soil carbon.

Geographic scope: Eastern Montana’s dryland grain-producing region. 

Baseline time period: Data are from mid-1990s. Baseline scenario derived by simulating the model 

over 20-year period with sequestration payments set equal to zero. 

Land base: Privately owned cropland and pasture. 

Activities analyzed: Switching cropland to permanent grasses. 

Switch from crop-fallow rotations or permanent grass to continuous cropping.

Incentives Analyzed: $2.07 to 20.71 per acre to adopt continuous cropping.

$5.18 to $51.77 per acre to shift land to permanent grasses.

Program design and incentive structure:

● Provide payments to farmers to adopt continuous cropping and shift land to permanent grass (activities

are analyzed separately).

● Payments for shifting land to grasses are in addition to CRP payments. 

● Simulations begin today and run for 20 years. 

● Scenarios analyzed (and discussed):

PG: switch land to permanent grasses—all cropland and pasture is eligible,

CC: shift to continuous cropping—only lands in crop fallow rotations and grasses are eligible.

Assumptions, modeling issues, and special features:

● Landowners maximize the expected returns to each field. 

● Use of site-level data (i.e., field and farm) accounts for the spatial heterogeneity in biophysical and

economic characteristics across farms. 

● Permanence: Not accounted for. 

● CSE: Not accounted for. Program ends before reaching CSE. 

● Treatment of time: Static.

Key results:

● Spatial heterogeneity with respect to biophysical and economic characteristics is an important

consideration in the design of farm policies to sequester carbon. Across locations in the study area, the MC 

of sequestering carbon ranges from $51.15 to $511.51 per mt in the PG scenario and from $12.28 to $143.22 

per mt in the CC scenario. In the CC scenario, the average cost of sequestering carbon was less than $51.15

per mt in all regions. 

● From the taxpayer viewpoint, a policy to promote CC is relatively more efficient at sequestering soil 

carbon than a PG policy. Over 20 years, the PG policy that pays farmers $51.77 per acre per year sequesters 

7 MMT of carbon at an undiscounted Government cost of $3.15 billion. Over 20 years, the CC policy pays

farmers $4.14 per acre per year to sequester 7.61 MMT at a Government cost of $206.34 million. 

● Over the range of payments considered, soil carbon sequestration ranges from 2.37 to 6.76 MMT under the 

PG scenario and from 7.61 to 18.25 MMT under the CC policy. 

● For CC policy, payments above $20.71 per acre do not significantly increase carbon sequestration because 

over 90 percent of land in crop-fallow rotations has been converted to CC.
56 ● Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 Economic Research Service/USDA

Pautsch et al. (2001) 

Empirical framework: Estimates an econometric model where the probability of adopting no-till is a function

of net returns to conventional tillage, local soil characteristics, and regional temperature and precipitation variables. Production possibilities include 14 rotations consisting of mixes of corn, soybeans, wheat, sorghum, and

hay. Econometric model is linked with a biophysical model so that changes in tillage practices can be paired

with changes in soil carbon. 

Geographic scope: Iowa.

Baseline time period: Model reflects a “typical” year during the 1990s. 

Land base: All cropland.

Activities analyzed: Adopting conservation tillage (CC)—assumed to be no-till. 

Incentives analyzed: Specifies various levels of carbon sequestration and computes the average costs per ton

needed to achieve those levels. 

Program design and incentive structure:

● Provide payments to farmers to adopt conservation tillage (assumed to be no-till). 

● Scenarios considered:

S1: new CC adopters only with uniform per acre payment. 

S2: all CC adopters with uniform per acre payment.

S3: new CC adopters with price discriminating per acre payment based on carbon-sequestration potential. 

S4: all CC adopters with price discriminating per acre payment based on carbon-sequestration potential.

Assumptions, modeling issues, and special features:

● Landowners maximize the expected returns to land. 

● Use of site-level data (i.e., field and farm) accounts for the spatial heterogeneity in biophysical and

economic characteristics across farms. 

● Framework addresses the issue of designing programs to pay all adopters of conservation tillage versus 

only paying those who adopt as a result of the incentives. 

● Treatment of time: Static—looks at an average year of an unspecified multiyear program. 

● Permanence: Not accounted for. 

● CSE: Not accounted for. Implicitly assumes carbon will accumulate as long as the program runs. 

Key results:

● At a sequestration level of 1 MMT per year, the average cost per mt sequestered is about $294 in 

S1, $1,089 in S2, $207 in S3, and $686 in S4. 

Regardless of payment design, the average cost per mt sequestered falls when only new adopters

are targeted.

Regardless of who is targeted, the average cost per mt sequestered falls with a price-discriminating

payment.
Economic Research Service/USDA Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 ● 57

McCarl and Schneider (2001)

Empirical framework: The ASMGHG model—a market and spatial equilibrium mathematical programming

model. Model depicts production and consumption in 63 U.S. regions for 22 traditional crop commodities, 3

biofuel crops, 29 livestock commodities, and more than 60 processed agricultural products. Trade is modeled for

28 international regions. In responding to relative changes in input prices, farmers can adjust tillage, fertilization,

irrigation, manure treatment, and feed mixes. Changes in carbon sequestration associated with changes in cropmanagement activities are calculated using the biophysical model EPIC (Environmental Policy Integrated

Climate model). Land shifting from agriculture to forestry and the associated carbon sequestration are obtained

from 30-year simulations of FASOM (see Alig et al., 1999). Changes in emissions associated with livestock

management based on EPA data. 

Geographic scope: Contiguous 48 States. 

Baseline time period: ASMGHG run with carbon valued at $0.00 per mt. 

Land base: All agricultural land (cropland and pasture).

Activities analyzed: Afforestation and forest management, biofuel production, crop mix changes,

changes in tillage practices, reductions in fertilizer use, reductions in rice acres,

grassland conversions, changes in irrigation practices, changes in livestock

management, and changes in manure management. 

Incentives analyzed: Exogenously specifies range of carbon prices. 

Program design and incentive structure:

● Farmers paid for changes in land use and production practices that sequester carbon, increase biofuel

production, or reduce GHG emissions. Farmers taxed for changes in land use or production practices that

increase GHG emissions.

● Scenarios considered: ASMGHG simulated with carbon valued at $9.60, $48.10, $96.20, and $480.80 per mt

(or $10, $50, $100, and $500 per mt in 2000 dollars).

Assumptions, modeling issues, and special features:

● Land allocated to the use with the highest expected net return. 

● Simulations reflect points of market equilibrium. Simulations do not account for adjustment paths. 

● Treatment of time: Static—economic agents and markets adjust fully and instantly to incentives for

sequestering carbon, reducing CH4 and N2O emissions, and producing biofuels. 

● Permanence: Not explicitly accounted for. Payments for carbon sequestration activities implicitly assume

carbon is stored permanently. 

● CSE: Not explicitly accounted for. 

● Leakage: Explicitly accounted for (see empirical framework above and Alig et al, 1999). 

Key results:

● For carbon valued at $9.60, $48.10, $96.20, and $480.80 per mt:

Carbon sequestration is 51.80, 146.40, 238.50, and 395.50 MMT of carbon, respectively.

Total mitigation is 53.90, 154.10, 255.70, and 425.90 MMTCE, respectively.

Gross farm welfare increases $0.4 billion, $4.3 billion, $13.4 billion, and $76.9 billion, respectively.

U.S. consumer welfare decreases $0.4 billion, $5.2 billion, $18.5 billion, and $104.6 billion, respectively. 

● At low carbon prices, soil carbon sequestration, afforestation, and CH4/N2O emissions reductions

activities dominate a national GHG-mitigation strategy.

● At high carbon prices, afforestation and biofuel production dominate a national GHG-mitigation strategy.

● The total contribution of CH4 and N2O emissions reductions activities is relatively small.
58 ● Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 Economic Research Service/USDA

Parks and Hardie use acres, short tons, and 1987 dollars; Alig et al. use hectares, metric tons, and 1990 dollars;

Stavins uses acres, short tons, and 1990 dollars; Plantinga et al. use acres, short tons, and 1995 dollars; Antle et

al. use hectares, metric tons, and 1995 dollars; Pautsch et al. use acres, metric tons, and 1992 dollars; and

McCarl and Schneider use acres, metric tons, and 2000 dollars. All reported monetary values have been

converted to 1997 dollars, all area measures have been converted to acres, and all GHG emission

reduction/carbon sequestration quantities have been converted to metric tons of carbon.
Economic Research Service/USDA Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 ● 59

Appendix 2: Afforestation of cropland and pasture by region, policy scenario,

and carbon-payment level

Land North- Lake Corn Appa- South- Delta Mountain & Total

afforested east States Belt lachia east States Great Plains Pacific U.S.

Million acres

Scenario 1 (Rental carbon payment, net sequestration, no cost-share):

C Price=$10:

From cropland 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

From pasture 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Total afforested 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

C Price=$25:

From cropland 0.0 0.0 0.0 0.4 0.3 0.4 0.0 0.0 1.1

From pasture 0.0 0.0 0.0 0.0 1.9 2.2 0.0 0.0 4.1

Total afforested 0.0 0.0 0.0 0.4 2.2 2.6 0.0 0.0 5.2

C Price=$50:

From cropland 0.0 0.0 0.0 2.1 1.1 1.2 0.0 0.0 4.4

From pasture 0.0 0.3 0.0 5.9 10.0 8.0 0.0 0.0 24.2

Total afforested 0.0 0.3 0.0 8.0 11.1 9.2 0.0 0.0 28.6

C Price=$75:

From cropland 0.0 0.0 0.0 3.5 1.8 1.6 0.0 0.0 6.9

From pasture 0.0 0.8 0.8 10.6 12.4 7.7 0.0 0.0 32.3

Total afforested 0.0 0.8 0.8 14.1 14.2 9.3 0.0 0.0 39.2

C Price=$100

From cropland 0.0 0.1 0.0 3.9 2.6 2.1 0.0 0.0 8.7

From pasture 0.1 2.4 1.1 10.8 13.6 7.5 0.0 4.8 40.4

Total afforested 0.1 2.5 1.1 14.7 16.2 9.6 0.0 4.8 49.1

C Price=$125:

From cropland 0.3 2.1 0.0 4.3 3.3 2.6 0.0 0.0 12.7

From pasture 1.2 4.1 1.4 11.0 13.6 7.4 0.0 13.2 51.9

Total afforested 1.5 6.2 1.4 15.4 16.9 10.0 0.0 12.2 64.6

Scenario 2 (Asset carbon payment, net sequestration, no cost-share):

C Price=$10:

From cropland 0.0 0.0 0.0 0.6 0.4 0.6 0.0 0.0 1.7

From pasture 0.0 0.0 0.0 0.0 3.0 3.7 0.0 0.0 6.7

Total afforested 0.0 0.0 0.0 0.6 3.4 4.3 0.0 0.0 8.4

C Price=$25:

From cropland 0.0 0.0 0.0 3.4 1.7 1.6 0.0 0.0 6.6

From pasture 0.0 0.7 0.0 10.7 12.1 7.8 0.0 0.0 31.2

Total afforested 0.0 0.7 0.0 14.1 13.8 9.4 0.0 0.0 37.8

C Price=$50:

From cropland 0.3 2.1 0.0 4.6 3.8 2.9 0.0 0.0 13.8

From pasture 1.6 4.8 1.5 11.1 13.6 7.4 0.0 18.7 58.6

Total afforested 1.9 6.9 1.5 15.7 17.4 10.3 0.0 18.7 72.4

C Price=$75:

From cropland 0.4 2.3 0.0 5.9 5.2 4.3 0.0 0.0 18.1

From pasture 2.6 7.5 3.2 11.1 13.6 6.6 0.0 42.9 87.5

Total afforested 3.0 9.8 3.2 17.0 18.8 10.9 0.0 42.9 105.6

Continued--
60 ● Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 Economic Research Service/USDA

Appendix 2: Afforestation of cropland and pasture by region, policy scenario,

and carbon-payment level—Continued

Land North- Lake Corn Appa- South- Delta Mountain & Total

afforested east States Belt lachia east States Great Plains Pacific U.S.

Million acres

Scenario 2 (Full carbon payment, net sequestration, no cost-share):--continued

C Price=$100:

From cropland 0.6 3.0 0.0 7.1 5.8 5.9 0.0 0.0 22.5

From pasture 4.7 7.5 7.5 11.2 13.6 6.1 0.0 54.8 105.4

Total afforested 5.3 10.5 7.5 18.3 19.4 12.0 0.0 54.8 127.9

C Price=$125:

From cropland 1.2 3.7 0.0 8.4 6.1 8.0 0.0 0.0 27.4

From pasture 4.7 7.5 11.3 11.0 13.6 3.1 0.0 54.8 106.1

Total afforested 5.9 11.2 11.3 19.4 19.7 11.1 0.0 54.8 133.5

Scenario 3 (Rental carbon payment, net sequestration, with cost-share):

C Price=$10:

From cropland 0.0 0.0 0.0 0.0 0.1 0.0 0.0 0.0 0.1

From pasture 0.0 0.0 0.0 0.0 0.0 2.8 0.0 0.0 2.9

Total afforested 0.0 0.0 0.0 0.0 0.1 2.8 0.0 0.0 3.0

C Price=$25:

From cropland 0.0 0.0 0.0 0.9 0.5 0.7 0.0 0.0 2.1

From pasture 0.0 0.0 0.0 1.4 5.1 8.4 0.0 0.0 14.9

Total afforested 0.0 0.0 0.0 2.3 5.6 9.1 0.0 0.0 17.0

C Price=$50:

From cropland 0.0 0.0 0.0 2.6 1.3 1.2 0.0 0.0 5.0

From pasture 0.0 0.3 0.0 9.9 11.3 7.9 0.0 0.0 29.5

Total afforested 0.0 0.3 0.0 12.5 12.6 9.1 0.0 0.0 34.5

C Price=$75:

From cropland 0.0 0.0 0.0 3.5 2.0 1.6 0.0 0.0 7.1

From pasture 0.1 0.9 1.0 10.6 13.2 7.5 0.0 0.0 33.3

Total afforested 0.1 0.9 1.0 14.1 15.2 9.1 0.0 0.0 40.4

C Price=$100:

From cropland 0.3 0.6 0.0 3.9 2.8 2.1 0.0 0.0 9.7

From pasture 0.5 1.8 1.2 10.6 13.6 7.4 0.0 10.6 45.7

Total afforested 0.8 2.4 1.2 14.5 16.4 9.5 0.0 10.6 55.4

C Price=$125:

From cropland 0.3 2.1 0.0 4.3 3.5 2.6 0.0 0.0 12.8

From pasture 1.3 3.1 1.4 10.8 13.6 7.1 0.0 18.9 56.3

Total afforested 1.6 5.2 1.4 15.1 17.1 9.7 0.0 18.9 69.2

Scenario 4 (Rental carbon payment, gross sequestration, no cost-share):

C Price=$10:

From cropland 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

From pasture 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Total afforested 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

C Price=$25:

From cropland 0.0 0.0 0.0 0.4 0.3 0.4 0.0 0.0 1.1

From pasture 0.0 0.0 0.0 0.0 1.9 2.2 0.0 0.0 4.1

Total afforested 0.0 0.0 0.0 0.4 2.2 2.6 0.0 0.0 5.2

Continued--
Economic Research Service/USDA Economics of Sequestering Carbon in the U.S. Agricultural Sector / TB-1909 ● 61

Appendix 2: Afforestation of cropland and pasture by region, policy scenario,

and carbon-payment level—Continued

Land North- Lake Corn Appa- South- Delta Mountain & Total

afforested east States Belt lachia east States Great Plains Pacific U.S.

Million acres

Scenario 4 (Rental carbon payment, gross sequestration, no cost-share):--continued

C Price=$50:

From cropland 0.0 0.0 0.0 2.1 1.1 1.2 0.0 0.0 4.4

From pasture 0.0 0.3 0.0 5.9 10.0 7.9 0.0 0.0 24.1

Total afforested 0.0 0.3 0.0 8.0 11.1 9.1 0.0 0.0 28.5

C Price=$75:

From cropland 0.0 0.0 0.0 3.5 1.8 1.6 0.0 0.0 6.9

From pasture 0.0 0.8 0.7 10.6 12.4 7.4 0.0 0.0 31.9

Total afforested 0.0 0.8 0.7 14.1 14.2 9.0 0.0 0.0 38.8

C Price=$100:

From cropland 0.0 0.1 0.0 3.9 2.6 2.1 0.0 0.0 8.7

From pasture 0.1 1.4 1.1 10.2 13.6 7.0 0.0 4.8 38.1

Total afforested 0.1 1.5 1.1 14.1 16.2 9.1 0.0 4.8 46.8

C Price=$125:

From cropland 0.3 2.1 0.0 4.3 3.3 2.6 0.0 0.0 12.7

From pasture 0.4 2.6 1.4 10.1 13.6 6.8 0.0 13.2 48.1

Total afforested 0.7 4.7 1.4 14.4 16.9 9.4 0.0 13.2 60.8

Source: Economic Research Service, USDA.