Uncertainty Discounting for Land-Based Carbon Sequestration

Man-Keun Kim and Bruce McCarl

Journal of Agricultural and Applied Economics, 2009, vol. 41, issue 1, 1-11

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

Date: 2009
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