The present status of policies for carbon sequestration and how they relate to agricultural sequestration was reviewed in the first part of this chapter. The current mix of local, national, and international policies does not create any well-defined global cap on acceptable emissions, and therefore it does not provide the basis for a well-functioning market for GHG emissions reductions credits. A market price for carbon that reflects the social opportunity cost of reducing emissions will exist only when such policies have been implemented, and even then, the price will depend on how much emissions are reduced. The prices at which carbon is currently being "traded" are heavily discounted, and do not reflect the social opportunity cost of reducing greenhouse gas emissions.

Incentive mechanisms for agricultural soil carbon sequestration were explored in the second part of this chapter. Economically rational farmers can be expected to adopt practices that enhance soil carbon when they believe that it is in their economic interest to do so. If farmers have not adopted those practices before carbon contracts are offered to them, then they will face the opportunity costs of adopting them. If these opportunity costs are positive for the duration of the time that carbon is accumulated and stored, then incentives will have to be provided to farmers during the total time period. However, if yields increase over time, the opportunity cost will decline and may even become negative, meaning that a positive incentive will not be required for them to maintain the practice. Thus, permanence may be an emergent property of agricultural soil carbon when it is true that carbon sequestering practices enhance productivity.

While farmers in the industrialized countries may be able to enter fairly readily into carbon sequestration contracts, the situation is likely to be quite different in developing countries. In effect, the transactions costs are likely to be higher in developing countries, both because farms are smaller, and because local financial and market institutions are less well developed. However, the co-benefits of carbon sequestration in developing countries in the form of enhancing food security, sustainability, and combating poverty, are potentially high. Therefore, special incentive mechanisms need to be devised for carbon sequestration contracts involving farmers in developing countries. These arrangements should take into account the broader social benefits that may be associated with adoption of more sustainable agricultural production systems. Incentive mechanisms for agricultural carbon sequestration could be designed in ways that overcome certain adoption thresholds associated with a lack of financial markets, and uncertainty about future productivity benefits of conservation practices.

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