Strength of Incentives for Agricultural Sequestration

Other countries and trading blocs are implementing emissions limits and trading schemes. Denmark has implemented a cap and trade scheme targeted at its electricity sector, with potential fines on firms that exceed their emission targets. The United Kingdom has an industry-wide pilot program that includes incentives for firms to meet energy-efficiency or emissions-reductions targets. In addition, the European Union has announced that it will start a carbon trading scheme in 2005, with member governments setting emissions caps for their respective countries. While trading will begin among EU members, it is expected to expand to include other European countries and neighbors. Australia is considering a national emissions trading scheme. New Zealand is currently negotiating binding emission limits with major emitters, but has not yet decided on a trading scheme.

The future of carbon markets is unclear. Implementation of the Protocol will generate demand for carbon credits, although the outlook for carbon markets would be much stronger with U.S. participation. However, even with implementation of the Kyoto Protocol, demand for agricultural sequestration in developing countries is likely to remain weak due to its exclusion from the Clean Development Mechanism. Programs like the World Bank's BioCarbon fund will provide incentives for agricultural sequestration in developing countries; however, as this program has just been launched, it is not possible to forecast how strong this incentive will be.

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