Permanent Discounting for Land-Based Carbon Sequestration
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.
Kim, M-K., B.A. McCarl, and B.C. Murray (2008) “Permanent Discounting for Land-based Carbon Sequestration” Ecological Economics 64(4):763-769