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Uncertainty Discounting for Land-Based Carbon Sequestration

Published online by Cambridge University Press:  26 January 2015

Man-Keun Kim  and
Bruce A. McCarl
Man-Keun Kim
Affiliation:
Department of Resource Economics, University of Nevada-Reno, Reno, NV
Bruce A. McCarl
Affiliation:
Department of Agricultural Economics, Texas A&M University, College Station, TX
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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.

Keywords

carbon seqestrationdiscountuncertaintyH43Q54
Type
Research Article
Information
Journal of Agricultural and Applied Economics , Volume 41 , Issue 1 , April 2009 , pp. 1 - 11
Copyright
Copyright © Southern Agricultural Economics Association 2009

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