McCarl, Bruce (Texas A&M, Department of Agricultural Economics, College Station, TX, 77843; Phone: 979-845-1706; Email: mccarl@tamu.edu)
M. Kim, B.C. McCarl *, B.C. Murray
One major concern regarding land-based carbon sequestration involves the issue of permanence. Sequestration may not last forever and may either be released in the future or require expenditure to maintain the practices that keep it sequestered. In this paper, we investigate the differential value of offsets in the face of impermanent characteristics by forming a price discount that equalizes the effect price per ton between a "perfect offsets" and one possessing some or all of these characteristics. We find this discount to be a function of the future needs to replace offsets (in the face of lease expiration quantity or volatilization (upon activities such as timber harvest) and the magnitude of any needed maintenance costs. We investigate the magnitude of the discounts under alternative agricultural tillage and forest management cases. In those studies we find that permanence discounts in the range of 50% are not uncommon. This means that in the market place an impermanent sequestration offset may only receive payments amounting to 50% of the market carbon price. Furthermore we find that in the face of escalating carbon prices that offsets may prove to be worthless.