Carbon Sequestration

1. Carbon Sequestration Darmawan Prasodjo

2. Introduction: Background • Under Kyoto Protocol industrialized countries have pledged to reduce their carbon emissions to below 1990 emission levels over period 2008-2012. • A number of AF practices are known to stimulate the absorption of atmospheric carbon or reduce GHG emission at relatively modest cost. (McCarl, Schneider, Murray 2001) • Proposal the inclusion of three broad land management activities: forest, cropland and grazing land management (Feng et al 2000).

3. Introduction: Sequestration • Sequestration: reducing atmospheric carbon stock by removing carbon from the atmosphere and storing it in soil or biomass.

4. Strategy Basic NatureCO2 CH4 N2O Afforestation Sequestration X Existing timberland/reforestation Sequestration X Deforestation Emission X Biofuel Production Offset X X X Crop Mix Alteration Emiss, Seq X X Crop Fertilization Alteration Emiss, Seq X X Crop Input Alteration Emission X X Crop Tillage Alteration Emission, SeqX X Grassland Conversion Sequestration X Irrigated /Dry land Mix Emission X X Enteric fermentation Emission X Livestock Herd Size Emission X X Livestock System Change Emission X X Manure Management Emission X X Rice Acreage Emission X X X Sequestration: Forestry & Ag activities (McCarl presentation, Purdue University, April 2003)

5. Why Sequestration ? • Society is searching for low cost options. • Forest and Ag costs estimated near $100 per ton carbon for Kyoto implementation. Non ag costs are bigger (McCarl presentation, Purdue University, April 2003) • The climate benefit of one ton of sequestered carbon and one ton of non emitted carbon are roughly equivalent

6. Sequestration: Potential • Carbon sequestration potential of US cropland through improvement management is 75 – 208 MMTC/year (Lal et al). • Soil sinks and forest sinks could potentially be used by US to meet half of its emission reduction commitment.

7. $ MAC Sequestration Cost Time Inflexion Point Bridge To The Future • Costs of sequestration are significantly lower than GHGs emissions abatement costs in the energy system. • Carbon sequestration can serve as the bridge to the future.

8. Permanence Issue • Saturation: storage reservoirs fill up due to physical or biological capacity • Volatility: carbon released through land use change, tillage change, harvesting, fires, or other natural disturbance

9. Permanence Issue: Saturation Gitz et al 2004 • Sequestration accumulates carbon until absorptive capacity is used up • West and Post find a 10-15 year period for tillage changes. • Birdsey shows a longer period 30-70 years for forest carbon. • Majority of gains occur in the first couple of decades.

10. Permanence issues : Volatility Gitz et al 2004 • When practice is discontinued, reverting from reduced back to conventional tillage, most of the carbon is released quickly. • If one is to permanently retain then the program must be designed to both encourage and maintain a change in land management • May also lead to discounts ala McCarl and Murray.

11. Economics Drive: Abatement • How efficient is carbon saving technology. • Rate and speed of abatement

12. Economics Drive: Sequestration • Cost of sequestration (McCarl, April 2003) • Afforestation: land cost opportunity. (Gitz et al 2004)

13. Economics Drive: Land Opportunity Cost • Costs of sequestration are indeed affected by the opportunity costs of lands diverted from other uses to sequester carbon. • Average net revenue of agricultural land in 1997 to evaluate the marginal opportunity cost of using land for sequestration purposes.

14. Economic Drive: Cost of Carbon(already discussed in the class) Carbon will cost money to produce, sell, and measure. DISC = (1-ADD)*(1-LEAK)*(1-UNCER)*(1-PERM) (McCarl, April 2003)

15. Timing Of Sequestration • “Sequestration potential should start immediately as a brake slowing down both the rate of growth of concentration and the rate of abatement in the energy sector” (Gitz et al 2004) • “Carbon sinks should be utilized as early possible, and carbon flow into sinks should last until the atmospheric carbon concentration is stabilized.” (Feng, Kling 2002)

16. Optimal Control: Model Setup • Motion for C(t) (1) • Motion for A(t) (2) • Social planner’s net payoff function (3) Maximizing (3) subject to (1) and (2) yields the optimal carbon sequestration and emission level over time.

17. Optimal Control: Optimal Paths of Sequestration Current value of Hamiltonian (4) (5) (6)

18. Optimal Control: Optimal Paths of Sequestration (7) Transversality condition (8)

19. Optimal Control: Steady State Assuming that a steady state exists, setting and using (1), (2), (6) and (7), we can derive: (i) (iv) (ii) (v) (iii)

20. Optimal Control: Long Run Emission (i) • Carbon sequestration activities do not play additional role in the long run. • Emissions should be in balance with reduction due to the natural decay

21. Optimal Control: Sequestration in Steady State From (ii), (iii) and (iv) we can derive: From (iii) we can sign D’(.) > 0 We can deduce the sign Q’(.) > 0

22. Optimal Control: Sequestration in Steady State • This means that • The result of using sequestration during the transition path toward the steady state (Feng et al 2002) • Sequestration does affect the process of reaching long run targets.

23. Optimal Control:Marginal Cost of Sequestration (steady state) From (iv) we can interpret: • amount of sequestration depends on the Q’(.), marginal cost of sequestration • Q’(.) is lower (sequestration more effective), then the amount of sequestration is higher.

24. Marginal Cost of Sequestration(empirical) Annual offset arising from agricultural soils (McCarl et al 2001) Annual offset arising from forest (McCarl et al 2001) • The amount of sequestration increases as the sequestration technique is becoming more effective. • Steady state analysis is empirically confirmed.

25. Optimal Control: Carbon Marginal Abatement Cost (MAC) From (ii), (iii) and (iv) we can derive: B’(.) represents the marginal benefit of emission which is equivalent to Marginal Abatement Cost (MAC) Replacing B’(.) with MAC: As the marginal abatement cost is increasing, the amount of carbon sequestration is also increasing

26. $ MAC1 Seq market Seq1 A1 Abatement L1 Lpolicy Panel B Optimal Control: Carbon Marginal Abatement Cost (MAC) $ MAC0 MAC0 Seq market Seq0 A0 Abatement L0 Lpolicy Panel A as MAC increases, the amount of sequestration also increases which is in synch with the result of steady state

27. Payment Scheme: PAYG(Pay-As-You-Go) • Owners sinks sell and repurchase emission credits based simply on the permanent reduction of carbon. • A farmer who adopts conservation tillage practices on 100 acres may earn 200 permanent carbon. • If in the fifth year, the farmer plows the land, he would be required to purchase carbon credits. (Feng, Zhao, Kling 2000)

28. Payment Scheme: VLC (Variable-Length-Contract) • VLC system evolves through independent broker arrangements. • A broker wishes to buy permits from sink sources and sell them to emitters • The broker must contract with sink sources to achieve permanent reduction. • Permanent carbon reduction is produced from a series of temporary reduction. • Broker contacts farmer 1 to sign a contract to adopt conservation tillage, say 3 years before plowing the land. • Broker contacts farmer 2 to plant trees at beginning of year 4. (Feng, Zhao, Kling 2000)

29. Payment Scheme: CAA Carbon Annuity Account • The generator of a sink is paid the full value of the permanent reduction in the GHG’s stored in the sink. • Payment is put directly into the annuity account. • Owner can access the earning of the account as long as the sink remains in place. • The principal is withdrawn when and if the sink is removed. • If the sink remains permanently, the sink owners eventually earns all the interest. (Feng, Zhao, Kling 2000)

30. Conclusion • Agricultural and forest carbon sequestration are important components in response to a greenhouse gas emission • Sequestration should not be treated the same as abatement/reduction. Sequestration always has the potential to be temporary. • Sequestration does affect the path of reaching long run targets.

31. Conclusion • Marginal sequestration cost affects the amount of carbon sequestered in the long run. • The carbon MAC of the industry also affects the amount of sequestered carbon. As the MAC increases, the amount of carbon sequestration also increases.   • On the whole, it does not matter whether the reduction is done by sequestration or emission abatement as long as there is less carbon in the

32. References • Birdsey, R.A 1996. “Carbon Storage for Major Forest Types and Regions in the Contiguous United States. “. Chapter 1, “Forest and Global Change,” in Vol. 2: Forest Management Opportunities for Mitigating Carbon Emissions, edited by R.N Sampson and D. Hair. Washington, D.C. : American Forest. • Feng, H, Zhao, J and Kling C. 2000. “Carbon Sequestration in Agriculture: Value and Implementation”. Working Paper 00-WP 256, Center for Agricultural and Rural Development, Iowa States University. • Feng, H, Zhao, J and Kling, C. 2002 “The Time Path and Implementation of Carbon Sequestration”, AJAE, 84, February 2002:134-149. • Gitz, V, Hourcade, J,C, Ciais, P. 2004. “Energy Implications of Optimal Timing of Biological Carbon Sequestration .” The Energy Journal, 04 August 2004. • Grubler, A., N.Naicenovik, and W.D. Nordhaus, “The technological change and the environment”, RFF Washington-DC and IIASA Laxenbury-Austria, 2002. • Intergovernmental Panel on Climate Change (IPCC). May 2000 “Summary for Policymakers-Land Use, Land-Use Change, and Forestry.” • Kurkalova, L, Kling, C, Zhao J. 2001. “Institution and the Value of Nonpoint Source Measurement Technology: Carbon Sequestration in Agricultural Soils”. Working Paper 00-WP 338, Center for Agricultural and Rural Development, Iowa States University.  • Kurkalova, L, Kling, C, Zhao, J. 2003. “Multiple Benefits of Carbon Friendly Agricultural Practices: Empirical Assessment of Conservation Tillage”. Working Paper 03-WP 326, Center for Agricultural and Rural Development, Iowa States University.

33. References • McCarl, B.A 2003. “Cost of Carbon: Ideas and Research Direction”. Presentation for Climate Change Segment of Advance Resources Class. • McCarl, B.A, and Schneider, U.A. 2000. “Agriculture’s Role in a Greenhouse Gas Emission Mitigation World: An Economic Perspective.” Review of Agricultural Economics 22: 134 – 59. • McCarl, B.A, Murray, B.C, Schneider, U.A. 2001. “Influences of Permanence on the Comparative Value of Biological Sequestration versus Emissions Offsets”. Working Paper 01-WP 282, Center for Agricultural and Rural Development, Iowa States University  • Schneider, U.A, McCarl, B.A, Murray, B.C, Williams, J.R, Sand, R.D. 2001. “Economic Potential of Greenhouse Gas Emission Reductions: Comparative Role for Soil Sequestration in Agriculture and Forestry.” Working Paper 01-WP 281, Center for Agricultural and Rural Development, Iowa State University.  • Schneider, U.A. 2002 "The Cost of Agricultural Carbon Saving", Working Paper 02-WP 306, Center for Agricultural and Rural Development, Iowa State University.  • Kooten, V, Grainger A, Ley, A, Marland, G, and Solberg, B. 1997. “Conceptual Issues Related to Carbon Sequestration: Uncertainty and Time.” Critical Rev. Environ. Sci. Technol  • Richard, K.R. 1997. “The Time Value of Carbon in Bottom-up Studies.” Critical Rev. Environ.Sci Technol. 27: S279-S292. • West, T., Post, J.A and Marland, J. 2000. “Review of Task 2.1 – National Carbon Sequestration Assessment.” Paper presented at Department of Energy Center for Research on Enhancing Carbon Sequestration in Terrestrial Ecosystem (CSITE) Program Review, Oakridge National Laboratories, TN, November.