The Costs of Carbon Sequestration: A Revealed-Preference Approach

Abstract

The possibility of encouraging the growth of forests as a means of sequestering carbon dioxide has received considerable attention because of concerns about the threat of global climate change due to the greenhouse effect. Would this approach be as inexpensive as studies have suggested? We develop a method for estimating the costs of carbon sequestration by estimating the opportunity costs of land on the basis of econometric evidence of landowners' behavior. The model incorporates intertemporal linkages between deforestation and carbon emissions, and between forestation and carbon sequestration. We find that the marginal costs of carbon sequestration are highly non-linear and that those costs may be greater than previous studies have found, particularly at higher levels of sequestration. We estimate that U.S. marginal carbon sequestration costs will probably be somewhat greater than carbon abatement costs at low levels of control, and that the difference between the two will likely increase as targets increase.

JEL Classification: Q24, Q23, Q15, Q28, Q38, Q48, L73