The Time Value of Carbon Storage
36 Pages Posted: 16 Jun 2022 Last revised: 2 Oct 2022
Date Written: September 1, 2021
Abstract
Widespread concern about the risks of global climate change is increasingly focused on the urgent need for action, and natural climate solutions are a critical component of global strategies to achieve low temperature targets. Yet to date, the full potential of natural systems to store carbon has not been leveraged because policymakers have required long-term contracts to compensate for permanence concerns, and these long-term contracts substantially raise costs and limit deployment. In this paper, we lay out the rationale that our time preference for early action leads to the conclusion that multiple tons of short-term storage of carbon in ecosystem stocks can be considered to have equal value – as measured by the social cost of carbon -- as 1 ton of carbon sequestered permanently. This equivalence can be used to quantify the value of short-term carbon storage, thereby removing one of the most significant barriers to participation in the carbon market and enabling the full climate mitigation potential of the land sector to be realized.
Keywords: carbon, discounting, time value, ton-years, short-term storage
JEL Classification: Q23, Q24, Q40, Q54
Suggested Citation: Suggested Citation