347. Soil carbon is a highly flawed climate policy, Part 2
My last post was about why payments for soil carbon from the Government’s climate change program will provide little benefit to farmers, unless the program is poorly designed. This time and next time I’m looking critically at whether soil-carbon sequestration should be a priority of climate policy, starting with the issue of additionality.
My focus here is on the type of policy that pays farmers to change their farm management in order to increase the sequestration of carbon in the soil, under crops and pastures. I’m not talking about restoration and rewetting of peatlands, which is of interest in Europe. That’s a case of reducing emissions, rather than increasing sequestration.
Since I wrote PD127 in 2008 (on the economics of payments for soil carbon from the farmer’s perspective), I worked with Dr Tas Thamo on a different aspect of the problem: how would you would need to design a soil-carbon policy for it to be effective and worthwhile. This work has made me even more pessimistic about the prospects for a successful soil-carbon-sequestration policy.
The biggest issue is the “additionality” of the program. I’ll cover that in this post and several other issues in the next post.
Additionality is about whether the actions being undertaken by farmers are “additional” to what they would do anyway. If they are not additional, then paying the farmers makes no contribution to mitigating climate change.
As manager of a program that pays farmers to sequester soil carbon, what you should be looking for is a practice that sequesters carbon and is not yet adopted by an identified group of farmers, but could be adopted by them with only a small decline in profit. You could get a good number of these farmers to adopt it without having to pay them so much that it outweighed the value of the extra carbon sequestered.
But … farms and farmers are heterogeneous. In reality, within a population of farmers, any one practice has a range of impacts on their profit, following something like a normal distribution. That means that if there are some farmers with a small cost of adoption, there would also be other farmers who could increase their profits if they adopted – they are not additional. The very practices for which there are plenty of farmers with low-cost adoption opportunities (ones the program would most like to target) will inevitably also have a bunch of farmers who would adopt it without any payment (i.e. farmers the program should not pay if possible). The problem is, unless the second group have already adopted the practice, you probably can’t tell the two groups apart.
That leaves the program managers in a very sticky position. The practices that don’t have problems with additionality are the ones that are costly for farmers to adopt, but paying farmers enough to adopt those practices probably costs more than the extra carbon is worth. If you target practices that are not costly to adopt, you end up having to pay a whole lot of non-additional farmers as well, so the cost per unit of additional carbon ends up not being cheap after all.
On top of this, there is a political dimension that pushes governments towards paying for non-additional sequestration: farmers who have already adopted the practice tend to object to not being paid when they can see money flowing to other farmers who seem less worthy.
Ensuring additionality becomes even more difficult as time passes. Once the program is in place, it is impossible to know what participating farmers would have done without the program. If the practices that sequester carbon are as good for farm production as some advocates claim, you’d have to expect that many farmers would eventually adopt them anyway, even without payments. That’s exactly what happened with no-till/stubble retention. Early on in its adoption process in Australia, no-till would have looked like a great thing to support with incentive payments, but now we know that, from a climate-change perspective, it would have been a waste of money. Farmers would have been happy to get payments, of course, but the program would have made no genuine contribution to mitigating climate change because no-till was going to be adopted anyway.
I fear that the Australian Government will make do with extremely weak methods for assessing additionality. In fact, if you think about the issues I’ve outlined above, you’ll see that there never can be a reliable and practical way of assessing it. It would at least require regular economic analysis of the farming options on a field-by-field basis, but that would be very costly, and even then it would not be a highly reliable predictor of what farmers would have done without the program. For one thing, it’s too easy to fudge such an analysis to get a desired result.
These problems with additionality are not specific to soil carbon, of course; they apply to some degree in every agri-environmental program where farmers are being paid to do things. But they are especially acute for soil carbon because the benefit that is being bought – the monetary value of the carbon sequestered per hectare per year – is small relative to the other costs and revenues of farming. It means there is little room for the program to maneuver in – it will always be operating at the margin where it’s pretty well impossible to distinguish additional from non-additional.
The fact that the payment is relatively small means that it will have only a marginal influence on farmers’ decisions about their land. For the great majority of farmland, if an appropriately modest payment is offered, adopting the new practice will either be too unprofitable for the payment to make a big enough difference, or the new practice will already be profitable without the payment. Only for a small area will the payment make the difference between unprofitability and profitability of the new practice. If a soil-carbon program seems to be highly successful and supporting a lot of farmers, that should set off alarm bells. It probably means that most of the money is being paid for non-additional sequestration.
Thamo, T. and Pannell, D.J. (2016). Challenges in developing effective policy for soil carbon sequestration: perspectives on additionality, leakage, and permanence, Climate Policy 16, 973–992. DOI:10.1080/14693062.2015.1075372