We examine economic incentives for carbon farming under the requirement of climate integrity. The identified key requirements for climate integrity comprise measurement and verification, permanence, and additionality at farm, market, and national levels. Farmers make carbon contracts for a finite time either in voluntary markets or with the government. Agricultural practices are multiple requiring thus detailed calculations of GHG emissions and C sequestration when making carbon contracts. Temporary contracts can be made climate-proof by using offset ratios indicating the share of one emissions unit that one unit of sequestered carbon replaces. Offset ratio is a function of contract length, discount rate, and uncertainty. Carbon leakage at farm level is prevented by contracts that cover the whole farm production. Leakage at market level must be accounted for when designing voluntary market or government policy. Carbon farming is profitable for farmers provided that practices reducing GHG emissions and sequestering carbon on arable soils are efficient, carbon contracts long enough, and credit prices high enough.
Speaker Bio: Markku Ollikainen is professor emeritus and research director in the Department of Economics and Management at the University of Helsinki. He is best known for his work in the areas of climate and environmental economics. Ollikainen serves as chairman of the Finnish Climate Panel and has been a member of the Finnish Academy of Sciences since 2011.