Executive Summary

When and if the United States decides on mandatory policies to address global climate change, it will be necessary to decide whether carbon sequestration should be part of the domestic portfolio of compliance activities. The potential costs of carbon sequestration policies will presumably be a major criterion, so it is important to assess the cost of supplying forest-based carbon sequestration in the United States. In this report we survey major studies, examine the factors that have affected their carbon sequestration cost estimates, and synthesize the results.

The Earth’s atmosphere contains carbon dioxide (CO₂) and other greenhouse gases (GHGs) that act as a protective layer, causing the planet to be warmer than it would otherwise be. If the level of CO₂ rises, mean global temperatures are also expected to rise as increasing amounts of solar radiation are trapped inside the “greenhouse.” The level of CO₂ in the atmosphere is determined by a continuous flow among the stores of carbon in the atmosphere, the ocean, the earth’s biological systems, and its geological materials. As long as the amount of carbon flowing into the atmosphere (as CO₂) and out (in the form of plant material and dissolved carbon) are in balance, the level of carbon in the atmosphere remains constant.

Human activities—particularly the extraction and burning of fossil fuels and the depletion of forests—are causing the level of GHGs (primarily CO₂) in the atmosphere to rise. The primary sources of the slow but steady increase in atmospheric carbon are fossil fuel combustion, which contributes approximately 5.5 gigatons (billion metric tons) of carbon per year, and land-use changes, which account for another 1.1 gigatons. In contrast, the oceans absorb from the atmosphere approximately 2 more gigatons of carbon than they release, and the earth’s ecosystems appear to be accumulating another 1.2 gigatons annually. In all, the atmosphere is annually absorbing approximately 3.4 gigatons of carbon more than it is releasing.

While the annual net increase in atmospheric carbon may not sound large compared with the total amount of carbon stored in the atmosphere—750 gigatons—it adds up over time. For example, if the current rate of carbon accumulation were to remain constant, there would be a net gain in atmospheric carbon of 25 percent over the next fifty years. In fact, the rate at which human activity contributes to increases in atmospheric carbon is accelerating. Emissions from land-use change have been growing at the global level, though not nearly as rapidly as emissions from fossil fuel combustion. In the United States, land-use change—which was a substantial source of carbon emissions in the 19th and early 20th centuries—became a sink (or absorber of carbon) by the second half of the 20th century. However, the rate of carbon absorption by terrestrial systems in the United States peaked around 1960 and has been falling since.

It may be possible to increase the rate at which ecosystems remove CO₂ from the atmosphere and store the carbon in plant material, decomposing detritus, and organic soil. In essence, forests and other highly productive ecosystems can become biological scrubbers by removing (sequestering) CO₂ from the atmosphere. Much of the current interest in carbon sequestration has been prompted by suggestions that sufficient lands are available to use sequestration for mitigating significant shares of annual CO₂ emissions, and related claims that this approach provides a relatively inexpensive means of addressing climate change. In other words, the fact that policy makers are giving serious attention to carbon sequestration can partly be explained by (implicit) assertions about its marginal cost, or (in economists’ parlance) its supply function, relative to other mitigation options.

The economist’s notion of cost, or more precisely, opportunity cost, is linked with—but distinct from—everyday usage of the word. Opportunity cost is an indication of what must be sacrificed to obtain something. In the environmental context, it is a measure of the value of whatever must be sacrificed to prevent or reduce the chances of a negative environmental impact. Opportunity cost typically does not coincide with monetary outlays—the accountant’s measure of costs. This may be because out-of-pocket costs fail to capture all of the explicit and implicit costs that are incurred, or it may be because the prices of the resources required to produce an environmental improvement are themselves an inaccurate indication of the opportunity costs of those resources. Hence, the costs of a climate policy equal the social benefits that are foregone when scarce resources are employed to implement that policy, instead of putting those resources to their next best use.

The costs of carbon sequestration are typically expressed in terms of monetary amounts (dollars) per ton of carbon sequestered—that is, as the ratio of economic inputs to carbon mitigation outputs for a specific program. The denominator, carbon sequestered, is determined by forest management practices, tree species, geographic location and characteristics, and disposition of forest products involved in a hypothetical policy or program. The costs reflected in the numerator include the costs of land, planting, and management, as well as secondary costs or benefits such as non-climate environmental impacts or timber production. Well-developed analytical models include landowners’ perceptions regarding all relevant opportunity costs, including costs for land, conversion, plantation establishment, and maintenance.

Among the key factors that affect estimates of the cost of forest carbon sequestration are: (1) the tree species involved, forestry practices utilized, and related rates of carbon uptake over time; (2) the opportunity cost of the land—that is, the value of the affected land for alternative uses; (3) the disposition of biomass through burning, harvesting, and forest product sinks; (4) anticipated changes in forest and agricultural product prices; (5) the analytical methods used to account for carbon flows over time; (6) the discount rate employed in the analysis; and (7) the policy instruments used to achieve a given carbon sequestration target.

Given the diverse set of factors that affect the cost and quantity of potential forest carbon sequestration in the United States, it should not be surprising that cost studies have produced a broad range of estimates. This report identifies eleven previous analyses that are good candidates for comparison and synthesis. Results from these studies were made mutually consistent, or normalized, by adjusting for constant-year dollars, identical discount rates, identical geographic scope, and reporting in equivalent annual costs. This normalization narrows the range of results considerably; for a program size of 300 million tons of annual carbon sequestration, nearly all estimated supply functions (or marginal costs) fall within the range of $25 - $75 per short ton of carbon ($7.50 - $22.50 per metric ton of CO₂-equivalent). This range increases somewhat—to $30 - $90 per ton of carbon—for programs sequestering 500 million tons annually. In addition, econometric methods were used to estimate the central tendency (or “best-fit”) of the normalized marginal cost functions from the eleven studies compared here; this is presented as an additional result of the analysis and as a rough guide for policy makers of the projected availability of carbon sequestration at various costs.

Three major conclusions emerge from our survey and synthesis:

1) There is a broad range of possible forest-based carbon sequestration opportunities available at various magnitudes and associated costs.

This range depends upon underlying biological and economic assumptions, as well as the analytical methods employed. Several factors affect estimates of cost: forest species and practices; the value of land for alternative uses; the disposition of biomass, forest and agricultural product prices; methods used to account for carbon flows over time; the discount rate employed; and the policy instruments used.

2) A systematic comparison of sequestration supply estimates from national studies produces a range of $25 to $75 per ton for a program size of 300 million tons of annual carbon sequestration.

The range increases somewhat—to $30 - $90 per ton of carbon—for programs sequestering 500 million tons annually. This range is obtained from a synthesis of eleven national studies of U.S. sequestration opportunities in the forestry sector, where each study was adjusted for use of equivalent annual costs in constant-year dollars, together with identical discount rates and identical geographic scope. This approach allows for consistent comparisons across a variety of studies and narrows the range of estimated supply functions considerably.

3) When a transparent and accessible econometric technique is employed to estimate the central tendency (or “best-fit”) of costs estimated in these eleven studies, the resulting supply function for forest-based carbon sequestration in the United States is approximately linear up to 500 million tons of carbon per year, at which point marginal costs reach approximately $70 per ton.

A 500-million-ton-per-year sequestration program would be very significant, offsetting approximately one-third of annual U.S. carbon emissions. At this level, the estimated costs of carbon sequestration are comparable to typical estimates of the costs of emissions abatement through fuel switching and energy efficiency improvements. This result indicates that sequestration opportunities ought to be included in the economic modeling of climate policies. It further suggests that if it is possible to design and implement a domestic carbon sequestration program, then such a program ought to be included in a cost-effective portfolio of compliance strategies when and if the United States enacts a mandatory domestic GHG reduction program.