Farmer Adoption and Payment Design Under Risk: Variability in Soil Carbon Sequestration Across Conservation Practices

Carbon sequestration in agricultural soils represents a substantial and largely untapped opportunity for climate mitigation. This study analyzes farmers’ long-term decisions to adopt soil conservation practices, such as no-till and reduced tillage, under carbon payment schemes tied to soil organic carbon (SOC) accumulation, explicitly accounting for the risk arising from variability in SOC sequestration outcomes. Using an infinite-horizon dynamic optimization model, the study quantifies the carbon payment levels required to incentivize adoption across different soil types. Results show that the required payments vary widely, from $8/ton C/year on well-drained soils to $32/ton C/year on poorly drained soils, highlighting the need for spatially targeted carbon incentives. The analysis demonstrates that risk in the SOC sequestration amount affects farmer choices: higher uncertainty increases the payments needed and can lead farmers to prefer lower-risk, lower-reward practices. For farmers who value intertemporal consumption smoothing, compensation requirements rise with the coefficient of relative risk aversion. These findings underscore the importance of accounting for soil heterogeneity, outcome variability, and intertemporal preferences when designing effective carbon payment programs to promote long-term soil carbon sequestration.