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

Agricultural soils represent one of the largest underutilized opportunities for climate mitigation through land-based carbon sequestration. This study analyzes how farmers make long-term decisions about adopting soil conservation practices, such as no-till and reduced tillage, when soil organic carbon (SOC) accumulation generates additional payments, while explicitly considering risk associated with SOC sequestration variability. 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 elasticity of intertemporal substitution. 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.