Additionality Constrains Investment in Carbon Sequestration

Abstract Additionality is a structural constraint that only recognizes land-based carbon sequestration if it would not have occurred without carbon payments. This discourages large-scale investment because it removes a significant portion of the potential carbon storage asset. Here we examine the effects of replacing the additionality requirement with a carbon asset class on soil organic carbon (SOC) sequestration on cropland. We construct and calibrate an economic model focused on crop and carbon farming in Texas. Our results indicate that eliminating the additionality constraint and monetizing the SOC pool can significantly increase investment in land management practices. Rather than regulating SOC sequestration through additionality, we propose the creation of a carbon asset class that rewards carbon accumulation resulting from all land management practices. We assume that conventional land management sequesters 12.67 Mg of carbon per hectare. Under a carbon offset price of $150 per Mg of CO₂ with the additionality constraint in place, crop farmers do not sequester any additional carbon by 2050. However, when additionality is replaced with a carbon asset class and farmers receive annuity payments based on their existing carbon stocks, they sequester an additional 41.48 Mg of carbon per hectare by 2050 – a 327.4% increase relative to the original carbon pool. The historically accumulated carbon becomes a source of revenue that incentivizes new investment.