Uncertainty Discounting for Land-Based Carbon Sequestration

The effect of stochastic factors on soil carbon makes the quantity of carbon generated under asequestration project uncertain. Hence, the quantity of sequestered carbon may need to bediscounted to avoid liability from shortfalls. We present a potentially applicable uncertaintydiscount and discuss difficulties that might arise in empirical use. We insist that the variancein historical crop yields across geographical areas is used to derive a proxy variance forforming an uncertainty discount for carbon projects. Application of our approach suggeststhat project level uncertainty discounts would be 15–20% for the East Texas region.