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### Abstract

As a result of the Kyoto Protocol (KP) and its so-called "flexibility mechanisms", climate change and mechanisms to mitigate its potential effects have attracted considerable economic and policy attention. A major reason for this attention is that the KP has a complex set of instruments that enable countries to achieve emissions reduction targets in a wide variety of ways, some of which are unlikely to lead to real, long-term reductions in greenhouse gas emissions. One purpose of this chapter, therefore, is to provide an overview of economic reasoning applied to climate change and to illustrate how terrestrial carbon uptake credits (offset credits) operate within the KP framework. Attention is focused on the feasibility of terrestrial carbon sinks to slow the rate of CO2 buildup in the atmosphere (Beattie, Bond and Manning 1981). I also examine the results of several empirical studies into the costs of carbon uptake in agricultural ecosystems and by forestry activities. For example, Manley et al. (2004) examined the costs of creating soil carbon sinks by switching from conventional to zero tillage. The viability of agricultural carbon sinks was found to vary by region and crop, with no-till representing a low-cost option in some regions (costs of less than $10/tC), but a high-cost option in others (costs of$100-\$400/tC). A particularly relevant finding is that no-till cultivation may store no carbon at all if measurements are taken at sufficient depth. In some circumstances no-till cultivation may yield a "triple dividend" of carbon storage, increased returns and reduced soil erosion, but in many others creating carbon offset credits in agricultural soils is not cost effective because reduced tillage 1 Prepared for Climate Change and Managed Ecosystems edited by J.S. Bhatti, R. Lal, M. Apps and M. Price. Baton Roca, FL: CRC Press. 2 practices store little or no carbon. This is particularly the case in the Great Plains. In another study, van Kooten (2004) review estimates from 55 studies of the costs of creating carbon offsets using forestry. Lowest costs of sequestering carbon are through forest conservation, while tree planting and agroforestry activities increase costs by more than 200%. The use of marginal cost estimates instead of average cost results in much higher costs for carbon sequestration, in the range of thousands of dollars per tC, although few studies used this more-appropriate method of cost assessment. I conclude by making the case that, while there remains a great potential for carbon sinks, more attention needs to be paid to post-harvest. In the above research, post harvest storage of carbon in wood products yielded much lower cost estimates. Yet, the study of post harvest uses of biomass remains an area that requires greater attention by economists.