Sequestration offsets versus direct emission reductions: Consideration of environmental co-effects

Atmospheric greenhouse gas accumulation, and consequential temperature increase, can be remedied by emission reductions or agricultural carbon sequestration. Both options have direct and external environmental effects. This paper examines the magnitudes of existing estimates of corresponding external co-effects and how they could affect optimal combination of emission reductions and agricultural carbon sequestration. We discuss whether government intervention, in the form of taxation/subsidization, is justified for internalizing the externalities considering their relative magnitudes, implementation costs and potential benefits that could be derived from such intervention. We conclude that the existing estimates of external benefits from sequestration and emission reduction do not provide enough support for allocating resources to alter the market mix of carbon sequestration and direct emission reduction strategies.