The Economic Value of Soil Carbon - Soil Carbon: Science, Management and Policy for Multiple Benefits - page 183

It can be argued that under risk and un-
certainty to the variability and disturbance
of soil carbon, both output and insurance
values can be aggregated. The NIV of soil
carbon measures how much a land manager
would be willing to pay, say by investing in
soil carbon-enhancing land management ac-
tivities, in order to hedge against risk from
exogenous shocks and stresses, assuming
the land manager is risk averse. When the
farmer is risk neutral, the NIV would be
zero, and if, instead, he is risk loving, his
willingness to pay (WTP) would be nega-
tive. In a context of uncertainty and/or ig-
norance, and assuming risk aversion towards
shocks and stresses due, for example, to
climate change, separating the total output
value from the insurance value would imply
that double counting would not occur.

capacity of private assets, for example through
the role in agricultural productivity. This
raises a challenge as the beneficiaries from
the investments become less clear and opti-
mal regulation should account for the diver-
sity with which different groups in society
are impacted from alternative policy op-
tions. On the other hand, the fact that in-
vestment in soil carbon leads to tangible,
local private benefits (although long term)
also suggests that it might be possible to de-
sign policy initiatives which would reduce
the gap between the current investment in
soil carbon and the optimal level.

Capturing the Economic Value of
Soil Carbon

Valuation of soil carbon goes beyond
demonstrating the preference intensity of
society with respect to possible trade-offs
(externalities). Properly used, valuation can
be used to develop policy instruments to
appropriate and distribute or share the soci-
etal value of soil carbon. Appropriation re-
fers to the process of capturing some or all
of the demonstrated and measured values
of soil carbon so as to provide economic in-
centives for its sustainable and optimal
management. It aims at internalizing, through
a regulatory framework based on either
command-and-control or alternative market-
based instruments, the demonstrated values
of soil carbon so that those values affect in-
vestment decisions about soil carbon. In-
ternalization is achieved either by setting
quantity targets directly, creating markets
when they are altogether missing, or cor-
recting markets when they are 'incomplete'.
In the benefit-sharing phase, appropriation
mechanisms can be designed so that the
demonstrated and captured soil carbon val-
ues are distributed based on social equity
and fairness principles.
But, in addition to market failures, there
are also two other failures that need to be
solved for socially optimal soil carbon deci-
sions: information and policy failures. An
information failure for soil carbon might
exist due to the difficulty of quantifying the
level of goods and services that derive from

Discounting the value of soil carbon

An additional complicating factor related
to the economic regulation of soil carbon is
the long timescale involved with depletion
and accumulation in soils. This implies
that the natural capital is slowly decreasing
in value if its value is not fully recognized
in decision making; further, it also implies
that mismanagement of the soil carbon can-
not be rectified in the short term. Decision
making with long-term consequences is no-
toriously difficult. This has been studied
and demonstrated in relation to many en-
vironmental concerns, most prominently
in the climate change debate (Arrow et al .,
1996). It is well known that balancing the
concerns of present versus future gener-
ations has profound implications for in-
vestment in climate change mitigation, and
equally for the case for investment in soil
carbon.
In economics, this debate is portrayed
technically through discounting as a means
of capturing the role of considerations over
equity and efficiency in natural resource
use and investment (Dasgupta, 2006). In-
vestment in soil carbon has all the same
characteristics as the climate change miti-
gation debate, but investment in soil carbon
is also an investment in the productive