Tree–crop interactions and their environmental and economic implications in the presence of carbon-sequestration payments*

The growing emphasis on market-based solutions to environmental problems, both under and outside of the United Nations Framework Convention on Climate Change, means that carbon sequestered in the biomass and soils of agroforestry systems is likely to acquire a direct market value. If the incentive provided by carbon markets is large enough, this may alter the economics of growing trees, which is often not an attractive land-use alternative due to high establishment costs and delayed revenues. In this paper, the effect of carbon payments on the economic attractiveness of growing trees is investigated for a tree–crop agroforest in Indonesia using a simulation-modelling approach. An economic model is developed to analyze the economic implications of carbon payments from the standpoint of the individual landholder. The simulation is implemented in WaNuLCAS, a model that accounts for water, nutrients, light and carbon in agroforestry systems. The value of switching from a continuous-cropping system to an agroforestry system participating in carbon trading was estimated at $109 ha 1 in present value terms. Although these results vary depending on assumptions regarding carbon prices and costs of carbon monitoring, they essentially show that the benefits of participating in markets for carbon sequestration can exceed the costs. The optimal management regime, both with and without carbon payments, was to plant 15% of the area to trees and to adopt a low firewood-harvest regime, with 75% of tree prunings being returned to the soil to restore carbon and nutrients. Approximately 22% of the economic benefits obtained by switching land use were attributed to carbon trading and the remaining 78% were attributed to improvements in land productivity. The paper ends with a brief discussion of the implications of the findings for policy and management.