Rangeland Carbon Sequestration, Agribusiness, Agricultural and Food Policy, Land Economics/Use,

Bastian, Christopher T.

Rashford, Benjamin S.

Ritten, John P.

English

Research Papers in Economics

Will Carbon Find a Home on the Range? A Monte Carlo Simulation 
 
 
 
Authors 
John P. Ritten
1, Christopher T. Bastian
2, Benjamin S. Rashford
1  
 
1Assistant Professor, Department of Agricultural and Applied Economics, University of 
Wyoming,  
2Associate Professor, Department of Agricultural and Applied Economics, University of 
Wyoming 
 
 
 
 
Poster prepared for presentation at the Agricultural & Applied Economics Association 
2010 AAEA,CAES, & WAEA Joint Annual Meeting, Denver, Colorado, July 25-27, 
2010 
 
 
 
 
 
 
Copyright 2010 by Ritten, Bastian and Rashford.  All rights reserved. Readers may make 
verbatim copies of this document for non-commercial purposes by any means, provided 
that this copyright notice appears on all such copies. Will	 ﾠCarbon	 ﾠFind	 ﾠa	 ﾠHome	 ﾠon	 ﾠthe	 ﾠRange?	 ﾠA	 ﾠMonte	 ﾠCarlo	 ﾠSimula on	 ﾠ
John	 ﾠP.	 ﾠRi en1,	 ﾠChristopher	 ﾠT.	 ﾠBas an2,	 ﾠBenjamin	 ﾠS.	 ﾠRashford1	 ﾠ–	 ﾠ1Assistant	 ﾠProfessor,	 ﾠDepartment	 ﾠof	 ﾠAgricultural	 ﾠand	 ﾠApplied	 ﾠEconomics,	 ﾠUniversity	 ﾠof	 ﾠWyoming,	 ﾠ2Associate	 ﾠProfessor,	 ﾠDepartment	 ﾠof	 ﾠAgricultural	 ﾠand	 ﾠApplied	 ﾠEconomics,	 ﾠUniversity	 ﾠof	 ﾠWyoming	 ﾠ
Introduc on	 ﾠ
As	 ﾠconcerns	 ﾠover	 ﾠglobal	 ﾠclimate	 ﾠchange	 ﾠincrease,	 ﾠthere	 ﾠis	 ﾠgrowing	 ﾠinterest	 ﾠin	 ﾠthe	 ﾠpoten al	 ﾠfor	 ﾠ
agricultural	 ﾠlands	 ﾠto	 ﾠprovide	 ﾠecosystem	 ﾠservices	 ﾠrelated	 ﾠto	 ﾠcarbon	 ﾠsequestra on.	 ﾠMany	 ﾠgeologic	 ﾠ
sequestra on	 ﾠtechniques	 ﾠremain	 ﾠunproven	 ﾠand	 ﾠcost	 ﾠprohibi ve.	 ﾠ	 ﾠResearch	 ﾠsuggests	 ﾠ,	 ﾠhowever,	 ﾠ
that	 ﾠterrestrial	 ﾠsequestra on	 ﾠis	 ﾠcurrently	 ﾠeconomically	 ﾠand	 ﾠenvironmentally	 ﾠviable	 ﾠ.	 ﾠ	 ﾠRangelands	 ﾠ
are	 ﾠa	 ﾠmajor	 ﾠland	 ﾠcover	 ﾠin	 ﾠthe	 ﾠUnited	 ﾠStates,	 ﾠand	 ﾠpar cularly	 ﾠthe	 ﾠWest,	 ﾠaccoun ng	 ﾠfor	 ﾠnearly	 ﾠhalf	 ﾠ
of	 ﾠthe	 ﾠ800	 ﾠmillion	 ﾠacres	 ﾠof	 ﾠgrazing	 ﾠlands	 ﾠin	 ﾠthe	 ﾠU.S.	 ﾠ	 ﾠWhile	 ﾠthe	 ﾠper	 ﾠacre	 ﾠcarbon	 ﾠcapture	 ﾠpoten al	 ﾠ
of	 ﾠrangelands	 ﾠmay	 ﾠbe	 ﾠless	 ﾠthan	 ﾠeither	 ﾠcrop	 ﾠor	 ﾠforest	 ﾠlands,	 ﾠexis ng	 ﾠresearch	 ﾠindicates	 ﾠthat	 ﾠeven	 ﾠ
modest	 ﾠchanges	 ﾠin	 ﾠcarbon	 ﾠstorage	 ﾠon	 ﾠrangelands	 ﾠcan	 ﾠpoten ally	 ﾠalter	 ﾠthe	 ﾠglobal	 ﾠcarbon	 ﾠcycle.	 ﾠ
The	 ﾠChicago	 ﾠClimate	 ﾠExchange	 ﾠhas	 ﾠrecently	 ﾠini ated	 ﾠa	 ﾠRangeland	 ﾠSoil	 ﾠOﬀset	 ﾠprogram	 ﾠto	 ﾠallow	 ﾠ
carbon	 ﾠcredit	 ﾠtrading	 ﾠfor	 ﾠcarbon	 ﾠsequestered	 ﾠin	 ﾠcertain	 ﾠgeographic	 ﾠareas	 ﾠdeﬁned	 ﾠby	 ﾠUSDA	 ﾠLand	 ﾠ
Resource	 ﾠRegions	 ﾠ(Figure	 ﾠ1).	 ﾠ	 ﾠSequestra on	 ﾠrates	 ﾠfor	 ﾠrangelands	 ﾠin	 ﾠnon-ﾭ‐degraded	 ﾠstates	 ﾠrange	 ﾠ
from	 ﾠ0.12-ﾭ‐0.27	 ﾠmetric	 ﾠtons	 ﾠper	 ﾠacre	 ﾠper	 ﾠyear.	 ﾠ	 ﾠYet	 ﾠli le	 ﾠresearch	 ﾠexists	 ﾠregarding	 ﾠthe	 ﾠeconomic	 ﾠ
viability	 ﾠof	 ﾠenrollment	 ﾠin	 ﾠthis	 ﾠprogram.	 ﾠ	 ﾠMoreover,	 ﾠin	 ﾠApril	 ﾠof	 ﾠ2009,	 ﾠthe	 ﾠU.S.	 ﾠEnvironmental	 ﾠ
Protec on	 ﾠAgency	 ﾠ(EPA)	 ﾠruled	 ﾠCarbon	 ﾠDioxide	 ﾠto	 ﾠbe	 ﾠa	 ﾠpollutant,	 ﾠand	 ﾠthat	 ﾠit	 ﾠmust	 ﾠbe	 ﾠregulated	 ﾠper	 ﾠ
the	 ﾠClean	 ﾠAir	 ﾠAct.	 ﾠ	 ﾠThis	 ﾠhas	 ﾠfueled	 ﾠa	 ﾠwidespread	 ﾠdebate,	 ﾠwith	 ﾠcongress	 ﾠnow	 ﾠconsidering	 ﾠa	 ﾠcap	 ﾠand	 ﾠ
trade	 ﾠbill	 ﾠaimed	 ﾠat	 ﾠcontrolling	 ﾠthe	 ﾠamount	 ﾠof	 ﾠcarbon	 ﾠemissions	 ﾠin	 ﾠthe	 ﾠUSA.	 ﾠ	 ﾠResearch	 ﾠregarding	 ﾠ
the	 ﾠpoten al	 ﾠbeneﬁts	 ﾠof	 ﾠenrollment	 ﾠin	 ﾠthe	 ﾠprogram	 ﾠunder	 ﾠproposed	 ﾠCap	 ﾠand	 ﾠTrade	 ﾠlegisla on	 ﾠwill	 ﾠ
be	 ﾠuseful	 ﾠfor	 ﾠproducers	 ﾠconsidering	 ﾠprogram	 ﾠenrollment	 ﾠand	 ﾠfor	 ﾠanalysts	 ﾠinterested	 ﾠin	 ﾠresearch	 ﾠ
regarding	 ﾠcarbon	 ﾠsequestra on	 ﾠon	 ﾠrangelands.	 ﾠ
Objec ves	 ﾠ
Examine	 ﾠthe	 ﾠﬁrm-ﾭ‐level	 ﾠeconomic	 ﾠconsequences	 ﾠof	 ﾠproducers	 ﾠenrolling	 ﾠin	 ﾠthe	 ﾠChicago	 ﾠClimate	 ﾠ
Exchange	 ﾠ(CCX)	 ﾠRangeland	 ﾠSoil	 ﾠCarbon	 ﾠOﬀset	 ﾠprogram	 ﾠfor	 ﾠboth:	 ﾠ
• 	 ﾠHistorical	 ﾠprices	 ﾠfor	 ﾠa	 ﾠcontract	 ﾠbegun	 ﾠin	 ﾠ2005	 ﾠand	 ﾠrunning	 ﾠthrough	 ﾠ2009,	 ﾠand	 ﾠ
• 	 ﾠProjected	 ﾠprices	 ﾠgiven	 ﾠpending	 ﾠCap	 ﾠand	 ﾠTrade	 ﾠlegisla on	 ﾠ
Data	 ﾠand	 ﾠMethods	 ﾠ
• 	 ﾠFor	 ﾠMonte	 ﾠCarlo	 ﾠAnalysis,	 ﾠclosing	 ﾠprices	 ﾠfor	 ﾠ2005-ﾭ‐2209	 ﾠwere	 ﾠused	 ﾠ
(see	 ﾠﬁgure	 ﾠ2).	 ﾠ
•  Minimum	 ﾠtrading	 ﾠrequirement	 ﾠof	 ﾠ10,000	 ﾠtons	 ﾠof	 ﾠCO2	 ﾠrequires	 ﾠ
most	 ﾠproducers	 ﾠto	 ﾠuse	 ﾠthe	 ﾠservices	 ﾠof	 ﾠan	 ﾠaggregator.	 ﾠ
•  Most	 ﾠaggregators	 ﾠcharge	 ﾠ8-ﾭ‐10%	 ﾠof	 ﾠrevenues	 ﾠ(Ribera	 ﾠet	 ﾠal.,	 ﾠ2009)	 ﾠ
•  We	 ﾠmodeled	 ﾠa	 ﾠ10%	 ﾠfee	 ﾠ(AgraGate,	 ﾠ2009).	 ﾠ
•  Trading	 ﾠfees	 ﾠconsist	 ﾠof	 ﾠ$0.20	 ﾠper	 ﾠcredit	 ﾠ(CCX,	 ﾠ2009).	 ﾠ
•  10%	 ﾠof	 ﾠall	 ﾠacres	 ﾠusing	 ﾠan	 ﾠaggregator	 ﾠare	 ﾠsubject	 ﾠto	 ﾠveriﬁca on.	 ﾠ	 ﾠ
These	 ﾠcosts	 ﾠvary	 ﾠacross	 ﾠaggregators,	 ﾠwe	 ﾠuse	 ﾠ$0.10/acre	 ﾠ
(AgraGate,	 ﾠ2009).	 ﾠ
•  	 ﾠAll	 ﾠcontracts	 ﾠare	 ﾠfor	 ﾠa	 ﾠminimum	 ﾠof	 ﾠ5	 ﾠyears	 ﾠ(CCX,	 ﾠ2009).	 ﾠ
•  20%	 ﾠof	 ﾠcredits	 ﾠearned	 ﾠeach	 ﾠyear	 ﾠare	 ﾠheld	 ﾠin	 ﾠreserve	 ﾠun l	 ﾠthe	 ﾠﬁnal	 ﾠ
year	 ﾠof	 ﾠthe	 ﾠcontract,	 ﾠwhich	 ﾠcan	 ﾠhave	 ﾠan	 ﾠimpact	 ﾠon	 ﾠoverall	 ﾠ
proﬁtability	 ﾠ(See	 ﾠﬁgure	 ﾠ3).	 ﾠ
•  A	 ﾠMonte	 ﾠCarlo	 ﾠsimula on	 ﾠwas	 ﾠconducted	 ﾠwith	 ﾠ1,000	 ﾠdraws	 ﾠacross	 ﾠ
annual	 ﾠprices	 ﾠfor	 ﾠ2005	 ﾠthrough	 ﾠ2009	 ﾠto	 ﾠdetermine	 ﾠa	 ﾠrange	 ﾠof	 ﾠ
revenue	 ﾠstreams	 ﾠof	 ﾠassociated	 ﾠcontracts	 ﾠ–	 ﾠSee	 ﾠTable	 ﾠ1.	 ﾠ
•  Five	 ﾠyear	 ﾠcontracts	 ﾠwere	 ﾠalso	 ﾠmodeled	 ﾠover	 ﾠthree	 ﾠprojected	 ﾠ
carbon	 ﾠprice	 ﾠstreams	 ﾠfor	 ﾠproposed	 ﾠCap	 ﾠand	 ﾠTrade	 ﾠLegisla on	 ﾠ
(AEP,	 ﾠ2004)	 ﾠ–	 ﾠSee	 ﾠTable	 ﾠ2	 ﾠfor	 ﾠprice	 ﾠforecasts	 ﾠand	 ﾠFigure	 ﾠ4	 ﾠfor	 ﾠ
revenue	 ﾠoutcomes.	 ﾠ
Results	 ﾠ
•  Results	 ﾠfrom	 ﾠthe	 ﾠMonte	 ﾠCarlo	 ﾠanalysis	 ﾠusing	 ﾠ2005-ﾭ‐2009	 ﾠprices	 ﾠindicate	 ﾠa	 ﾠrela vely	 ﾠwide	 ﾠrange	 ﾠof	 ﾠ
modest	 ﾠrevenues	 ﾠfrom	 ﾠthe	 ﾠcurrent	 ﾠCCX	 ﾠcontracts	 ﾠand	 ﾠcarbon	 ﾠmarket	 ﾠenvironment.	 ﾠ
•  While	 ﾠsome	 ﾠscenarios	 ﾠwere	 ﾠfavorable,	 ﾠthe	 ﾠmajority	 ﾠof	 ﾠdraws	 ﾠwere	 ﾠnot	 ﾠlikely	 ﾠto	 ﾠinduce	 ﾠproducer	 ﾠ
par cipa on	 ﾠin	 ﾠthe	 ﾠcurrent	 ﾠCCX	 ﾠprogram.	 ﾠ
•  Contract	 ﾠstructures	 ﾠthat	 ﾠhold	 ﾠ20%	 ﾠof	 ﾠcredits	 ﾠearned	 ﾠin	 ﾠreserve	 ﾠun l	 ﾠcontract	 ﾠend	 ﾠcan	 ﾠdecrease	 ﾠ
par cipa on	 ﾠvalue	 ﾠin	 ﾠ mes	 ﾠof	 ﾠfalling	 ﾠprices	 ﾠ(as	 ﾠexperienced	 ﾠin	 ﾠ2008-ﾭ‐present);	 ﾠhowever,	 ﾠthe	 ﾠ
structure	 ﾠcan	 ﾠadd	 ﾠvalue	 ﾠif	 ﾠprices	 ﾠrise	 ﾠ(as	 ﾠmay	 ﾠbe	 ﾠexpected	 ﾠunder	 ﾠCap	 ﾠand	 ﾠTrade	 ﾠlegisla on).	 ﾠ
•  Current	 ﾠcarbon	 ﾠprices	 ﾠare	 ﾠnot	 ﾠlikely	 ﾠto	 ﾠencourage	 ﾠproducer	 ﾠpar cipa on.	 ﾠ
•  Low	 ﾠprojected	 ﾠcap	 ﾠand	 ﾠtrade	 ﾠlegisla on	 ﾠwill	 ﾠalso	 ﾠnot	 ﾠencourage	 ﾠproducer	 ﾠpar cipa on.	 ﾠ
•  Medium	 ﾠand	 ﾠhigh	 ﾠprojec ons	 ﾠmay	 ﾠmake	 ﾠcarbon	 ﾠsequestra on	 ﾠa	 ﾠviable	 ﾠop on	 ﾠfor	 ﾠproducers.	 ﾠ
References	 ﾠ
American	 ﾠElectric	 ﾠPower	 ﾠ(AEP).	 ﾠ2004.	 ﾠAn	 ﾠAssessment	 ﾠof	 ﾠAEP’s	 ﾠAc ons	 ﾠto	 ﾠMi gate	 ﾠthe	 ﾠEconomic	 ﾠImpacts	 ﾠof	 ﾠ	 ﾠ	 ﾠ	 ﾠ	 ﾠ	 ﾠ	 ﾠ	 ﾠ	 ﾠ	 ﾠ	 ﾠ
Emissions	 ﾠPolicies.	 ﾠColumbus,	 ﾠOH:	 ﾠAmerican	 ﾠElectric	 ﾠPower.	 ﾠ
AgraGate.	 ﾠ2009.	 ﾠAgraGate	 ﾠClimate	 ﾠCredits	 ﾠCorpora on	 ﾠCarbon	 ﾠCredit	 ﾠProgram,	 ﾠExchange	 ﾠSoil	 ﾠOﬀset	 ﾠ
Contract.	 ﾠ	 ﾠAvailable	 ﾠat:	 ﾠ<h p://www.k .org/naturalresources/nrimages/SoilOﬀsetContract.pdf>.	 ﾠ	 ﾠ
Accessed	 ﾠAugust	 ﾠ9,	 ﾠ2009.	 ﾠ
CCX	 ﾠ(Chicago	 ﾠClimate	 ﾠExchange).	 ﾠ2009.	 ﾠ“CCX	 ﾠRangeland	 ﾠSoil	 ﾠCarbon	 ﾠManagement	 ﾠOﬀsets.”	 ﾠ(available	 ﾠat:	 ﾠ
h p://carboncredit.ndfu.org/pdfs/Rangeland/RangelandProtocol.pdf).	 ﾠ	 ﾠAccessed	 ﾠMarch	 ﾠ17,	 ﾠ2009.	 ﾠ
Ribera,	 ﾠL.	 ﾠA.,	 ﾠB.	 ﾠA.	 ﾠMcCarl,	 ﾠand	 ﾠJ.	 ﾠZenteno.	 ﾠ	 ﾠ2009.	 ﾠ“Carbon	 ﾠSequestra on:	 ﾠA	 ﾠPoten al	 ﾠSource	 ﾠof	 ﾠIncome	 ﾠfor	 ﾠ
Farmers.”	 ﾠ	 ﾠJournal	 ﾠof	 ﾠthe	 ﾠAmerican	 ﾠSociety	 ﾠof	 ﾠFarm	 ﾠManagers	 ﾠand	 ﾠRural	 ﾠAppraisers	 ﾠ72,	 ﾠ1:	 ﾠ70-ﾭ‐77.	 ﾠ
Table 1.  Results from Monte Carlo Simulation 
Land Resource Region(s) 
2005 Payment 
per Acre 
2006 Payment 
per Acre 
2007 Payment 
per Acre 
2008 Payment 
per Acre 
2009 Payment 
per Acre 
Total Payments 
per Acre 
NPV per 
Acre 
Average 
Annual 
Payment per 
Acre 
Northwest Region,  
Rocky Mountain Region, 
Northern Great Plains Region 
Mean  $0.04  $0.19  $0.16  $0.21  $0.13  $0.73  $0.59  $0.15 
Standard 
Deviation  $0.03  $0.11  $0.07  $0.21  $0.27  $0.37  $0.28  $0.07 
Minimum  $0.00  $0.00  $0.00  $0.00  $0.00  $0.20  $0.17  $0.04 
Maximum  $0.19  $0.69  $0.45  $2.26  $4.83  $5.28  $3.82  $1.06 
California Region 
Mean  $0.08  $0.28  $0.24  $0.32  $0.21  $1.13  $0.91  $0.23 
Standard 
Deviation 
$0.04  $0.14  $0.09  $0.27  $0.35  $0.47  $0.35  $0.09 
Minimum  $0.00  $0.00  $0.04  $0.00  $0.00  $0.25  $0.20  $0.05 
Maximum  $0.32  $0.90  $0.59  $2.38  $3.87  $5.01  $3.71  $1.00 
Central Great Plains Region 
Mean  $0.12  $0.38  $0.33  $0.41  $0.27  $1.51  $1.22  $0.30 
Standard 
Deviation 
$0.05  $0.17  $0.12  $0.35  $0.50  $0.65  $0.48  $0.13 
Minimum  $0.00  $0.05  $0.08  $0.00  $0.00  $0.40  $0.35  $0.08 
Maximum  $0.36  $1.47  $0.84  $3.03  $5.50  $6.49  $4.92  $1.30 
Western Great Plains Region 
Mean  $0.20  $0.54  $0.48  $0.60  $0.39  $2.21  $1.79  $0.44 
Standard 
Deviation 
$0.07  $0.23  $0.15  $0.46  $0.65  $0.83  $0.62  $0.17 
Minimum  $0.04  $0.08  $0.14  $0.00  $0.00  $0.89  $0.76  $0.18 
Maximum  $0.48  $1.50  $1.30  $3.40  $7.71  $9.70  $7.12  $1.94 
$0.00	 ﾠ
$5.00	 ﾠ
$10.00	 ﾠ
$15.00	 ﾠ
$20.00	 ﾠ
$25.00	 ﾠ
$30.00	 ﾠ
Low	 ﾠ Medium	 ﾠ High	 ﾠ
N
P
V
	 ﾠ
p
e
r
	 ﾠ
A
c
r
e
	 ﾠ
Northwestern	 ﾠRegion	 ﾠ
Rocky	 ﾠMountain	 ﾠRegion	 ﾠ
Northern	 ﾠGreat	 ﾠPlains	 ﾠRegion	 ﾠ
California	 ﾠRegion	 ﾠ
Central	 ﾠGreat	 ﾠPlains	 ﾠRegion	 ﾠ
Western	 ﾠGreat	 ﾠPlains	 ﾠ
Table 2. Projected Carbon Prices (per ton) Under Various Cap and Trade 
Scenarios 
2011  2012  2013  2014  2015 
High  $23.00  $24.50  $26.00  $27.50  $29.00 
Medium  $13.50  $14.38  $15.25  $16.13  $17.00 
Low  $4.00  $4.25  $4.50  $4.75  $5.00 
Source: AEP (2004) 
Figure	 ﾠ1.	 ﾠLands	 ﾠeligible	 ﾠfor	 ﾠRangeland	 ﾠManagement	 ﾠCarbon	 ﾠOﬀset	 ﾠProgram	 ﾠ
Figure	 ﾠ2.	 ﾠHistorical	 ﾠcarbon	 ﾠprices	 ﾠ(2005	 ﾠvintage)	 ﾠand	 ﾠtrading	 ﾠvolume	 ﾠ
Figure	 ﾠ4.	 ﾠSchedule	 ﾠof	 ﾠPer	 ﾠAcre	 ﾠPayments	 ﾠUnder	 ﾠVarious	 ﾠCap	 ﾠand	 ﾠTrade	 ﾠProjec ons	 ﾠ
0	 ﾠ
0.05	 ﾠ
0.1	 ﾠ
0.15	 ﾠ
0.2	 ﾠ
0.25	 ﾠ
0.3	 ﾠ
0.35	 ﾠ
0.4	 ﾠ
0.45	 ﾠ
Year	 ﾠ1	 ﾠ Year	 ﾠ2	 ﾠ Year	 ﾠ3	 ﾠ Year	 ﾠ4	 ﾠ Year	 ﾠ5	 ﾠ
C
a
r
b
o
n
	 ﾠ
C
r
e
d
i
t
s
	 ﾠ
P
a
i
d
	 ﾠ
f
o
r
	 ﾠ
b
y
	 ﾠ
Y
e
a
r
	 ﾠ Northwestern	 ﾠ
Region	 ﾠ
Rocky	 ﾠMountain	 ﾠ
Region	 ﾠ
Northern	 ﾠGreat	 ﾠ
Plains	 ﾠRegion	 ﾠ
California	 ﾠRegion	 ﾠ
Central	 ﾠGreat	 ﾠ
Plains	 ﾠRegion	 ﾠ
Western	 ﾠGreat	 ﾠ
Plains	 ﾠ
Figure	 ﾠ3.	 ﾠSchedule	 ﾠof	 ﾠcredits	 ﾠearned	 ﾠeach	 ﾠyear	 ﾠ
Contact:	 ﾠJohn	 ﾠRi en,	 ﾠUniversity	 ﾠof	 ﾠWyoming 	 ﾠOﬃce:	 ﾠ307-ﾭ‐837-ﾭ‐2000	 ﾠ
Department	 ﾠof	 ﾠAg	 ﾠand	 ﾠApplied	 ﾠEconomics	 ﾠ 	 ﾠjri en@uwyo.edu	 ﾠ
2753	 ﾠState	 ﾠHighway	 ﾠ157,	 ﾠLingle,	 ﾠWY	 ﾠ82223.	 ﾠ

Will Carbon Find a Home on the Range? A Monte Carlo Simulation

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