The goal of this issue of the AJAA on carbon (C) sequestration in agriculture and forestry is to demystify the potential for the agroforestry sectors in Annex 1 countries of the Kyoto Protocol (exemplified by the US and Canada in this issue) and non-Annex 1 countries (exemplified by Indonesia) to be a source of inexpensive C sinks to offset C emissions from other sectors, while at the same time benefiting small farmers and conservation.

This paper demonstrates the need to integrate biophysical and economic data to assess the competitiveness of US agriculture to provide soil carbon (C) and participate in a market for C credits. The paper discusses alternative methods of calculating the costs of soil C sequestration and compares the cost of sequestering soil C in Iowa and Montana. Results indicate that the opportunity cost per Mg of sequestered C varies in response to regional resource endowments and net returns. Economic models show that Montana could sequester a relatively small amount of soil C annually at a lower opportunity cost per Mg than Iowa, but Iowa can sequester larger quantities more efficiently. These results are compared with estimates of the cost of C sequestration from other domestic and international studies, and suggest that US agriculture could be competitive in domestic or international markets for C reduction credits.

Reforestation of frequently flooded, marginally productive agricultural lands may provide environmental benefits. However, for reforestation to occur private landowners must earn enough revenues from forestlands to offset both the costs of reforesting as well as any forgone agricultural income. Among the possible revenue sources is the sale of carbon sequestration credits earned from reforestation. We simulate the financial feasibility of reforestation and the contribution of carbon sequestration credit sales to the net income possible from reforestation in a case study area of frequently flooded soybean fields in the Mississippi Alluvial Plain (the Delta). Under current market conditions, reforestation appears to be financially feasible on only the most marginally productive agricultural lands. Markets for carbon credits may contribute to positive financial returns of reforestation, but other policies and market opportunities will be necessary for a positive return to be realized.

The logic of the Clean Development Mechanism (CDM) and other such ‘carbon (C) offsets’ rests on the notion that the opportunity cost of reducing C emissions is lower in developing countries, creating opportunities for mutually beneficial C trading. While the CDM may offer significant gross financial benefits, there has been little analysis of the opportunity costs of foregone resource exploitation and development opportunities. In addition to assessing the potential for net benefits, this paper also considers the practical implications for design and implementation of C offsets for forest conservation and agroforestation in Indonesia. Virtually nothing is known about these administrative factors, and their associated costs, which can also play a decisive role in feasibility of C offset schemes. Data are from field studies in the lowlands of the Indonesian island of Sumatra, where forests and derived land uses are broadly representative of the lowland humid tropical rainforest systems of insular South-East Asia. These data are the basis for assessing the trade-offs between natural forest protection for C sequestration and conversion to other land uses to meet national development objectives that directly affect people's livelihoods. Carbon stocks are analyzed in terms of ‘time-averaged’ C, an indicator developed for this project. Opportunity costs of land-use alternatives are estimated using standard techniques for economic assessment of investment projects in developing countries. The study finds that imputed timber values are a significant share of the opportunity costs of forest conservation, even for conservative estimates of timber prices. The question of compensating for these foregone values raises complex questions regarding the political economy of Indonesia, since property rights over these resources are highly contentious. These controversies over property rights are also examined within the context of recurrent smoke pollution from land fires in Indonesia, that (among other problems) contribute to greenhouse gas emissions. This smoke is symptomatic of deeper political and institutional problems that raise questions about the permanence of C storage through land-use practices in Indonesia. In comparison to forest conservation, C offsets through agroforestation seem more feasible in Indonesia because property rights over timber from planted trees would be easier to establish and enforce than property rights over timber from natural forests. Although results in this paper look promising, there is still much to be learned about implementation costs, even for the ‘easier’ case of agroforestation.

Homegardens are a common smallholder agroforestry system in Indonesia and throughout the tropics. These speciesrich, tree-based systems produce non-wood and wood products for both home use and market sale. Due to their high biomass, these systems simultaneously offer potential for carbon (C) storage. While small size limits the amount of C stored by individual smallholder agroforestry systems, on a per area basis these systems can store as much C as some secondary forests. In aggregate, smallholder homegarden agroforestry systems can contribute significantly to a region's carbon budget while simultaneously enhancing smallholder livelihoods. A field study in Lampung, Indonesia indicates that homegardens with an average age of 13 years store 35.3 Mg C ha−1 in their above-ground biomass, which is on par with the C stocks reported for similar-aged secondary forests in the same area. However, to compare accurately the C stocks of different land-use systems a scale is required that adjusts C stocks of the systems' ages and rotation lengths to a common base. The time-averaged C stock, which is half the C stock at the maximum rotation length, serves this purpose. Our projections reveal that, depending on management options, the time-averaged above-ground C stocks of homegarden systems could vary from 30 to 123 Mg C ha−1. These projected timeaveraged above-ground C stocks of homegardens are substantially higher than those of Imperata-cassava systems (2.2 Mg C ha−1), which is an extensive vegetation type in the study area. If homegarden systems and other smallholder tree-based systems were to expand in currently degraded and underutilized lands, such as Imperata grasslands, the C sequestration potential would be about 80 Mg C ha−1, with considerable variation depending on species composition and management practices. Clear opportunity exists to induce management that leads to higher C stocks at the systems level. However, incentive mechanisms are needed that assure smallholders will benefit from selecting management practices that favor higher C stocks.

Canada's commitment under the Kyoto Protocol is to reduce its greenhouse gas (GHG) emissions by 6% of its 1990 levels. Each industrial sector is investigating alternative technologies, production and management practices that can decrease their GHG emissions. The macroeconomic impacts of four mitigation strategies to reduce GHG emissions from Canada's agriculture sectors were measured using an input-output model. The size of the GHG reduction from each mitigation strategy depended on whether agricultural soils were included as a carbon (C) sink. Including agricultural soils as a C sink impacts on the absolute amount of GHG emissions that must be reduced and the relative importance of the various mitigation strategies. This will be a key factor in policy development. Only one strategy, improving forage quality by 15%, had positive macroeconomic impacts in all situations. It was projected that this strategy would increase industrial output by $106.97 M (M = million; all $ Canadian), gross domestic product at factor cost (GDP) by $45.51 M and employment by 689 jobs. This strategy decreased GHG emissions by 0.07% below the ‘business as usual’ (BAU) situation when sinks were included. Increasing the adoption of zero-till farming had a positive macroeconomic impact only when the industrial sector effects were included. However, when household and industrial-sector impacts were combined, the results were decreases in industrial output of $286.90 M, GDP of $55.98 M and employment by 769 jobs. The mitigation strategy decreased GHG emissions by 3.06% below the BAU situation when sinks were included in the estimate. Improved soil nutrient management through more efficient use of N fertilizer had a negative net impact on the economy. This mitigation strategy had a direct impact on the agriculture and the fertilizer sectors, resulting in net decreases in industrial output of $70.76 M, GDP of $43.38 M and employment of 518 jobs. It was estimated that this mitigation strategy would decrease GHG emissions by 1.37% below the BAU situation. The last mitigation strategy was a permanent plant cover program. This generated the largest negative impact on the economy. It was projected to decrease industrial output by $1192.63 M, GDP by $392.17 M and employment by 6155 jobs. The strategy decreased GHG emissions by 1.73% below the BAU situation.