Practice- or results-based subsidies: balancing the direct costs for soil carbon sequestration and transaction costs for farmers and monitoring agencies

Abstract Policymakers increasingly seek to promote agricultural carbon sequestration, avoiding both income losses for farmers and excessive public implementation costs. This study compares practice- and results-based subsidies to soil carbon sequestration with respect to their total costs, sequestration achieved, and income effects. We develop a numerical model that maximizes social net benefits while accounting for private transaction costs, public monitoring costs, and regional and farm type heterogeneity. The findings reveal that results-based subsidies deliver higher net benefits and sequestration. The per hectare monitoring costs for a practice-based scheme must be less than 30 per cent of those for a results-based scheme for the former to deliver higher net benefits, given a carbon price of 250 €/tCO₂e. Sensitivity analysis shows that higher carbon prices require the monitoring costs of a practice-based scheme to be even lower relative to those of a results-based scheme in order to outperform it.