Will Southern Agriculture Play a Role in a Carbon Market?

While a carbon market offers substantial opportunities for US agriculture, regional differences in such a market are often ignored. This paper focuses on the advantages and challenges for agriculture in the South. The potential of two promising options are analyzed: conversion from cropland to forests and greater use of conservation tillage. It is argued that the right institutional arrangements can overcome three fundamental challenges to an efficient carbon market: transaction costs, risk, and perverse incentives. Some examples are given, such as the use of a farmer-owned organization and the provision of land use and carbon information by the government. Key Words: carbon emission reduction, tradable permits, afforestation, conservation tillage, government policy, regional economics