Carbon sequestration in agricultural soil has been identified as a potential strategy to offset greenhouse gas emissions. Within the public debate, it has been claimed that provision of positive incentives for farmers to change their land management will result in substantial carbon sequestration in agricultural soils at a low carbon price. However, there is little information about the costs or benefits of carbon sequestration in agricultural soils to test these claims. In this study, the costeffectiveness of alternative land-use and land-management practices that can increase soil carbon sequestration is analysed by integrating biophysical modelling of carbon sequestration with wholefarm economic modelling. Results suggest that, for a case study model of a crop-livestock farm in the Western Australian wheatbelt, sequestering higher levels of soil carbon by changing rotations (to include longer pasture phases) incur considerable opportunity costs. Under current commodity prices, farmers would forego more than $80 in profit for every additional tonne of CO2-e 1 stored in soil, depending on their adoption of crop residue retention practices. This is much higher than the initial carbon price of $23.t-1 in Australia's recently legislated carbon tax. This analysis does not incorporate the possibility that greenhouse gas emissions may increase as a result of including longer pasture phases. Accounting for emissions may substantially reduce the potential for net carbon sequestration at low carbon prices.

a b s t r a c tAgriculture production contributes to global warming directly via the release of carbon dioxide (CO 2 ), methane and nitrous oxide emissions, and indirectly through the consumption of inputs such as fertilizer, fuel and herbicides. We investigated if including a grain legume (Lupinus angustifolius) in a cropping rotation, and/or applying agricultural lime to increase the pH of an acidic soil, decreased greenhouse gas (GHG) emissions from wheat production in a semi-arid environment by conducting a streamlined life cycle assessment analysis that utilized in situ GHG emission measurements, rather than international default values. We also assessed the economic viability of each GHG mitigation strategy. Incorporating a grain legume in a two year cropping rotation decreased GHG emissions from wheat production by 56% on a per hectare basis, and 35% on a per tonne of wheat basis, primarily by lowering nitrogen fertilizer inputs. However, a large incentive ($93 per tonne of carbon dioxide equivalents reduced) was required for the inclusion of grain legumes to be financially attractive. Applying lime was profitable but increased GHG emissions by varying amounts depending upon whether the lime was assumed to dissolve over one, five or 10 years. We recommend further investigating the impact of liming on both CO 2 and non-CO 2 emissions to accurately account for its effect on GHG emissions from agricultural production.

If agriculture were to be included in Australia's carbon price scheme, a key decision for government would be how to estimate greenhouse gas emissions. We explore the consequences of three different methods for measuring on-farm emissions: national accounting methods, an amended version of those methods and use of best-available local data. Estimated emissions under the three methods can vary widely; for example, on a case study farm in Western Australia, local data indicated 44 per cent lower emissions than did the national accounts method. If on-farm emissions are subject to an emissions price, the impact on farm profit is large and varies considerably with different measurement methods. For instance, if a price of $23/t of CO2-e applies then farm profit falls by 14.4-30.8 per cent depending on the measurement method. Thus, the choice of measurement method can have large distributional consequences. On the other hand, inaccurate measurement results in relatively minor deadweight losses. On-farm sequestration through reafforestation may lessen the impact of an emissions price on farm businesses, although it will require a high carbon price to be viable, especially if sequestration rates are underestimated or low.

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If carbon sequestration is to be cost-effective substitute for reducing emissions then it must occur under a framework that ensures that the sequestration is additional to what would otherwise have occurred, the carbon is stored permanently, and any leakage is properly accounted for. We discuss significant challenges in meeting these requirements, including some not previously recognised. Although we focus on sequestration in soil, many of the issues covered are applicable to all types of sequestration. The common-practice method for determining additionality achieves its intention of reducing transaction costs in the short term but not in the medium-long term. Its design results in the least costly, additional abatement measures being excluded from policy support and fails to address how, in the case of sequestration, revisions to the additionality of sequestering practices should apply not just to the future, but in theory, also retrospectively. Permanence is sometimes approximated as 100 years of sequestration. Re-release of sequestered carbon after this will not only reverse the sequestration, but may raise atmospheric carbon to higher levels than they would have been if the sequestration had never occurred. Leakage associated with sequestration practices can accumulate over time to exceed the total level of sequestration; nonetheless adoption of such 1 practices can be attractive to landholders, even when they are required to pay for this leakage at contemporary prices. Policy Relevance: Globally much has been written and claimed about the ability to offset emissions with sequestration. The Australian Government plans to use sequestration to source much of the abatement required to reach its emissions targets. Designing effective policy for sequestration will be challenging politically, and will involve substantial transaction costs. Compromises in policy design intended to make sequestration attractive and reduce transaction costs can render it highly inefficient as a policy.

Highlights Complex economic interaction between soil acidity, nitrogen fertility, and GHG emissions  Nitrogen fertilizer emits GHGs directly, and via higher lime rates to treat acidity  Rates of nitrogen and lime affected by type of fertilizer, legume rotation, and rainfall  Carbon pricing reduces GHG emissions from lime and nitrogen but only modestly

Agricultural research on climate change generally follows two themes: (i) impact and adaptation or (ii) mitigation and emissions. Despite both being simultaneously relevant to future agricultural systems, the two are usually studied separately. By contrast, this study jointly compares the potential impacts of climate change and the effects of mitigation policy on farming systems in the central region of Western Australia's grainbelt, using the results of several biophysical models integrated into a whole-farm bioeconomic model. In particular, we focus on the potential for interactions between climate impacts and mitigation activities. Results suggest that, in the study area, farm profitability is much more sensitive to changes in climate than to a mitigation policy involving a carbon price on agricultural emissions. Climate change reduces the profitability of agricultural production and, as a result, reduces the opportunity cost of reforesting land for carbon sequestration. Nonetheless, the financial attractiveness of reforestation does not necessarily improve because climate change also reduces tree growth, and therefore, the income from sequestration. Consequently, at least for the study area, climate change has the potential to reduce the amount of abatement obtainable from

Many agricultural soils are naturally acidic, and agricultural production can acidify soil through processes such as nitrogen (N) fixation by legumes and application of N fertiliser. This means that decisions about mitigation of soil acidity (e.g. through application of lime), crop rotation and N fertiliser application are interdependent. This paper presents a dynamic model to determine jointly the optimal lime application strategies and N application rates in a rainfed cropping system in Western Australia. The model accounts for two crop rotations (with and without a legume break crop), for the acid tolerance of different crop types, and for differences in the acidifying effect of different N fertilisers. Results show that liming is a profitable strategy to treat acidic soils in the study region, but that there are interactions between N and acidity management. Choice of fertiliser affects optimal lime rates substantially, with the use of a more acidifying ammonium-based fertiliser leading to higher lime rates. The optimal liming strategy is also sensitive to inclusion of a legume crop in the rotation, because its fixed N can be less acidifying than fertiliser, and it allows a reduction in fertiliser rates. Higher rainfall zones have greater N leaching, which contributes to a higher optimal rate of lime. We find that injection of lime into the subsoil increases profit. Optimal lime rates in the absence of subsoil incorporation are higher than usual current practice, although the economic gains from increasing rates are small.