This is our 4th blog post for our Job Market Paper Series blog for 2025-2026.
Khyati Malik is a Postdoctoral Fellow at the National Bureau of Economic Research (NBER). Her research lies at the intersection of environmental, energy, and agricultural economics, focusing on innovative pathways for decarbonization and sustainable land use.
Agriculture can play a dual role in climate policy. Despite contributing nearly one-tenth of the U.S. greenhouse gas emissions, the sector can become a key part of the solution. Soil stores more carbon than the atmosphere, and even small changes in how we farm can shift billions of tons of carbon between earth and sky (Ontl and Schulte 2012). For countries where rural livelihoods depend heavily on smallholder farming, the challenge is finding a way to reward farmers for adopting practices that keep carbon underground, and to do it without wasting scarce public resources.
Most soil-carbon programs today offer uniform payments per acre or per ton of carbon under the assumption that every field behaves the same (Oldfield et al. 2022). The reality is more complex. A field of sandy soil may store modest carbon yet suffer minimal yield loss when conservation practices are implemented. A silt-loam field may hold more carbon but also faces large yield penalties. Paying both farmers the same amount is wasteful to one and unfair to the other. The broader question that motivates my work is: can tailoring payments to local soil conditions achieve the same climate benefits at a lower cost? My research explores how state and federal governments can design smarter soil-carbon programs that compensate farmers fairly while stretching climate budgets further.
Why this question matters
Across continents, policymakers are turning to “carbon farming” to meet their climate goals. Practices such as no-till cultivation, cover cropping, and leaving plant residue can increase soil organic carbon (SOC) and improve long-term productivity. Farmers adopting these methods often see better soil health and resilience after several years. For instance, long-term field trials in the U.S. Midwest show that no-till practices can improve water retention and organic matter, but that they can also reduce crop yields. Farmers could face 5–10% yield losses and must invest in specialized planters or residue management equipment. These upfront costs and reduced harvests make the first few years particularly painful—a central reason why adoption remains slow despite clear long-term benefits. Studies such as Lal (2020) and Blanco-Canqui and Lal (2008) document these short-term trade-offs between soil conservation and profitability. Another point of skepticism about soil carbon sequestration is the question of impermanence: the accumulated carbon in the soil can be released back to the atmosphere upon reversion to conventional practices (Thamo and Pannell 2016). Therefore, a practical, long term soil carbon sequestration policy should consider the aspects of SOC impermanence, crop yield losses, and heterogeneity in soil types.
How I approached the problem
To answer this question, I built an economic model that captures farmers’ decisions on whether to adopt carbon-sequestering practices over time. The model lets farmers compare immediate profits with the future value of yearly carbon payments. The objective of a rational farmer is to maximize their lifetime profits. I paired this model with detailed field data from decade-long agricultural experiments. To cover diverse agricultural fields, I also studied crop cultivation using computer models (the Environmental Policy Integrated Climate (EPIC) model), which simulates crop growth, nutrient cycling, water balance, and soil carbon dynamics for different climates and soil types (Williams et al. 1989). This analysis covered five major agricultural watersheds that together span about 2.6 million acres. The studied fields belong to four soil groups: A (sandy and well-drained), B (silt loam), C (clay loam), and D (clay with poor drainage). Each group behaves differently — sandy soils accumulate little carbon but maintain yields, while clay soil stores more carbon but risk waterlogging and yield decline (Figure 1). For each group, I calculated the minimum annual payment per ton of carbon that is required for a farmer to find no-till adoption profitable.
What I found
The results reveal how much local conditions matter. On sandy soils, paying about 10 dollars per ton of carbon is enough to encourage adoption. On clay soils, farmers need closer to 35 dollars per ton to compensate for steeper yield losses. Beyond these thresholds, additional payments add little benefit because the soils approach their saturation limit: they physically cannot store much more carbon.
When scaled to the regional level, these differences add up to large fiscal impacts. A uniform payment of 35 dollars per ton would sequester roughly nine million tons of carbon across the five watersheds but would cost governments around 315 million dollars each year. A targeted payment system that varies by soil type achieves the same total sequestration for about 200 million dollars—one-third less (Figure 2).
That cost saving does not come from underpaying farmers; it comes from aligning incentives with biophysical potential. The soils that can sequester carbon cheaply receive enough to motivate adoption, while those that would require excessive payments are not over-subsidized. The outcome is the same climate benefit at far lower cost.
What drives farmer choices
The modeling sheds light on farmer behavior. Some farmers think short-term, focusing on the current harvest. Others plan decades ahead. When I compare these mindsets, the required payments differ dramatically. A short-term farmer might need more than 100 dollars per ton to switch practices; a long-term planner needs only 10–35 dollars because continued carbon payments offset the yield losses.
Why this matters for policy
First, targeting works. Linking payments to soil carbon retention properties reduces waste and directs funds where they have the greatest effect.
Second, transparency builds trust. I believe farmers are more likely to participate when they understand how payments are determined. A program that says, “You receive 20 dollars per ton because your soil can store this much carbon,” inspires more confidence than one that offers a flat, unexplained rate.
Third, soil-based mitigation is cost-effective. Even the highest payment in my study: 35 dollars per ton, is far below the U.S. Environmental Protection Agency’s social cost of carbon of 260 dollars per ton. Soil carbon programs deliver substantial mitigation at a fraction of the cost of industrial carbon capture, while improving soil structure, water retention, and biodiversity.
Finally, these lessons are applicable to the agricultural sector beyond the Midwest United States. In much of the developing world, soils are diverse, budgets are smaller, and monitoring systems are improving rapidly through remote sensing and digital soil maps. Applying a targeted approach in these contexts could help governments maximize each dollar of climate finance while protecting smallholder livelihoods.
Paying farmers for carbon that lasts is not about handing out subsidies; it is about aligning private incentives with global goals. By using local science to guide economic design, governments can create carbon programs that are credible, equitable, and durable.
The banner image was created using ChatGPT’s image-generation model. It is rendered in a Van Gogh–inspired Post-Impressionist style, depicting farmers working in the Midwestern United States.
