Cap and trade policy for managing water competition from potential future carbon plantations

Carbon sequestration from reforestation can play a large role in mitigating global climate change. However, resulting interception of rainfall runoff may impose high irrigation, water supply and/or environmental flow costs. This article presents an assessment of water trade policy to manage fresh water supply, carbon sequestration trade-offs for the Murray-Darling Basin. A linked Australian high spatial resolution land use and global integrated assessment framework evaluated plausible and internally-consistent global scenarios to 2050 involving significant carbon planting incentive. Substantial flow loss from increased interception was estimated absent policy to balance carbon water trade-offs. Absent policy to address the trade-off, irrigation opportunity costs was estimated to substantially exceed carbon sequestration economic value in futures with significant carbon sequestration incentive. The value of integrating interception from new carbon plantings into the existing water trade system was estimated at $3.3 billion and $2.0 billion (2050 annual value) for our strong and moderately strong global climate action outlooks with our reference case assumptions. The conclusion that trade provision in policy to cap interception impacts can produce significant benefits in scenarios with significant carbon sequestration incentive remained robust over a very broad set of sensitivities tested with benefit estimated at over $1 billion annually at 2050 even for very conservative assumptions.