Optimal land-use decisions in the presence of carbon payments and fertilizer subsidies: an Indonesian case study

Abstract

A meta-model was developed in this study to simulate soil-tree-crop interactions under various management regimes for a smallholding in Sumatra. The model was used within a dynamic-programming algorithm to determine profit-maximising management strategies for a landholder faced with opportunities to receive carbon credits and fertiliser subsidies. It was found that: 1) incentives to participate in carbon projects only exist when the soil is degraded in which case only trees should be grown and residues added to the soil to increase carbon stocks; 2) a threshold soil-carbon level exists where it becomes optimal to switch from trees to a steady-state system of crops with fertiliser; 3) tree-rotation lengths are positively related to fertiliser and carbon prices; and 4) in better quality soils profits are maximised by growing only crops and using fertiliser