Abstract
A price on carbon is expected to generate demand for carbon offset schemes. This demand could drive investment in tree‐based monocultures that provide higher carbon yields than diverse plantings of native tree and shrub species, which sequester less carbon but provide greater variation in vegetation structure and composition. Economic instruments such as species conservation banking, the creation and trading of credits that represent biological‐diversity values on private land, could close the financial gap between monocultures and more diverse plantings by providing payments to individuals who plant diverse species in locations that contribute to conservation and restoration goals. We studied a highly modified agricultural system in southern Australia that is typical of many temperate agriculture zones globally (i.e., has a high proportion of endangered species, high levels of habitat fragmentation, and presence of non‐native species). We quantified the economic returns from agriculture and from carbon plantings (monoculture and mixed tree and shrubs) under six carbon‐price scenarios. We also identified high‐priority locations for restoration of cleared landscapes with mixed tree and shrub carbon plantings. Depending on the price of carbon, direct annual payments to landowners of AU$7/ha/year to $125/ha/year (US$6–120/ha/year) may be sufficient to augment economic returns from a carbon market and encourage tree plantings that contribute more to the restoration of natural systems and endangered species habitats than monocultures. Thus, areas of high priority for conservation and restoration may be restored relatively cheaply in the presence of a carbon market. Overall, however, less carbon is sequestered by mixed native tree and shrub plantings.