Market-Level Implications of Regulating Forest Carbon Storage and Albedo for Climate Change Mitigation

Abstract

We explore the optimal regulation of forest carbon and albedo for climate change mitigation. We develop a partial equilibrium market-level model with socially optimal carbon and albedo pricing and characterize optimal land allocation and harvests. We numerically assess the policy's market-level impacts on land allocation, harvests, and climate forcing, and evaluate how parameter choices (albedo strength, productivity of forest land, and carbon and albedo prices) affect the outcomes. Carbon pricing alone leads to an overprovision of climate benefits at the expense of food and timber production. Complementing the policy with albedo pricing reduces these welfare losses.