The Complexity of Incorporating Carbon Social Returns in Farm Afforestation: A Microsimulation Approach

Abstract

This paper describes the development of a microsimulation model to simulate the long-term impact of the conversion of agricultural land to forestry at individual farm level. Reflecting thenegative externalities associated with agriculture in terms of carbon emissions and the positive forestexternalities in terms of carbon sequestration, we model both private returns and social returns. Thesereflect respectively the return from the market and the wider return to society, which incorporatesboth market returns and the public good returns associated with carbon emissions/sequestration. Themodelling assumptions used in developing the model are described in detail, along with the validationof model components against other analyses and the testing of the sensitivity of the results todifferent assumptions. The paper considers the distributional impact of the private and social returnsto agriculture finding significant heterogeneity between the private and social return across farms,with the incorporation of carbon value, resulting in many more farms with positive social return thanprivate returns