The effect of carbon taxes and subsidies on forest carbon sequestration in China

Abstract

Forests have a crucial role in mitigating climate change. The Chinese government is currently deliberating the utilization of carbon taxes and subsidies to incentivise the potential for forest carbon sequestration. The impact of the policies on China's forests, especially the quantitative information is unknown. To fill this gap, we follow the Faustmann-Hartman model to examine the relationship between the policies and forest carbon sequestration. We find that due to extending the rotation age, policies will increase China's forest carbon sequestration by 1.99 tCO₂e/ha/yr, contributing 11.15%–17.31% to the 2060 carbon neutrality target, as the carbon price increases from 0 to 400 CNY/tCO₂. China's forest carbon sequestration supply curve is inelastic, with an average elasticity of approximately 0.08. Policy implementation in the northwest region is more effective for the northwest region to improve carbon sequestration potential both per unit area and total amount, in contrast to certain provinces in the South Central and Southeast coastal regions. The average costs of the policy are generally higher in the southeast, averaging about 2.2 times higher than in the northwest. However, considering financial affordability, some southeast provinces in China are more economically feasible. These findings have important policy implications.