Carbon Farming Optimisation With Market Premiums for Biodiversity Co‐Benefits Under Climate Change Socio‐Economic Pathway Scenarios

Achieving global climate change mitigation, biodiversity conservation and restoration goals requires innovative solutions that balance carbon sequestration with biodiversity conservation. Payments for ecosystem services markets often treat carbon sequestration and biodiversity separately, but integrating biodiversity as a co‐benefit within carbon farming could improve the environmental outcomes of carbon markets. This study explores the potential for carbon farming strategies in south‐eastern Australia, investigating the trade‐offs and synergies between carbon farming and biodiversity conservation. We aim to evaluate whether modest changes to carbon farming policy could influence biodiversity outcomes, carbon sequestration and economic returns. We develop an optimisation framework to evaluate two carbon farming practices, assisted natural regeneration and environmental planting, under different climate projections and policy scenarios. Our model incorporates carbon sequestration estimates and biodiversity priorities across historical climate and projected climate change defined by the shared socio‐economic pathways, specifically SSP245 and SSP585. The selection of land use change sites is optimised for two policy settings: a least‐cost carbon policy that emulates current market design, and a premium carbon credit policy that provides a 10% premium to maximise biodiversity outcomes without sacrificing carbon sequestration or economic return. Results indicate that biodiversity premiums in carbon credit payments could significantly improve biodiversity outcomes without sacrificing carbon sequestration or economic returns. Spatial analyses reveal shifts in optimal locations for carbon farming under different climate change projections. Previous research on carbon‐biodiversity trade‐offs has overlooked the impacts of current policy settings, eligibility criteria, risk factors and transaction costs. By addressing these gaps, this study provides new insights into how a moderate premium to existing policies could significantly enhance biodiversity co‐benefits within carbon credit schemes.