Impact of carbon policies on forest carbon sequestration supply at intensive and extensive margins

Diverging perspectives persist concerning the impacts of carbon policies on forest carbon sequestration and their supply dynamics in China. This study develops a double-margin framework to assess the effect of carbon policies. The Faustmann-Hartman model and the land-use share model are first employed to show the mechanisms by which policies affect forest operators decision-making at the extensive (i.e. changes in forest area) and intensive (i.e. changes in rotation age) margins in each province. We then establish multiple scenarios to simulate the responses of forest operators to carbon policies and the functioning of the forest carbon sequestration supply. We find that policy interventions effectively modulate both intensive and extensive carbon sequestration supply through price mechanisms, generating divergent environmental benefits across policy scenarios. The marginal increase in carbon sequestration declines as the carbon price rises. Furthermore, forest carbon sequestration critically contribute to China's emission mitigation, delivering synergistic ecological and economic co-benefits. In the subsidy scenario, maintaining the standard rotation age facilitates a balance between economic and ecological benefits when the carbon price remains below 276.32 CNY/tCO2; once the carbon price surpasses the threshold of 506.64 CNY/tCO2, the harvesting of over-mature forests becomes financially sensible. In the carbon tax scenario, a tax exceeding 115.64 CNY/tCO2 enhances policy effectiveness. The forest carbon sequestration supply curve exhibits a quadratic pattern, revealing optimal carbon prices of 365.42, 457.19, and 1031.38 CNY/tCO2 for scenarios 1–3. However, the impact of these prices on promoting carbon neutrality is limited.