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 the negative externalities associated with agriculture in terms of carbon emissions and the positive forest externalities in terms of carbon sequestration, we model both private returns and social returns. These reflect respectively the return from the market and the wider return to society, which incorporates both market returns and the public good returns associated with carbon emissions/sequestration. The modelling assumptions used in developing the model are described in detail, along with the validation of model components against other analyses and the testing of the sensitivity of the results to different assumptions. The paper considers the distributional impact of the private and social returns to 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 than private returns.