Designing an effective incentive scheme for climate change mitigation in energy forests

Energy forests play a crucial role in carbon sequestration and biodiesel production, offering significant potential for mitigating climate change while enhancing energy security. However, current payment schemes are inefficient due to short durations and failure to consider the heterogeneity among private forest owners, leading to suboptimal budget utilisation. This study introduces an innovative “carrot and stick” incentive scheme that integrates subsidies and taxation within a unified framework. By incorporating the social carbon price concept and a principal-agent mechanism into the Land Expectation Value model, the proposed scheme incentivises private forest owners to optimize carbon reductions by accounting for soil quality. Soil quality influences timber yield—contributing to carbon storage in wood biomass—and seed yield, which reduces carbon emissions by substituting diesel with biodiesel. An empirical analysis of Pistacia chinensis forests demonstrates that the proposed scheme can extend optimal rotation ages, especially for forests on low-quality soil. Tailored subsidies that reflect forest heterogeneity further prolong rotation ages, albeit at the cost of government payments in information rents. Meanwhile, taxation ensures alignment between sustainable forest management, biodiesel utilisation, and carbon neutrality objectives. This approach offers actionable insights for policymakers in designing future incentive schemes that promote sustainable forest management and enhance the contribution of forests to climate change mitigation.