Can carbon sink insurance and financial subsidies improve the carbon sequestration capacity of forestry?

Abstract

Enhancing forestry carbon sequestration capacity is an important way for China to achieve carbon neutrality. As such, carbon sink insurance and financial subsidies are important exploration contents for China to build a policy support system for forestry carbon sink. Based on the theoretical framework of the dynamic stochastic general equilibrium model, this study constructs a theoretical model of a forestry economic system under risk shock. Moreover, it discusses the influence of carbon sink insurance and financial subsidies on the ability of forestry to sequester carbon and increase carbon sink. Then, it explores ways to optimize the allocation of carbon sink insurance and fiscal subsidies policy tools. The results show that the operators participating in forestry carbon sink projects not only improve the forestry carbon sink ability but also enhance their own welfare level. In the case of no premium subsidy, carbon sink insurance cannot directly improve the forestry carbon sink ability but can improve the economic benefits and welfare level of operators and stabilize forest carbon sink supply. Furthermore, when the premium subsidy ratio is high enough, the method of “carbon sink insurance + premium subsidy” will improve the forestry carbon sink effect. Both direct financial subsidy and premium subsidy can improve the ability of forestry to sequester carbon and increase carbon sink and improve operators’ welfare level. However, the environmental efficiency of premium subsidy is greater than that of direct financial subsidy. Therefore, under the constraints of fiscal budget, the direct fiscal subsidy and the method of “carbon sink insurance + premium subsidy” should be used in coordination, and the carbon sink insurance premium subsidy should be given priority.