LAUSR

Abstract Several payments for environmental services (PES) schemes to promote large-scale afforestation are currently operational in New Zealand. In addition, the country has the only national greenhouse gas (GHG) Emissions Trading Scheme centred on forest carbon credits in the world. These market-based instruments are paramount in promoting the changes in land use required to achieve New Zealand’s GHG-emission targets under the Paris Agreement, as well as to pave the way towards the goal of a low-carbon economy by 2050. We estimated the impacts of PES schemes on the profitability of Pinus radiata forestry to identify low-productivity grasslands where afforestation is likely to financially offset the current land use (i.e., mainly sheep-and-beef farming), under the assumption of constant returns to scale. We find that even without PES, 56% of these agricultural lands present lower economic returns than forestry. When PES are considered, results suggest that, depending on the PES schemes and carbon prices, 77–100% of the low-productivity grassland areas could financially benefit from afforestation. If realized, afforestation of those lands could result in the long-term removal of 1.2–1.5 Pg CO2 from the atmosphere.