A model of two regions with a common wood market is introduced. Regions may be of two types, according to their forest management regime, namely managed forest plantations (M) and unmanaged open access forests (U). It is found that when regions are of the same type, unilateral climate policy in the forestry sector leads to (positive) carbon leakage. However, when regions are of different types, unilateral climate policy results in negative carbon leakage. Thus, policies aimed at increasing diversity in management regimes, within a wood market, stimulate the emergence of market forces that preserve and enhance forest carbon.
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