Forests and the Economics of Climate Change

Forests play a growing role in the economics of climate change, functioning simultaneously as major carbon sinks and strategic assets within climate policy, carbon markets and the emerging bioeconomy. This review synthesises recent scientific and policy literature to examine how climate change is reshaping the ecological and economic foundations of European forests. Intensifying droughts, storms and pest outbreaks are altering forest productivity and stability, producing significant fluctuations in wood supply and price dynamics. These ecological impacts generate economic vulnerabilities that extend across value chains and undermine long-term investment certainty.Forests are increasingly embedded in complex governance systems that include international climate agreements, EU climate legislation and emerging certification frameworks for carbon removals. While their role in most compliance carbon markets remains limited, voluntary carbon markets provide substantial economic opportunities, particularly for nature-based removals. Corporate net-zero strategies and rising demand for high-integrity credits position forests as important contributors to climate mitigation outside regulated systems. At the same time, adaptation measures (such as species diversification, improved forest management and enhanced monitoring) are essential for maintaining both ecological resilience and economic viability.The review identifies a persistent gap in the literature: the lack of integrated analyses that combine ecological trends, market behaviour and carbon governance. By addressing this gap, the article highlights the potential of forests to contribute meaningfully to climate mitigation through carbon storage, removals and substitution benefits. Realising this potential, however, requires coherent policies, credible market mechanisms and proactive management strategies. Forests can serve as a crucial pillar of Europe’s climate transition if ecological, economic and governance dimensions evolve in a coordinated and forward-looking manner.