From Climate Liability to Market Opportunity: Valuing Carbon Sequestration and Storage Services in the Forest-Based Sector

Abstract

Ecosystem services—the benefits humans derive from nature—are foundational to environmental sustainability and economic well-being, with carbon sequestration and storage standing out as critical regulating services in the fight against climate change. This study presents a comprehensive financial valuation of the carbon sequestration, storage and product substitution ecosystem services provided by the Hungarian forest-based sector. Using a multi-scenario framework, four complementary valuation concepts are assessed: total carbon storage (biomass, soil, and harvested wood products), annual net sequestration, emissions avoided through material and energy substitution, and marketable carbon value under voluntary carbon market (VCM) and EU Carbon Removal Certification Framework (CRCF) mechanisms. Data sources include the National Forestry Database, the Hungarian Greenhouse Gas Inventory, and national estimates on substitution effects and soil carbon stocks. The total carbon stock of Hungarian forests is estimated at 1289 million tons of CO₂ eq, corresponding to a theoretical climate liability value of over EUR 64 billion. Annual sequestration is valued at approximately 380 million EUR/year, while avoided emissions contribute an additional 453 million EUR/year in mitigation benefits. A comparative analysis of two mutually exclusive crediting strategies—improved forest management projects (IFMs) avoiding final harvesting versus long-term carbon storage through the use of harvested wood products—reveals that intensified harvesting for durable wood use offers higher revenue potential (up to 90 million EUR/year) than non-harvesting IFM scenarios. These findings highlight the dual role of forests as both carbon sinks and sources of climate-smart materials and call for policy frameworks that integrate substitution benefits and long-term storage opportunities in support of effective climate and bioeconomy strategies.

1. Introduction

Ecosystem services are the benefits that humans derive from the functioning of natural ecosystems, including tangible goods—such as timber and wild mushrooms—as well as less obvious but essential functions like climate regulation, pollination, or aesthetic enjoyment. The Millennium Ecosystem Assessment [1] classifies these as provisioning, regulating, cultural, and supporting services. Forests are among the most multifunctional ecosystems, providing a rich portfolio of ecosystem services. These include timber and biomass for energy, carbon sequestration and storage, flood mitigation, soil conservation, recreational opportunities, habitat, and biodiversity [2,3,4,5].

Despite being essential for human well-being and planetary stability, many of these services fall outside traditional market mechanisms. In some cases, this is because they are public goods that are freely accessible and abundantly available, or because their availability and use are regulated through legal and non-market means. This poses a fundamental challenge for their economic valuation, as prices—used to determine monetary value—are not available in the absence of markets.

In their comprehensive review, Garrido Mateos et al. [6] trace the intellectual and institutional evolution of environmental economic valuation across three major paradigms: the valuation of externalities, the valuation of ecosystem services, and the current focus on natural capital accountability. A similar trajectory of approach to the environment is outlined by Potschin et al. [7], where the benefits of the environment were recognized in antiquity and beyond, while their limited capacity and, in particular, the social consequences of the unlimited use of the environment, were already being discussed in the 19th century. In the 20th century, and particularly after the 1940s, long before the term ‘ecosystem services’ was first used, the concept of environmental services was developed (environmental services, ecological services, etc.) The novelty of the ecosystem services concept was its holistic approach to all types of benefits from nature. However, it is only in the past 30–35 years that the global scale of some of the environmental challenges has been recognized and they are now being addressed through global policies. However, ecosystem services and their financial valuation are based on the moral premise that nature serves man. A change in this utilitarian approach will be necessary in the future in order to more objectively express the dependence of human existence on nature and to ensure that policies are truly focused on the future benefit of humanity.

Initially, the valuation of the environment was rooted in welfare economics and cost–benefit frameworks, seeking to internalize negative externalities through economic instruments [6]. Foundational contributions from Pigou [8], Kaldor [9], and Hicks [10] laid the groundwork for integrating environmental externalities into microeconomic analysis. During this early stage, a variety of revealed preference methods were developed to assign monetary value to environmental attributes based on observed market behaviors [6]. These included hedonic pricing [11,12,13], which evaluates how environmental qualities influence housing or wage markets; the travel cost method [14,15], which infers the recreational value of natural sites from incurred travel expenses; and averting behavior approaches [16,17], which estimate environmental values through household expenditures to mitigate undesirable environmental conditions.

As environmental problems became more visible and gained attention in policy discussions, a second stage emerged—focused on ecosystem services—which marked a move from purely theoretical analysis toward practical, applied valuation. The concept of ecosystem services, initially developed by scholars such as Ehrlich and Mooney [18], Groot [19], and Daily [20], gained wider recognition in research and policy after the influential global valuation study by Costanza et al. [2]. This stage introduced stated preference methods—notably contingent valuation [21,22] and discrete choice experiments [23,24]—which rely on structured hypothetical scenarios to assess individuals’ willingness to pay for environmental improvements or accept compensation for losses [25,26,27]. These techniques became crucial for valuing non-market goods and non-use values, such as biodiversity conservation and aesthetic enjoyment. Alongside these methodological developments, institutional frameworks such as the Millennium Ecosystem Assessment [1] and The Economics of Ecosystems and Biodiversity (TEEB) [28,29] contributed to standardizing ecosystem service classifications and integrating valuation into environmental governance.

The third and current stage—natural capital accountability—reflects a shift toward embedding environmental values in decision-making processes across public and private sectors. Here, the goal is no longer to estimate intrinsic values, but to support responsible valuation within institutional and corporate accountability systems. A defining feature of this stage is the emergence of integrated and spatially explicit accounting frameworks, most notably the United Nations’ System of Environmental-Economic Accounting—Ecosystem Accounting (SEEA) [30], which provides guidance for compiling biophysical and monetary ecosystem accounts at the national level. In the private sector, the Natural Capital Protocol (NCC) [31], developed by the Capitals Coalition, offers standardized procedures for identifying and valuing business dependencies and impacts on natural capital. Complementary efforts such as the Common International Classification of Ecosystem Services (CICES) [32] further institutionalize valuation tools with broad applicability. These developments have transformed economic valuation into a policy instrument aligned with broader sustainability goals, particularly within the EU’s Green Deal and Biodiversity Strategy for 2030 [33,34].

Among ecosystem service valuation techniques, the financial valuation of forest carbon sequestration and storage is particularly advanced due to its strong link to global climate policies and carbon markets [35,36].

Carbon sequestration, the process by which forests absorb atmospheric CO₂ and store it in biomass, soils and timber, is unique because it can be linked directly to mitigation targets and traded as credits in voluntary and compliance carbon markets [37,38]. Yet significant differences exist in how sequestration and long-term storage is valued, especially in areas and stocks that are not eligible for crediting under carbon markets. Compliance markets, such as the EU Emissions Trading System (EU ETS), operate under strict regulatory caps and require verified emission reductions. However, carbon sequestration from land use, land use change, and forestry (LULUCF) is currently excluded from ETS trading, meaning no official market price is set for these removals. In contrast, voluntary carbon markets (VCMs) offer greater flexibility and often accommodate nature-based solutions like afforestation and improved forest management [39]. The importance of monetizing ecosystem-based carbon has increased in light of global climate agreements such as the Paris Agreement and regional policy initiatives like the EU Green Deal, the LULUCF Regulation, and the Carbon Removal Certification Framework (CRCF, EU/2024/3012). These frameworks not only aim to incentivize net-zero strategies but also promote a bioeconomy rooted in sustainable natural capital use. Within the EU’s circular bioeconomy concept, carbon stored in long-lived harvested wood products (HWPs) plays a growing role, both in emissions mitigation and as a component of climate-smart material use [40,41].

Carbon storage is widely recognized as a key indicator of ecosystem services, reflecting both the productive capacity and ecological resilience of terrestrial ecosystems [42,43]. Studies by Conte et al. [44] and Sharp et al. [45] emphasize that quantitative information on the spatial distribution and magnitude of carbon storage and sequestration is essential for effective landscape and resource management. These indicators are particularly relevant for assessing climate regulation services in specific regions [4,44]. Despite the growing use of carbon modeling in ecosystem service assessments, the integration of economic and management perspectives remains limited. One key method in this regard is the Social Cost of Carbon (SCC), which provides an economic valuation of carbon emissions. SCC estimates the monetary cost of emitting an additional ton of carbon dioxide or its equivalent, and plays a central role in shaping global climate policies and economic strategies [38,46]. In addition to SCC, several other valuation approaches are commonly applied in carbon-related ecosystem service assessments. The Marginal Abatement Cost (MAC) method estimates the cost of reducing emissions through alternative mitigation strategies, offering insights into cost-effectiveness [47]. The Damage Cost Avoided approach values carbon sequestration based on the climate-related damage it helps prevent, such as flood risks or agricultural losses [48,49]. The Replacement Cost Method calculates the expense of substituting carbon sequestration services through engineered solutions like direct air capture [49]. Willingness-to-Pay (WTP) and contingent valuation methods assess public preferences by estimating how much individuals are willing to pay to preserve forest carbon functions [50,51]. The Cost of Carbon Removal (CCR) approach evaluates the expenses associated with physical removal technologies or nature-based solutions, such as afforestation or biochar [52]. Among these, the Market Price Method—which uses real-time carbon credit prices in trading schemes—offers the most direct and policy-relevant valuation, particularly in light of the emerging Voluntary Carbon Market frameworks being developed within the European Union.

1.1. Review of Previous Economic Assessments of Hungarian Forest Ecosystem Services

Hungary has made notable progress in assessing the financial value of forest ecosystem services through comprehensive national studies (

Table 1. Financial valuation of key forest ecosystem services in Hungary.

Ecosystem Service	Estimated Value (EUR)	Estimated Value (HUF)	Valuation Basis	Source
Carbon sequestration (annual net uptake)	525 million EUR/year	210 billion HUF/year	Hungarian GHGI: 3.82 tCO2 eq/ha/year at 30,000 HUF/tCO2 eq	Szerényi and Széchy [53]
Carbon storage in forest biomass (total stock)	EUR 33.8 billion	HUF 13,513 billion	Total biomass carbon stock in forest types at 30,000 HUF/tCO2 eq	Szerényi and Széchy [53]
Carbon storage in forest soils (total stock)	EUR 121.7 billion	HUF 48,665 billion	Soil carbon stock in 47 habitat types at 30,000 HUF/tCO2 eq	Szerényi and Széchy [53]
Recreation in Pilis Biosphere Reserve	9.25–11.56 million EUR/year	3.7–4.6 billion HUF/year	Travel cost method (half-day and full-day visits)	Széchy and Szerényi [54]
Recreation countrywide estimate	101.7 million EUR/year	40.7 billion HUF/year	Benefit transfer, 45 M visits × EUR 2.26 per visit	Széchy and Szerényi [54]
Flood regulation/water retention	Up to 90 million EUR/year	36 billion HUF/year	Avoided cost of flood damage	Szerényi and Széchy [53]

). The most prominent among these is the Mapping and Assessment of Ecosystems and their Services—Hungary project, which developed a robust methodology for valuing services such as carbon sequestration, carbon storage, flood regulation, recreation, and land use change impacts. The study, led by Szerényi and Széchy [53], applied avoided damage costs, mitigation costs, and benefit transfer techniques to estimate service values at both per-hectare and national levels.

Their results demonstrate that forest soils store significantly more carbon than biomass—approximately 1.62 gigatons CO₂ versus 0.45 gigatons, respectively—translating to a total stock value of EUR 121.7 billion (HUF 48,665 billion) for soils and EUR 33.8 billion (HUF 13,513 billion) for biomass. Annual carbon sequestration was valued at 525 million EUR per year (210 billion HUF/year). Recreation services in forests, primarily associated with pedestrian tourism, were estimated at EUR 75–125 million annually (30–50 billion HUF/year). Flood mitigation potential, based on hydrological modeling from the Zala river basin, was extrapolated to a national value of up to EUR 90 million per year (36 billion HUF/year).

More recently, Széchy and Szerényi [54] produced an updated national-scale economic valuation of recreational services specifically for Hungarian forests. Using a combination of site-specific travel cost methods (for the Pilis Biosphere Reserve) and benefit transfer (for national-level estimates), their study found that the recreational ecosystem service of hiking and walking in Hungarian forests holds an annual economic value between EUR 52.4 and 161 million, with a central estimate of 101.7 million EUR/year. This demonstrates that recreational use may represent a substantial share of the total non-market benefits provided by forests, potentially corresponding to around 20% of Hungary’s annual forest timber production value. Furthermore, their study also highlighted that even a relatively small forest area like the Pilis Biosphere Reserve (~2% of total forest area) can generate 10% of national recreational value due to its popularity, accessibility and proximity to the densely populated Budapest metropolitan area.

1.2. Study Aim, Research Question, and Hypotheses

This study aims to financially evaluate the carbon sequestration and storage services of Hungarian forests by developing four complementary valuation concepts:

(1)

Total storage value: the value of carbon stored in forest biomass, soil, and harvested wood products (HWPs);

(2)

Sequestration value: the annual increase in the amount of carbon stored in biomass and harvested wood products representing the annual net absorption of atmospheric CO₂;

(3)

Avoided emission value: the value of CO₂ emissions avoided by substituting fossil-based materials with bio-based products and by utilizing biomass and wood products for energy recovery at the end of their life cycle;

(4)

Marketable value: the value of carbon sequestration eligible for VCM projects.

These valuation concepts form a framework for assessing how forests act as both carbon sinks and climate-smart material sources, simultaneously contributing to mitigation and the circular bioeconomy. The relationship between these concepts is illustrated in Figure 1.

When valuing the climate regulation services of forests, we consider carbon stored in forest soils, forest biomass (i.e., standing volume), and HWPs in use. In forest ecosystems, the balance between carbon absorbed through photosynthesis and released through decomposition determines whether the carbon stock in the biomass pool increases or decreases. This natural balance is altered by timber harvesting, which reduces the standing volume and the carbon stored in forest biomass.

Harvested wood that is incorporated into buildings or used as products for varying lengths of time contributes to an increase in the amount of carbon stored in the HWP pool, while the deterioration and disposal of products results in a decrease. Part of the harvested timber can also be used for energy. Both the use of biomass for energy and the production of wood products help avoid the use of fossil fuels, which would otherwise lead to one-way, irreversible carbon emissions.

There are opportunities to enhance carbon storage both by increasing the living tree stock and by incorporating more wood into long-lived products—both of which offer potential for monetization on the VCM. Some of these practices are already being implemented and contribute to carbon storage today; however, in the future, there will be greater potential to generate revenue from them, and new methods may also emerge to further support climate goals.

The central research question is as follows: How do different valuation approaches—stock-based, flow-based, and market-based—compare in quantifying the carbon-related ecosystem services of Hungarian forests, and what are the implications of adopting improved forest management versus long-term harvested wood product strategies for optimizing marketable carbon outcomes?

To address this question, the study tests the following hypotheses:

H1. 

The total storage value of carbon in Hungarian forests significantly exceeds annual flow-based values (sequestration and substitution), indicating a large, unmonetized climate liability embedded in forest ecosystems.

H2. 

The marketable carbon value of forest-based projects is significantly lower than flow-based values (annual sequestration and avoided emissions), due to additionality constraints and eligibility limitations under the current voluntary carbon market and EU CRCFs.

2. Materials and Methods

This study applies an integrated economic valuation approach to quantify the climate change mitigation-related ecosystem services of Hungarian forests, using four complementary valuation concepts: (1) total storage value, (2) sequestration value, (3) avoided emission value, and (4) marketable value. Each approach represents a distinct aspect of carbon-related ecosystem services, grounded in different policy and economic interpretations, ranging from hypothetical compliance liabilities to potential market incomes.

The analysis is based on data sourced from the National Forestry Database (NFD), the Hungarian Greenhouse Gas Inventory [55], as well as estimates by Borovics et al. [56] and Illés et al. [57].

In the carbon pools considered in the analysis, carbon (C) is typically present in the form of organic compounds. However, for the calculation of monetary value, we use carbon dioxide equivalent, which represents the mass of carbon dioxide containing an equivalent amount of carbon. Carbon markets and climate policy instruments (such as the EU ETS, VCM, and CRCF) quantify mitigation benefits in CO₂ equivalent units, reflecting the full molecular weight of carbon dioxide released or avoided per unit of elemental carbon. The standard conversion factor applied is 3.667, derived from the molecular weight ratio of CO₂ (44 g/mol) to elemental carbon (12 g/mol). This convention ensures consistency with market pricing, climate reporting protocols, and internationally accepted valuation frameworks [58,59,60].

2.1. Total Storage Value

The total storage value reflects the economic value of the carbon stock currently held in forest biomass, soils, and harvested wood products (HWPs). It is conceptualized as the liability cost or climate debt that would materialize if the entire amount of carbon stored in Hungarian forests were released into the atmosphere due to complete ecosystem degradation. For this valuation, forest standing volume data were sourced from the 2021 statistical state of the NFD, and the carbon content of HWPs was derived for reporting year 2021 from the Hungarian Greenhouse Gas Inventory (GHGI) [55]. Soil carbon stock data was based on the estimate of Illés et al. [57], referencing comprehensive sampling conducted between 2007 and 2010 for a 2010 baseline, using long-term forest soil monitoring systems. It is important to emphasize that soil carbon pools are relatively stable and change slowly over time. As such, the 2010 data remain relevant for present-day valuation. Additionally, no major forest disturbances were reported between 2010 and 2021 that would significantly alter the forest soil carbon balance.

The estimated physical carbon stocks were monetized using an assumed carbon price of EUR 50 per ton of CO₂, a value consistent with the average price in the voluntary carbon market [61], though lower than the shadow price for land-based sinks estimated by the IPCC [62] and applied in the valuation by Szerényi and Széchy [53].

The total storage value (TSV) was calculated using the following formula:

TSV = (C_biomass + C_soil + C_HWP) × (44/12) × P_VCM

(1)

where

TSV: Total Storage Value (EUR).

C_biomass: Carbon stock in forest biomass (tC), sourced from the Hungarian GHGI.

C_soil: Carbon stock in forest soils (tC), sourced from Illés et al. [57].

C_HWP: Carbon stock in harvested wood products (tC), sourced from the Hungarian GHGI.

(44/12): Molecular weight ratio for converting carbon to carbon dioxide.

P_VCM: Carbon price of the Voluntary Carbon Market (EUR/tCO₂), assumed as 50 EUR/tCO₂.

2.2. Sequestration Value

The carbon sequestration value captures the annual net carbon uptake by Hungarian forests and HWPs, and represents the opportunity cost or liability that would arise if forests ceased to function as a carbon sink (i.e., if net annual sequestration dropped to zero). The quantification is based entirely on official data from the Hungarian GHGI [55], which provides annual estimates of net removals in the LULUCF sector. This annual CO₂ uptake is valued using the same 50 EUR/tCO₂ rate, interpreted here as the policy-relevant cost for maintaining carbon sink capacity under LULUCF compliance frameworks.

The sequestration value (SV) was calculated using the following equation:

SV = S_net × P_VCM

(2)

where

SV: Sequestration Value (EUR/year).

S_net: Annual net carbon sequestration in the forest-based sector (tCO₂/year).

P_VCM: Carbon price of the Voluntary Carbon Market (EUR/tCO₂), assumed as 50 EUR/tCO₂.

2.3. Avoided Emission Value

The avoided emission value reflects the role of forest-based materials and energy sources in substituting for fossil alternatives which are typically associated with one-way, higher CO₂ emissions. It quantifies the emissions that would arise in sectors covered by the EU Emissions Trading System (ETS) if domestic production of wood products and firewood stopped, and these were replaced with fossil-intensive alternatives such as concrete, steel, and fossil fuels. Estimates of substitution effects—both material and energy-related—were taken from Borovics et al. [56], who described country-level emission reductions attributable to the use of wood in place of alternative materials and fuels. The economic value was calculated using an assumed ETS market price of EUR 100 per ton of CO₂, representing an average ETS allowance price.

The economic value of avoided emissions (AEV) was calculated using the following formula:

AEV = E_avoided × P_ETS

(3)

where

AEV: Avoided Emission Value (EUR/year).

E_avoided: Annual avoided emissions due to material and energy substitution (tCO₂/year).

P_ETS: EU ETS carbon price (EUR/tCO₂), assumed as 100 EUR/tCO₂.

2.4. Marketable Value

The marketable value represents the actual income-generating potential of forest-based carbon projects under the VCM. Two distinct and mutually exclusive project types are considered under this valuation pathway: (a) improved forest management (IFM) projects that prioritize standing biomass retention, and (b) long-term carbon storage projects that rely on harvested wood products (HWPs) used in construction.

The IFM project type assessed in this study assumed an extended rotation cycle, whereby eligible stands are retained in a standing condition instead of being harvested. The eligible stands are then hypothetically enrolled in IFM-type VCM projects. For the IFM scenario, standing volume and management data were sourced from the National Forestry Database, focusing specifically on forest areas classified as available for wood supply and having reached their designated final harvesting age according to the Hungarian Forest Authority. The annual increment for these stands was estimated using site-specific productivity indicators, and a 15% natural mortality rate was subtracted to determine the net carbon sink volume eligible for crediting. This net volume was then monetized using a carbon price of 50 EUR/tCO₂. To comply with the biodiversity additionality criteria prescribed under the EU Carbon Removal and Carbon Farming Regulation (CRCF), hybrid poplar and black locust (Robinia pseudoacacia) stands were excluded from the IFM scenario. As non-native species, these are unlikely to qualify for extended rotation cycles under CRCF-compliant improved forest management pathways.

Thus, the marketable value for IFMs (MV_IFM) was calculated as follows:

MV_IFM = C_I × (44/12) × P_VCM

(4)

C_I = (I_gross − M) × D × CF

(5)

M = 0.15 × I_gross

(6)

where

MV_IFM: Marketable value from improved forest management projects (EUR/year).

P_VCM: Carbon price of the Voluntary Carbon Market (EUR/tCO₂), assumed as 50 EUR/tCO₂.

C_I: Carbon content of the net annual increment (tC/year).

I_gross: Gross annual increment (m³/year).

M = Mortality (m³/year).

D = Tree species’ specific wood density (t/m³), sourced from the Hungarian GHGI.

CF = Tree species’ specific carbon fraction (tC/t), sourced from the Hungarian GHGI.

(44/12): Molecular weight ratio for converting carbon to carbon dioxide.

In contrast, long-term storage VCM projects operate under the assumption that timber harvesting continues either at business-as-usual (BAU) levels or under an intensified harvesting regime, as modeled by Borovics et al. [56]. These scenarios further assume that an increased proportion of harvested wood is directed toward construction, exceeding current BAU usage rates, thereby enabling the long-term storage of additional HWPs. In this case, the harvested biomass is converted into durable construction materials capable of storing carbon for several decades, or even for centuries. This form of carbon storage is eligible for recognition under the EU Carbon Removal Certification Framework. The amount of carbon stored in these scenarios is similarly valued at 50 EUR/tCO₂, representing potential income streams for building owners or investors engaged in certified carbon storage projects.

The marketable value for long-term storage projects (MV_HWP) was calculated as follows:

MV_HWP = C_built-in-HWP × (44/12) × P_VCM

(7)

C_built-in-HWP = ΔH_industrial × D × CF

(8)

where

MV_HWP: Marketable value from long-term storage VCM projects (EUR/year).

P_VCM: Voluntary carbon market price (EUR/tCO₂), assumed as 50 EUR/tCO₂.

(44/12): Molecular weight ratio for converting carbon to carbon dioxide.

C_built-in-HWP: Carbon content of additional harvested wood products entering long-term storage VCM projects (tC/year).

ΔH_industrial: Increase in industrial wood assortment directed towards construction (m³/year), as modeled by Borovics et al. [56] under the INT scenario.

D: Tree species-specific wood density (t/m³), sourced from the Hungarian GHGI.

CF: Tree species-specific carbon fraction (tC/t), sourced from the Hungarian GHGI.

The two carbon crediting approaches described above represent distinct management pathways with differing implications for forest utilization and carbon storage. It is critical to note that improved forest management and long-term storage through harvesting cannot be pursued simultaneously on the same land base. IFMs reduce or postpone harvests to preserve standing biomass, while long-term storage projects inherently require the harvesting of timber. Therefore, the two approaches are alternative carbon crediting strategies, and this study evaluates both approaches in the context of the entire Hungarian forest-based sector to determine which yields higher voluntary carbon market incomes.

Figure 2 presents a methodological flowchart summarizing the data sources, price assumptions, and the valuation framework applied in this study.

3. Results

The assessment of carbon-related ecosystem services in the Hungarian forestry and wood industry sector revealed substantial economic values across all four valuation categories. The total carbon stored in forest biomass, forest soils, and HWPs collectively amounts to 1289 Mt of CO₂, with an estimated monetary value of EUR 64 billion (HUF 25,772 billion). Among these, forest soils account for the largest share, storing 764 Mt CO₂ valued at EUR 38 billion (HUF 15,289 billion), followed by forest biomass (478 Mt CO₂ eq—EUR 23 billion—HUF 9565 billion) and HWPs (46 Mt CO₂ eq—EUR 2 billion—HUF 917 billion). This valuation reflects a theoretical liability cost that would arise in the event of complete ecosystem degradation and subsequent carbon release, serving as a proxy for the long-term climate value of Hungary’s forest carbon stock.

The annual net carbon sequestration value, representing the ongoing sink function of forests, was also significant. Hungarian forests sequestered 6.7 Mt of CO₂ in 2021, with an estimated monetary value of EUR 334 million (HUF 133 billion), while HWPs added an additional 0.9 Mt CO₂/year, valued at EUR 47 million (HUF 19 billion). The total annual sequestration value thus reached EUR 380 million (HUF 152 billion). This figure captures the climate debit that would be incurred if Hungary’s forests ceased to function as a net carbon sink.

In addition, our study assessed the avoided emissions value linked to the substitution effects of forest-based products. If wood used for material and energy purposes were replaced with fossil-intensive alternatives, it would result in 4.5 Mt CO₂ of additional emissions annually. At an assumed ETS market price of 100 EUR/tCO₂ eq, the avoided emissions yield a value of 453 million EUR/year (181 billion HUF/year), underlining the importance of timber products in climate change mitigation.

The marketable value of carbon sequestration was examined under two carbon crediting strategies: long-term storage of carbon in HWPs in construction, and improved forest management projects that avoid harvesting.

For long-term carbon storage in HWPs, two scenarios were modeled. Under an intensified wood industry scenario with constant harvesting levels, an additional inflow of 0.7 Mt CO₂ per year could be directed toward long-term storage in construction, generating an estimated voluntary carbon market income of 36 million EUR/year (14 billion HUF/year). In a scenario with increased harvesting, the inflow would rise to 1.8 Mt CO₂/year, corresponding to 90 million EUR/year (36 billion HUF/year) of voluntary market income. In contrast, improved forest management—assuming the complete cessation of final harvesting—could sequester an additional 0.4 Mt CO₂ annually, yielding a creditable value of 21 million EUR/year (8 billion HUF/year).

The results of the valuation are summarized in Figure 3, which provides a comparative overview of carbon stock, annual sequestration, avoided emissions, and market-based revenue potential under the examined scenarios.

4. Discussion

This study applied four distinct yet complementary valuation approaches—total carbon stock, annual sequestration, avoided emissions, and marketable value—to assess the climate-related ecosystem services of Hungarian forests. The findings of this study provide clear empirical confirmation of both hypotheses.

H1, which posited that the total carbon storage value of Hungarian forests substantially exceeds flow-based values such as annual sequestration and avoided emissions, is strongly supported. The total stock value, estimated at approximately EUR 64 billion, is more than 100 times greater than the annual sequestration value (380 million EUR/year) and significantly exceeds the avoided emissions value (453 million EUR/year). This disparity underscores the magnitude of the non-monetized climate liability embedded in forest ecosystems and underscores the conceptual distinction between stock-based and flow-based valuations. The former captures the cumulative climate liability embedded in forest ecosystems, while the latter reflects ongoing mitigation services.

H2 is also corroborated by the results, which show that the marketable value of carbon—ranging from 21 to 90 million EUR/year depending on the project scenario—is considerably lower than both annual sequestration and substitution-based valuations. This outcome reflects the restrictive impact of additionality requirements and eligibility criteria under the current frameworks of the VCM and the EU Carbon Removal Certification Framework. Collectively, these results reveal a pronounced disconnect between the ecological importance of forest-based climate services and their actual economic recognition.

A key finding is that failure to comply with LULUCF sink targets would result in significantly higher liability costs than the potential revenues from VCM participation. This is due to VCM’s additionality criteria, which allow crediting only for carbon sinks that are additional to a business-as-usual baseline.

As compared to the estimates of Szerényi and Széchy [53], our study yields somewhat lower values for total carbon stock and annual sequestration, despite relying on more recent data and forest standing volume figures indicating a higher standing volume. The difference is largely attributable to the carbon price assumptions: in this study, we apply a 50 EUR/tCO₂ price, aligned with recent voluntary carbon market trends [61], whereas the study of Szerényi and Széchy [53] relied on a higher IPCC-based shadow price of 70–100 EUR/tCO₂. Nevertheless, our estimates are based on more recent data that reflect the increasing standing volume of Hungarian forests and the upward trend in net carbon removals, as documented in the Hungarian GHGI [55]. In this sense, our estimates may be more conservative, yet more policy- and market-aligned.

A key innovation of our study is the valuation of substitution effects as a discrete ecosystem service. We estimate that substituting fossil-intensive materials and fuels—such as concrete, steel, and fossil fuels—with wood-based materials and bioenergy can avoid 4.5 Mt CO₂ emissions annually, resulting in a climate mitigation value of approximately EUR 453 million per year. This category, largely unaccounted for in prior Hungarian ecosystem service assessments, represents a substantial share of the total forest-sector climate benefit and aligns strongly with circular bioeconomy principles and EU climate strategies [41,63]. This finding highlights the indirect but critical role forests and timber play not only as carbon sinks but as carbon displacement agents in industrial value chains.

A central contribution of our study is the comparative evaluation of marketable carbon value generated under two mutually exclusive carbon crediting strategies:

(1) IFM, which involves the suspension of final harvesting to enhance in situ carbon retention in forest biomass; and (2) long-term storage in HWPs, which assumes continued or intensified harvesting, with a portion of the harvested timber directed toward construction, enabling durable carbon storage over extended periods.

Our findings show that IFM yields a modest income potential of 21 million EUR/year, while long-term storage under intensified harvesting could generate up to 90 million EUR/year, depending on the harvesting scenario. Our results highlight a fundamental economic and policy trade-off between forest management strategies. IFM supports biodiversity conservation and ecosystem resilience but offers lower revenue potential at the national scale. Moreover, recent studies emphasize that the creation of near-natural, self-sustaining ecosystems may be unattainable under increasing climate pressure [64,65]. In such conditions, successful adaptation can only be achieved through active forest management [65]. The IFM approach also forgoes the substitution benefits associated with harvested wood use, further limiting its overall climate mitigation value. In contrast, long-term carbon storage in HWPs not only generates higher potential income through the voluntary carbon market but also delivers significant substitution effects, reinforcing its alignment with circular bioeconomy objectives. However, this strategy depends on sustained or increased harvesting, which must be implemented with caution to safeguard forest ecosystem integrity. Notably, the EU Carbon Removal Certification Framework imposes an inherent limitation by excluding the accounting of HWPs within IFMs. As a result, the CRCF does not yet support integrated approaches that combine in situ carbon storage and durable wood-based storage within a single project, thereby limiting the comprehensive representation of multifunctional climate change mitigation strategies. Furthermore, the CRCF’s delegated acts are still under development, and it remains unclear which type of IFMs will be eligible under future EU certification schemes. Given this uncertainty, and the higher income potential of long-term wood storage, policy frameworks should prioritize incentivizing sustainable harvesting and enhancing the climate-smart use of wood in construction—as also emphasized by Borovics et al. [56].

Another key finding is the significant role of forest soils as carbon reservoirs, as they store about 1.6 times as much carbon as forest biomass. However, our study was unable to quantify soil carbon fluxes or the financial value of soil carbon stock changes due to the lack of dynamic monitoring data. This represents a limitation, as soils may both gain and lose carbon in response to management interventions. Future research should prioritize improving soil carbon monitoring and modeling, as this will be essential for including soils in monitoring, reporting and verification (MRV) systems and carbon accounting methodologies under both voluntary and compliance frameworks. The spatial variation in soil organic carbon stock is influenced by several factors, which may be either independent or correlated, and many of which are characterized as spatially underrepresented variables. These include vegetation composition, soil biota (macro-, meso-, and micro-fauna), disturbance regime (including management, harvesting, biotic and abiotic events), speed of decomposition, soil hydrological and thermal properties, bulk density, coarse fragment content, elevation, slope, colloidal properties of soil layers, etc. Even among standardized monitoring plots classified under the same soil type, we observed considerable variability in soil organic carbon concentrations. For the above reasons, detecting significant temporal stock changes in such a highly variable phenomenon presents a considerable methodological challenge. Research in this field should focus on efficiently narrowing the confidence intervals of the reported values. The most effective way to achieve this appears to be by performing intensive and repeated field sampling until reliable semivariograms can be established. In this context, remote sensing is likely to play only a limited role, as it primarily captures surface characteristics and lacks the resolution needed to assess subsurface soil carbon dynamics.

The results of this study align with the work of Mirici and Berberoglu [43], who applied spatial and economic modeling to quantify carbon storage and sequestration as ecosystem services in Mediterranean rural landscapes. Both studies adopt a multi-pool carbon accounting approach—including biomass and soil carbon—and emphasize the importance of integrating economic valuation into land and forest management planning. While their research employs the InVEST model and MLP-Markov Chain algorithm to forecast carbon dynamics under a business-as-usual scenario, our study incorporates additional concepts such as substitution effects and market value assessments. A comparison with the global ecosystem service valuation by de Groot et al. [49] further contextualizes our findings. Their meta-analysis, based on 58 estimates, reports a mean value of climate change mitigation services in temperate forests at 152 Int$/ha/year (2007 price levels), and a total ecosystem service value of 3013 Int$/ha/year, with a maximum of 16,406 Int$/ha/year. Our estimated Sequestration Value of 184 EUR/ha/year (215 USD/ha/year) and Avoided Emissions Value of 220 EUR/ha/year (257 USD/ha/year) closely correspond to these global averages for climate regulation services. By contrast, our Total Storage Value of 31,221 EUR/ha/year (36,528 USD/ha/year), while comparable to the upper limit of global estimates, reflects a theoretical valuation of accumulated carbon stock. This distinction reinforces that the Sequestration Value offers a more realistic and policy-relevant estimate, grounded in ongoing biophysical processes rather than static carbon reserves.

The carbon valuation calculations in this study are based on data provided by Hungary’s National Forestry Database and National Greenhouse Gas Inventory. To ensure transparency regarding data reliability, we reference the official uncertainty assessment carried out for these datasets. Specifically, a Monte Carlo simulation was performed at the forest subcompartment level to estimate the uncertainty of standing volume by species groups at the national scale. The results, summarized in the GHGI uncertainty documentation [66], show that the 95% confidence interval of standing volume estimates is remarkably narrow—typically within ±0.3% to ±1.5% for major species groups at the national level. These values confirm that the uncertainty of biomass-based carbon stock estimates is low when aggregated over large spatial scales. In addition to standing volume uncertainty, the uncertainty associated with annual stock change—used as a proxy for net carbon sequestration—is also critical for evaluating the robustness of flow-based carbon valuation. The stock change values for the 2010–2011 period, derived from the NFD and analyzed using Monte Carlo simulation, show considerably higher uncertainty than total stock estimates. For most species groups, the standard deviation ranges from ±20% to ±50%. These broad intervals reflect the high sensitivity of year-to-year stock change to local disturbances, measurement methods, and modeling assumptions. This level of uncertainty is typical of short-term net flux estimates and highlights the challenge of using annual sequestration data for high-precision economic valuation. Despite this variability, the aggregated sequestration signal remains statistically meaningful at the national level. The inclusion of multiple species and forest types helps to reduce the effect of local anomalies, and the uncertainty estimates provided here can be used to construct credible valuation ranges.

The outcomes of this study are closely aligned with the goals outlined in the EU 2030 Biodiversity Strategy [33] and the European Green Deal [34]. The 2030 Biodiversity Strategy explicitly emphasizes the need to value and conserve ecosystem services, while the Green Deal targets climate neutrality by 2050 through strengthened carbon sinks and sustainable land management. By quantifying the total storage, flow-based, substitution, and marketable values of forest carbon, our methodology can inform national carbon accounting, voluntary and compliance carbon markets, and bioeconomy planning. Furthermore, the valuation framework is broadly transferable to other EU member states, provided that subcompartment-level forest databases or national forest inventory (NFI) data, species-specific biomass functions, and policy-specific eligibility criteria are available. Countries with well-established NFIs and LULUCF reporting systems could adopt a similar structure with localized assumptions on wood use, carbon pricing, and substitution factors.

Among the strengths of this study are its multi-pool integration, policy relevance, and transparent linkage between ecological carbon flows and market mechanisms. However, some limitations must be acknowledged. First, the marketable carbon values are based on current eligibility criteria and price scenarios, which are subject to regulatory and market evolution. Second, although our valuation is based on robust national datasets, the GHGI uncertainty analysis indicates that variability in short-term sequestration estimates introduces inherent limitations to high-resolution, flow-based carbon valuations. This limitation also applies to the GHGI reporting itself, which forms the basis for EU climate targets and LULUCF accounting—highlighting that, despite its uncertainties, no more accurate or comprehensive approach is currently available. Finally, substitution effects, while important, depend on dynamic life cycle assumptions that vary across products and markets.

Policy and Practice Recommendations

Based on the valuation results and scenario analysis, several practical recommendations can be made for forest managers, policymakers, and stakeholders in the Hungarian forest-based sector:

(i)

Integrate substitution benefits into climate policy frameworks: The substantial mitigation value derived from substitution effects—estimated at EUR 453 million annually—underscores the importance of prioritizing wood use in construction and energy sectors. Substitution should be formally recognized as a distinct ecosystem service and integrated into national climate accounting, incentive structures, and sectoral strategies.

(ii)

Promote long-term carbon storage in construction wood products: The results indicate that long-term storage of carbon in HWPs used in construction offers greater marketable revenue potential than IFM. Forest harvesting strategies should therefore emphasize the production of durable wood products, particularly for construction, while remaining within ecological sustainability thresholds.

(iii)

Mobilize overmature forest resources through technological innovation and spatial integration: A substantial share of Hungary’s forest growing stock—estimated at 12.2%, or 50.2 million m³—is currently overmature, having more than tripled over the past four decades [64,67]. This underutilized biomass pool represents a renewable resource with high potential for long-term carbon storage in HWPs. However, in the absence of targeted management interventions, much of this stock is expected to experience quality decline, diminishing its commercial and climate mitigation value. To sustainably mobilize overmature timber reserves, improved professional coordination across private forest owners and industry actors is required, supported by advanced geospatial data systems. Accurate, geographically explicit information on the volume and quality of harvestable wood can lay the foundation for a new entrepreneurial culture within the forestry and wood-processing sectors. Innovations such as integrated forest information platforms (e.g., Metsään.fi, Forest Hub), mobile logistics applications, route optimization systems, and community-based business models can play a pivotal role in unlocking this resource, while simultaneously enhancing value retention and climate performance.

(iv)

Support climate-resilient forest restructuring to sustain and enhance carbon sequestration capacity under a changing climate: To maintain and enhance the carbon sink function of forests amid increasing climate variability, targeted climate adaptation measures are essential. Strategic forest restructuring—particularly through the deployment of drought-tolerant, pre-adapted propagation material and the replacement of vulnerable species—can significantly strengthen forest resilience, ensure the permanence of stored carbon, and increase the magnitude of net annual carbon sequestration. These ecosystem-based adaptation strategies should be implemented within the framework of IFM and integrated into VCM mechanisms. Recognizing such proactive adaptation actions as creditable within carbon markets would incentivize early implementation and foster alignment between mitigation and adaptation objectives. This approach is especially critical in regions where climate change threatens the viability of existing forest compositions and the long-term stability of carbon stocks—such as Hungary, which lies at the xeric limit of forest vegetation.

(v)

Address limitations in carbon market eligibility criteria: The gap between ecological mitigation potential and monetizable carbon benefits reflects the restrictive nature of current additionality and eligibility rules under the VCM and the EU Carbon Removal Certification Framework. Reforms are needed to allow for integrated crediting of long-term storage in HWPs and IFM practices, and to enable more comprehensive carbon accounting across multiple pools.

(vi)

Improve soil carbon monitoring and integration: Given that forest soils represent the largest carbon pool (764 Mt CO₂), enhanced monitoring and modeling capacity is essential. Strengthening data on soil carbon dynamics would improve measurement, reporting, and verification (MRV) systems, and enable future crediting pathways once regulatory frameworks evolve.

(vii)

Institutionalize ecosystem service valuation in forest planning: The valuation framework introduced in this study—capturing total stock, annual flows, and marketable values—should be embedded in national forest planning and policy development. Applying this framework systematically would support informed decision-making that balances economic, ecological, and climate objectives.

(viii)

Communicate ecosystem service values to stakeholders and the public: Public awareness campaigns and stakeholder engagement initiatives are essential to communicate the substantial value of forest ecosystem services related to carbon sequestration and climate change mitigation. It is especially important to highlight that long-term carbon storage in harvested wood products is a viable and climate-friendly strategy. When conducted within the framework of sustainable forest management and long-term use, harvesting should not be viewed as harmful, but rather as an integral part of a low-carbon, circular bioeconomy. Clear, evidence-based communication will foster broader understanding, trust, and support for integrated forest–carbon strategies.

5. Conclusions

Ecosystem services are vital for sustaining environmental stability, human well-being, and long-term economic development. Forests provide a broad array of regulating, provisioning, and supporting services, with carbon sequestration and storage playing a central role in climate change mitigation. This study offers a comprehensive financial valuation of carbon-related ecosystem services in Hungarian forests, applying four complementary approaches: total carbon stock, annual sequestration, avoided emissions, and marketable carbon value. These dimensions vary significantly in magnitude, with stock-based values exceeding EUR 64 billion and annual flows ranging between EUR 21 and 453 million. Our estimates, grounded in updated forest and carbon sink data and current voluntary carbon market prices, refine and extend earlier national assessments.

A key contribution is the explicit valuation of substitution effects—an often-overlooked ecosystem service—highlighting forests’ role in reducing fossil emissions through the use of wood-based materials and fuels. The comparative analysis of IFM and long-term storage in HWPs reveals that while IFM supports ecological goals, long-term storage offers higher revenue potential and greater climate benefits. However, the current design of the EU Carbon Removal Certification Framework excludes HWPs from crediting under IFMs, limiting the scope for integrated climate mitigation strategies. This regulatory limitation may hamper the coordination of complementary mitigation pathways, pointing to the need for policy revision and refinement.

Lastly, the results underline the crucial role of forest soils as carbon reservoirs. Due to data limitations, changes in soil carbon could not be quantified, emphasizing the need for further research. Overall, this study reinforces the importance of ecosystem services as both ecological assets and economic opportunities within climate and bioeconomy policy frameworks.