Using Cape York Peninsula, Queensland, Australia as a case study, this paper combines field sampling of woody vegetation with cost benefit analysis to compare the social optimality of fire-assisted pastoralism with sustainable forestry. Carbon sequestration is estimated to be significantly higher in the absence of fire. Integration of carbon sequestration benefits for mitigating future costs of climate change into cost benefit analysis demonstrates that sustainable forestry is a more socially optimal land use than fire-assisted pastoralism. Missing markets for carbon, however, imply that fire-assisted pastoralism will continue to be pursued in the absence of policy intervention. Creation of markets for carbon represents a policy solution that has the potential to drive land use away from fire-assisted pastoralism towards sustainable forestry and environmental conservation. (c) 2005 Elsevier Ltd. All rights reserved.
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