The Kyoto protocol allows Annex I countries to deduct carbon sequestered by land use, land-use change, and forestry from their national carbon emissions. J. Thornley and M. Cannell (2000. Managing forests for wood yield and carbon storage: A theoretical study. Tree Physiol. 20:477-484) have demonstrated that the objectives of maximizing timber and carbon sequestration are not complementary. Based on this finding, this article presents a model that takes into account the dynamics of timber and carbon in the form of an integro-partial differential and an ordinary differential equation. The integrated biophysical and economic model allows the optimal selective management regime to be determined. The results show that an increase in the carbon price leads to a notable increase in the number of trees. The findings also suggest that carbon sequestration costs are significantly lower for a change in a forest management regime than for a change in land use (afforestation). FOR. SCI. 56(3):242-256. © 2010 by the Society of American Foresters.