There has been extensive debate about whether the sustainable use of forests (forest management aimed at producing a sustainable yield of timber or other products) results in superior climate outcomes to conservation (maintenance or enhancement of conservation values without commercial harvesting)1,2,3,4,5,6,7,8. Most of the relevant research has relied on consequential life-cycle assessment (LCA), with the results tending to show that sustainable use has lower net greenhouse-gas (GHG) emissions than conservation in the long term1,2,3,4,5. However, the literature cautions that results are sensitive to forest- and market-related contextual factors: the carbon density of the forests, silvicultural and wood processing practices, and the extent to which wood products and forest bioenergy displace carbon-intensive alternatives. Depending on these issues, conservation can be better for the climate than sustainable use1,6,7,8. Policy institutions are another key contextual factor but, so far, they have largely been ignored1,2,3,4,5,6. Using a case study on the Southern Forestry Region (SFR) of New South Wales (NSW), Australia, we show how policy institutions can affect the assessed outcomes from alternative forest management strategies. Our results highlight the need for greater attention to be paid to policy institutions in forest carbon research.