We present a computable general equilibrium model properly modified to analyse the potential role of the European forestry sector within climate mitigation. Improvements on database and modelling frameworks allow accounting for land heterogeneity across and within regions and for land transfers between agriculture, grazing, and forestry. The forestry sector has been modified to track carbon mitigation potential from both intensive and extensive forest margins, which have been calibrated according to a forest sectoral model. Two sets of climate policies are simulated. In a first scenario, Europe is assumed to commit unilaterally to reduce CO2 emissions by 20% and 30%, by 2020. In a second scenario, in addition to the emissions quotas, progressively higher forest sequestration subsidies are paid to European firms to foster the implementation of forestry practices. Results show that including forest carbon in the compliance strategy decreases European policy costs and carbon price, while it does not lead to significant reductions in carbon leakage. We conclude that while European forests can reinforce other mitigation measures, their contribution as a stand-alone abatement strategy results insufficient to comply with emissions reduction targets. Additionally, carbon sinks provided by European temperate forests do not offer considerable mitigation potential if compared with other forest biomes around the world. A much higher forest mitigation would require other regions to take part in a climate stabilization agreement, especially those where old-growth forests exist.