Forests provide a broad set of ecosystem services, including climate regulation. Other ecosystem services can be ecosystem dependent and are in part regulated by local‐scale decision‐making. In the southwestern United States, ongoing climate change is exacerbating a legacy of fire‐exclusion that has altered forest structure and increased high‐severity wildfire risk. Management can mitigate this risk by reducing forest density and restoring frequent surface fires, but at the cost of reduced carbon stocks. We sought to quantify the role of management in building adaptive capacity to projected climate and wildfires and the carbon consequences in a forested watershed. We simulated carbon dynamics under projected climate and wildfires and two management scenarios: prioritized and optimized. The prioritized scenario involved thinning and prescribed burning in areas selected by stakeholders to mitigate high‐severity wildfire risk. The optimized scenario used the probability of high‐severity wildfires to locate thinning treatments and increased prescribed fire area burned relative to the prioritized scenario. Both scenarios reduced wildfire severity and significantly increased net photosynthesis relative to no‐management. However, the optimized scenario decreased management‐related losses by 2.4 Mg • C • ha⁻¹ and wildfire emissions by 2.9 Mg • C • ha⁻¹ relative to the prioritized scenario. By decreasing the area thinned and increasing the area burned relative to the prioritized scenario, the optimized scenario halved the time to realize a net carbon benefit relative to no‐management. Given the increasing climatic and disturbance pressures impacting southwestern forests, management will play a critical role in building adaptive capacity and ensuring the continued provision of ecosystem services.

Models commonly used to project forest carbon response to climate change reduce biodiversity to a small number of plant functional types or plant functional traits for the sake of computational efficiency at large spatial scales. We simulated the climate sensitivity of the dominant woody vegetation types in New Mexico using both a generalized functional type and a species‐specific model parameterization. Both parameterizations achieve reasonable current carbon uptake rates and aboveground biomass amount at the ecosystem scale. When vegetation types are subjected to increasing temperature and decreasing precipitation, the generalized parameterization differs substantially from the species‐specific parameterization by homogenizing the diversity of adaptations for dealing with higher temperature and drought, leading to divergent responses under changing climate. We recommend integrating species‐specific information, when available, to improve projections of climate change impacts on forested ecosystems to develop robust ecosystem management strategies at regional scales.