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This paper establishes a framework that simulates the behavior of a spaceborne 532-nm micropulse photon-counting lidar in cloudy and clear atmospheres in support of the ICESat-2 mission. Adopted by the current mission design, the photoncounting system will be used to obtain surface altimetry for ICESat-2. To investigate how clouds affect surface elevation retrievals, a 3-D Monte Carlo radiative transfer model is used to simulate the photon path distribution and the Poisson distribution is adopted for the number of photon returns. Since the photoncounting system only registers the time of the first arriving photon within the detector “dead time,” the retrieved average surface elevation tends to bias toward higher values. This is known as the first photon bias. With the scenarios simulated here, the first photon bias for clear sky is about 6.5 cm. Clouds affect surface altimetry in two ways: 1) Cloud attenuation lowers the average number of arriving photons and hence reduces the first photon bias, and 2) cloud forward scattering increases the photon path length and makes the surface appear further away from the satellite. Compared with that for clear skies, the average surface elevation detected by the photon-counting system for cloudy skies with optical depth of 1.0 is 4.0–6.0 cm lower for the simulations conducted. The effect of surface roughness on the accuracy of elevation retrievals is also discussed.