Airborne lidar bathymetry (ALB) is a method used to survey and map coastal and littoral zones. Along with extracting seafloor depth and reflectance in the surveyed area, a fundamental requirement of these surveys is to detect underwater targets, hazards, or obstructions. The ability to detect underwater targets depends on a target's dimensions and reflectance, the depth and turbidity of the water, system and survey configuration, data processing capabilities, and algorithmic sophistication. Understanding the effects of each of these factors on the performance of underwater target detection is essential in determining the target detection capabilities of a proposed ALB system. After detailing the development of a simulation environment to model received ALB system waveforms, this work explores the theoretical target detection capabilities of an ALB system.