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ENVI's proposed FRL would be socially, economically and environmentally counterproductive new study suggests

The European Union (EU) plans to set the new goals for forest carbon sinks for its Member States when the Paris Agreement is implemented after 2020. According to the proposal, carbon dioxide (CO2) emissions and removals by forests would be compared to a projected Forest Reference Level (FRL) based on past harvest intensities. Preliminary results from a new study suggest how this would affect the future development potential in the wood using sectors in Europe. It is not encouraging.

The approach by ENVI to compare future forest use to historical management intensity, known as the Forest Reference Level (FRL), in the regulation of Land Use, Land Use Change and Forestry (LULUCF) is likely to be socially, economically and environmentally counterproductive as a new impact study suggests.

On July 11, the Environment Committee (ENVI) of the European Parliament adopted the draft report of the Committee’s Rapporteur, MEP Norbert Lins, on the regulation of Land Use, Land Use Change and Forestry (LULUCF). The policy is of critical importance for the forest and agricultural sectors as it defines the climate benefits of forest management and the use of wood.

However, the approach of comparing future forest use to historical management intensity, known as the Forest Reference Level (FRL), has been heavily criticized by the umbrella organizations of the forest, paper and agricultural sectors in Brussels. Preliminary results from a new study released today would seem to add credence to critic’s fears.

The study, “Economic impacts of potential EU forest carbon sink policies on the forest-based sectors” set out to model the likely economic impacts on the European forest sector if the proposed FRL for climate mitigation were introduced and followed literally at country level in order to demonstrate the socio-economic impacts of limitations in forest utilization within the European Economic Area (EEA). The study was conducted by Dr Maarit Kallio, Natural Resources Institute of Finland (LUKE), Professor Birger Solberg, Norwegian University of Life Sciences and Dr Liisa Käär, Tapio Oy.

The authors compared the future development in the global forest sector using two scenarios:

  • Base scenario without the proposed policy
  • Limited scenario with the proposed policy in which the harvests in the EEA countries after 2020 must not exceed the average harvests of 2000-2012, the FRL suggested by ENVI

The time horizon of the study is up to the year 2030 and the scenarios are quantified by using the global forest sector model, EFI-GTM whereas assumptions on the forest product demand in the scenarios follow largely an earlier scenario documented in a research report Best scenarios for the forest and energy sectors – implications for the biomass market.

Resource growth allows consumption growth

According to the study, the growing forest resources in the EEA would make it possible for the EEA forest sector to respond to the globally increasing consumption of forest products. In the Base Scenario, the EEA roundwood harvests increase by some 1 percent per annum up to 610 million m3 by the year 2030.

The growth in demand for mechanical forest products, fiber-based packaging, tissue and sanitary products, textiles and other applications, as well as wood-based energy, are the main drivers behind this development. In the EEA, the demand for paper products is relatively mature and even decreasing for printing and writing papers reflected in the stagnant paper industry development in the region.

FRL would stymie growth, investment and have no impact on leakage

If the EEA countries limited their future roundwood harvests to comply with the assumed levels, harvests would be almost 120 million m3 or 20 percent lower in 2030 compared to the Base Scenario. Consequently, the EEA forest industry would need both to increase imports of wood from the rest of the world (RoW) and to cut its production.

The report finds that the most severe impacts hit sectors that are growing with new investments or have low thresholds to invest. In such sectors, the investments in production capacity can relatively easily “leak” outside the EEA countries especially within the mechanical forest industry – a sector that is relatively labour intensive and carries high expectations for increased carbon storage in wood products.

Forest industry investments and jobs, especially in the mechanical wood processing industries such as sawmills, are at risk of "leaking" from the European Economic Area (EEA) to the rest of the world. Such jobs are primarily found in rural areas.

Forest industry investments and jobs, especially in the mechanical wood processing industries such as sawmills, are at risk of “leaking” from the European Economic Area (EEA) to the rest of the world. Such jobs are primarily found in rural areas.

In the Limited Scenario, harvests, forest industry production, and employment opportunities leak from the EEA countries to RoW. Almost 80 percent of the decrease in roundwood harvests in the EEA countries is replaced by harvests in RoW. This will cause a decline in forest carbon sinks in RoW. About one-third of the harvest increase in RoW is exported to the EEA – which becomes increasingly dependent on imported wood raw-material.

Furthermore, the study found that a considerable leakage of harvests and forest industry production is projected to take place no matter what historical FRL period was chosen. Due to the more scarce supply of wood and wood-based products in the Limited Scenario, prices are higher than in the Base Scenario case.

Consequently, some wood-based products will be substituted by products made of competing, non-renewable and more carbon intensive raw materials, such as steel, concrete, and plastics. Hence, in addition to the regional carbon leakage, intersectoral carbon leakage takes place through material substitution.

About the Global Forest Sector Model EFI

The partial equilibrium models are based on economic theory and typically aim to mimic the behavior of competitive markets seeking the prices and quantities of demand, supply, and trade so that the markets for all products and regions are in equilibrium. These models are particularly suitable for “what if”- analyses, e.g. of various policy alternatives. The EFI-GTM describes the global forest sector. It has been used to examine the impacts of forest conservation, FLEGT, wood export taxes, and energy and climate policies.

The model contains 57 regions, with most European countries presented on a country level. The model contains a detailed representation of forest products including all relevant products (different types of roundwood, pulp, paper, mechanical forest industry products, recycled papers, forest industry side-products, liquid biofuels, etc.). About 40 products are modelled using recent real world data. Basic principles and structure of the model used have been documented and the model has been continuously updated and developed.

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