Consequences for the global forest sector of carbon offset payments Joseph Buongiorno, Shushuai Zhu

Background CO 2 emissions => climate change International initiatives –Markets –Sectoral mechanisms –Green climate fund –Involve developing countries –Better use forests potential (REduction Deforestation Degration)

Objectives CO 2 e sequestration –World –Regions and countries Effects on markets –Roundwood –Manufactured products With subsidies: ≠ Prices CO 2 e -Global policy -Partial policy

Theory

GFPM Dynamic spatial economic model 180 countries –Forest area & stock –14 commodities Production Consumption Imports, exports Prices

GFPM Product Flows Raw materialIntermediate productFinal product Fuelwood Industrial wood Other fibre pulp Waste paper Fuelwood Sawnwood Plywood Particleboard Newsprint Printing paper Other paper Mechanical pulp Chemical pulp Fiberboard Inventory

Static phase Market surplus: Equilibrium: Dual => P ik

Dynamic phase Supply shift Forest inventory change Inventory growth Offset payment

Inventory growth

DATA Base year = 2009 (FAOSTAT) Resources = FRA 2010 GDP Population USDA-ERS

CO2e offset payments

Effects on stock CO 2 e

Stock CO 2 e base projection Year Million t AfricaNorth/Central AmericaSouth AmericaAsiaOceaniaEurope World: 770 billion t 890 billion t

Δstock CO 2 e with global

Δstock CO 2 $30/t, developed countries only

GlobalPartial Million t United States Brazil Chile China Indonesia Finland France Germany60208 Russia Sweden DEVELOPED DEVELOPING WORLD Δstock CO 2 e in $30/t

CO 2 e storage supply =>

Cost of carbon sequestration World CO 2 e (million t) Offset payments (billion $) Global policyDeveloped countries only

Effects on wood markets

Wood CO2e Global (+38%) Partial (+28%) base

Δ roundwood production in Offset payments GlobalPartial million m AFRICA-280 NORTH AMERICA SOUTH AMERICA-3834 ASIA-5842 OCEANIA-7-9 EUROPE EU Finland-3-7 France-4-9 Germany-5-12 Sweden-7-14 Russia DEVELOPED DEVELOPING WORLD %-3%

Δ roundwood revenues in Timber revenuesOffset payments GlobalPartial GlobalPartial billion $ AFRICA NORTH AMERICA SOUTH AMERICA ASIA OCEANIA EUROPE EU Finland France Germany Sweden Russia DEVELOPED DEVELOPING WORLD %39%

Effects on wood products

Offset payments GlobalPartial million m United States Brazil China Indonesia Finland-.1 France Germany-.2 Russia Sweden WORLD -8.6 (-2%) -5.7 (-1%) ΔSawnwood consumption in $30/t CO 2 e

Sawnwood net CO2e global (-41%) Partial (-19% base Global (-19%) Partial (-41%) Global 38%) Partial (49%)

Offset payments GlobalPartial million m United States Brazil China Indonesia Finland France Germany Russia Sweden DEVELOPED DEVELOPING WORLD-8.6(-2%)-5.7(-1%) Δ Sawnwood production in $30/t CO 2 e

Δvalue added in CO 2 e Offset payments GlobalPartial Billion $ AFRICA-0.5 NORTH/CENTRAL AMERICA-5-9 SOUTH AMERICA7 ASIA1113 OCEANIA0-0 EUROPE-4-7 EU DEVELOPED DEVELOPING1121 WORLD13

Partial policy –Exports environmental damage –Inefficient Roundwood markets: –production ↓, but price ↑, revenues ↑ + offset payments Product markets: –price ↑, consumption ↓, consumer welfare ↓ –Large trade effects –Redistribution of production and value added Max world CO 2 e stored in forests =8.2 billion t vs world CO 2 emissions 2010=33.5 billion t Conclusion

Acknowledgments USDA Forest Service Southern Research Station Jeffrey P. Prestemon

Thank you!