Consequences for the global forest sector of carbon offset

payments

Joseph Buongiorno, Shushuai Zhu

Background

• CO2 emissions => climate change

• International initiatives– Markets– Sectoral mechanisms– Green climate fund– Involve developing countries– Better use forests potential (REduction Deforestation Degration)

Objectives

• CO2e sequestration

– World– Regions and countries

• Effects on markets– Roundwood– Manufactured products

With subsidies:

≠ Prices CO2e

-Global policy

-Partial policy

Theory

GFPM

• Dynamic spatial economic model

• 180 countries– Forest area & stock – 14 commodities

• Production• Consumption• Imports, exports• Prices

GFPM Product FlowsRaw material Intermediate product Final product

Fuelwood

Industrial wood

Other fibre pulp

Waste paper

Fuelwood

Sawnwood

Plywood

Particleboard

Newsprint

Printing paper

Other paper

Mechanical pulp

Chemical pulp

Fiberboard

Inventory

))()(max(,,, 0, 0

kji

ijkijkikki

Y

ikikki

D

ikikik TcdYYmdDDPikik

Static phase

Market surplus:

kiTYaDYTn j

ijkiniknikikj

jik ,

Equilibrium:

Dual => Pik

Dynamic phase

)1(1 ccII ggSS

Supply shift

Forest inventory change

Inventory growth

)(0 A

IgI

11 SGIIOffset payment

Inventory growth

-30

-20

-10

0

10

20

30

40

0 50 100 150 200 250 300 350 400

Density (m3 ha-1)

Sto

ck

Gro

wth

(%

ye

ar-1

)

Observed

Predicted )(0 A

IgI

DATA

Base year = 2009 (FAOSTAT)

Resources = FRA 2010

GDP

Population

2009-2030

USDA-ERS

CO2e offset payments

0

20

40

60

80

100

120

2005 2010 2015 2020 2025 2030 2035

year

$/t

CO

2e

IEA Synapse Mid CEC ref GFPM30

Effects on stock CO2e

Stock CO2e base projection

0

50000

100000

150000

200000

250000

300000

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035

Year

Mill

ion

t

Africa North/Central America South America Asia Oceania Europe

World: 770 billion t 890 billion t

Δstock CO2e with global policy @$30/t

0

200

400

600

800

1000

1200

1400

1600

1800

2000

2015 2020 2025 2030

Year

Mil

lio

n t

AFRICA NORTH/CENTRAL AMERICA SOUTH AMERICA ASIA OCEANIA EUROPE

Δstock CO2e @ $30/t, developed countries only

-1500

-1000

-500

0

500

1000

1500

2000

2500

3000

3500

2015 2020 2025 2030

Year

Mil

lio

n t

AFRICA NORTH/CENTRAL AMERICA SOUTH AMERICA ASIA OCEANIA EUROPE

  Global Partial

-------Million t-------

United States 534 925

Brazil 430 -439

Chile 152 -218

China 203 -447

Indonesia 175 -214

Finland 120 231

France 134 232

Germany 60 208

Russia 562 828

Sweden 274 436

DEVELOPED 2946 5147

DEVELOPING 2370 -2130

WORLD 5316 3017

Δstock CO2e in 2030 @ $30/t

CO2e storage supply

=>

Europe

$0

$20

$40

$60

0 1000 2000 3000 4000 5000

CO2e million t

Pri

ce C

O2e

/t

South America

$0

$20

$40

$60

-2000 -1000 0 1000 2000

CO2e million t

Pri

ce

CO

2e

/t

World

$0$20$40$60

0 5000 10000

CO2e Million t

Pri

ce C

O2e

/t

Global Partial

Cost of carbon sequestration 2015-2030

World

0

100

200

300

400

500

0 2000 4000 6000 8000 10000

CO2e (million t)

Off

set

pay

men

ts

(

bil

lio

n

$)

Global policy Developed countries only

Effects on wood markets

Wood prices @$30/t CO2e

0

50

100

150

200

250

300

350

400

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035

Year

US

D$/

CU

M (

2009

)

Fuelwood IndRound Sawnwood

Global (+38%)

Partial(+28%)

base

Δ roundwood production in 2030 @$30/tCO2eOffset payments

  Global Partial

----------million m3-----

AFRICA -28 0

NORTH AMERICA -35 -60

SOUTH AMERICA -38 34

ASIA -58 42

OCEANIA -7 -9

EUROPE -70 -118

EU-27 -37 -73

Finland -3 -7

France -4 -9

Germany -5 -12

Sweden -7 -14

Russia -26 -35

DEVELOPED -107 -196

DEVELOPING -130 84

WORLD -236 -112

-7% -3%

Δ roundwood revenues in 2030 @$30/tCO2Timber revenues Offset payments

  Global Partial   Global Partial

-------------------------------billion $---------------------

AFRICA 19.6 20.3 1.4 0.1

NORTH AMERICA 15.3 8.6 2.2 3.8

SOUTH AMERICA 9.4 15.0 1.6 0.0

ASIA 32.1 37.8 2.3 0.0

OCEANIA 1.5 0.8 0.4 0.6

EUROPE 15.6 6.0 4.5 7.5

EU-27 10.9 4.0 2.6 4.9

Finland 1.3 0.2 0.3 0.5

France 1.5 0.7 0.3 0.6

Germany 1.7 0.4 0.1 0.6

Sweden 1.7 0.0 0.6 1.1

Russia 2.9 1.3 1.4 1.9

DEVELOPED 30.9 12.4 6.9 12.5

DEVELOPING 62.6 76.1 5.3 0.0

WORLD 93.5 88.5   12.2 7.1

41% 39%

Effects on wood products

Offset payments

Global Partial

----------------million m3------------

United States -1.7 -1.2

Brazil -.9 -.4

China -.8 -.5

Indonesia -.2 -.1

Finland -.1 -.1

France -.2 -.1

Germany -.2 -.2

Russia -.3 -.2

Sweden -.2 -.1

WORLD-8.6

(-2%)-5.7

(-1%)

ΔSawnwood consumption in 2030 @ $30/t CO2e

Sawnwood net trade @$30/t CO2e

global (-41%)

Partial(-19%

base

-60000

-40000

-20000

0

20000

40000

60000

80000

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035

Year

Th

ou

san

d c

ub

ic m

eter

s

Africa North/Central America South America Asia Oceania Europe

Global (-19%)

Partial(-41%)

Global 38%)

Partial(49%)

Offset payments

Global Partial

--------million m3------

United States -9.1 -8.9

Brazil -4.4 -1.9

China 4.5 10.6

Indonesia -.5 -.2

Finland -3.0 -2.9

France -.2 -.1

Germany .88 4.3

Russia -15.8 -16.9

Sweden -11.8 -13.1

DEVELOPED -6.0 -20.5

DEVELOPING -2.6 14.8

WORLD -8.6(-2%) -5.7(-1%)

Δ Sawnwood production in 2030 @ $30/t CO2e

Δvalue added in 2030 @$30/t CO2e

Offset payments

Global Partial

-----------Billion $---------

AFRICA -1 -0.5

NORTH/CENTRAL AMERICA -5 -9

SOUTH AMERICA -1 7

ASIA 11 13

OCEANIA 0 -0

EUROPE -4 -7

EU-27 -2 -5

DEVELOPED -10 -17

DEVELOPING 11 21

WORLD 1 3

• 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 CO2e stored in forests =8.2 billion t vs world CO2 emissions 2010=33.5 billion t

Conclusion

Acknowledgments

• USDA Forest Service Southern Research Station

• Jeffrey P. Prestemon

Thank you!