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

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

3. 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

4. Theory

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

6. 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

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

8. Dynamic phase Supply shift Forest inventory change Inventory growth Offset payment

9. Inventory growth

10. DATA Base year = 2009 (FAOSTAT) Resources = FRA 2010 GDP Population 2009-2030 USDA-ERS

11. CO2e offset payments

12. Effects on stock CO 2 e

13. Stock CO 2 e base projection 0 50000 100000 150000 200000 250000 300000 1990199520002005201020152020202520302035 Year Million t AfricaNorth/Central AmericaSouth AmericaAsiaOceaniaEurope World: 770 billion t 890 billion t

14. Δstock CO 2 e with global policy @$30/t

15. Δstock CO 2 e @ $30/t, developed countries only

16. GlobalPartial -------Million t------- United States534925 Brazil430-439 Chile152-218 China203-447 Indonesia175-214 Finland120231 France134232 Germany60208 Russia562828 Sweden274436 DEVELOPED29465147 DEVELOPING2370-2130 WORLD53163017 Δstock CO 2 e in 2030 @ $30/t

17. CO 2 e storage supply =>

18. Cost of carbon sequestration 2015-2030 World 0 100 200 300 400 500 0200040006000800010000 CO 2 e (million t) Offset payments (billion $) Global policyDeveloped countries only

19. Effects on wood markets

20. Wood prices @$30/t CO2e Global (+38%) Partial (+28%) base

21. Δ roundwood production in 2030 @$30/tCO2e Offset payments GlobalPartial ----------million m3----- AFRICA-280 NORTH AMERICA-35-60 SOUTH AMERICA-3834 ASIA-5842 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-13084 WORLD-236-112 -7%-3%

22. Δ roundwood revenues in 2030 @$30/tCO2 Timber revenuesOffset payments GlobalPartial GlobalPartial -------------------------------billion $--------------------- AFRICA19.620.31.40.1 NORTH AMERICA15.38.62.23.8 SOUTH AMERICA9.415.01.60.0 ASIA32.137.82.30.0 OCEANIA1.50.80.40.6 EUROPE15.66.04.57.5 EU-2710.94.02.64.9 Finland1.30.20.30.5 France1.50.70.30.6 Germany1.70.40.10.6 Sweden1.70.00.61.1 Russia2.91.31.41.9 DEVELOPED30.912.46.912.5 DEVELOPING62.676.15.30.0 WORLD93.588.5 12.27.1 41%39%

23. Effects on wood products

24. Offset payments GlobalPartial ----------------million m 3 ------------ United States-1.7-1.2 Brazil-.9-.4 China-.8-.5 Indonesia-.2-.1 Finland-.1 France-.2-.1 Germany-.2 Russia-.3-.2 Sweden-.2-.1 WORLD -8.6 (-2%) -5.7 (-1%) ΔSawnwood consumption in 2030 @ $30/t CO 2 e

25. Sawnwood net trade @$30/t CO2e global (-41%) Partial (-19% base Global (-19%) Partial (-41%) Global 38%) Partial (49%)

26. Offset payments GlobalPartial --------million m3------ United States-9.1-8.9 Brazil-4.4-1.9 China4.510.6 Indonesia-.5-.2 Finland-3.0-2.9 France-.2-.1 Germany.884.3 Russia-15.8-16.9 Sweden-11.8-13.1 DEVELOPED-6.0-20.5 DEVELOPING-2.614.8 WORLD-8.6(-2%)-5.7(-1%) Δ Sawnwood production in 2030 @ $30/t CO 2 e

27. Δvalue added in 2030 @$30/t CO 2 e Offset payments GlobalPartial -----------Billion $--------- AFRICA-0.5 NORTH/CENTRAL AMERICA-5-9 SOUTH AMERICA7 ASIA1113 OCEANIA0-0 EUROPE-4-7 EU-27-2-5 DEVELOPED-10-17 DEVELOPING1121 WORLD13

28. 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

29. Acknowledgments USDA Forest Service Southern Research Station Jeffrey P. Prestemon

30. Thank you!