Reforming the EU approach to LULUCF and the climate policy framework

Reforming

the

EU

approach

to

LULUCF

and

the

climate

policy

framework

David

Ellison

a,

*

,

Mattias

Lundblad

b

,

Hans

Petersson

a

a_{DepartmentofForestResourceManagement,SwedishUniversityofAgriculturalSciences,Umea˚,Sweden} b_{DepartmentofSoilandEnvironment,SwedishUniversityofAgriculturalSciences,Uppsala,Sweden}

a

r

t

i

c

l

e

i

n

f

o

Availableonline19April2014

Keywords: LULUCF

EUclimatepolicy Kyotoprotocol

Climatechangemitigation REDD+

a

b

s

t

r

a

c

t

WefocusonrecentprogressinreformingtheroleofforestsandotherlanduseintheEU climate policy framework. EU inclusion of LULUCF (Land Use, Land-Use Change and Forestry)intheclimatepolicyframeworkstilllagsinternationaldevelopments,remaining at odds even with the United Nations Framework Convention on Climate Change’s (UNFCCC)Kyotoframework.ThoughtheEUhasmadesomeimportantchangesthateclipse eventheUNFCCCframework—inparticularregardingtheinclusionofcroplandandgrazing landmanagementinmandatoryEU-levelcarbonaccountingpractices—inotherrespects theEUhasfartogo.Aspartofastrategyforfulfillingemissionreductioncommitments withintheEUburden-sharingagreement,Memberstatesarenotpermittedtotradeeitherin domesticallynorforeignproducedforest-basedcarboncredits.Ontheotherhand,boththe EUandtheUNFCCC/KyotoLULUCFframeworksremaindistantfromanidealizedmodelthat couldfacilitateincreasedclimatechangemitigationandamoreefficientandbalanceduse of forest-based resources. Limiting the incorporation of forests in the climate policy frameworkhassignificantconsequencesforthecostandrapidityofemissionreductions. Forest potential thus remains under-mobilizedfor climate change mitigation. In this context,wedrawparticularattentiontothefactthatforest-basedcarbonsequestration’s potentialcontributiontonegativeemissionsrepresentsanimportantmissedopportunity.In thecontextofongoingdiscussionsovertheEUandUNFCCC’sPost-Kyotoframeworks,we proposeanall-encompassingLULUCFcarbonaccountingmodelincorporatingallpreviously omittedcarbonpoolsandactivities,thusweighingLULUCFremovalsandemissionsonapar withemissionsfromothersectors(industry,theenergysector,end-users).Thesuccessful integrationofLULUCF intotheEUclimatepolicyandcarbon-tradingframeworkscould dovetailneatlywithemerginginternationalclimatechangemitigationefforts.

#_{2014TheAuthors.PublishedbyElsevierLtd.ThisisanopenaccessarticleundertheCC} BY-NC-NDlicense (http://creativecommons.org/licenses/by-nc-nd/3.0/).

*Correspondingauthor.

E-mailaddress:[email protected](D.Ellison).

Available

online

at

www.sciencedirect.com

ScienceDirect

journalhomepage:www.elsevier.com/locate/envsci

http://dx.doi.org/10.1016/j.envsci.2014.03.004

1462-9011/# _{2014The Authors. Publishedby ElsevierLtd.This is anopen access articleunder theCC BY-NC-ND license (http://} creativecommons.org/licenses/by-nc-nd/3.0/).

1.

Introduction

The United Nations Framework Convention on Climate Change’s(UNFCCC)SubsidiaryBodyforScientificand Tech-nological Advice (SBSTA) has invited Parties and admitted observerorganizationstosubmitviewsonissuesrelatedto‘a morecomprehensiveaccountingofanthropogenicemissions bysourcesandremovalsbysinksfromLandUse,Land-Use Change and Forestry (LULUCF), including through a more inclusiveactivity-orland-basedapproach’(UNFCCC,2012a).

Independently of the SBSTA discussion, the European Unionand othercountriesarelikewiseactively engagedin thinkingabouthowLULUCFcanbemorestronglyintegrated into the climate policy framework. In March 2012, the EuropeanCommissionintroducedaproposalforharmonizing LULUCFcarbonaccountingandtheincorporationofCropland

and Grassland Management (CM and GM) in mandatory

accounting (EC, 2012a). The Commission proposal was formally approved in March 2013. At the same time, the CommissionpublishedanImpactAssessmentaddressingthe broaderquestionofintegratingLULUCFintothegeneral EU climatepolicyframework(EC,2012b).AndinJuly2012theEU likewiserespondedtotheSBSTAcall(UNFCCC,2012b).

Though SBSTA and EU efforts havedeveloped indepen-dently,theyarenotunrelated.Moreover,therelative impor-tance of the EU and the position it takes in international negotiationsencouragesustoconsiderthesediscussionsin parallel.Thecurrentenvironmentisripeforsignificantreform of both the UNFCCC and EU LULUCF carbon accounting frameworks.AspartofthenextsteptodefiningtheUNFCCC’s Post-2020framework,arevisedEUstrategycouldfeeddirectly intocurrentplanstoconcludeageneralandpotentiallylegally bindingUNFCCCagreementin2015(orlater).

ThisarticlefocusesontheEUpositionregardingthefuture inclusionofLULUCFintheEUandinternationalclimatepolicy frameworks. In particular, we assess EU willingness to consider and develop a more comprehensive and firmly integratedLULUCFframeworkandhowitmightinteractwith ongoinginternationalefforts. TheEUhaslong resistedthe inclusionofLULUCFintheclimatepolicyframework.To-date, LULUCF-generatedcarboncreditsstillcannotbetradedinthe EUEmissionTradingScheme(EUETS).Anddomestic, forest-based carbon credits further remain subject to substantial limitations resulting from the UNFCCC and Kyoto-based carbon accounting framework. Further, unlike other Clean DevelopmentMechanism(CDM)credits,forest-basedcredits generatedthroughtheCDMcannotbetradedintheEUETS.

Significantuntappedopportunitiesthusremainfor achiev-ingrapidandcostefficientemissionreductionsintheEU,as well as in the larger Kyoto and global climate mitigation frameworks. We evaluate the current EU proposals for a revised LULUCF strategy in the context of work on the ‘‘IncentiveGap’’(IG,Ellison et al.,2011,2013)and consider thepotentialforthefullmobilizationofforest-basedLULUCF resourcesforthepurposesofclimatechangemitigation.The IGmeasuresthe‘shareofcarbonsequestration(netremovals) notincentivizedintheregulatoryframework’andmeasures thisamountbothfortheactivityForestManagement(FM)and across the broadrange ofLULUCF-basedcarbon pools and

activities: harvested wood products (HWP), afforestation, reforestationanddeforestation(ARD),croplandmanagement (CM),grazinglandmanagement(GM),Wetlandsand unman-agedforests.TheIGconceptthushighlightsand operationa-lizestheshareofmissedopportunitiesembeddedintheUNFCCC and Kyoto-based carbon accounting frameworks. The IG conceptfurtherhighlightsapotentialframeworkfor improv-ingLULUCFcarbonaccountingandimprovingclimatechange mitigationefforts.

ThoughtheEUhasthepotentialtofullymobilize forest-basedresourcesbyfullyintegratingLULUCFintoitsclimate policyframework,wearguethefullcarbonvalueofall forest-basedactivitiesisnotcurrentlyrecognized,inparticularinthe EUcarbon-tradingscheme.FullLULUCFintegrationwouldsit wellwithongoinginternationaleffortstointegrateforestsinto theclimatepolicyframework,inparticularinthecontextof REDD+ (Reduced Emissions from Deforestation and Forest Degradation). We shed particular light on the important potentialforaforestcontributiontonegativeemissionstypically neglectedinclimatemitigationstrategies.

On thebasisofan‘‘idealized’’carbonaccountingmodel and its comparison withtheUNFCCC’s KyotoProtocol(KP) framework provided in Section 1, we then address the internationalcarbon-tradingframeworkinSection2.Section 3analyzessupportforandthedevelopmentofEUstrategies forintegratingLULUCFintotheclimatepolicyframework.The fourth Section assesses the impact of the Post-Durban outcome ontheEUMemberstatesandits meaningforthe potentialmobilizationofforestpotentialintheclimatepolicy framework. Thissectionfirst considers thenew ‘‘cap’’and thenaddressesthenewForestManagementReferenceLevels (FMRL).Section5providesadiscussionofforestpotentialin the climate policy framework and assesses the particular singularityofnegativeemissions.Weclosewithadiscussionof thecurrentEUstrategyandsomeremarksonwhata‘more comprehensivecarbonaccountingframework’mightinclude.

2.

The

international

LULUCF

carbon

accounting

framework

and

our

idealized

model

Ellisonetal.(2011,2013)introduceaLULUCFcarbonaccounting model that attempts to balance interests across thevarious componentsoftheforestvaluechain—inparticularbioenergy, harvested wood products (HWP) and standing forests. In a balanced, climate-basedmodel, all componentsof thechain shouldbeequallyweightedaccordingtotheirfullcarbonvalueand thus their true climate change mitigation potential. From a climateperspective,forestresourceswouldthenmorelikelybe used in abalancedandefficientmanner andwould be fully mobilized in the interest of climate change mitigation. The effective mobilization of forest-based resources for climate changemitigationisbestfacilitatedwithastrategythatplaces LULUCFonaparwithothersectors(energy,industry,the non-ETSsector)intheclimatepolicyandcarbon-tradingframeworks. Because this model weighs all LULUCF emissions and removals accordingtotheir trueclimatechangemitigation potential,eachcountrywouldthenhavetheoptiontoachieve climatetargetseitherbyreducingemissionsinothersectors, increasingremovalsintheLULUCFsector,orboth.Thisshould

promotegreaterefficiencyandeffectivenessinthe mobiliza-tion and use of forest-basedresources, therebyfacilitating morerapidclimatechangemitigation.

OuridealizedmodelpresentedinTable1(Ellisonetal.,2013) differssubstantiallyfromcurrentpracticeundertheUNFCCC/ Kyoto framework, in particular because it eliminates dis-countingintheLULUCFsector.Toachieveamorebalanced andefficientuseofforest-basedresources,theinternational policyframeworkmustbesubstantiallymodified.In particu-lar,allbarrierstothemobilizationofincreasedforestgrowth andforest-basedcarbonsequestrationsuchasthecapshould beremoved.Moreover,allLULUCFpoolsandactivitiesshould becollapsedintoonemandatoryall-encompassingactivityand inventory,andallforest-basedsinks(andsources)shouldbe weightedaccordingtotheirtrueclimatepotential.Ellisonetal. (2011,2013)furtherarguethefullcarbonvalueofallLULUCF activitiesshouldbefullymobilizedwithintheinternational carbon-tradingframework.

BoththeEUandtheUNFCCC/Kyoto-basedcarbon account-ingframeworksremaindistantfromachievingthesegoals.A significant ‘‘Incentive Gap’’ (IG) continues to block the effective mobilization of forest-based resources (Ellison etal.,2011,2013).AlthoughchangesagreedinDurbanraise thetotalshareofpermissiblecarboncredits—the‘‘cap’’—to 3.5%of1990greenhousegas(GHG)emissions,asignificantIG remains(Ellisonetal.,2013).

Furtherreformsarenecessary.Atabareminimum,Art.3.3 (thenetofAfforestation,ReforestationandDeforestation,ARD) andArt. 3.4 (FM) shouldbe collapsed intoasingle category, thereby more strongly encouraging netremovals and future forestgrowthunderFM,wherethelion’sshareofnetremovals occur (Ellison et al., 2013). Moreover, this would greatly strengthenthepromotionofforestpotentialinwhatisgenuinely thelargestareaofpotential‘‘human-induced’’forestactivity.Since bothArt. 3.3 and3.4are powerfullylinked toanthropogenic manipulation,conceptsofhuman-inducedvs.naturalgrowthdo notlogicallysupporttheirseparation.Ideally,however,allcaps andlimitationsshouldberemovedfromthesystem.

The ‘‘idealized model’’ ultimately attempts to provide a neutral framework within which individual countries can

decideforthemselveswhichforest-basedactivitiesshouldbe favored. As Ellison et al. (2011, 2013) argue, what is not ‘‘counted’’ in the EU and international carbon accounting frameworksisnotlikelytofigureinthethinkingandstrategies applied to forest-based resources. The current UNFCCC/ Kyoto-based model ultimately favors bioenergy use, while the carbon sequestered in HWP or standing forests isnot consistentlycountedorincentivized.Thecap,inparticular, significantlydiscountsstandingforests,whileemissionsfrom bioenergycombustionareconsideredneutral.Sincerestrictions ofthiskindresultinweightingsectorsorpoolsdifferently,all restrictionsshouldberemoved.Thoughthisproblematichas been favorably modified under the Second Commitment Period(CP2),thesechangesdonotgofarenough.

Thecurrentstrategyislikelytoprovidestrongerincentives infavorofharvestingadditionalforestgrowthforbioenergy. Under the FirstCommitment Period (CP1), all biomass was assumedimmediatelyoxidizedandemittedtotheatmosphere atthetimeofharvest.Thisfavoredbioenergyusecompared withtraditionalforestbasedproducts.UndertheCP2,HWPis subject to mandatory accounting using the ‘‘Production ap-proach’’–which creditsincreasingstocksindomestically pro-ducedHWP.Thoughthisrepresentsastepforward,asacarbon poolunderFM,HWPremainscappedandHWPfrom deforesta-tion(Art.3.3)isconsideredimmediatelyoxidized.

Theneutralframeworkweproposesupportsthebroader diversity of potential climate change mitigation actions withoutdisadvantagingindividualcountrystrategies. More-over,forcountriesfavoringthepromotionofincreasedstocks in standing forests or HWP, this model would correct the accountingimbalancecurrentlyfavoringbioenergy.Nordoes thisapproachmarginalizetheoptionforcountrieschoosingto maximize biomassproduction.Though themodeldoesnot inherentlyfavorbiodiversityprotectionorthedevelopmentof protectedareasovertheoptimalexploitationofforest-based resources,itdoesprovideaframeworkinwhichcountriesand individualactorscanmoreeasilypromotetheseoptions.The explicitadvantageofthismodelisitspotentialforoptimizing costefficientandeffectiveclimatesolutionsandforallowing Partiestofreelypursuealternativescenarios.

Table1–Pre-,Post-DurbanRulesforLULUCFcarbonaccountingandidealizedmodel.

KyotorulesLULUCF Pre-Durban(CP1:2008–2012) Post-Durban(CP2:2013–2020) Idealizedmodel

FMelection Voluntary Mandatory Mandatory

‘‘cap’’onFMcarboncredits 3%of1990emissions,15%ofactual netremovals(whicheversmaller, ornegotiated)

3.5%1990emissions Nocap

Referencelevel(accounting method)

Referencelevel=‘‘0’’(gross-net) Projected,historicalorreference level=‘‘0’’(net-net)

Estimatenewbaselineusingaverage netremovalsinpreviouscommitment period(continuousgross-net) Carbonpoolsandactivities Manycarbonpoolsandactivities

omitted(HWP,CM,GM,wetlands, unmanagedforests,etc.)

HWPincluded(limitedby‘‘cap’’), butmanycarbonpoolsand activitiesomitted

Includeallcarbonpoolsandactivities inoneall-encompassingNational ForestInventory

OffsettingofnetARD emissions

Permitted Notpermitted CollapseArts.3.3&3.4

Note:UndertheKyotoProtocol,stockchangesincarbonpoolsarefullyaccountedunderArt.3.3(AfforestationandReforestation,ARand Deforestation,D),butdiscountedbyacapunderForestManagement(Art.3.4,FM).IfFMwaselectedforthefirstcommitmentperiod(CP1),net emissionsfromARDcouldbeoffsetbynetremovalsfromFM.Theidealizedmodelstrivestoincludeandintegrateallcarbonpoolswithout restriction.

3.

The

international

carbon-trading

framework

WhereLULUCFcarbonaccountingisconcerned,thegreatest variation from UNFCCC practice in the EU framework concernsthe factthat EUMember statesarenot permitted to apply forest-based carbon credits toward their EU level emissionreductioncommitments(thoughthesearereportedto theUNFCCC)andtheyarefurthernotpermittedtotradein forest-basedcarboncreditswithintheEUEmissionTrading Scheme(EUETS).

The emerging international carbon-trading framework, however,clearlygovernsand incentivizestheintegrationof forestsintotheUNFCCC/Kyotoandinternationalclimatepolicy frameworks.Withoutthis,forexample,incentivesfor promot-ingbothREDD+strategiesandforest-basedcarbon sequestra-tioninAnnexIcountriesarelikelytobegreatlydiminished.

Attheinternationallevel,commitmenttoincentivizingthe world’s forests in the carbon-trading framework ismixed. BasedontheKP,countrieshavetherighttotradeinRemoval Units(RMU’s)fromAfforestation,Reforestationand Defores-tation(ARD,Art.3.3),FM(Art.3.4),and inCertifiedEmission Reductions(CER’s)throughCDMinvestments.RMU’sandCER’s are,forthemostpart,restrictedtocarbonremovalsgenerated underArt.3.3.Tradablecreditsfromcarbonsequestration(net removals)underFMarelimitedbythe‘‘cap’’(forallAnnexI countries),bytheLinkingDirective(forallEUMemberstates), andarefurthernoteligibleundertheframeworkoftheCDM mechanism.ThislimitsCER’stoAfforestationand Reforesta-tionefforts(Art.12).

Thevastmajorityoftheworld’sforests,ontheotherhand, remainsoutsidethecarbonaccountingframeworkandthusat bestremainsonlyweaklyincentivized(Ellisonetal.,2013).The incorporationofLULUCFintotheinternationalclimatepolicy frameworkthusremainsunderdeveloped.To-date,onlythe voluntaryforest-basedcarbonmarket,theNewZealandETS and the California Forest Protocol and Carbon-Trading schemes potentially provide unrestricted frameworks for promotingforest-basedcarbonsequestration.Onthe Europe-anside,forest-basedcarbonoffsettingisdiscouragedbythe factthatforest-basedCDMcreditsarenotpermittedinthe EU’sETS.

Thecarbon-tradingschemesemergingintheEU,Australia, California,NewZealandandothercountriesandregionsare graduallydiverging. Whilethe NewZealandand California modelsarereceptivetotheinclusionofforest-basedcarbon credits and represent suitable vehicles for funding REDD+ opportunities, the EU model excludes forest-based carbon creditsfromthesystemand theUNFCCC/Kyotoframework imposescomparativelystrictlimitsonwhichLULUCF-based carbon removals can be traded. This presumably has an importantimpactonREDD+fundingfromEUMemberAnnexI statesand slows any movement towarda potentialfuture globalforesttransition(MeyfroidtandLambin,2011;Waggoner andAusubel,2001).

Someschemesarelikewisebecomingmoredisconnected from the UNFCCC/Kyoto agreement. After the 2012 Doha COP18meetings,NewZealanddeclareditsintentiontoleave the KP, suggesting its carbon-trading scheme will only be

loosely connected with this system. The degree to which CaliforniaemissiontradingwilllinkwiththeUNFCCC/Kyoto frameworkislikewiseunclear.Despiteongoingeffortstolink carbon-tradingregimesacrosstheEU,Australiaandpossibly alsotheUS(Zetterberg,2012),increasingdiversityinemerging carbonmarketsrisksdrivingawedgebetweenthosecountries thatacceptandincorporateforest-basedcarboncreditsand thosethatdonot.Though theEUandAustraliaannounced theirintentiontolinktheiremissiontradingschemesin2012, other regionsremain outsidethisframework (http://ec.eur-opa.eu/clima/news/articles/news_2012082801_en.htm).

Increasingdiversitymayhavepotentiallynegativeeffects on the ability to mobilize the world’s forests in the international framework. Though the forest-based CDM market began to show rapid positive growth in 2010, the REDDmarketcollapsedby59%thefollowingyear(Ecosystem Marketplace, 2011, 2012). Manyfactors have contributedto this fall. The failure to conclude a successful and legally binding emission reduction agreement at the last five ConferenceoftheParty(COP)meetingsinCopenhagen,Cancun, Durban,DohaandWarsawprovideslittleencouragementfor countries toengage incarbon-trading markets orinvestin programssuchasREDD+.Further,thelistofKyotodropout countriesislengthening(Canada,Japan,RussiaandnowNew Zealand)andtheUSneversucceededinratifyingitsoriginal 1998 KP commitment. Though some countries considered rejoining(Japan),commitmenttotheinternationalframework is tenuous. Finally, the global economic recession had a significantimpactonwillingnesstofurtherdevelopclimate mitigation strategies and the funding of carbon offsetting initiatives such as REDD+. All the above factors together contribute to one final explanatory factor—the collapsein carbonprices.

The successful incorporation of LULUCF into the EU’s climatepolicyframeworkandthepotentialfortradingFMand CDMforest-basedcarboncreditscouldgoalongwaytofurther mobilizingsupportfortheinclusionofLULUCFandREDD+in internationalbargainingframeworkssuchasthePost-Kyoto strategy.However,the potentialintegrationofLULUCFinto the EUclimatepolicyframeworkmaystillbeseveralyears away.Moreover,futuremodificationstotheEUforest-based CDMframeworkarenotpartofcurrentdiscussions.

4.

The

developing

EU

position

on

LULUCF

The inclusion of forests in the KP carbon accounting framework has long been controversial. Though signed in 1997,thefinaldecisionregardingtheinclusionofforestsand forestry was not made untilmuch later at COP 7 in2001. CountrieslikeJapanandothershelduptheprocess(Fry,2002). SomewereconcernedLULUCFactivitiescouldunderminethe environmentalintegrityoftheKPandthatforestrichparties couldpotentiallyabuseforestgrowthinordertoescapetheir commitmentstoreduceemissions.TheinclusionofLULUCF intheKyotoframeworkhasthereforeincludedlimitationson theroleLULUCFcanplay—guidedinparticularbythe‘‘cap’’on carboncreditsunderFM.

ThoughtheFMcaphasmultipleaims(Ellisonetal.,2011, 2013),limitationsonthemobilizationofLULUCFintheclimate

policyframeworkmaymeanactorswillnottakeadvantageof forest-basedresources in theclimatechangemitigation(and adaptation) framework and may make fewer attempts to minimizetheimpactofnaturaldisturbances.Thislimitsvast potentialforforest-basedcarbonsequestrationaswellasfor promoting adaptation and combatting deforestation. Such barriersarenotinthespiritoftheKyotoenterprise.Andsince other strategies have generally been adopted to address disturbances orreduce thepotentialfor taking advantageof historicalgrowth(e.g.theFMRL),capshaveultimatelylosttheir meaninginthegeneralframework.Moreover,wehave consid-erabledifficultyviewinganystockchangesincarbon sequestra-tionas‘undeserved’:contributions to thenetcarbon sinkare contributionstoglobalclimatechangemitigationefforts.

To-date,however,LULUCFremainsasecondaryappendage inthe climatepolicy framework: successful LULUCF-based carbonsequestrationandemissionsarerecordedinUNFCCC reportingbutnotaccountedintheEUburden-sharing commit-mentandemissionreductionframework.Resistancetoward thepositiveintegrationofLULUCFintotheEU’sclimatepolicy frameworkand, inparticular,into theEU ETS, persists. In revisingthe EU strategyfor CP2(2013–2020), the EU’s 2020 ClimateandEnergypackagedidnotevenattempttomodelthe impactofincorporatingLULUCF(EC,2008:36–7)and ultimate-lyleftLULUCFoutoftheEUclimatepolicyframework.TheEU ETS Directive (both the previous Directive (2003/87/EC) coveringthe firstCP1and the newerDirective (2009/29/EC) coveringCP2,aswellastheEULinkingDirective(2004/101/EC) donotallowtheuseofdomestic forestcredits,nordothey permitforest-basedcreditsfromCDMandJoint Implementa-tion(JI)projectsintheEUETS.TheLinkingDirective(2004/101/ EC)explicitlyrejectsthepotentialuseofCER’sandERU’sfrom LULUCF(seealsoSwedishEPA,2006).AlthoughMemberstates arenotrestrictedfromsupportingCDM-basedforest invest-ments,theresultingcarboncreditscannotbeusedtofulfill EU-levelemissionreductioncommitments.

Despite widespread support for the incorporation of LULUCFintheEUclimatepolicyframework,theECCP(2010) andthe Commission’sImpact Assessment(EC, 2012b)note severaldifficultiesincludingproblemsofuncertaintyinthe estimatesofsequesteredcarbon,thelackofannuallybased LULUCF reporting cycles, and uncertainty over whether LULUCF should be incorporated into the EU’s ETS or into the commitment mechanism. In addition to these, the European Commission’s Impact Assessment (EC, 2012b) likewisepoints tothe problemofinter-annual variationin netforestemissions(removals).SincetheEUETScurrently requires information about individual installations (forest owners),incorporatingLULUCFintotheEUETScouldrequire somemanipulationandwouldrequireasignificant adminis-trative apparatus. Further, the current EUETS is basedon annual compliance, while national forest inventories are basedonlonger-termcycles(ECCP,2010).

Thereislikewiseconsiderableantipathytowardany weak-eningoftheEUETSthatmightresultfromapossiblereductionof carbonpricesorreducedincentivestocutETSsectoremissions. SomeworryindividualcountriescouldtakeadvantageofLULUCF tominimizeemissionreductionrequirementsinothersectors, i.e.thatintegrationofLULUCFintotheEUETScouldweakenthe pressures placed on high-emitting industries and the fossil

fuel-based power sector to reduce emissions. Others are concerned about the potential ‘‘intensification’’ of LULUCF activities, whether by more intensive planting regimes or fertilization.Tensionsbetween thecompetingusesof forest-basedresourcesareevidentattheheartoftheEuropeanClimate ChangeProgramme(ECCP)oneoftheEU-levelbodiesassigned thetaskofevaluatingEUclimatepolicy.

ManyEUMemberstatesandAnnexIsignatoriesareslowto acceptchange.Sweden,forexample,likemanyEUMember statesandAnnexIcountries,isresistanttomodificationsof the existing rules that may result in higher levels of uncertaintyandrisk.Moreover,intergovernmental decision-makingonKyotopracticesrequiresconsensusonthepartof all participating Parties and signatories, thus encouraging incrementalism.LargechangesintheKyotoframeworkare difficulttopursue.

AmongEUMemberstates,nineoutoftwenty-sevenchose nottoaccountforFMunderCP1—Austria,Belgium,Bulgaria, Cyprus,Estonia,Ireland,Luxembourg,theNetherlandsand Slovakia—andMaltafailedtospecifyacap.ThoughmostEU Member states hadcapsthat permitted the accountingof carbonremovalsunderFM,thedecisionnottoelectFMmeant thisshareofcarbonsequestrationcouldnotbecountedand thuswas not‘‘incentivized’’. The2011LULUCFagreement reachedinDurbanrendersFMreportingmandatoryinCP2. Thus,althoughsomecountriesexhibitedatendencytoshield theirforestresourcefromaccounting,thisoptionhasnow beenforeclosed.

Maintaining a highly compartmentalized climate policy frameworkthatexplicitlyrejectsthetradingofcarboncredits across the growing number of pillars in the EU system weakens the potential cost-efficiency and effectiveness of thesystem.ThecurrentEUclimatepolicyframeworkalready doesnotpermitthetradingofcarboncreditsacrosstheEU ETS, non-ETS and the renewable energy directive sectors. Moreover, countries can potentially land in the awkward positionofover-fulfillingcommitmentsinonesegment,while still beingrequiredtomake upforanydeficiencies (falling short)inothersegments(Ellison,2011).

Influencedinpartbybackgroundstudies(Kuikmanetal., 2011;IIASA,2011),theEUhasbeenconsideringthepotential incorporation of forest carbon sinks in the climate policy framework.InMarch2012,DGClimateActionissuedadraft proposalonLULUCFGHGaccountingrulesthatfollowsupon the Durban LULUCF agreement (EC, 2012a). This current initiative addresses the harmonization of LULUCF carbon accountingpracticesacrossthebroadsetof27EUMember states and the incorporation of Cropland and Grassland

Management (CM and GM). The European Council and

Parliament officially accepted this proposal and related legislationonMar.12th,2013.

Harmonizationaboveallaffectstheaccountingofcarbon stockchangesinaboveandbelowgroundbiomass andsoil organiccarbonunderCP2andmandatoryreportingonCropland and Grazinglandmanagement activities(CMand GM).The currentEULULUCFinitiativethusrepresentsanimportantstep beyondthe 2011Durban agreementinwhichCropland and Grazinglandmanagementreportingremains‘‘voluntary’’and only ARD and FMreporting are mandatory. Subject onlyto ‘‘voluntary’’reportingrequirementsunderCP1,themajorityof

EU Member states (24–25/27) currently do not account for emissionsandremovalsoccurringonCMandGMlands.

AsillustratedinFig.1,forasmallnumberofEUMember states,annualnetcarbonremovals/emissionsunderCMand GMactivitiesexceedthoseunderFM.Thusforstatessuchas Germany, the UK,Denmark, Belgium,France, Bulgariaand others,the share ofemissions under CM will likelyweigh importantlyand theirinclusion shouldsignificantlyimpact futuremanagementpractices.Forothercountries,theroleof FM far outweighs the addition of new activities (Latvia, Sweden,Finland,Slovenia,Lithuaniaandothers).Thus,while theincorporationofCMandGMrepresentsastepforward,the largestcarbonstockchangesarestillfoundinFM.

Beyondthesesteps,theEuropeanCommissionis consid-ering greater inclusion of LULUCF in its climate policy framework. Thus far however, based on official feedback, notimetableforfuturestepshasbeenconsidered.Giventhe latedateofthecurrentdecision,theEUcannotforeseeably concludeanadditionalagreementbythe beginningofCP2. ThismeanstheEUcanonlyconsiderfurtherstepseither mid-way during CP2—unlikely given the impact on ongoing accounting—orinpreparationforathirdcommitmentperiod beginningsometimein2021.

The EC LULUCF report (EC 18) sets the stagefor future potentialincorporationofLULUCFintotheEUclimatepolicy framework,butstopsshortofmakingexplicit recommenda-tionsabouthowthisshouldbedone.Possiblestrategiesare spelledoutintwoEuropeanCommissionreports(EC,2012b,c). Theseincludeincorporationinto:(1)theEUETS,(2)the non-ETS carbon-trading framework (under the Effort Sharing Directive,ESD),and(3)theintroductionofanew,butseparate,

LULUCF-based target and commitment mechanism. The

Commission favors the 3rd option (EC, 2012b). Thismodel isolatesthe potentialimpact ofLULUCF onthe EUclimate policy framework by setting separate LULUCF targets and retainingthecurrentsegmentationbetweenLULUCFandthe EUETSandnon-ETSsectors.

EU discussion is partially driven by decisions at the international level.However, thefailure todevelopamore vigorous EU bargaining position may slow international progress. A more effective and efficient international and EUlevelframeworkfortheintegrationofLULUCF,however,is possible.Intheinterestofcontinuedprogressonraisingthe forestcarbonsinkinbothdevelopedanddevelopingcountries andputtingastoptodeforestationandforestdegradation,a more effective and efficient LULUCF carbon accounting

Fig.1–FM,croplandandgrazinglandmanagementasshareoftotalaverage2008–2010emissions(exclud.LULUCF). Source:EstimatesforCroplandandGrazinglandManagement(CMandGM)arebasedonproxyestimates.Sincefew countriesintheworldhaveelectedtheseactivities,weuseUNFCCCreportedfiguresforGrassland,remainingGrassland, conversionstoGrassland,Cropland,remainingcropland,andconversionstoCropland.FMandGHGemissionsarebased onUNFCCCsubmissions.

strategyisrequired.TheEUcanplayanimportantleadership roleinthisprocess.

Though uncertainty remains one of the key stumbling blocks in moving forward with greater mobilization of forest-basedresources,themodelproposedhereindoesnot embodyagreaterdegreeofuncertaintythanhasalreadybeen acceptedwith the 2011 Durban LULUCFagreement. At the sametime,eliminatingbarriers(thecapandtheFMRL)and increasingthepotentialrangeofincentivizedopportunities foremissionreductionsandcarbonsequestrationavailableto Memberstates—assumingcommitmentsarechanged accord-ingly(wecannotstressthispointenough)—couldpositively supporttheaimofreducingemissionsandmitigatingfuture climatechange.

5.

Incentive

Gaps

and

the

mobilization

of

forest

potential

in

the

EU

and

UNFCCC

frameworks

A fully developed position on the potential integration of LULUCF in the climate policy framework must of course addressproblemswiththecurrentUNFCCC/Kyotoframework. Though the European Commissionhas produced aninitial reflective response to the SBSTA call for submissions (UNFCCC,2012b),muchremainstobesaidaboutthepotential impactofthenewLULUCFrulesandpotentialpathsforfuture reform.We firstdiscusstheimplicationsofthenew‘‘cap’’, thenturntoanin-depthdiscussionofthenewDurbanFMRL. GivenrelativevariationinforestpracticeandextentacrossEU memberstates,thefollowingdiscussionisbroadly represen-tativeofthegeneralimpactthePost-DurbanKyotorulesmight haveonotherAnnexIcountries.

5.1. Thenew‘‘cap’’

In equity terms, more consideration could have been dedicatedtothenewcapsetinDurban.Thenewcapisset usingthesamemethodforallParties(3.5%of1990baseyear emissions,excludingLULUCF)andwasintendedtoincrease incentives for carbon sequestration under FM. However, it remainsunclearwhyheavypercapitaemittersin1990should berewardedwithahighercapthanlowemitters.Further,it remainsunclearwhyFMcapsshouldbeentirelyunrelatedto forestcoverorpotentialfuturegrowth:thenewcapinnoway considersthecurrentshareofforestcoverunderFM.Under CP1(2008–2012)countrieswerepermittedtoadoptacapequal tothesmalleroftwooptions(3%of1990emissions,or15%of netremovalsinforests),orundercertaincircumstancescould negotiateanalternativecap.Nosuchadjustments,however, areincludedinthenewmodel.

Toillustratetheconsequencesofthe2011DurbanLULUCF agreement,weassumea20%increaseintotalforestgrowth between CP1 and CP2 and convert this amount into CO2 equivalents (MtonCO2/yr). Instead of using a projected

reference line, we use the average forest growth at CP1 recordedin2008and2009asabaseline forestimatingthe outcomeinCP2.AcrossallAnnexIcountries,during2008and 2009,countriesaveragedapproximately3%growthperyear. Given7yearsofgrowthovertheperiod2013–2020,thiswould amount to approximately 21% total growth (based on a

weightedaverageacrossallAnnexIcountries,however,the 2008–2009 growth rate isapproximately 1.2%yr 1). Others have previously estimated lower levels of forest growth (Bo¨ttcheretal.,2012).

Estimatesthatconsidertheeffectoffeaturessuchasforest age class structureand other variables may provide more accurate predictions of future forest growth for individual countries. However, it is important to emphasize that the growthestimateweemployisatheoreticaltoolintendedto provideaframeworkforunderstandingtheimplicationsofthe LULUCF carbon accounting rules for understanding the incentivescountriesandforestownersface.Thoughvariation in the total amount of assumed growth will impact the estimatedsizeoftheIG,weareparticularlyconcernedwith theoveralltrend.

AsillustratedinFig.2,thenewcapcreatesaheavilyskewed set of advantages and disadvantages, raising important questionsaboutitslogic,aswellasitspotentialtoencourage futureforestgrowth.TheredlineinFig.2indicateswherea 15%caponfutureestimated2020forestpotentialwouldfall foreachoftheEUMemberstates.Whilepointsalongthisline wouldindicateanequitableoutcomeandapproximatelyequal burdensharing,thenewcapsaredisproportionately distrib-utedaroundtheline.

Inparticularthosecountrieswitharelativelysmallshareof forestcoverarelikelytobenefitthemostfromthenewmodel, someofthemdramaticallyso.Inparticular,theNetherlands, the UK,Greece,Belgium,Luxembourg andseveralotherEU Memberstatesareclearwinnersfromthenewcap.TheUK and the Netherlandsareparticularlyadvantaged. However, whytheNetherlandsshouldbenefitmorethantheUK,orwhy thesetwocountriesshouldbenefitmorethancountrieslike Denmark or Ireland with similar shares of forest cover remains obscure. And why these countries should benefit more than the set of ‘‘loser’’ countries remains equally obscure.Allthosecountrieswithhighersharesofforestcover havenewcapsequaltolessthan15%oftheirestimated2020 forestpotential—sometimesconsiderablyless.

Fig. 3 provides an indication of the degree ofvariation acrossEUMemberstatesinthepotentialimpactofthe Post-DurbanKyotorules.Eachindividualcountrycolumnindicates an estimateoftotalpotentialfuture forestgrowthin2020, distributed proportionally across net ARD, estimated bioe-nergyuseandanareacorrespondingtoFMnetremovalsand/ or HWP. Sincewecannotknowthe future netdistribution acrossFMnetremovalsandHWP—i.e.wecannotknowthe fellingrate—thesetwocategoriesarerepresentedasasingle green bar (FM+HWP). In this context, however, current forecastssuggestaprogressiveincreaseinharvest(HWP)up to 2020 (harvest projections were used to inform FMRL estimations). UnderCP2,ARD(sincethecompensation rule wasremovedinDurban),bioenergy,andthatamountofforest growthand/orHWPcorresponding tothenewcaparefully incentivized.

AsindicatedinFigs.2and3,themajorityofEUMember stateswouldpresumablyhavelittledifficultyclaimingthefull cap(distancebetweenbluetriangleandgreendiamond).For countrieslikeSwedenandFinlandwithcomparativelysmall caps,thereisevenlittleincentivetobeconcernedaboutthe cap.Moreover,dependingonthefellingrate,mostorallHWP

willultimatelynotbeeligibleforcarboncredits.Ontheother hand,many‘‘winner’’countrieswillfinditvirtuallyimpossible touse uptheir caps.FortheNetherlands, the newcapfar exceedspotentialestimatednetremovalsandfuturegrowth underFMbyafactorof1.4,andintheUKbyafactorof1.1. Moreover,incontrasttothetimberrichcountries,anyandall carbonsequestration—whetherinstandingforestsorHWP— wouldremaineligibleforcarboncredits.

This has important implications for the ability of PartiesandEUMemberstatestotakeadvantageofpotential forest-basedcarbonsequestration.Thisisfurtherillustrated bythesecondsetofreddishbrownpointsinFig.2,indicating what we call the ‘‘Incentive Gap’’ (IG). In this particular measure,weincludethe‘‘grayarea’’(FMRL)intheshareof non-incentivizedforestpotentialandexpressthisasashareof total forest potential in 2020. IG-1 is of course strongly influencedbythesizeofthecapandisinverselyrelatedto thenewcap.EUMemberstateswithgreaterforestcoverhave disproportionatelylargerIG’s.TheIGistypicallysmallerifwe excludethe‘‘grayarea’’fromthenon-incentivizedshare (IG-2)).WhetherthegrayareaundertheFMRLshouldbeincluded inestimates oftheIG isdebatedinmore detailelsewhere

(Ellisonet al.,2013).Thebasictrend,however,remainsthe sameregardlessofwhichIGmeasureischosen.

The Durban system will inevitably lead both to gross inequities across countriesand tosevere imbalancesinthe accountingsystem.AlargeshareofEUMemberstateswillthus not be rewardedfor anypursuit ofincreasedforest growth, despitetheimportantcontributiontheycouldmaketoclimate changemitigation(andadaptation).Harvestwillbeencouraged. Thishighlightsthenegativeadvantagesassociatedwithupward limitsoncarboncrediteligibility.ThecurrentDurbancapfailsto mobilizefullfutureforestgrowthandclimatechangemitigation potential.TheroleandimpactoftheFMRL(thegrayareainFig.3) ismorecomplicatedandisaddressedbelow.

5.2. TheDurbanFMRL

TheFMRLintroducedinDurbanimposesahostofproblems thatrequiredeeperconsideration.Wedividetheseintotwo discussions; (1) the usefulnessof modeledprojections and theirplacementinthecorrectclimatepolicyframework,and (2)thepotentialincentivestructurecreatedbytheFMRLand thebroaderLULUCFframework.

Fig.2–Newdurbancapsrelativetoestimatedforestpotentialin2020andtheIncentiveGap.

Note:thenewcapsarerepresentedasratiosrelativetoestimatedforestpotentialin2020(greenpoints).Theestimated forestpotentialisbasedonanassumptionof20%forestgrowthbytheyear2020relativetotheFMaveragein2008and 2009.TheIncentiveGap(IG)measureusedhereisdefinedastheshareofincentivizedtonon-incentivizedforestpotential andincludesthe‘‘grayarea’’(FMRL)asnon-incentivized(IG-2).WealternatelydefinetheIncentiveGapas:

IG-1=1S_{[(FMRL+NewCap+ARD+BioE)/TotalGrowth](FMRLincentivized)}

Usingmodeledprojectionsasreferencelevelssetsup a number of problems. For one, Parties can intentionally underestimate their potential to achieve future growth and thereby ‘‘create’’ potential carbon credits. Moreover, forest projections are subject to important uncertainties, raisingdoubt about the ability of countries to adequately estimate either future forest growth potential or future demand for biomass resources (and thus harvest rates). Finally, these projections—because they already embed assumptions about future demand and thus increases in the harvest—may ultimately reinforce this potential out-comeandfurtherdiscouragetherealizationoffuturegrowth potential.

Usingmodeledreferencelevelprojectionsforthepurpose ofsettinggeneralemissionreductioncommitments maybe preferable(Ellisonetal.,2013).Keepingtheruleofcreditingnet removals(gross-net accounting)rendersaccounting consis-tentovercommitmentperiods.Ourpreferredstrategyistouse a formof continuous gross-net accounting. We propose using averagenetremovalsfromthepreviouscommitmentperiod (CP 1_{)asameansforestimatingandzeroingthenewbaseline}

for net removal accounting in the subsequent accounting period(CP0_{).Thesamemodelcanalsobeusedforadjusting}

country level emission reduction commitments, thereby eliminating bias in country projections and weakening incentivestolowballestimatesoffuturegrowthpotential.

With an adequate baseline and adjusted country level emission reduction commitments, Parties could be made eligible for any and all LULUCF-based carbon credits (net removals).Inthisway,andwiththeeliminationofthecap, future growth potential (carbon sequestration in standing forests—‘‘netremovals’’)wouldbefullyincentivized accord-ingtoitsrealclimatemitigationpotential,thuslendingitmore weightbothinharvestcalculationsandintheclimatepolicy framework.Moreover,thisstrategycouldpotentiallyprovidea framework for coordinating with current efforts to raise overall commitmentsforthe 2030EUclimatepolicy frame-work(EC,2013).

Incombinationwiththeeliminationofanyandallcapson netremovalsand theintroductionofoneall-encompassing LULUCF carbon pool (integrating all LULUCF activities and carbon pools into a single pool), such a strategy could

0 5 10 15 20 25 30 35 40 MtCO2 0 50 100 150 200 250 MtCO2 FM+HWP BioE ARD Grey Area (0-FMRL) FMRL FMRL + New Cap

FMRL + New Cap + BioE + ARD

Fig.3–TheDurbanLULUCFrulesandpotentialforestgrowthin2020(byMemberstate).

Note:EachcolumnrepresentsthetotalpotentialforestgrowthinlivingbiomassatCP2.FM+HWPrepresentstheprojected growthremaininginmanagedforestsabovethereferenceleveland/orusedforwoodproducts,excludingbioenergy harvest(BioE).ARrepresentstheprojectedgrowthonafforestedandreforestedland,whileDistheharvestedparton deforestedARDland.Thegrayarearepresentsthegrowthremaininginmanagedforestsfromzerouptothereferencelevel (FMRL).Growthisprojectedproportionallyacrossallcategories(AR(D),FM+HWPandbio-energy)basedoncorresponding valuesin2008and2009.IG-1isrepresentedinfigurebytheareaabovethereddotstothetopofthedarkgreencolumnand isconsideredtobe‘‘0%’’forcountriesliketheUK,Greece,theNetherlands,whereboththecap(andthereddot)farsurpass forestpotential.IG-2,logicallyequivalenttoIG-1+FMRL,removesthegrayareafromIG-1.

potentially promote significant climate change mitigation (and adaptation). This would have the effect of fully incentivizingforestgrowthpotentialandfullyrewardingall netremovals, effectivelybalancingthe fullvalueofcarbon sequestration in standing forests with competing uses. Moreover, the inclusion of all carbon pools in one all-encompassing model will increase incentives tocare about andpotentiallyundertakeactionstocombatpotential emis-sionsinotherareas(e.g.unmanagedforests,peatlands,etc.). Withoutconsistentaccountingacrossallactivitiesandpools, theimpactofsomeislikelytobeneglectedoroverlooked.

A second problem arises with interpreting the set of incentivescreatedbythePost-Durbanrulesand,inparticular, theFMRL.InTable2,wepresentadiscussionofthecomplex rangeofincentivesfacedbyPartiesand LandownersinEU Memberstatesandthemostlikelyoutcomesresultingfrom

the Post-Durban Kyoto framework. Though the Kyoto

frameworkonlyincentivizes Parties,landownersultimately makethedecisionwhethertoharvestbasedonavarietyof economicincentivesandpersonalpreferences.Theincentives Parties and Landowners face depend on where individual countries fall relative to their FMRL projections (commit-ments).Thus,underScenario1,countriesfailtomeettheir FMRL commitments, while under Scenario 2, countries succeed inmeeting their commitments and areeligible to receive some carbon credits under the cap. Finally, under Scenario3,countriesmeettheirFMRL’s,areeligibleforthefull cap,andproduceadditionalnetremovals.

InparticularbecauseLULUCFisnotmobilizedintheEU climatepolicyframework,nostrategieshavebeendeveloped for transferring incentives (pass-through) to landowners. ThuswhilePartiesmayfaceKPincentives,landownersmay respondtopotentiallycontradictoryincentives.Compellingly, ‘‘harvestforbioenergy’’isalwayspreferred(financial incen-tives) unless the Post-Durban Kyoto incentives have been

integratedintothedomesticframeworksuchthatlandowners receive benefits (or debits). Parties can choose different strategies for incentivizing Landowners. In addition to transferring carboncredits, governmentscan alsocentrally determinefellingrates.

Thesecondstrikingobservationisthat,independentlyof thegoalsaccompanyingtheadoptionoftheFMRL—Scenario 1—theincentivetoharvesteitherforbioenergyorforHWPis notsignificantlydifferentfromthatformaintainingStanding Forest.Thoughharvestingabovethereferenceline(inthegray area) results in debits, the potential financial return on harvestingforbioenergyand/orHWPrepresentsanattractive alternative.Bioenergyisfullyincentivizedunderthisscenario (resultingincarbonneutralemissions)andHWPislikewise fullyincentivized(itisrecognizedasacarbonpoolunderFM). Thus where Parties (Landowners) are eligible for carbon creditsfornetremovals,StandingForests,HWPandBioenergy arerelativelyequallyincentivized.

TheincentivesremainthesameunderScenario2,where Parties (Landowners) are eligible for carbon credits for net removals under FM. The situation changes dramatically, however,onlyunderScenario3,whereParties(Landowners) arenolongereligibleforcarboncredits.Inthiscase,harvesting forbioenergywillalwaysbepreferableoverHWPorStanding Forests (neitherofwhich are incentivized beyondthe cap). Moreover, beyondthe cap,Parties facestrong incentives to promoteforestgrowthinordertoachievelargerharvests,while for Scenarios1and 2,Partiesare likely indifferentbetween growthforgrowth’ssake(G)andgrowthforHarvest(H).

Finally,underFM,thesmallerthecap,thelessPartiesare incentivizedtoconsideritintheirplanningcalculationsand the more likely they are to favor harvest. Timber-rich countries like Sweden with comparatively small caps will benefit little and will have significant difficulty estimating exactly wheretheyarelikelytolandbyharvestingspecific

Table2–Post-DurbanKyotoLULUCFincentives:partiesandlandowners.

Scenarios From–To) Accounting options

Party/governmentperspective Landownerperspective Incentives Logic Incentives Incentivesto promote Growth/Harvest? No pass-through w/pass-through

(1) UptoFMRL DebitsOnly Harvestforbioenergy, HWPnotsignificantly differentfrom StandingForest G/H Harvestfor bioenergy StandingForests, HWPand Bioenergy

ForParties:fully incentivized.For Landowners:HWP, standingforests notincentivized w/opassthrough. (2) FMRL–cap CreditsOnly Harvestforbioenergy,

HWPnotsignificantly differentfrom StandingForest G/H Harvestfor bioenergy StandingForests, HWPand Bioenergy fullyincentivized (3) cap–Total FMremoval NoDebitsor Credits

Harvestforbioenergy H Harvestfor bioenergy Harvestfor bioenergy HWP,Standing Forestsnot incentivized

Note:The‘‘scenarios’’refertowhereindividualcountriesmayendupintermsof;(1)failingtomeetingtheFMRLprojection,(2)fulfillingthe FMRLprojectionandbeingeligibleforcarboncreditsunderthecap,and(3)fulfillingtheFMRL,makinguseofallavailablecarboncreditsunder thecap,andproducingadditionalnetremovalsabovethecap.ThetableassumesthatGovernments(‘‘Parties’’)totheKPfacedifferent incentivesthanLandowners.

amountsofnewforestgrowth.Thecoordinationproblemthat arises across the government and the many small private landowners without centrally determined felling rates is easily imagined. Moreover, as indicated under Scenario 3, there areconsiderable disincentives to promote growth in standing forests above the cap. This can result in Parties stronglyfavoring/promoting harvestover fulfilling the cap. Some Parties may thus experience stronger incentives to harvestbothabovethecapandabovethereferencelevel.

Thefailure toeffectivelyweight and incentivizethe full carbonvalueofforest-basedcarbonsequestrationinstanding forestsandHWP—whetherduetoreferencelevelsorlimitson potential carbon credits—means forests are not weighted according to their true climate mitigation potential. Thus, unlikeothersectorswherethevalueofonetonofCO2isequal

toonetonofCO2,forestswouldremainunder-valuedandthus

under-utilized.AssuggestedinTable2,thismaynotresultin the most rational use of forest-based resources and may negativelyalteroutcomes.

6.

Negative

emissions

and

forest

potential

in

the

climate

policy

framework

Thepotentialroleofforestsinpromotingemissionreductions isfrequentlyeitherdisputedorevencompletelyignored.One of the most recent reports to raise questions about the potentialroleofforestsisUNEP’s(2012)EmissionsGapReport. This report highlights the current ‘‘gap’ in international emission reduction commitments—based on Annex I and non-AnnexIcountrypledgesintheCopenhagenAccord—that mustbeclosedinordertoarriveattheproposed+28Cglobal warmingtargetagreedinCopenhagen.Theauthorsarguethat ‘lenientLULUCFaccountingrules’potentiallyexplainapartof thisemissionsgapandsuggestthat‘minimizingtheuseof lenient LandUse, Land-Use Change and Forestry (LULUCF) creditsandsurplusemissioncreditswouldreducethegapby approximately3GtCO2e’(UNEP,2012:4).Strict rulesarein placewhen:‘allowancesfromLULUCFaccountingandsurplus emission credits will not be countedtoward the emission reductionpledges’(UNEP,2012:12).Thisdefinitionparrotsthe EUapproachtoLULUCF.

ArecentjointreportauthoredbytheInternationalEnergy Agency, Nordic EnergyResearch and anumber ofregional researchandenergyinstitutes(Risø,VTT,etc.),‘‘NordicEnergy Technology Perspectives: Pathways to a Carbon Neutral EnergyFuture’’(IEA,2013),indirectlymakesasimilar argu-mentaboutthebenefitsofforest-basedcarbonsequestration. ThetermLULUCFdoesnotevenappearinthedocumentand ‘‘forests’’areonlymentionedinconnectionwiththe advan-tagesofbioenergy.Whilethisreportdiscussesandrelieson thepotentialadvantagesofcarboncaptureandstorage(CCS), itentirelyneglectsthenaturalprocessbywhichforestsbind carbontobiomassthroughphotosynthesis,naturallycreating anotherimportantformofcarbonsequestration.

Thefollowingexampleillustrateswhytheroleofforests shouldnotbe neglectedin thedevelopment ofLowCarbon Pathways,andwhy,inparticular,forestsshouldbeincluded and more effectively mobilized. We base our example on Sweden,whereannualnetLULUCF-sectorremovalscurrently

compensate for approximately halfof Sweden’sCO2

emis-sions, but are not explicitly ‘counted’ or considered in the climatepolicyframework, eitherinSwedenor theEU. The exampleisbroadlyrepresentativeofthesituationinanumber of EU Member states where net annual forest growth (netremovals)coversalargeshare ofcurrentemissions.In Latvia, for example, total annual net removals represent approximately 178%of annualGHGemissions (Fig. 1). Effi-ciently and effectivelymobilized, this share could beeven larger. As illustrated above,without adequate mobilization therearestrongincentivestoincreaseharvest.

TheSwedishexampleprovidesapowerfulillustrationof the fact that the current UNFCCC/Kyoto LULUCF and EU carbon accountingand climatepolicy frameworksmaynot provide the optimal mobilization of forest-based climate change mitigationand adaptation potential.Fig. 4isbased ondatafromarecentSwedishEPA(2012)studythatidentifies potentialemission reduction scenarios potentially enabling Sweden to achieve carbon neutrality by 2050. To these numbers and graphical representation, we add additional informationaboutthepotentialroleofLULUCFandtheimpact oftheUNFCCC/KyotoLULUCFcarbonaccountingrulesboth beforeandafterthe2011DurbanLULUCFagreement.

For CP1 (2008–2012) the short,solid light green columns indicatetotalaccountablenetremovals.Theremainderofthe column (cross-hatched green and white) designates the remaining net removals that cannot be accounted and for whichSwedenisnoteligibletoreceivecarboncredits.Thisisa basicillustrationoftheIncentiveGap(IG):thelargershareofnet removalsisnotincentivizedbythecarbonaccountingrules.

ForCP2(2013–2020),alothaschanged.First,abovethe newFMRL(‘‘grayarea’’),Partiesarenotpermittedtoclaim carboncreditsbutcanbedebitediftheharvestrisesabove the reference line. On theother hand, Parties can claim carboncreditsbetweentheFMRLandthecap(thesolid-red columnbelowtheFMRL),butarenoteligibletoclaimcarbon credits beyond the cap. Thus regardless of the potential Partiesmighthaveforachievingadditionalcarbon seques-tration,theyremainineligibletoreceivethebenefitsofthis effort. As suggested in Table 2, since additional growth returnsno credits,thismay ultimatelystrengthen incen-tivestoharvestabovethecapandperhapsevenabovethe referencelevel.

CP2likewisehelpstoillustrateasecondpoint.Thelogic behind the use of reference levels makes sense from the perspectiveofeliminatingthepotentialfortakingadvantage ofnetremovalsthatmighthaveoccurredanyway.Partiesare onlyabletoclaimcarboncreditsbelowthereferenceline,net removals(whatmanyconsider‘‘historical’’,or‘‘undeserved’’) arethuspotentiallyremovedfromthemodel.Ontheother hand,underthisagreement,Partiesarebeingencouragedto commit to specific levels of increased net removals that continuouslyraisecarbonstocks,andthustoforegoharvest. Fromthisperspective,itremainsunclearwhyPartiesshould gounrewardedforanyincreasedforestgrowth(netremovals) they achieve. After all, such removals provide a genuine climate mitigation impact. In this sense, the FMRL seems misguidedandmisplaced.

Fig.4illustratesthepotentialimportanceofforest-based carbon sequestration as a means of achieving negative

emissions.Negativeemissionshavebeenvariouslydefined(Van Vurenetal.,2013;RhodesandKeith,2008;Mo¨llerstenetal., 2003;Obersteineret al.,2001), eitherinterms ofthe added contributionofafforestationandreforestation,closedsystem contribution of biomass energy production with carbon capture and storage, the ‘‘permanent’’ removal of carbon fromtheatmosphere.Wehereemphasizethepotentialroleof increased forest-based carbon sequestration in standing forestsandHWP,incombination withthebroadpanorama of more traditional emission reduction pathways. In this sense,wedefinenegativeemissionsforindividualcountries asthefactof‘removingmorecarbon fromthe atmosphere thanisbeingpouredintoit’.I.e.wedefinenegativeemissions for individual countries as occurring when the balance of emissionsandremovalsresultsinanetuptakeofcarbonfrom theatmosphere.

IfSwedenisabletoreduceemissionsinthewaysuggested byeitheroneofthetwoTargetScenarios(UNFCCC,2012a;EC, 2012a)depictedaboveandislikewiseabletogrowadditional

forest—by additional forest preserve set-asides (‘‘env.’’), additional fertilization(‘‘prod.’’),oracombinationofboth— theneteffectofadditionalcarbonsequestrationinstanding forests (net removals) could pay the dividend of ‘‘negative emissions’’ (Sweden would sequester more carbon than it emits)byasearlyas2029(TargetScenario1+env.+prod.).As indicated, negative emissions are achieved somewhat later undertheotherscenarios(2030,2041or2044).Thekeypointis that negative emissions can be achieved and even possibly improved uponwith theinclusion ofstandingforests inthe climatepolicyframework.

IncentivizingtheHWPcarbonpoolislikewiseimportant. On average, the inclusion of the HWP carbon pool in the LULUCF scenarios increases the potential for achieving negativeemissionsandadvancestheirachievementby approx-imately oneyear (Fig. 4includesthe HWPcontribution).In

Sweden, on average the HWP carbon pool represents

approximately 14% of total net removals. However, since the‘‘cap’’isimposedequallyonFMnetremovalsandHWP,the -60 -40 -20 0 20 40 60 80 1990 2000 2010 2020 2030 2040 2050 Mt CO 2 -eq

Swedish Greenhouse Gas Emissions, Sources and Sinks, 1990-2050

Accountable LULUCF (CP2)

FMRL "grey area" (CP2)

Total GHG Emissions (All Sources)

Negave Emissions

Unaccounted LULUCF

Accounted LULUCF (CP1)

Total (w/o LULUCF)

Total (w/ LULUCF)

Target scenario 2 (w/o LULUCF)

Target scenario 2 (w/ LULUCF)

Target scenario 2 (w/ LULUCF_env.+prod.)

Target scenario 1 (w/o LULUCF)

Target scenario 1 (w/ LULUCF_env.+prod.)

Target scenario 1 (w/ LULUCF)

LULUCF (FMRL)

LULUCF (env.+prod.) 2028

2040 2031

2043

Fig.4–SwedishEmissionsandtheRoleofForestsinClimateChangeMitigation.

Source:basedonpublisheddatafromaSwedishEPA(2012)report.Thefollowingestimatesareaddedtothisreport:(1)an estimateofpotentialforest-basedcarbonsequestration(2013–2020)basedonSweden’sUNFCCCreferencelevelsubmission andtheSwedishcaponaccountableLULUCFinCP2;(2)estimatesofpotential‘‘net’’emissionsbasedontheTarget1&2 ScenariosafterconsideringtheimpactofLULUCF+env.+prod.netremovals;(3)anestimateofthepotentialNegative Emissions,basedonthe‘‘net’’impactofTarget+LULUCFscenarios;and(4)estimatesfortheHWPcarbonpoolhavebeen incorporatedintheTargetScenarioresults.TheLULUCFscenariosinvestigatedintheSwedishEPAstudyarebasedon estimatesofthehighestpotentialsustainableharvestanddonotconsiderthepotentialimpactofrevisedincentivesor changeindemandforforestbiomass.

fullmobilizationpotentialoftheHWPcarbonpoolisalmost entirelymarginalized.

Thepotentialforachievingnegativeemissionsisperhapsthe strongestjustificationforgettingridofthecapandeliminating allremainingobstaclestothemobilizationofLULUCFinthe EUandUNFCCC/Kyotoclimatepolicyframeworks.Duetothe urgencyoftheclimatechallenge,somehavebeguntoargue that only negative emissions can facilitate atmospheric CO2

reductionssufficienttostaywithinthe+28Cglobalwarming target(Mossetal.,2010;MilneandField,2012).Thoughthis pointistypicallyraisedindiscussionsaboutcarboncapture andstorage(CCS)technologies,effectiveandefficientforest resourcemobilizationcanalsoprovideanimportant contri-bution. As illustrated by the Swedish example and data presented in Ellison et al. (2013: Table 6), considerable potential for future forest growth remains across Europe. Forthemostpartwithoutfertilizationandwithinthesame area,thetotalforeststockinSweden,forexample,hasmore thandoubledovertheperiod1923–2013.

The Swedish emission reduction scenarios considered aboverepresentaselectarrayofpotentialfuturescenarios. Whichpathwillultimatelybechosenremainsunknown.More importantly,noneofthescenariosconsidered,includingthose wehaveprojected,adequatelyconsiderthepotentialimpact of improving EU and KP incentives on forest growth. Full mobilizationofthe fullcarbon valueinfuture forestgrowth couldeffectivelyhelpacceleratetheserelationships.

Finally, though the conventional view suggests only countries with comparatively large shares of forest cover canbenefit,countrieswithcomparativelylowsharesofforest cover and low amounts of net annual forest growth (net removals)mayexhibitthegreatestpotentialforfutureforest growth.Giventheextentofrequiredemissionreductionsby 2050(80–90%ormore),lowforestareacountriesmayhavea moredifficulttimearrivingatthenegativeemissionsthreshold. Howeverbothindividualcountriesandtheglobalcommunity couldbenefitfromincentivizingthispotential.

7.

Conclusion:

a

more

comprehensive

carbon

accounting

framework?

Inthecontextofa‘‘morecomprehensiveaccounting frame-work’’ for LULUCF in the EU and Kyoto processes, the EU remainsopentosuggestionsfromallPartiesandEUMember states.As the EU likewise appears toemphasize (UNFCCC, 2012a),whatdefinessuchaframeworkandhowPartiesshould attempttoreplyisambiguous.Inimportantways,theSBSTA requestforPartyinputplacesallfeaturesofthecurrentLULUCF carbonaccountingframeworkbackonthetable.

IntheEUSBSTAsubmission(UNFCCC,2012a)andinthe documentsrelatingtocurrentEUeffortstore-definetherole of LULUCF in the EU climate policy framework, specific parametersarerapidlybeingset.Inparticular,withrespect tothelinkageoftheEUETSwithinternationalcarbon-trading frameworks, LULUCF and REDD+, the EU appears set on creatingaseparatesystemthatwouldcontinueandfurther compound the current degree of separation and compart-mentalizationintheelementsoftheclimatepolicyframework (ETS,non-ETS/ESDandLULUCF).Likewise,theCommissionis

notconsideringremovingrestrictionsonthetotalamountof claimableLULUCF-basedcarbon credits;‘‘Itwasour under-standingthatmostPartiesdonotconsiderunconstrainedgross net accountingasapossibleaccountingoptionforthefuture and, therefore, it has not been included as an option in the submission.However,constrainedgross-net(establishingacap, discount,orotherappropriatemechanism)couldbeexploredas anoption’’(UNFCCC,2012a:ouremphasis).

Astheidealizedmodelexpresses(Table1above),boththe EU and the greater Kyoto process should embrace amore expansiveconceptofLULUCFintegrationintheinternational climatepolicyframework.Suchstepsshouldinvolveserious evaluationofthelimitssetonfutureforestgrowthand forest-base carbon sequestration. We favor the eliminationof all obstaclestothefullmobilizationofforest-basedresourcesand therecognitionoftheirfullcarbonvalue.Discountingthe forest-based sector (cap and the FMRL) should be abandoned. Reference projections—or a suitable alternative such as average forest growth over the most recent commitment period(CP 1_{)—canalternativelybeusedforestimatingfuture}

potentialemissionreductioncommitments.

ThegeneralLULUCFcarbonaccountingapproachshould

ideally be much broader, should incorporate all

LULUCF-related activities—including unmanaged forests, wetlands and peat lands—and should not complicate this process with the far too complex estimation of additional reference levels in eachforest activity.This would require countriestoadoptuntimelyandcostlyapproachesto LULUCF-based carbon management, thereby reducing the overall efficiencyoftheclimatepolicyframework.

Table 3highlightsthe basicdifferences betweenthe EU positionandouridealizedmodel.Apartfromthepointsnoted above,wehighlightthatpowerful incentivesformobilizing the fullcarbon valueinforest-basedresources arelikewise mostefficientlypromotedbyaninternationalcarbon-trading frameworknotclosedtoforest-basedcarboncredits.

TheSBSTAcallforPartysubmissionsona‘more compre-hensiveLULUCFaccountingframework’providesan opportu-nityforfurtherconsiderationofthepotentialroleofLULUCFin theEUandinternationalclimatepolicyframeworks.TheEUis actively considering potentialimprovements. The introduc-tion,inparticular,ofharmonizedLULUCFcarbonaccounting practicesacrosstheEUMemberstatesandtheintroductionof mandatoryreporting onCM andGMactivitiesrepresentsa stepintherightdirection.Butmuchmorecouldclearlybe done.Moreover,thegeneralframeworkforsuccessfulclimate changemitigationfacestheever-presentriskofdisintegrating internationalcooperation.Muchuncertaintythusshroudsthe futureroleofforestsintheglobalframeworkandrequiresan urgentandforcefulresponse.

Regarding the EUclimate policyframework, forestsand theirclimatechangemitigation(andadaptation)potentialdo not weigh equally with other mitigation pathways in the power, industry or non-ETS sectors and will not be freely tradableacrossthedifferentEUactionframeworks(ETS, non-ETS/ESD and LULUCF). However, in order tofully mobilize forest resource-based carbon sequestration, one unit of climate change mitigation must equal one unit ofclimate changemitigation,regardlessofwhereimprovementsoccur. And all carbon credits must be fully tradable across the

differentsegmentsoftheclimatepolicyframework.Without this,investorsarenotfreetochoosethemostefficientand effectivestrategies,therebyslowingprogresstowardclimate change mitigation. Achieving this goal in an international carbon-tradingframeworkwouldprovidethegreatest poten-tial for achieving the international goal of rapid climate changemitigation.

Forests offer tremendous opportunities for carbon se-questration and fossil fuel substitution. Moreover their value as biodiversity anchors, planetary lungs and their crucialimportanceasregulatorsoftheterrestrialhydrologic cycle render them invaluable. The excessive limitations

placed on the ability of Parties to take full advantage of the opportunities forest resources provide represent unnecessary obstacles to the goals of climate change mitigation andadaptation.Forests canplay animportant, even fundamental role in this process and can more importantly provide the singular contribution of negative emissions.Whilethenew‘‘cap’’choseninDurbanincreases incentivesatthenationallevel,thereislittlejustificationfor remaining limitations. Ideally, these should be removed fromthecarbonaccountingsystem.Evenwiththenewand slightly largercap,the magnitudeofmissedopportunities remainsunacceptablylarge.

Table3–ComparisonofEUpositionsandidealizedmodel.

Issue EUposition Idealizedmodel

LULUCFaccountingunbalanced withrespecttoemissions fromothersectors(industry, end-users,etc.)?

Yes.TheEUtakesthepositionthatLULUCF cannotbesuccessfullyintegratedintotheEUETS and/orEDSframeworks.ThustheEUfavorsa systeminwhichLULUCFisaccountedseparately andforwhichtargetsarelikewiseset

independentlyfromtheETSandnon-ETS sectors.Moreover,forest-basedcarbon sequestration(netremovals)isnotcounted towardEU-levelemissionreduction commitments,andtradingincarboncredits acrosssegmentsisprohibited.

No.LULUCFshouldbefullyintegratedinto internationalcarbon/emissiontrading frameworks.Theprincipleof‘‘fullcarbonvalue’’ shouldbefullyintegratedintothissystem. Carboncreditsshouldbefullyfungibleacross differentsegmentsoftheclimatepolicy framework.Relevantmodels,suchasthe CaliforniaandNewZealandcarbontrading schemesexist.

Inclusionofadditional carbonpools?

TheEUpromotesaninventoryframework broadlysimilartotheUNFCCC/Kyotoapproach. TheEUlikewisefavorsfurtherintegrationof remainingomittedcarbonpoolsandhasbegun integratingCMandGMaheadoftheUNFCCC. TheEUwillconsidercollapsingArt’s.3.3and3.4 intoasinglecategorybutnotestheneedtolimit accountingwiththecontinueduseofcapsand otherrestrictions(suchastheFMRL).

Anall-encompassingmodelwithmandatory reportingforallpreviouslyomittedand voluntarycarbonpools.

Allemissionsandremovalsshouldhavethe sameweightasanyothercomponentinthe carbon/emissiontradingschemesandshouldbe basedonlyonassumedclimatemitigation potentials,withoutrestrictionsorcaps.

Permanence Theproblemofpermanencerequires restrictions.

Solvedbydebitingemissions(thesameasfor fossilfuel-basedemissions).

Additionality Nocreditsforhistoricallyundeservedgrowth. Creditsforallremovalsanddebitsforall emissions.NotprovidingcreditsforFMor unmanagedlandcancreateincentivesfor increasedharvestanddisincentivestoaddress emissions,inparticularonunmanagedlands. Uncertainty Uncertaintyprovidesoneoftheprincipal

justificationsfordiscountinginLULUCFcarbon accounting.

Whileestimatesinindividualyearsmaybe inaccurate,inthelongertermandaveragedover longerperiods,therelativeimpactofuncertainty isdiminished.Measurementaccuracyis improving.

Naturaldisturbances TheEUbasicallysupportstheUNFCCCmodel adoptedinDurban.Asastrategyforprotecting Partiesfrombearingtheburdenofnatural disturbances,thismodelreliesonthe

opportunitytoomitlandareasunderFMandAR affectedbynaturaldisturbancesfrom

accounting.

Itispreferabletoincorporatealllandandforest activitiesintooneall-encompassingNational inventoryandtomakethefullcarbonvalueofall activitiesfullyfungibleininternationalcarbon trading.Thiswillprovideimportantincentivesto addressvulnerabilitiesintheLULUCFsector.

Harmonizationwith UNFCCCframework?

Thereareimportantdifferences.Fromour perspective,themostimportantisthedifferent treatmentofforest-basedcarbonsequestration andhowfungibleitisincarbon/emissiontrading frameworks.Thusfar,EUproposalsrejectthe ideaofintegratingLULUCFintothecarbon/ emissiontradingframework

LULUCFshouldbefullyintegratedinto internationalcarbon/emissiontrading frameworks.Theprincipleof‘‘fullcarbonvalue’’ shouldbefullyintegratedandallcarboncredits shouldbefullyfungibleacrossdifferent segmentsoftheclimatepolicyframework.The CaliforniaandNewZealandcarbontrading schemesproviderelevantmodels.

Acknowledgements

Theauthors thank anonymous reviewers for helpful com-ments.FundinghasbeenprovidedbothbytheSwedishEnergy Agency (Project No. 35444-1),and by the Future Forests, a multi-disciplinaryresearchprogramsupportedbythe Foun-dation forStrategic Environmental Research (MISTRA), the SwedishForestryIndustry,theSwedishUniversityof Agricul-tural Sciences (SLU), Umea˚ University and the Forestry ResearchInstituteofSweden.Partsofthispaperwerewritten whileDavidEllisonwasaSeniorResearcherattheInstituteof WorldEconomics,ResearchCentreforEconomicandRegional Studies,HungarianAcademyofSciences.

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