4. The EU LULUCF Proposal and How to Approach Reform
The LULUCF proposal [1
] places forestry together with agricultural land-CO2
into one compartmentalized sectoral package (the LULUCF “Pillar”), with very limited flexibility and potential for exchange with other sectors. A no-debit rule applies for the combined LULUCF forestry and agricultural land-CO2
, meaning that these quantities together should not result in net emissions (i.e., create more emissions), and should ideally contribute to a continuously increasing sink. Emissions from agricultural land may be compensated by change in the forest sink, but only above a forest (management) reference level (a baseline sink, FMRL, FRL), and only up to a maximum 3.5% of a country’s total, economy-wide, base year emissions, in sum 160 Mt CO2
/year for the EU as a whole. However, due to high reference levels and/or small caps in individual Member States, many of them will be inadequately encouraged to achieve this potential [4
]. The proposal further allows for a small exchange with the Effort Sharing Decision (ESD) sectors, which sets reduction targets for the transport and housing sectors, and non-CO2
emissions from agriculture. The exchange, however, is capped at 280 Mt CO2
/10 years and can only be achieved through specific activities such as afforestation and cropland management—the forest management activity has been excluded from this quantity, for now, although it is under discussion. Because of the limited set of allowable measures, this maximum is not likely to be achieved either. Thus, we find, based on the quantitative estimates provided above, that the EU climate policy framework should ideally provide improved incentives that strengthen the forest and forest sector likelihood of contributing to climate change mitigation. Furthermore, the overall strategy should be greatly simplified in order to avoid unnecessary technical complications and costs. The current web of caps, reference levels, targets and pillars have the effect of marginalizing incentives for forests, wood products and energy-related mitigation efforts.
The range of earlier concerns toward including LULUCF in the climate targets was primarily related to uncertainty in reporting on the forest sink, opposition to using the forest sector as a tool for “offsetting” industry-level emission reduction commitments, a strong interest in preserving “environmental integrity”, and questions regarding the relative permanence of forest-based carbon sequestration. Many or most of these (earlier) concerns hampered innovation in the LULUCF policy framework. However, many of these concerns have been sidelined by important changes since the early 1990s. Continuous increased growth in European forests over the last several decades [39
], as well as continuous improvement in forest inventory reporting practices since the initial UNFCCC reporting requirements were agreed, have helped to reduce concerns related to uncertainty and permanence.
To deal with the concerns regarding environmental integrity, the 2011 Durban inclusion of forests in the UNFCCC effectively turned a baseline sink into a forest sector commitment that has been added on top of the regular commitment framework. This baseline sink is now called the Forest Management Reference Level (FMRL) and must be achieved before any additional forest sector achievements can be counted. The structure of these rules essentially enforces the additive role of the forest contribution. Despite this raised ambition (existing commitment + the FMRL commitment) and the presence of additional emission reduction pathways, forests continue to play a marginal role in the climate policy framework.
As soon as Member States fail to achieve this baseline (the FMRL), they are debited for the shortfall. For many Member States, this may represent a significant obstacle to their mitigation goals, in particular the increasing use of bioenergy. Though countries are likely permitted additional harvesting in their FMRL (management intensity) projections, this placement of constraints on how additional annual growth in European forests can be used may have unintended consequences. First, forest owners invest resources in productive forests. Perceived limits on the use of these productive resources (through the implementation of reference levels) may well create disincentives for future forest investments. Second, additional forest and forest resource use (rising harvesting levels as in the bio-economy case of Finland and Sweden) may in the short-term lead to a reduced sink. Even though these countries will likely continue to have a net sink, they will be debited for any shortfall. Finally, the difficulty in projecting future demand for bioenergy resources over longer periods of time is only likely to exacerbate these tensions.
We thus find there is every reason to propose better ways to encourage future forest investments and promote climate-friendly uses and the ecosystem services of forests and forest-based resources. Imposing limits on the potential use of forest resources—in particular, where these can negatively impact cost-efficient climate change mitigation strategies—does not represent a wise use of existing resources.
Therefore, we propose the following four policy revisions:
A. Eliminating caps and the current reference levels.
Our alternative policy approach is based on incentivizing ambition, in particular through elimination of the limits on access to carbon credits. Removing limits, in particular, on the cap, can provide an immediate financial incentive framework as well as the appropriate resources for stimulating additional forest-related CSF efforts. This can provide opportunities for Member States to develop strategies that build upon other efforts e.g., the EU’s Biodiversity Strategy [40
], and provide the potential availability of additional resources for the Bio-economy Strategy [41
]. In contrast to the Impact Assessment (IA) of the LULUCF regulation [5
] carried out by the Commission, we especially look for alternative policy incentives outside the current scope of the regulation. The IA only looked for small alternatives within the scope of the Regulation.
A core of our approach is to set higher ambitions for the LULUCF sector: Member State forest and forest resource-based climate mitigation targets can be determined through a joint effort by the European Commission and the Member States, based on principles of fairness, the state and size of forest resources, current forest sinks, Gross Domestic Product, as well as cost-efficiency. Moreover, these targets can and should be set to further raise ambition and strengthen CO2 mitigation. However, the placement of these targets in the forestry sector through the creation of a forest “Pillar” immediately gives rise to concerns about the future use of the forest resource and encourages lobbying focused around the setting of the FMRL. If these targets are instead added on top of the economy-wide emission reduction commitment and the FMRL is removed, these targets will no longer directly impinge upon actions within the forest sector. Doing this would thereby facilitate the decoupling of forest emission reduction targets from future potential forest resource uses (e.g., wood raw material flows), the confounding of which has been a cause for great concern.
Removing the FMRL would thus make it possible to eliminate the cap and thereby free up the right to claim carbon credits for additional carbon sequestration in standing forests. With this achieved, Member States would then be able to more freely incentivize climate-friendly forest actions. When forest sector targets are set together with this type of enabling framework for promoting investments in forest management, this will make it possible to further incentivize forest growth. The long-standing debate over “whether to store more carbon, or use the forests”, misdirects attention away from the real challenge, which is how to stimulate additional forest growth, such that it becomes possible to both maintain and increase harvest, while at the same time maintaining the sink. Such an approach is entirely in line with the IPCC 4AR (2007) which concluded “In the long term, a sustainable forest management strategy aimed at maintaining or increasing forest carbon stocks, while producing an annual sustained yield of timber, fibre or energy from the forest, will generate the largest sustained mitigation benefit”.
The potential climate-friendly use of forest resources would thus be unrestricted (Member States could thus choose more effectively between the most appropriate climate-friendly actions, as well as being free to fulfill their emission reduction commitments by other means). Motivated either by the ability to claim credits or receive additional financing, forest owners would be more strongly encouraged to pursue additional climate-friendly forest management efforts. This in turn would create powerful motivation for providing additional forest growth without necessarily impinging upon the potential use of the existing forest resources.
B. Investments, economic incentives, and carbon price.
Member States currently dedicate very few resources to forestry. On average, they spend some 26€ per ha per year [26
], mostly on State Forest Services and for supporting private owners with management plans and tree regeneration. However, the EU currently has a number of programs that could potentially provide additional financial resources for EU forests and the forestry sector. These include: the Emissions Trading Scheme (ETS), the Rural Development Program (RDP), the Common Agricultural Policy (CAP), and for knowledge generation the Framework Program for Research and Innovation (Horizon 2020). Further, Member States (e.g., Austria, France, Finland, Germany, Italy, Netherlands, Spain and Sweden) also have national programs for their forests that can provide additional support.
Under the current trend of reducing state budgets, Member States may find it difficult to financially support additional forest measures. The above-mentioned programs suggest, however, that funds are available at the EU level. EU funding strategies and mechanisms have previously and primarily been directed at renewable energy strategies and the development of new renewable technologies. Thus, funding for climate-friendly, forest resource-based activities has been far more limited. With relatively modest changes to existing EU programs, however, it is possible to introduce a CSF-based strategy to provide support to Member States and/or forest owners, and to encourage additional forest-based carbon sequestration efforts. Because a CSF strategy will mobilize both Member States and forest owners, it may prove more effective at promoting flexibility, resilience and additional forest revenues than the current European Forest Strategy proposed by the Commission. This would require, however, the Commission and the Member States to undertake efforts to weave forests and forest-based CSF measures more firmly into the current mitigation (and adaptation) framework, which is possible under the current Article 10 of Decision no 529/2013. Under Article 10, Member States must submit information on their most relevant current and future LULUCF actions in land use activities such as afforestation, forest management, cropland and grassland management, and wetlands management. CSF can be an overarching measure reported under Article 10.
Additional revenues for motivating forest mitigation efforts and providing an improved support framework for private sector investment could also be funded through the EU emissions trading system (ETS). In its updated EU ETS Directive, the European Commission is proposing to increase revenues for climate mitigation for the next ETS commitment period (2021–2030). Growing numbers of countries are implementing carbon taxes (e.g., Denmark, Finland, France, Great Britain, Ireland, Netherlands, Portugal and Sweden), and the revenues from these taxes could also be partly redirected to climate-friendly, CSF-based forest sector investments. The new activities funded by this would also help generate more public revenue and could help encourage urgently needed joint ventures between Member States and bottom-up private interests in undertaking additional mitigation efforts [42
]. Income thus generated—if spent on forest climate measures—would represent an important motivation for the 16 million private forest owners, industry, and public forest owners in the EU to implement CSF.
As the EU regionally encompasses a large variety of forest types and forest-sector characteristics, a forest related target should allow adequate flexibility across the full range of mitigation options. Member States are capable of deciding how best to meet their national and LULUCF sector targets, and establishing best strategies and measures for meeting these overall commitments—in conjunction with forest and forest sector bio-economy and biodiversity goals.
The EU and the Member States can set a facilitating framework by providing the appropriate setting for encouraging additional forest growth through EU Bioeconomy, Biodiversity and CSF goals. Removing limits on the right to claim carbon credits could likewise further provide the impetus Member States need to provide latitude for promoting national level incentive strategies. Flexibility can be further increased by raising the degree of fungible exchange across climate change mitigation sectors in the EU climate policy framework (in particular across LULUCF, the Effort Sharing Regulation and possibly also the EU ETS), thereby enhancing mitigation in activities where the marginal costs of mitigation are lowest. Flexibility should not compromise the transparency and effectiveness of climate policy. However, neither should we forego the opportunity for a more rapid, efficient and cost-effective mitigation strategy, especially when it can help raise ambition and ease progress toward the climate goal.
D. Actors and synergies.
Forest policy is drawn-up and implemented at the Member States level and ideally builds an effective link between national level goals and the interests of actors at other levels. This is the level that can best take account of local circumstances. Forest owners, the forest industry and NGOs are the actors that can implement actions to achieve productive and resilient forest ecosystems and fulfill biodiversity objectives (see Table 2
). They must also achieve an economically viable forest value chain that provides forest products, income, energy and jobs. The regularly managed forests and forest sectors in Europe provide a good basis for achieving these goals. If the major regional actors do not support the policy, it will bear the burden of not succeeding in practice.