Economic impacts of setting reference levels for the forest carbon sinks in the EU on the European forest sector

Abstract

In order to meet the requirements of the Paris climate agreement, the EU plans to set new goals for forest carbon sinks. This may affect the future development potential in the wood using sectors in Europe and their contribution in the new circular bio-economy. We explore the potential consequences mainly on the forest sector in the region consisting of EU and Norway (EU + N), but also globally, that would arise if the countries in the EU + N constrained economic utilization of their forest resources. For the analysis, we use the global forest sector model EFI-GTM, which also incorporates the trade in wood and wood products. Due to the globally growing demand for forest products and available forest resources in the rest of the world (RoW) outside of the EU + N, the leakages of harvests, forest industry production and employment opportunities from EU + N to RoW would be considerable. Decreased wood harvests and forest industry production in the EU + N would raise the wood and forest industry product prices globally, and increase production and employment in the forest sector in RoW. Due to the harvest leakage, climate mitigation benefits of the policy in the form of forest carbon sinks in the EU + N would be considerably reduced. Also, there would be inter-sectoral carbon leakage, as part of the wood consumption would shift to more energy-demanding competing materials.