How sinks in wood products affect the cost of Climate Convention and world trade of forest products: results from a global economywide model

Forest carbon sinks were included in the Kyoto Protocol as a mechanism to mitigate climate change. The size of the carbon sink in forests and forest products for different countries vary considerably depending on the definition and accounting methods. Thus the given definition or accounting approach might be beneficial for some countries but costly to some others. Also the effects on world trade might differ. Thus the implications of various accounting approaches and appropriate economic instruments on world trade and the costs of Climate Convention should be analyzed with economic models. The first attempts to evaluate the implications of including sinks in forest and forest products into Climate Convention are taken in this paper by analyzing various accounting approaches. Economywide and sectoral effects for various countries/regions, and world market effects are estimated by using a recursively dynamic CGE model. Even though sinks in forests and forest products could not be credited, the wood products industry would be affected since payment on emissions from fossil fuels improves the competitiveness of wood products. The atmospheric-flow approach has been argued to have severe effects on world trade of wood products, since the carbon released would be accounted for importing country. However, according to the model results, the negative effects could be (partly) avoided with appropriate setting of taxes and subsidies. The choice of accounting approach affect considerably the costs of Climate Convention for forest product exporting country, like Finland.