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GTAP Resource #1316

"Credited Forest Carbon Sinks: How The Cost Reduction Is Allocated Among Countries and Sector"
by Pohjola, Johanna, Leena Kerkela and Raisa Mäkipää

In the Kyoto Protocol carbon sinks became a tool for releasing the economic burden of achieving the emission target. It was agreed in COP6b in Bonn, 2001, that only part of the sinks resulting from forest management are allowed to be credited. In order to get Japan and Canada to ratify the Protocol, they were given larger, country-specific sinks.

Economic effects of implementing Kyoto Protocol have been estimated in numerous studies. However, carbon sinks have usually been excluded in the analysis. In this study we analyse (i) which countries benefit from carbon sinks, (ii) how benefits are distributed within the economy, (iii) whether carbon sinks reduce the the difference in economic burden of achieving the Kyoto target among countries and sectors and (iv) the economic importance of the larger sinks allowed for Japan and Canada, both for themselves and for other countries. Policy scenarios examined differ from each other also in respect of whether emission target is set to USA.

Economywide, sectoral and world market effects are evaluated with standard GTAP-E-model (version 4). The assigned amounts of emissions are adjusted with carbon sinks estimated outside the model. The amounts of carbon sinks from afforestation, reforestation and deforestation are based on countries' own estimations reported to UNFCCC and the amounts of carbon sinks from forest management are based on maximum amounts determined in negotiations. Other sinks are excluded.

The results of the study indicate that the gains from carbon sinks are not distributed evenly among countries. Within countries, New Zealand gains most from the credited carbon sinks, as it does not have to reduce emissions at all. Also in Sweden, EFTA, Canada and Japan the carbon tax is considerably lower and welfare loss smaller if credits from forest carbon sinks are allowed. In other countries, the forest carbon sinks have only a slight influence on the carbon tax or welfare, since sinks are relatively small compared with the reduction in emissions.

Of those countries that gain the most from sinks, Canada and EFTA have originally high costs while New Zealand, Sweden and Japan have low costs. Thus carbon sinks only partly reduce the difference in economic burden of achieving the Kyoto target among countries. Those countries that had bargaining power in the negotiations manage to obtain important gains from sinks. The country-specific, larger sinks allowed for Canada and Japan provide considerable benefit for these countries, while carbon sinks calculated according to common rules would have only a minor effect on their costs for implementing the Kyoto Protocol. The higher carbon sinks allowed for Canada and Japan do not, however, influence other countries either economywide or on the sectoral level since the trade-induced effects are small.

With respect to cost differences between sectors, sinks equalise the costs to some extent, as the inclusion of sinks dampens the adjustment in the industry structure by lowering the reduction in emissions. Sectors producing fossil fuels or fossil-fuel-intensive goods, like iron and steel or chemicals, benefit from inclusion of sinks while the other sectors that are labor or capital intensive, like machinery, might suffer.

The withdrawal of USA benefits Canada moderately. Although the competitiveness of fossil fuel intensive goods weakens in Canada, it benefits from the higher purchasing power in USA. Thus, allowing larger sinks for Canada cannot be justified with US withdrawal. However, the economywide costs from Kyoto Protocol would be among the highest in Canada, even with larger sink. Japan's larger sink cannot be justified either with US withdrawal or originally higher burden. It has to however keep in mind that reduction costs are very dependent on the emission projections used for year 2010.

Resource Details (Export Citation) GTAP Keywords
Category: GTAP Application
2003 Conference Paper
Status: Published
By/In: Presented at the 6th Annual Conference on Global Economic Analysis, The Hague, The Netherlands
Date: 2003
Created: Bacou, M. (5/19/2003)
Updated: Bacou, M. (9/22/2003)
Visits: 2,922
- Climate change policy

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Special Instructions
This paper was selected for publication in Climate Policy. In order to avoid any trouble with the Journal, we will not publish a full-text version here. The authors will distribute paper copies.

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