Climate commitments create new challenges.

On February 16th, the Kyoto Protocol came into force. As a result, all of the nations of the developed world--except the United States, Australia, Liechtenstein, and Monaco--now have binding targets on greenhouse gas emissions. The implications for the forest products industry are still unfolding, but it is already clear that the impacts will vary from one country to another. The differences reflect the varying stringency of national targets, the assortment of approaches being used to meet national targets, and the allocation of emissions (mostly carbon dioxide) under each national program.

The pre-2004 members of the European Union (the EU-15) have developed a "burden sharing agreement" that allocates the reductions needed to lower emissions to the EU-15 Kyoto Protocol target--8% below 1990 emission levels. Countries plan to meet their burden sharing reduction targets with a combination of public policies, emission limits, emission trading within the expanded EU (the EU-25) and credits purchased from other parts of the world. From 2005 to 2007, the EU countries are working within a self-imposed "trial period" during which countries are to show progress toward meeting the targets that will apply in the Kyoto Protocol's "first commitment period" which runs from 2008 through 2012.

The conventional wisdom is that, in most cases, European industry has negotiated allowances for the 2005 to 2007 period that can be met without incurring significant direct compliance costs. While European forest products companies are hopeful that the short-term direct impacts will be tolerable, they have significant concerns about a number of potentially damaging indirect effects.

One of these is the impact of climate change policy on costs for purchased power. Power producers face only local or regional competition, so they can pass higher compliance costs through to their customers while globally competitive industries, like the forest products industry, cannot. Also of concern is the potential impact on fiber prices of government subsidies on biomass-derived power. In a globally competitive, energy-intensive and wood fiber-based industry, these issues translate into significant worries about international competitiveness.

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Beginning in 2008, the situation could change dramatically. The European Commission has indicated that "the EU-15 may reach its ... target only if the projected failure of [Denmark, Italy, Portugal, Spain and perhaps Germany] to respect their targets is compensated by others making bigger emission cuts than required." Without this "over-delivery," it appears that the EU-15 will fall short of its target.

There is a sense that many of the national action plans are relying too heavily on reductions from sectors of the economy that were not included in the 2005 to 2007 allocations plans. The allocation plans were limited to those industries, including the pulp and paper industry, covered by the EU's Integrated Pollution Prevention and Control directive. As a result, the allocation plans missed several large industries (the chemical and aluminum industries, for instance) and ignored important non-industrial sectors of the economy, including the notoriously difficult-to-control transportation sector. All of this could mean that, starting in 2008, national governments may be seeking reductions from EU industry that are much deeper than those now called for.

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On the other side of the world, the Japanese industry is working within a very different framework. Japanese industry has been working with the national government to voluntarily reduce greenhouse gas emissions and take other measures to assist in meeting Japan's Kyoto Protocol commitment. The Japan Paper Association has targeted a 13% reduction in energy intensity and a 10% reduction in C[O.sub.2] emissions intensity by 2010, compared to 1990 levels--this in a country where the paper industry is already among the most energy efficient in the world. The industry's voluntary program also seeks to increase the use of combined heat and power, and biomass fuels.

Recognizing the need to secure future fiber supplies as well as the value of carbon sequestration, the Japanese paper industry has established a goal of expanding plantation area owned or managed to 600,000 hectares (approximately 1.5 million acres) by 2010. As an element of the industry's commitment to "reducing waste, saving energy, and preserving forest resources," the industry's voluntary program also includes a goal of achieving a recovered paper utilization rate of 60%.

In spite of the industry's efforts, a recent report by Japan's Ministry of Economy, Trade and Industry  has raised concerns about the ability of a number of industries to meet their voluntary commitments. This may increase the Japanese government's interest in a proposal to increase taxes on fossil fuels; a proposal that has caused considerable concern in Japanese industry and has been sharply criticized by the Japan Paper Association. As of 2002, Japan's greenhouse gas emissions were 12% over 1990 levels, suggesting that the nation faces a significant challenge in meeting its goal of reducing emissions to 6% below 1990 emission levels in the 2008 to 2012 time frame.

Closer to home, the Forest Products Association of Canada (FPAC) has negotiated a Memorandum of Understanding (MOU) with the Canadian government committing the Canadian forest products sector to a 15% reduction in greenhouse gas intensity (defined as emissions per unit of production) compared to the sector's forecast business-as-usual performance in 2010. The MOU was negotiated against a backdrop of significant recent achievement by Canada's forest sector--emission levels 22% below 1990 levels in spite of production increases of 21%. The agreement highlights opportunities for reducing emissions, increasing use of biomass and combined heat and power, increasing research and development in carbon-reducing technologies, and developing a "policy framework to recognize the benefits of investments in long-term forest management ...."

The industry is engaged in consultations with the Canadian government to resolve the details of policies and activities that will comprise the industry's program. It is expected that company-or facility-level emission limits will eventually be established and an emissions trading system will be developed, but these elements of Canada's strategy are still taking shape.

Already in place, however, is a "green certificate" program--the result of a partnership between FPAC and TerraChoice Environmental Marketing. The program facilitates the process of obtaining EcoLogo certification, under Environment Canada's Environmental Choice Program, for electricity generation by biomass-fired cogeneration. Sites certified under the program receive the "Electricity - Renewable Low Impact" designation--a label that may open opportunities in the "green power" market.

Canada will need all of the reductions it can get. In 2002, Canada emitted 731 million metric tons of C[O.sub.2], 20% more than emitted in 1990, but its Kyoto Protocol target is 6% below 1990 levels. Much of the increase in emissions can be traced to economic growth. Indeed, Canada's national greenhouse gas intensity, expressed as tons of emissions per unit of gross domestic product, has actually decreased by 15% since 1990. But because the Kyoto Protocol targets are absolute, Canada now faces the daunting challenge of reducing emissions by more than 25% from current levels by 2008 to 2012.

The impacts on the Canadian forest products industry will ultimately depend on how the Canadian government chooses to address this challenge. Helping to temper concerns in the forest products industry are the terms of the MOU and the government's pledge to cap C[O.sub.2] prices at 15 Canadian dollars per metric ton. At this point, the industry remains cautiously optimistic that a number of companies will be able to sell surplus credits--generated either by overachieving on their targets at pulp and paper mills or from emission reductions in other areas of their operations.

The U.S. Senate did not ratify the Kyoto Protocol, so the United States is not bound by a Kyoto Protocol target. Had the United States ratified the Protocol, it would have accepted a requirement to reduce emissions to a level 7% below 1990 emissions, and the U.S. forest products industry would likely be facing similar challenges to those being faced by the industry elsewhere in the world. U.S. national emissions, at almost 6,900 million metric tons of C[O.sub.2], are 13% above 1990 emissions. As in Canada, much of this can be attributed to economic growth, and in fact, the greenhouse gas intensity of the U.S. economy has dropped by more than 20% since 1990.

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Although the U.S. is not a party to the Kyoto Protocol, a number of voluntary programs are in place in the United States in which the forest products industry participates. The American Forest & Paper Association (AF&PA) has joined the Bush Administration's Climate VISION program, a voluntary sector-based initiative. Under the Climate VISION Program, AF&PA members have collectively committed to a 12% reduction in emissions intensity by 2012 relative to a 2000 baseline.

The AF&PA commitment is perhaps the broadest of any made by the forest products industry globally. The commitment includes pulp and paper mills as well as wood products operations. It covers facility greenhouse gas emissions, sequestration of carbon in forests and forest products, and avoided methane emissions from municipal solid waste landfills attributable to increased recovery of used paper. The commitment also highlights the benefits that would accompany the deployment of several technologies being developed under the AF&PA Agenda 2020 research program.

While U.S. national-level activities remain voluntary, several state- and regional-level programs are being developed that could ultimately result in limits on greenhouse gas emissions from forest products industry facilities. Perhaps most visible is the Regional Greenhouse Gas Initiative, a cooperative effort by Northeastern and Mid-Atlantic states to reduce carbon dioxide emissions. As currently envisioned, the program will employ a multi-state cap-and-trade program and a market-based emissions trading system. The initial phase of the program, which was originally intended to be in place in 1995, will focus on electric power generators.

After the program for power plants is implemented, the states may consider expanding the program to other types of sources. A number of states in the Northeast and elsewhere already have programs that regulate greenhouse gas emissions from the electric power industry, and the U.S. Congress continues to debate national legislation that could impact forest products companies. At this point, however, the efforts being made by the U.S. forest products industry remain voluntary.

The international negotiations for the Kyoto Protocol's post-2012 "second commitment" period are scheduled to start later this year. The countries now operating under the Kyoto Protocol have made it clear that they would welcome participation by the United States and the large developing countries, especially China and India, who account for most of the projected growth in global greenhouse gas emissions. The U.S. and the countries of the developing world have made it equally clear that they are not interested in joining the Protocol in a second commitment period. How all of this will play out is anyone's guess.

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In the meantime, forest products companies, especially those operating in countries with Kyoto Protocol targets, will have their hands full as they attempt to shape and comply with national policies that will be necessary for countries to meet some very ambitious reduction targets for 2008 to 2012.

RELATED ARTICLE: IN THIS ARTICLE, YOU WILL LEARN:

* The implications of the Kyoto Protocol for the forest products industry, and why its impacts will vary.

* Why early compliance for much of EU industry may be relatively easy, but that beginning in 2008 the situation could change dramatically.

* Although the United States did not sign the treaty, state and regional emission limits may involve the industry.

ADDITIONAL RESOURCES:

* TAPPI Engineering, Pulping, and Environmental Conference, August 28-31, 2005. Go to www.tappi.org/05epe.

REID MINER, NCASI 

ABOUT THE AUTHOR

Reid Miner is vice president - sustainable manufacturing for NCASI, Research Triangle Park, North Carolina, USA. He is also a member of the Solutions! Editorial Board. Contact him by phone at [phone], fax: [phone], or e-mail: [e-mail].