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Carbon accounting approaches for harvested wood products Xie, Sheng Hao Nov 30, 2012

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  CARBON ACCOUNTING APPROACHES FOR HARVESTED WOOD PRODUCTS    Sheng Hao Xie  WOOD 493 A Report Submitted in Partial Fulfillment of the Requirements for the Degree of Bachelor of Science in Wood Products Processing In The Faculty of Forestry  November 30, 2012   ii  Abstract This paper explains the importance of harvested wood products? role in climate mitigation with life cycle analysis and carbon sink data collected by the U.S. and Finland. The delayed emissions of carbon in harvested wood products are the main reason why they can be treated as a carbon sink. In the U.S., HWP approximately offset total GHG emissions by 1.2% annually. In Finland, this number becomes 0.9%. The paper also presents the common carbon accounting approaches for harvested wood products at the moment. They are the IPCC default approach, the Stock Change Approach, the Atmospheric Flow Approach, the Production Approach, the Simple Decay Approach and the Stock Change Approach for HWP of Domestic Origin. On the statement of Durban Climate Conference, the Production Approach turns out to be the most favoured approach if a Party does not want to report their contribution of harvested wood products as zero. The final part of the paper discusses the incentives of each approaches in detail. The Stock Change Approach may not prevent nations from importing from unsustainable sources. The Atmospheric Flow Approach may stimulate exporting. The Production Approach ?cleans up its own mess? as it fully includes the carbon flux that it encourages into the reporting boundary and discourages all the carbon flux it cannot include. This may be one of the possible reasons why the Production Approach is favoured. Other possible solutions for fair carbon accounting like reporting using combined approaches and reporting imports only from certified sources are also discussed.  Keywords: harvested wood products, carbon accounting, climate change   iii  Table of Contents Abstract ......................................................................................................................................................... ii Table of Contents ......................................................................................................................................... iii List of Figures ................................................................................................................................................ v Acknowledgement ....................................................................................................................................... vi Glossary of Terms and Units ........................................................................................................................ vii 1 Introduction ........................................................................................................................................... 1 1.1 Background.................................................................................................................................... 1 1.2 The Significance of HWP ............................................................................................................... 2 1.2.1 Carbon Sink ........................................................................................................................... 2 1.2.2 Minimization of Carbon Emissions ........................................................................................ 5 1.3 Methods ........................................................................................................................................ 6 2 Approaches............................................................................................................................................ 7 2.1 The IPCC default approach ............................................................................................................ 9 2.2 The Stock Change Approach ........................................................................................................11 2.3 The Atmospheric Flow Approach ................................................................................................12 2.4 The Production Approach ...........................................................................................................14 2.5 The Simple Decay Approach ........................................................................................................15 2.6 The Stock Change Approach for HWP of Domestic Origin ..........................................................17 3 Incentives ............................................................................................................................................19 3.1 General Discussion ......................................................................................................................19 iv  3.2 The IPCC Default Approach .........................................................................................................20 3.3 The Stock Change Approach ........................................................................................................20 3.4 The Atmospheric Approach .........................................................................................................21 3.5 The Production Approach and the Simple Decay Approach .......................................................23 3.6 The Stock Change Approach for HWP of Domestic Origin ..........................................................26 4 Possible Future Solutions ....................................................................................................................27 4.1 Combined Approach Solution .....................................................................................................27 4.2 Certified Source Solution.............................................................................................................28 5 Conclusion ...........................................................................................................................................29 Work Cited ...................................................................................................................................................30    v  List of Figures Figure 1 Carbon Pools and Flows .................................................................................................................. 3 Figure 2 Carbon pools that need to be accounted for .................................................................................. 4 Figure 3 the IPCC Default Approach ............................................................................................................10 Figure 4 the Stock Change Approach (IPCC 2006) .......................................................................................11 Figure 5 the Atmospheric Flow Approach (IPCC 2006) ...............................................................................13 Figure 6 the Production Approach (IPCC 2006) ...........................................................................................14 Figure 7 the Simple Decay Approach ..........................................................................................................15 Figure 8 the Stock Change Approach for HWP of Domestic Origin .............................................................17 Figure 9 HWP trading between compelled and non-compelled countries - the Stock Change Approach .21 Figure 10 HWP trading between compelled and non-compelled countries - the Atmospheric Flow Approach .....................................................................................................................................................23 Figure 11 HWP trading between compelled and non-compelled countries - the Production Approach ...25   vi  Acknowledgement The author would like to thank Dr. Paul McFarlane for his time, patience, comments and guidance.   vii  Glossary of Terms and Units HWP Harvested wood products GHG Greenhouse gas CO2 Carbon dioxide Tg Teragram (1012 grams) Tg CO2 eq Teragrams of carbon dioxide equivalent SWDS Solid waste disposal sites SCA Stock Change Approach AFA Atmospheric Flow Approach PA Production Approach SDA Simple Decay Approach SCAD Stock Change Approach for HWP of Domestic Origin AFOLU Agriculture, Forestry and Other Land Use FAO The Food and Agriculture Organization of the United Nations IPCC The Intergovernmental Panel on Climate Change LULUCF The Land Use, Land-Use Change and Forestry UNFCCC The United Nations Framework Convention on Climate Change EPA The U.S. Environmental Protection Agency USDA United States Department of Agriculture WCI Western Climate Initiative  1  1 Introduction Harvested wood products (HWP) can act as a carbon reservoir, providing assistance to climate mitigation. In the U.S., HWP have approximately offset total GHG emissions by 1.2% since 2005, according to the data published by the U.S. Environmental Protection Agency (2012). In Finland, HWP have offset total GHG emissions by 0.9% since 1990, according to the data published by Statistics Finland (2012). This essay presents a literature review of the existing estimation approaches, including the incentives each approach may provide and possible future solutions. 1.1 Background Ever since 1997, the United Nations Framework Convention on Climate Change (UNFCCC) has recognized the important potential of HWP in sequestering carbon (Bowyer et al. 2010). When the Kyoto Protocol was first adopted in 1997, there was no need to account for the HWP because the IPCC adopted a default approach whereby all the carbon in wood was assumed to instantaneously become CO2 when the tree was harvested (UNFCCC 1998). It took over 14 years before Intergovernmental Panel on Climate Change (IPCC) finally includes HWP in Chapter 12 of its 2006 Guidelines for National Greenhouse Gas Inventories (McFarlane 2012; IPCC 2006). In the appendix of the guidelines, it provides four accounting approaches. Together with the IPCC default approach (IPCC 1997), currently there are five approaches from which countries can choose to report their HWP contribution. Although the IPCC serves as an internationally accepted authority to help the implementation of UNFCCC, with the end of the first commitment period of Kyoto Protocol, this intergovernmental agreement seems likely to collapse. Many countries such as Russia, Japan and New Zealand have not extended the Kyoto Protocol (Wynn 2012; The Globe and Mail 2012; Casey 2012). Canada stated its withdrawal at the end of 2011 (UNFCCC 2011b) and the United States never ratified this agreement. 2  However, even if Kyoto Protocol does not progress in the future, quantifying the carbon sequestration by forests and forest products will still continue. Climate change is a fact. Forests and HWP can act as sinks and are mitigation options. The continuing development of HWP science and accounting provides incentives to minimize the CO2 emissions and aids to decision making. Countries need the data for policy development, reporting and trading. For example, Western Climate Initiative (WCI) seeks to develop its own cap-and-trade program for many states or provinces in Canada and the U.S. to reduce the regional emissions (WCI 2010).  1.2 The Significance of HWP There are two major strategies to mitigate climate change: increasing the carbon sinks and minimizing carbon emissions. Expanding the use of HWP can contribute to both strategies.  1.2.1 Carbon Sink Through photosynthesis, forests can absorb carbon dioxide from the atmosphere. As the tree grows, this carbon removal process does not stop. As a result, forests act as carbon sink. Forest fires, deforestation result in a carbon release, but sustainable managed forests, such as Canadian boreal forest, are generally net carbon sinks (Natural Resources Canada 2007). Most of the carbon in a tree does not get emitted to atmosphere immediately after the tree is cut down. As the harvested wood goes through primary manufacture and secondary manufacture to final wood products such as furniture, flooring and construction material, much of the carbon remains in the product and some can last more than 100 years (McFarlane et al. 2012). This ?delay? of carbon release creates a pool or stock of HWP. In many countries, statistics have shown the HWP stock has been increasing with time (Bache-Andreassen 2009; Pingoud et al. 2003; Skog 2008).  3   Figure 1 Carbon Pools and Flows Figure 1 shows the major carbon pools and flows of forest and forest products. Each square in this diagram is a carbon stock. To reduce the carbon stock size in atmosphere, the sizes of other stocks need to be increased. Two stocks that are relatively easier to control are the living forest biomass and HWP stock. As many products or fuels can be displaced with forest products and biofuels, the potential for HWP growth is enormous.  Living forest biomass Standing dead wood Woody debris, litter and logging waste Soil organic carbon Harvested wood stock HWP Wood wastes for fuel Landfills Carbon in atmosphere Harvesting Manufacturing Photosynthesis Combustion or Decomposition Combustion Decomposition or combustion Decomposition or combustion Disposal 4   Figure 2 Carbon pools that need to be accounted for All changes in the carbon pools showed in Figure 2 need to be accounted for by countries in order to give an accurate stock change estimation (UNFCCC 2011a). In the U.S., the estimated carbon stocks of forest pool and HWP pool are 151,651 Tg CO2 eq (teragrams of carbon dioxide equivalents) and 8,679 Tg CO2 eq respectively in 2005 and both pools are still increasing (USDA 2008). Annual stock increases of 103 Tg CO2 eq for HWP and 595 Tg CO2 eq for forest in 2005 have been estimated by the U.S. Department of Agriculture (2008). The total greenhouse gases (GHG) emissions is 7,204 Tg CO2 eq in 2005 (EPA 2012). This means that HWP itself offset 1.4% of the total GHG emissions in 2005. This number changed to 1.5% in 2006 and 1.0% in 2010 (EPA 2012). Compared to other agricultural sinks in 2005, forests were far in the leading position which was 72%. HWP came the second, contributing 13%. Urban trees was 11% and agricultural soils were only 4% (USDA 2008). In Finland, the total GHG emissions amount was 78.20 Tg CO2 eq in 2007 and HWP?s stock change was 1.73 Tg CO2 eq which means an offset of 2.2% (Statistics Finland 2012). Also note that the stock change of forest pool in the same year was 32.47 Tg CO2 eq (Statistics Finland 2012). Both examples of the U.S. and Finland indicate that forests and harvested wood products may play a significant role in climate mitigation. 5  1.2.2 Minimization of Carbon Emissions Displacing non-wood products with wood products not only create a carbon neutral cycle but also help to reduce carbon emissions. Wood-based material is generally lighter than most alternative materials such as steel and concrete. The energy use in wood products processing is mainly for drying. Natural gas is the most common thermal energy source at present, which can be replaced by wood-based biofuels. ?Cradle-to-grave? analyses by many researches and a meta-analysis of 20 studies have proven that fossil fuel emissions from manufacturing wood products are much lower than that from those alternatives with equivalent behavior (Sathre & O?Connor 2008).  Studies have also shown that the production of HWP with short life-times in use, such as pulp and paper products, generally results in higher amounts of emissions and less sequestration than long-lived products, such as sawn wood (Pingoud & Lehtil? 2002; Miner 2010). Wood composites also require more fossil energy usage than solid wood products for its resin and wood fibre preparation (Sathre & O?Connor 2008). However, the CO2 emissions associated with composite wood products are still lower than non-wood products (Pingoud & Lehtil? 2002; Sathre & O?Connor 2008).  One FAO study showed that, in 2007, the net sequestration of CO2 by HWP was already able to compensate for 86 percent of all the greenhouse gas emissions associated with their manufacture (Miner 2010). In addition, the meta-analysis calculated out that on average, one unit of carbon in HWP substitution is expected to create two unit of carbon in greenhouse gas emission reduction (Sathre & O?Connor 2008). Consequently, an annual global emission reduction of between 400 million and 4400 million tonnes of CO2 (equivalent) resulted from wood biomass substitution has been estimated by the IPCC (Miner 2010). 6  1.3 Methods The terms ?Approach? and ?Method? were defined as follows in the Dakar meeting (McFarlane 2001): ?Approach is a conceptual framework for estimating emissions and removals of greenhouse gases in inventories. Within each approach, there may be more than one method. Method is the calculation framework within an approach for estimating emissions and removals of greenhouse gases in inventories.? Three methods are proposed by the IPCC (IPCC 2006). Tier 1 method is the basic one which uses the IPCC default values to calculate contribution. Tier 2 requires country-specific activity data. Tier 3 requires country-specific methods or detailed historical country-specific information on HWP carbon stocks and flows.  The IPCC intentionally sets a conservative default value to avoid overestimation. For example, in the Durban Decision, the default half-life of sawn wood is 35 years (UNFCCC 2011a), whereas a new study on the US single family homes provides a half-life estimation of 113 years (McFarlane et al. 2012). Due to this large data difference, the IPCC allows countries (Parties) to use country-specific data to replace the default half-lives, if they have verifiable and transparent activity data available (UNFCCC 2011a; IPCC 2006). This is the reason why some countries might prefer Tier 2 or Tier 3 method rather than Tier 1 as they may be able to calculate a higher level of carbon removal.   7  2 Approaches Six different approaches (1+4+1) are discussed in this section.  1- The IPCC default approach was first outlined in Revised 1996 IPCC Guidelines for National Greenhouse Gas Inventories (IPCC 1997).  4- The Stock Change Approach, the Atmospheric Flow Approach, the Production Approach and the Simple Decay Approach were added as appendices in Chapter 12 of 2006 IPCC Guidelines (IPCC 2006). The first three approaches are first described by Brown et al. (1998) and the last one is proposed by Ford-Robertson (2003). Countries can report removals/emissions using either. IPCC remains neutral on all approaches in their 2006 Guidelines. However in the recent Durban HWP Decision, UNFCCC states (UNFCCC 2011a):  ?Emissions from harvested wood products removed from forests which are accounted for by a Party under Article 3, paragraphs 3 and 4, shall be accounted for by that Party only. Imported harvested wood products, irrespective of their origin, shall not be accounted by the importing Party?,  which is obviously in favour of the Production Approach. 1- The Stock Change Approach for HWP of Domestic Origin was first outlined by Cowie et al. (2006). The IPCC Guidelines (2006) provides method to estimate HWP contribution to the CO2 emission from Agriculture, Forestry and Other Land Use (AFOLU). HWP are quantified using gigagram (109 gram) of carbon per year (Gg C yr-1). To convert to gigagram of carbon dioxide per year (Gg CO2 yr-1), a fractional conversion constant ?4412?, based on the relative molecular mass of carbon dioxide and atomic mass of carbon. Because HWP usually plays a role as a carbon sink, the contribution equation generally has a negative sign at the right hand side. 8  For simplicity, the term at the left hand side of every approach is ?HWP Carbon Removal? in this essay, so that the negative sign and the conversion constant can both be omitted. Variables that may appear in the figures of this section are defined here (IPCC 2006):  ????? DC  = annual stock change of HWP that are for domestic consumption ????? ????  = annual stock change of HWP in use that are for domestic consumption ????? ??????  = annual stock change of HWP in solid waste disposal sites (SWDS) that are for domestic consumption ????? ?? = ????? ???? + ????? ??????   ????? ?? = annual stock change of HWP that are made by domestic harvested wood, including exported HWP ????? ????  = annual stock change of HWP in use that are made by domestic harvested wood, including exported HWP ????? ??????  = annual stock change of HWP in SWDS that are made by domestic harvested wood, including exported HWP ????? ?? = ????? ???H + ????? ?????H   H = carbon in annual harvest of wood to be used for HWP PEX = carbon transfer from HWP exports PIM = carbon transfer from HWP imports E = carbon release from HWP W = carbon transfer from HWP into SWDS 9  EW = carbon release from HWP in SWDS EDOM = carbon release from HWP that is domestically harvested and stays for domestic use, including those that are already in SWDS EIM = carbon release from imported HWP in use and in SWDS EEX DOM = carbon release from exported HWP that is domestically harvested, including those that are already in SWDS Net Ecosystem Exchange (NEE) = net ecosystem removal of carbon O = other cross-border carbon transfers Note that the above two variables exceed the HWP boundary and are reported in other sections of AFOLU. Also note that in the new Durban HWP Decision, landfills (SWDS) are treated differently to HWP in use as it recommends that they are accounted for using ?instantaneous oxidation? (UNFCCC 2011a). This section still considers them to be a stock that may be separately quantified. 2.1 The IPCC default approach Until 2006, the default approach was the sole accounting system for HWP. It adopts an over-simplified model that assumes the emission happens in the same year of harvest and the country of harvest, in other words, carbon is emitted instantaneously (UNFCCC 2011a; McFarlane 2012). 10   Figure 3 the IPCC Default Approach ??? ?????? ?????????????? = ? ? ? = 0 The advantages of the default approach are:  ? It saves time and energy, due to its simplicity and easy implementation ? It avoids overestimating the carbon sequestration ability of HWP. All the other proposed accounting approaches at this point involve some level of data uncertainty and are in favor of either the net exporters or the net importers. It is thus difficult to reach a consensus between countries during international negotiations on HWP methodology Under the default approach, the HWP stock will be constant. The approach tries to avoid data inaccuracy by neglecting facts such as HWP?s ability to sequester carbon (Pingoud 2008) and the increasing HWP use in many countries (Pingoud 2008; Bache-Andreassen 2009; Skog 2008). In short, HWP?s role isn?t that small enough to be ignored and can drive the results calculated from the default approach far away from reality. AFOLU Without HWP ATMOSPHERE NEE O H E System boundary HWP Boundary National boundary 11  2.2 The Stock Change Approach The Stock Change Approach estimates the annual change of the HWP stock within the consuming country?s border (IPCC 2006), regardless where wood is grown (Bache-Andreassen 2009; McFarlane 2012), so HWP imports are included whereas exports are not, as Figure 4 shows.  Figure 4 the Stock Change Approach (IPCC 2006) The system boundary of the Stock Change Approach (SCA) is the national boundary. All the flux arrows passing through the dashed line representing the boundary have impacts on the stock: an arrow entering is a ?plus? and leaving is a ?minus?. If only focusing on stocks within the HWP boundary, the SCA can be expressed as using Equation 1: From flux perspective,  ??? ?????? ?????????? = ? ? ??? + ??? ? ? ? ?? Equation 1    From stock change perspective, HWP boundary 12   ??? ?????? ??????????= ????? ???? + ????? ??????  Equation 2    So, Annual stock change of HWP in use from domestic consumption  ????? ???? = ? ? ??? + ??? ? ? ?? Equation 3    Annual stock change of HWP in SWDS from domestic consumption  ????? ?????? = ? ? ?? Equation 4    Except for the default approach, the Stock Change Approach has the simplest data requirements (Bache-Andreassen 2009) and thus the uncertainty risk is the lowest. It is not a brand new model. It has been used to estimate Forest Land and other sources as well (IPCC 1997; UNFCCC 1998). 2.3 The Atmospheric Flow Approach The Atmospheric Flow Approach (AFA) estimates the amount of carbon flux from (or to) HWP to (or from) the atmosphere, which occurs during the reporting year and is within the national boundaries (IPCC 2006). Like the Stock Change Approach, regardless of the country of origin of the wood, as long as the carbon emissions to the atmosphere occur within the border, the consuming country is responsible for the emission reporting. This means that the importing countries are responsible for the carbon release from the HWP that they import. 13   Figure 5 the Atmospheric Flow Approach (IPCC 2006) The system boundary lies between the national boundary and the atmosphere. As with other approaches, the flux arrows entering the system result as ?pluses? and leaving result as ?minuses?. The HWP atmospheric flow can be expressed as using Equation 5:  ??? ?????? ???????AFA = ? ? ? ? ?? Equation 5    Note that E + EW = EDOM + EIM. Comparing with the Stock Change Approach, one can get: ??? ?????? ???????AFA = ??? ?????? ?????????? ? ??? + ???   = ??? ?????? ?????????? + Net Export Equation 6    So from a stock change perspective, ??? ?????? ???????AFA = ????? ???? + ????? ?????? ? ??? + ???   = ????? ???? + ????? ?????? + Net Export Equation 7    Equation 7 shows that even if there?s no change in the HWP stock, countries can still report a large removal as long as they have large net export. This creates a major concern about this approach as it does not necessarily promote the use of HWP (Bache-Andreassen 2009). HWP boundary 14  The data requirements for the Atmospheric Approach are basically similar to the Stock Change Approach (Bache-Andreassen 2009). As can be seen from the equations, the numerical difference is the carbon transfer from the net HWP export. As Figure 5 and the formula from flux perspective shows, importers have to include the emissions of imported HWP (EIM) in their country reports. This provides very different incentives to exporting and importing countries, which will be discussed in Section 3.3. 2.4 The Production Approach The Production Approach (PA) estimates the annual stock change of HWP that are produced by domestically harvested wood or wood-based material, regardless of where they are consumed (IPCC 2006). The result includes exported HWP but excludes imports, thus the harvesting country can build up a stock beyond the national border (Bache-Andreassen 2009), as Figure 6 shows.  Figure 6 the Production Approach (IPCC 2006) HWP boundary 15  As with other approaches, flux arrows entering the system result as ?pluses? and those leaving result as ?minuses?. If only focusing on stock within the HWP boundary, the PA can be expressed as:  ??? ?????? ???????PA = ? ? ???? ? ??? ??? Equation 8    From a stock change perspective,  ??? ?????? ???????PA = ????? ???H + ????? ?????H  Equation 9    The variable EEX DOM can be very uncertain. This will be discussed in section 3.5. 2.5 The Simple Decay Approach The Simple Decay Approach (SDA) estimates the amount of carbon flux from (or to) HWP that are produced by domestically harvested wood to (or from) the atmosphere during the reporting year. IPCC (2006) did not publish a demonstration figure for this approach in the guidelines.   Figure 7 the Simple Decay Approach As Figure 7 shows, the system boundary is just like the one in the Atmospheric Flow Approach. The relationships between all four IPCC (2006) newly recommended approaches are, HWP boundary (IPCC) System boundary HWP boundary (Proposed) 16  ? estimation method (Bache-Andreassen 2009): o the Stock Change Approach and the Production Approach account for stocks of HWP o the Atmospheric Flow Approach and the Simple Decay Approach account for HWP fluxes ? responsibility allocation regarding international trading (IPCC 2006): o the Stock Change Approach and the Atmospheric Flow Approach include the emission/removal of imported HWP but exclude the activities of exported HWP o the Production Approach and the Simple Decay Approach include the emission/removal of exported HWP but exclude the activities of imported HWP Ford-Robertson (2003) proposed that the carbon in the annual roundwood harvest (H) would be accounted for in AFOLU land area removals and only the carbon released would be accounted for as an HWP contribution. However at present, the IPCC still requires H to be included in HWP section (IPCC 2006). The two HWP boundaries in Figure 7 are showing the difference between the simple decay approach suggested by Ford-Robertson (2003) and the IPCC approach. To keep it consistent with previous described approaches, the formula will be expressed based on IPCC?s HWP boundary:  ??? ?????? ???????SDA = ? ? ???? ? ??? ??? Equation 10    Note that PIM and EIM are not included and thus presented as dashed lines in Figure 7; PEX does not pass through the boundary. The formula for this approach is exactly the same as the Production Approach. The reason why SCA?s formula is not the same as AFA?s is because carbon is transfer from variable H to variable PEX, i.e. H includes PEX, whereas PIM is not included in H. 17  2.6 The Stock Change Approach for HWP of Domestic Origin The Stock Change Approach for HWP of Domestic Origin (SCAD) is a hybrid of the SCA and the PA (Cowie et al. 2006). It only estimates the stock change of HWP that are produced by domestically harvested wood-based material and consumed domestically. This approach was presented at the end of Cowie et al.?s (2006) article as a solution to prevent HWP from unsustainable sources being imported but also to maintain the stock change approach advantages, i.e. promote more use of HWP. This approach is not included in 2006 IPCC Guidelines thus no variable, formula or figures have been published. Using the format of previous approaches, the Stock Change Approach for HWP of Domestic Origin can be presented as Figure 8.  Figure 8 the Stock Change Approach for HWP of Domestic Origin Using the variables described previously, SCAD can be expressed as:  ??? ?????? ???????SDA = ? ? ???? ? ??? Equation 11    System boundary HWP boundary 18  The data requirements of SCAD are much simpler than the Production Approach but more complicated than the Stock Change Approach (Bache-Andreassen 2009) because the separation of EIM and EDOM from (E + EW) needs more work. Another advantage of this approach is that the coefficients and parameters for most variables are already available. For example, countries currently reporting using the Production Approach only need to exclude exports and those using the Stock Change Approach only need to exclude imports (Cowie et al. 2006).  Also note that if this approach was adopted, the summation of all the nations? results would not equal the global total.   19  3 Incentives The different approaches provide decision makers with different consequences depending upon which HWP accounting approach is adopted. In this section, the incentives to countries committed to the Kyoto Protocol are discussed first; then non-compelled countries are included finally the global trading as a whole is considered. Some possible impacts to Canada are also mentioned.  3.1 General Discussion In an HWP approach incentive discussion, three categories of incentives are usually considered to be important: ? incentives of using more HWP ? incentives of switching from fossil fuels to wood based biofuels, and  ? incentives of HWP trading As mentioned before, wood biomass residues generated during harvesting and manufacturing can be used as biofuels. Wood-based biofuels, as long as the production process is sustainable, are generally considered as carbon neutral as Figure 1 shows. After combustion, the regrowth of the forest can re-capture the carbon emitted to the atmosphere from burning the woody biomass or biofuel. Hence, switching to wood-based biofuels can avoid fossil fuel emissions. All six approaches considered in this essay promote an expanded use of domestically harvested wood products, including wood-based biofuels as a substitution for fossil fuels. Note that the Atmospheric Flow Approach provides incentives only to domestically produced biofuels, not imported biofuels. At the time this essay was written, not all countries were committed to the Kyoto Protocol. Canada?s withdrawal from the Kyoto Protocol is effective on December 15, 2012 (UNFCCC 2011b). After finishing the first commitment period, countries like Russia, Japan and New Zealand claim that they will not sign on for a second stage of the Kyoto Protocol climate treaty (The Globe and Mail 2012; Wynn 2012). The 20  different approaches for HWP accounting have different impacts on trading between compelled and non-compelled countries.  If all countries are not committed under a unified framework, then the lack of data in non-compelled countries may drive the global emission reduction as a whole off the trail as HWP trading between compelled and non-compelled countries will occur. From an economic point of view, countries should trade internationally with those that can maximize their economic benefits. 3.2 The IPCC Default Approach As the default approach only considers the stock change in forests, it does not account for the benefits of switching from fossil fuels to biofuels or from energy intensive materials to wood-based. Unfortunately, it also cannot restrain countries from importing HWP from illegal sources (Pingoud 2008). 3.3 The Stock Change Approach The Stock Change Approach encourages countries to raise domestic HWP stocks and import from non-compelled nations. If the compelled counties are considered as a whole, the trading between them is a ?zero-sum game? (Pingoud et al. 2003). There are no net impacts on the compelled countries system, as Figure 9 shows. Imports from non-compelled counties would be preferable, since this action brings in additional stock and the possible decrease of forest stock is in the non-compelled countries, which is not reported. Just like the IPCC Default Approach, the Stock Change Approach doesn?t provide adequate encouragement to import from a sustainable source. As Figure 9 indicates, the source of the import HWP is not within the reporting boundary. However, the forest resources in the non-compelled countries may not necessarily be unsustainable as this will largely be dependent on that country?s forest policy. Note that the Stock Change Approach, to some extent, also provides incentives for non-compelled exporters to improve the sustainability of their forest stock, because deforestation may provide a short-term economic benefit, but well-managed forest resources can offer a long term profit. 21   Figure 9 HWP trading between compelled and non-compelled countries - the Stock Change Approach Canada is a forest resource-rich country with a large export of HWP and it is often considered as a leader in sustainable forest management (CCFM 2012). Its annual wood products export is more than three times its imports (Statistics Canada 2012). As Canada becomes a non-compelled country, the adoption of the Stock Change Approach may stimulate Canada?s exports. 3.4 The Atmospheric Approach The Atmospheric Flow Approach is the only approach that provides no incentive to switch from fossil fuels to imported biofuels (Pingoud et al. 2003). In fact, the Atmospheric Flow Approach has no, or possibly even negative, incentives to all HWP importing. As it can be seen from Figure 5 and the formula, imported HWP do not pass the system boundaries so that it is neither a plus nor a minus to the total removal. Carbon emissions from the imported HWP, however, are counted in the importing country (also as consuming country). What?s worse is that biofuels emit more carbon to produce the same amount of energy as most fossil fuels do (Pingoud et al. 2003) because they usually do not burn as efficiently and ethanol, the most common biofuel in North America, has smaller energy density. Exporting countries, on the other hand, would benefit if this approach is adopted. Bache-Andreassen (2009) mentions this incentive in her Norwegian report and explains the use of the formula from a stock Compelled Countries Non-compelled Countries + Import   (- Export) Atmosphere System Boundary Country A  Country B + Import - Export - Export + Import Reporting Boundary 22  change perspective. Using the formula from a flux perspective can also explain the incentives to exporters. As Figure 5 shows, increasing export (PEX) will indirectly lead to an increase of harvest (H) but it will have very little impact on E, EW or PIM. According to the formula, if H increases and E & EW stay unchanged, on the left hand side, the HWP Carbon Removal will also increase.  Recall that HWP exporting means that the importing nations must account for emissions under the Atmospheric Flow Approach. One concern about this approach is that it does not necessarily encourage countries to promote the use of HWP because with no changes in the HWP stock, countries still can report removals if they have a net export (Bache-Andreassen 2009). Due to the above reasons, major HWP exporters may benefit if this approach is adopted. According to Pingoud?s estimation of the global trading of HWP (Pingoud et al. 2003) and some countries? research report (Bache-Andreassen 2009), annual import and export amounts are usually far higher than the stock change, which means that, using the Atmospheric Flow Approach, net exports may dominate the accounting result. In theory, under the Atmospheric Flow Approach, imports and exports between countries are not passing through the system boundary, as Figure 5 shows, and it should be a ?zero-sum game? (Pingoud et al. 2003). However, the emission amounts in non-compelled countries are neither reported nor limited by any policy, and as stated previously, one interesting feature of this approach to have importers pay the bill. As Figure 10 shows, EIM is not inside the reporting boundary. Note that EIM is the carbon release from imported HWP. As a result, more exports from compelled countries to non-compelled ones can be expected.   23   Figure 10 HWP trading between compelled and non-compelled countries - the Atmospheric Flow Approach Canada, as a country with a large HWP net export, would be able to report with substantial carbon removals if this approach were adopted. 3.5 The Production Approach and the Simple Decay Approach As mentioned in Section 2.5, the Simple Decay Approach is essentially the same as the Production Approach. Although there?s a considerable potential to increase the consumption of HWP, for some countries the actual use may only grow slowly or the domestic market may be saturated. The Production Approach allows countries to build an additional stock outside their boundaries (Bache-Andreassen 2009; Pingoud et al. 2003; Skog 2008; IPCC 2006; Cowie et al. 2006), by taking advantage of the overseas market. In order to get constant material supply and not to decrease forest stock removals, this Approach also encourages producing and exporting countries, to manage their forests sustainably. However, because those exported HWP are beyond the national boundaries, regulations and policies will not be applicable to them and exporting countries have almost no control over HWP consumption (Pingoud et al. 2003), e.g. whether exported HWP will be used as long life-time construction material or just burnt as fuel. Hence, the data collection process for Production approach can be much more Compelled Countries Non-compelled Countries - Export   (+ Import) Atmosphere System Boundary (-EIM) Country A  Country B + Import - Export - Export + Import Reporting Boundary 24  complicated and full of uncertainties (Bache-Andreassen 2009; Pingoud et al. 2003; Skog 2008; IPCC 2006; Cowie et al. 2006; Pingoud 2008). At present when using the Production Approach, researchers from different countries will often assume that exported HWP are consumed in the same way that they are domestically (Bache-Andreassen 2009; Skog 2008; Pingoud et al. 2003). In reality, this is often not the case. For example, say a sawmill imports logs to manufacture lumber. If the importing country has relatively less efficient manufacturing processes than sawmills in the exporting, they will produce less long lived structural products and create more sawdust and chips that are burnt for energy or remanufactured into short life-time HWP.  In addition, the Production Approach requires the HWP producing countries to be responsible for reporting the carbon emissions from their products (IPCC 2006), thus importing countries will unlikely be focusing on managing the use of those imported HWP (Pingoud et al. 2003) or its wastes (Brown et al. 1998), e.g. they won?t be properly recycled for energy or remanufactured to extend the service lifetime.  Loopholes of data accuracy in Production Approach could create a large error in carbon removal reporting of countries with large exports. It is also very difficult to require importing and exporting countries to work together and create accurate inventories of all HWP stocks. With that said, these loopholes, however, may stimulate a greater international trade in HWP because the carbon emission of exported HWP may be underestimated and by increasing their exports, an exporting country can increase its stock. On the other hand, importing countries don?t have to allocate extra resources to improve their emission management, although this is contrary to the original intention and should be avoided. 25   Figure 11 HWP trading between compelled and non-compelled countries - the Production Approach Assuming that the data accuracy problem of estimating exported HWP is solved, basic incentives will remain the same for exporting countries, but become zero for importing countries as can also be explained by the Production Approach formula that importing activities are not involved. In terms of the impact discussion of compelled and non-compelled situation, the Production Approach is one of the more superior among the six approaches. As a compelled country, there?s zero incentive from this approach to import from other countries, no matter it is compelled or non-compelled, because imports provide no stock increase but occupy part of the domestic HWP market share. It also offers incentives to export, as exports create additional removals beyond the national border, but the country is responsible for the emission reporting. In short, the Production Approach ?cleans up its own mess?. It fully includes the carbon flux that it encourages into the reporting boundary and discourages all the carbon flux it cannot include into the reporting boundary. McFarlane (2012) mentioned that if adequate data and parameters are available, the Production Approach might be the most favoured approach. In recent Durban HWP decision, UNFCCC?s statement also indicates the Production Approach is preferred (UNFCCC 2011a). Compelled Countries Non-compelled Countries - Export   (+ Import) Atmosphere System Boundary -EEX DOM Country A  Country B + Import - Export - Export + Import Reporting Boundary 26  3.6 The Stock Change Approach for HWP of Domestic Origin The SCAD does not include internationally traded HWP in the assessment. Consequently, this approach gives no incentive to importing or exporting nations. The only way to increase removal under the SCAD approach is to increase the domestic stock of HWP and this is the most desirable outcome. However, not all countries have abundant forest resources like Russia, the US or Canada that enables these counties to supply all the wood materials they need and export their surplus. The SCAD approach benefits countries with large forest resource (Cowie et al. 2006) and may handicap the development of open economy. In addition, the domestic HWP market may reach an equilibrium status at some point in the future, as long life-time HWP use, such as construction, is preferred. Then, the HWP stock will maintain a dynamic balanced state or under adverse economic circumstance, HWP could become a source of emissions.   27  4 Possible Future Solutions As discussed in section 3.5, the Production Approach is more superior in terms of the incentives it may provide. The Durban Climate Change Conference also in support of this approach (UNFCCC 2011a). Evidences are all pointing out that the Production Approach could be the most likely solution. In spite of that, there are some other possible solutions proposed by scientists. 4.1 Combined Approach Solution The availability of relevant national data is a bottle neck. No matter how sophisticated the approach is and how favorable the incentives it can provide, without estimation accuracy, the exercise of accounting for HWP is futile. The Stock Change Approach provides a model with the least data uncertainty and thus researchers (Cowie et al. 2006) are trying to perfect it, with the SCAD approach being one example. It is certain that countries should not take advantage of importing from unsustainable sources (Cowie et al. 2006). The use of exported HWP is also very hard to control. Therefore, the Stock Change Approach for HWP of Domestic Origin provides one of the best ways for UNFCCC to evaluate compelled countries? emission reduction process. In order to report using the SCAD, countries need to: ? Collect the data of variable H, E, EW, PEX; ? Separate EDOM and EIM from (E + EW). In this process, the amount of PIM should also be available. Therefore, import and export flux should be available already. Combining the SCAD and international trading flux to evaluate compelled countries can offer a more thorough picture (Cowie et al. 2006). In addition, after having an emission baseline of each compelled countries, it is possible for UNFCCC to set up an evaluation standard that include both SCAD results and trading factors into consideration. 28  4.2 Certified Source Solution The major concern of the Stock Change Approach is the wood origin. It is completely possible for UNFCCC to certify those sustainable wood sources, whether by UNFCCC itself or its authorized third parties, such as Forest Stewardship Council (FSC). Then, only the imports from certified source can be included in the SCA reporting results (Cowie et al. 2006).   29  5 Conclusion Forests and forest products are two important carbon sinks for climate change. In the U.S., forests and forest products on average offset 13.4% of the total GHG emissions. Among that, HWP itself is able to contribute 1.2%. Although it is a small number if compared to forests? contribution, the potential of HWP in the future may be noteworthy as wood can be used as a substitution for many other materials. None of the accounting approaches for HWP stock is perfect. The Production Approach is the most favoured approach among all the approaches provided by the 2006 IPCC guidelines. It encourages exports of HWP from compelled to non-compelled countries and also keeps the emissions from those exports reported. It discourages imports of HWP for compelled countries so that countries cannot take advantage if they import from unsustainable sources. The Durban Climate Change Conference note encourages the use of the Production Approach if a country does not want to report their HWP contribution as zero. The Production Approach is not the sole solution for HWP accounting. Combining the SCAD approach and international trading flux to report and reporting imports only from certified wood sources are also feasible solutions. Especially as more and more countries are thinking about dropping from the Kyoto Protocol, the IPCC guidelines are no longer the ?bible? for carbon accounting of HWP. Other institutions or countries themselves might want to develop their own agreements or standards and these two solutions may be worth discussing about on the table.   30  Work Cited Bache-Andreassen, L., 2009. Harvested wood products in the context of climate change - A comparison of different models and approaches for the Norwegian greenhouse gas inventory, Oslo-Kongsvinger: Statistics Norway. Available at: https://www.etde.org/etdeweb/details_open.jsp?osti_id=967560 [Accessed November 14, 2012]. Bowyer, J. et al., 2010. Recognition of Carbon Storage in Harvested Wood Products: A Post-Copenhagen Update, Minneapolis, USA. Brown, S., Lim, B. & Schlamadinger, B., 1998. Greenhouse Gas Inventories Evaluating Approaches for Estimating Net Emissions of Carbon Dioxide from Forest Harvesting and Wood Products, Dakar, Senegal. Available at: http://www.ipcc-nggip.iges.or.jp/public/mtdocs/dakar.html. Casey, M., 2012. Tensions emerge at UN climate talks as delegates debate extending Kyoto Protocol. News1130. Available at: http://www.news1130.com/news/world/article/425847--at-climate-conference-un-warns-that-thawing-permafrost-will-cause-increased-global-warming [Accessed November 28, 2012]. CCFM, 2012. Sustainable Forest Management in Canada. Canadian Council of Forest Ministers. Available at: http://www.sfmcanada.org/english/sfm.asp?tID=2 [Accessed November 11, 2012]. Cowie, A., Pingoud, K. & Schlamadinger, B., 2006. Stock changes or fluxes? Resolving terminological confusion in the debate on land-use change and forestry. Climate Policy, 6(2), pp.37?41. Available at: http://www.tandfonline.com/doi/abs/10.1080/14693062.2006.9685593 [Accessed November 17, 2012]. EPA, 2012. Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990 ? 2010, Washington, DC. Available at: http://www.epa.gov/climatechange/ghgemissions/usinventoryreport.html. Ford-Robertson, J., 2003. Implications of harvested wood products accounting: Analysis of issues raised by Parties to the UNFCCC and development of a simple decay approach, Wellington, New Zealand: Ministry of Agriculture and Forestry. Available at: http://maxa.maf.govt.nz/forestry/publications/harvested-wood-products-accounting/harvested-wood-products-accounting-technical-paper.pdf [Accessed November 17, 2012]. IPCC, 2006. Harvested Wood Products. In IPCC Guidelines for National Greenhouse Gas Inventories. pp. 1?33. IPCC, 1997. Revised 1996 IPCC Guidelines for National Greenhouse Gas Inventories, Available at: http://www.ipcc-nggip.iges.or.jp/public/gl/invs1.html [Accessed November 15, 2012]. McFarlane, P., 2001. Chairman?s Summary. In Harvested Wood Products Workshop 12-16 February 2001. Rotorua, New Zealand, p. 8. McFarlane, P. et al., 2012. Harvested Wood Products: Determination of Half Lives for Wood Products in Use, Available at: http://pics.uvic.ca/research-pages/carbon-management-bc-forests/estimating-carbon-storage-and-emissions-harvested-wood. 31  McFarlane, P., 2012. Proposal - Estimating Carbon Storage and Emissions from Harvested Wood Products from British Columbia. Miner, R., 2010. Impact of the global forest industry on atmospheric greenhouse gases, Rome, Italy: Food and Agriculture Organization of the United Nations. Available at: http://library.wur.nl/WebQuery/clc/1941440 [Accessed November 27, 2012]. Natural Resources Canada, 2007. Is Canada?s Forest a Carbon Sink or Source, Ottawa. Available at: http://cfs.nrcan.gc.ca/publications?id=27501. Pingoud, K., 2008. Different approaches of accounting for Harvested Wood Products. In Rome, pp. 1?28. Pingoud, K. et al., 2003. Greenhouse gas impacts of harvested wood products - Evaluation and development of methods. VTT RESEARCH NOTES 2189. Available at: http://www.vtt.fi/inf/pdf/tiedotteet/2003/T2189.pdf [Accessed November 14, 2012]. Pingoud, K. & Lehtil?, A., 2002. Fossil carbon emissions associated with carbon flows of wood products. Mitigation and Adaptation Strategies for Global Change, 7(1), pp.63?83. Available at: http://ezproxy.library.ubc.ca/login?url=http://search.proquest.com/docview/745969119?accountid=14656. Sathre, R. & O?Connor, J., 2008. A synthesis of research on wood products and greenhouse gas impacts, Vancouver, Canada: FPInnovations - Forintek Division. Available at: http://lnu.diva-portal.org/smash/record.jsf?pid=diva2:455221 [Accessed November 27, 2012]. Skog, K.E., 2008. Sequestration of carbon in harvested wood products for the United States. Forest Products Journal, 58(10475), pp.56?72. Available at: http://www.freepatentsonline.com/article/Forest-Products-Journal/181115599.html [Accessed November 14, 2012]. Statistics Canada, 2012. Canadian International Merchandise Trade Database (year to date). Statistics Canada. Available at: http://www5.statcan.gc.ca/cimt-cicm/section-section?lang=eng&dataTransformation=0&refYr=2012&refMonth=9&freq=12&countryId=999&usaState=0&provId=1&retrieve=null&save=null&trade=World Trade [Accessed November 10, 2012]. Statistics Finland, 2012. Preliminary data on greenhouse gas emissions in 2011, Helsinki. Available at: http://tilastokeskus.fi/til/khki/2010/khki_2010_2012-04-26_tie_001_en.html. The Globe and Mail, 2012. New Zealand, Australia at odds over ?Kyoto 2? climate treaty. The Globe and Mail. Available at: http://www.theglobeandmail.com/news/world/new-zealand-australia-at-odds-over-kyoto-2-climate-treaty/article5150304/ [Accessed November 27, 2012]. UNFCCC, 2011a. CMP. 7, Outcome of the Work of the Ad Hoc Working Group on Further Commitments for Annex I Parties under the Kyoto Protocol at its Sixteenth Session (advanced unedited version), Durban: FCCC/KP/AWG/2011/L. 3/Add. 1, 1 (Dec. 10, 2011). UNFCCC, 1998. Kyoto Protocol to the United Nations Framework Convention on Climate Change, Available at: http://unfccc.int/kyoto_protocol/items/2830.php [Accessed November 15, 2012]. 32  UNFCCC, 2011b. Status of Ratification of the Kyoto Protocol. United Nations Framework Convention on Climate Change. Available at: http://unfccc.int/kyoto_protocol/background/items/6603.php [Accessed November 17, 2012]. USDA, 2008. U.S. Agriculture and Forestry Greenhouse Gas Inventory: 1990-2005, Washington, D.C. Available at: http://www.usda.gov/oce/global_change/AFGGInventory1990_2005.htm. WCI, 2010. The WCI Cap & Trade Program. Western Climate Initiative. Available at: http://www.westernclimateinitiative.org/the-wci-cap-and-trade-program [Accessed November 28, 2012]. 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