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Trees in the Greenhouse

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Trees in the Greenhouse ABOUT WRI TREES INTHEGREENHOUSE The World Resources Institute is an environmental think tank that goes beyond research to create practical ways to protect the Earth and improve people’s lives. Our mission is to move human society to live in ways that protect the Earth’s environment for current and future generations. Our programs meet global challenges by using knowledge to catalyze public and private action. • To reverse damage to ecosystems. We protect the capacity of ecosystems to sustain life and prosperity. • To expand participation in environmental decisions. We collaborate with part- Aulisi ners worldwide to increase people’s access to information and influence over • decisions about natural resources. Sauer • To avert dangerous climate change. We promote public and private action to • ensure a safe climate and a sound world economy. Wellington • To increase prosperity while improving the environment. We challenge the pri- vate sector to grow by improving environmental and community well-being. In all its policy research, and work with institutions, WRI tries to build bridges between ideas and actions, meshing the insights of scientifi c research, economic and institutional analyses, and practical experience with the need for open and participatory decision making. For more than a decade, WRI’s Markets & Enterprise Program has harnessed the power of business to create profi table solutions to environment and development challenges. By bringing together corporations, entrepreneurs, and investors, the Markets & Enterprise Program is accelerating change in business practice and improving people’s lives and the environment by helping business leaders and new markets thrive. WORLD RESOURCESINSTITUTE 10 G Street Washington, DC 20002 www.wri.org Andrew Aulisi TREES IN THE GREENHOUSE Amanda Sauer Fred Wellington Why Climate Change is Transforming with contributions from the Forest Products Business Ruth Nogueron Charles Iceland Foreword Summary of Major Climate Change Risks and Opportunities The world is entering an era when natural resource constraints, affect the forest products business. Yet questions over the FORESTS MILLS MARKETS AND PRODUCTS environmental policies, and shifting consumer values will create environmental and social impacts of bioenergy production are also unprecedented demands on the private sector. Recent spikes in the mounting. Whether or not forest resources can provide a sustainable Physical Impacts on Forests Energy Price Risk Carbon Markets prices of energy and food commodities illustrate the dynamic forces alternative to today’s fossil fuel-based energy sources remains highly Forest resources, both native and managed, are While the forest products industry may or may not International, national, and regional climate that are changing the world. In this new business context, the concept uncertain, creating major risks for businesses and investors. heavily dependent on climate conditions for pro- face regulations targeting its direct greenhouse change policies may create opportunities for com- of “creative destruction”—a process by which innovation builds ductivity. Evidence is mounting that forests will be gas emissions, carbon constraints could signifi- panies to participate in carbon markets. Although Furthermore, at a time when the world needs to shift to a low- long-term value even as it destroys the value of the status quo—may profoundly affected by climate change, with overall cantly raise the price of fuel and purchased elec- the current policies allowing credits for forest car- carbon economy, the carbon impact of sustainably-produced wood increases in productivity and great regional vari- tricity. Energy costs comprise a large proportion of bon management and CO sequestration projects extend beyond individual companies and apply to whole industries. 2 construction materials is far less than that of steel or cement. Wood ability resulting in part from increased disturbanc- paper and wood products manufacturers’ overall are limited, forest product companies may yet be One example is the forest products business. What was once a simple products store carbon through their useful life and often require little es caused by fires, pests, and diseases. In addi- production costs. As a result, reductions in mills’ able to participate in current voluntary programs or tion, the ability of nature to provide ecosystem use of energy and greenhouse gas emissions bene- future regulatory systems. Overall, the impact of business of turning trees into lumber and paper is now uniquely if any fossil fuel for their production. Using wood as a substitute for services (e.g., pollination, water purification, and fit both the environment and their profit line. carbon markets on the forest products sector is positioned—or exposed—to political and economic forces that are other materials saves, on average, two tons of carbon dioxide per flood management) is severely degraded in many likely to remain limited in the foreseeable future. Leading forest products manufacturers are already reshaping regulatory and market landscapes. Can this industry take a cubic meter of material. But will the world’s explosive demand for parts of the world, with implications for forests’ making commitments to reduce their greenhouse health. Changes in forest productivity due to cli- Bioenergy Markets new position as a sustainable producer of fi ber, energy, and materials construction products favor low-carbon options? gas emissions by improving the energy efficiency mate change and degraded ecosystem services will to meet the world’s growing needs? And can the industry be a supplier of their mills and replacing fossil fuels with bio- Developments in cellulosic ethanol, biomass-to- The forest products industry has a unique opportunity to provide therefore require new strategies for management mass power. These commitments are strategic liquids fuels, and wood biomass electricity tech- of ecosystem services—the valuable benefi ts provided by nature— and adaptation. In particular, climate change sustainable solutions to climate change, but clear, long-term climate investments by forest products manufacturers to nologies should create new markets for forest such as carbon storage? could create water supply concerns in regions policies are necessary to realize this opportunity. Nonetheless, reduce their consumption of fossil fuels, as future resources. If and how bioenergy markets affect for- where tree plantations are most productive. Global deforestation contributes approximately 18 percent of the the industry is fragmented and, in many cases, divided over what climate change policies are likely to indirectly or est companies will depend greatly on which alter- native fuels reach the marketplace, as well as the world’s greenhouse gas emissions, and forests have become a major represents appropriate climate policies. This report provides insights Access to Forestlands directly place a price on carbon. vertical integration of a firm. focus of international action to address climate change. Today, 34 into the complex array of issues related to climate change. It will help International climate policy is likely to create Raw Materials Price Risk Some facilities may be well positioned to become percent of the world’s forests are designated mainly for wood and fi ber companies, investors, and the sector as a whole to develop a more incentives for developing countries to reduce A large-scale bioenergy industry may pose chal- integrated forest biorefineries, producing traditional deforestation and protect native forests. If such production. Surprisingly, less than fi ve percent of the world’s forests proactive and informed position on climate change policies and what lenges to forest products manufacturers by forest products along with bioenergy fuels, electrici- mechanisms are effective, the demand for sus- are plantations, yet this fi ve percent provides 50 percent of all wood constitutes an effective business response. With the right regulatory increasing raw materials costs and thereby possi- ty, and chemicals. tainably harvested forest resources may increase bly reducing competitiveness with substitute mate- and fi ber supply. As demand grows and native forests are increasingly frameworks in place, both internationally and nationally, the forest to fulfill the growing need for wood and fiber in rials. The bioenergy demand for forest and manu- Product Competitiveness protected, the forest products industry stands to play a major role products industry could be a major solutions provider to climate these regions. If properly designed, these defores- facturing residues may also threaten energy in meeting the world’s wood and fi ber needs but in a very different change while seizing some of the greatest market opportunities of the tation programs may allow the industry to com- Many climate change policy approaches could pro- supplies for manufacturers dependent on biomass pete in regions where illegal logging has made vide incentives that directly or indirectly benefit operating environment. 21st century. power for production. Companies with dedicated sustainable practices uneconomic. Conversely, the industry’s low-carbon emitting products. A forest resources are best positioned to respond to companies operating in regulated forests could price for carbon emissions or “carbon-neutral” At a time when the prices of basic commodities are rising sharply, increases in raw materials prices. trees may also be an important source of bioenergy—ideally a source
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