1. Introduction
Forests can play a critical role in addressing climate change. Approximately 17.4% of the annual global carbon dioxide emissions are caused by deforestation and forest degradation, placing the potential contribution of forest loss to climate change above that of the transportation and industrial sectors. Thus it will be impossible to solve the climate change problem without addressing these emissions [
1]. As is well known, forests remove carbon from the atmosphere and release oxygen through photosynthesis, and they can sequester carbon both in their biomass and soils. Forests are the world’s most important terrestrial carbon “sink”, or storehouse of carbon [
2]. Therefore international organizations, nations, and scientists are looking for a way to more effectively mitigate climate change through forest growth and carbon sequestration.
The Copenhagen Conference (COP15) proposed establishing a Reducing Emissions from Deforestation and forest Degradation Plus (REDD+) mechanism [
3]. This contains a comprehensive set of measures related to forests, such as reducing deforestation and forest degradation, afforestation/reforestation, sustainable forest management, and forest conservation to reduce emissions. However, implementing REDD+ policies faces many challenges, including the potentially negative impacts of REDD+ funding [
4], breaking the low-carbon energy system (REDD is a cost effective method to mitigate climate change. If REDD credits are allowed to enter the carbon market, it will drastically reduce carbon prices, and possibly lower the incentive to develop energy and carbon saving technologies) [
5] and leakage [
6]. As a result, the REDD+ mechanism has not been supported by all parties to the United Nations Framework Convention on Climate Change (UNFCCC) and has not become an effective tool for mitigating global climate change.
Some researchers recently have begun addressing the issue of leakage. The IPCC Special Report on Land Use, Land Use Change and Forestry defines leakage as “the unanticipated decrease or increase in greenhouse gas (GHG) benefits outside of the project’s accounting boundary as a result of project activities” [
7]. Aukland
et al. [
8] describe two main categories or types of leakage: activity leakage (or “primary leakage”) and market leakage (or “secondary leakage”). Activity leakage refers to direct leakage effects caused by displacing baseline activities or agents from one area to the next. Market leakage occurs when the intervention changes market price signals and provides incentives for conducting new emission generation activities outside the intervention boundary.
Leakage within one country can be measured by establishing a national carbon monitoring system, while international leakage is much more complex to measure. This research is only focused on international market leakage. Market leakage is usually caused by a reduction in the supply of commercial products (e.g., timber), which leads to a shift in market equilibrium [
9]. That is, if a country implements a policy to decrease timber supply, then timber prices will rise, which will trigger increased supply (and potentially increased harvest levels) in other countries. A number of studies have addressed the issue of leakage arising from forest policies. Paltsev [
10] suggested that compared to leakage from chemical, iron, and steel, activities related to land use, land use change, and forestry displace negligible amounts of carbon across regional boundaries. Sun and Sohngen [
11] and Gan and McCarl [
12] examined leakage models that include emissions from land use change and forests. Sun and Sohngen’s model is better suited for the biophysical variability across regions by taking into account the diversity of C density in different parts of the world. For every ton of C saved from setting aside forestland, an estimated 0.47–0.52 t of C is released from forest conversion in other parts of the world. Gan and McCarl used a Computable General Equilibrium (CGE) model to estimate 42%–95% leakage occurring when a country/region reduced forest production. Meyfroidt and Lambin [
13] used Material Flow Analysis and estimated that 39% of the regrowth of Vietnam’s forests between 1987 and 2006 was enabled by an international shift in forest exploitation and imports.
Since the People’s Republic of China was founded in 1949, the government has launched several large-scale forestation and forest conservation initiatives. Its forest cover increased from 8.6% to 20.36%, resulting in an area of manmade forest of 61.69 million hectares, more than any other country [
14]. However, the 1998 logging ban in China resulted in a substantial displacement of forest exploitation to Russia and Southeast Asian countries with weak regulatory regimes [
15,
16]. Fearnside
et al. [
17] argued that China’s increasing import demand for timber caused an increase in the deforestation of the Brazilian Amazonia. Laurance [
18] reported that much of China’s imported timber is illegally harvested and influences the global environment.
This report examines international market leakage induced by China’s forest policies and linkages to market supply. A brief assessment of China’s forestry policy is presented, as are results of an analysis of leakage and displacement caused by China’s forest policies under four different simulation scenarios.
2. China’s Forest Policy
In 1998, the south of China suffered a rare flood, which resulted in significant losses for the government and people. The resulting analysis revealed that logging played a significant role, and as a consequence, China initiated a program to increase environmental awareness and attention to forests. China subsequently adopted a series of policies and initiated projects, such as the Natural Forest Conservation Program (NFCP), an initiative that has resulted in remarkable success in protecting forest resources and increasing forest coverage. In doing so, however, it ignored the potential market leakage. As previously noted, the main reason for market leakage is that the policy reduced market supply. Therefore, our analysis encompasses the period after 1998.
2.1. Logging Quota System
China implemented a logging quota management system in 1987. The basic principle is that the logging amount cannot exceed forest growth. Every year the State Forestry Administration audits the total quantity of logging, and reports to the State Council for approval, and then progressively allocates quotas to the provinces, municipalities, and counties. The State Council re-approves the annual logging quotas every five years. After 1998, faced with a worsening ecological environment, China banned natural forest logging in the upper reaches of the Yangtze River and in the middle and upper reaches of the Yellow River, and then reduced timber production in the Northeast of China and Inner Mongolia. The logging quota was greatly reduced (see
Table 1), leading to a shortage of domestic timber.
Table 1.
Annual logging quota (1991–2015).
Table 1.
Annual logging quota (1991–2015).
Period | Annual Logging Quota (million m3) |
---|
1991–1995 | 243.6 |
1996–2000 | 266.5 |
2001–2005 | 233.1 |
2006–2010 | 248.2 |
2010–2015 | 271.1 |
2.2. Six Key Forestry Programs
Beginning in 2000, China gradually implemented the Six Key Forestry Programs (SKFPs) [
19]. This includes the NFCP, the Sloping Land Conversion Program, the Desertification and Dust Storms Control Program in the vicinity of Beijing and Tianjin Municipalities, the Forest Shelterbelt Development Program in key environmentally fragile regions, the Wildlife Conservation and Nature Reserves Development Program, and the Fast-Growing and High-Yield Timber Plantations Program (FGHY). The former five programs’ main functions are natural forest conservation and ecological forest plantations. As an example of impact of NFCP, timber production in the conservation areas in 2009 totaled 14.84 million m
3, a decrease of 11.6% from 2008; and cumulatively tree planting totaled 2.66 million hectares [
14]. The FGHY program was officially launched in 2002 with the purpose of supplementing market supply. By 2009, it had created a total of 0.21 million hectares of fast growing timber [
14].
2.4. Adjustment of Timber Import Tariff
After implementing the logging ban and large forest protection programs, China’s natural forest timber supply dropped. To offset the reduction in domestic timber supply, China adjusted import tariffs on roundwood and sawn timber to zero and cancelled restrictions on timber imports and exports in 1999. The result was an era of sharply increasing timber imports. Forest products imports subsequently surged, with forest products import volume reaching nearly 90 million m
3 in 2011, almost eight times that of 1997, and making China the world’s leading importer of industrial round wood [
16].
5. Conclusions
International trade can promote the efficient allocation of resources. However, as the world jointly strives to mitigate climate change, international trade does not always play a proper role in all countries/regions forest preservation policies. In this paper, after a brief analysis of the impact of China’s forest policy on the domestic timber supply, we used the GTAP model to simulate the leakage caused by China’s forestry policy under four different scenarios. The leakage of the four scenarios averaged 84.3%, which indicates that the net carbon sinks resulting from implementing China’s forest policy are less than 16%. While China continues to increase its forest coverage through the Six Key Forestry Programs, the results of the policies are not satisfactory from a carbon sequestration perspective.
We cannot simply rely on reducing deforestation to achieve the effects of increasing carbon sinks, because it is likely to generate carbon leakage. This study revealed that increasing domestic timber production and reducing timber imports are two effective methods of reducing carbon leakage for China. The fast growing and high yielding Timber Base Construction Program launched in 2002 has begun to complement market supply. Through sustainable timber management and increasing afforestation areas, these plantations will complement China’s domestic timber market in the future. Furthermore, forest tenure reform is almost complete, which will allow farmers more autonomy in forest management decisions, thereby improving timber production. Both increased domestic timber supply policies are beneficial, because they not only ease the shortage of domestic wood, but also allow forest managers to realize a profit. Conversely, people would not prefer increased timber import tariffs. Raising tariffs will increase the cost of imported timber, thereby increasing processing costs for businesses and consumer cost. However, the reduction in imports means less demand for wood. Other countries and regions will reduce their timber production and achieve the goal of reducing carbon leakage. In addition, the first method of increased domestic timber supply also reduces the cost of domestic wood consumption to some extent. Therefore, a good emission-reduction policy should be a combination of a variety of different measures. The co-operation between countries and regions in forest protection will also play a role in reducing carbon leakage [
12]. The REDD+ mechanism, which uses forestry as a primary means to reducing emissions is widely recognized. Through establishing a global carbon monitoring system and strengthening international co-operation in the future, the amount of carbon leakage can be effectively controlled.
Because international leakage occurs across international borders and the difficulty in identifying the linkages, it is particularly hard to directly monitor and quantify market leakage. This research uses the GTAP model to estimate the magnitude of leakage. This approach possesses certain weaknesses; however, including the fact that the degree of leakage could be exaggerated as the level of aggregation with regards to commodities/sectors can be quite large if implicitly assuming perfect substitution. Further work is needed to identify and assess leakage monitoring and measuring methods in order to address the carbon accounting issue brought by REDD.