RESEARCH AND ANALYSIS

Trade in energy and forestry, a perspective from the United Nations Economic Commission for Europe

Contribution from the United Nations Economic Commission for Europe

Virginia Cram Martos, Director, Trade and Timber Division, UNECE
Frederic Romig, Director Sustainable Energy Division, UNECE

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The UNECE thanks the WTO for having initiated this debate and is grateful for the opportunity to address the relationship between international trade and natural resources. The UNECE addresses the management of natural resources through a number of different programmes (e.g. through the UNECE Water Convention, through national environmental performance reviews, etc.). However, our comments will focus specifically on two areas, namely Energy and Forestry.

a) Sustainable energy

The UNECE Sustainable Energy division has, inter alia, developed a dialogue on energy security risks and their mitigation. Despite the lack of common accepted definition, “energy security” could be defined as “the availability of usable energy supplies, at the point of final consumption, at economic price levels and in sufficient quantities and timeliness so that, given due regard to encouraging energy efficiency, the economic and social development of a country is not materially constrained”.

Global energy security risks have increased sharply because of various factors, including steep rise in oil import demand, volatility of oil prices, the concentration of known hydrocarbon reserves in a limited number of the world’s sub regions and the rising cost of developing incremental sources of energy supplies.

Energy producing and consuming countries can mitigate these risks by promoting and protecting investment in the energy sector through the provision of appropriate legal frameworks, regulatory environments and tax incentives together with fair and transparent processes to foster public-private partnerships.

Additionally, government measures are needed to increase energy security that complement, flank and facilitate the functioning of markets. Energy security risks can be mitigated by a range of additional policy options aimed at furthering the diversification and flexibility of energy systems; increasing indigenous (domestic) energy supplies; improving energy conservation and efficiency; expanding the fuel mix available to consumers; diversifying energy sources of supply; building-up and maintaining strategic and commercial stocks where warranted; encouraging research and development in greening the fossil fuel energy supply chain; developing and commercializing new and renewable sources of energy; improving the protection and safety of energy infrastructure against possible acts of terrorism; and strengthening international cooperation.

Many elements of the UNECE Sustainable Energy programme of work are of direct or indirect relevance to these issues.

b) Forestry and wood markets

Sustainable management of forest resources is far from a new concept in forestry. For centuries, foresters have used their skill to balance competing demands on the forest, ensuring its ability to produce wood and deliver other forest products, without infringing on the resilience of ecosystems.

In recent years, climate change concerns and the perceived need for greener economies have refocused the attention on the search for a balance between economic aspirations and economic constraints. The critical role of forests as carbon sinks and as sources of renewable materials and energy has been clearly recognized. The significance of deforestation worldwide as one of the main contributors to green house gas emissions, exceeding the impact of all other sectors, including transport, is also well recognized.

In this context, the relationship between trade measures and forest management is of great importance. The regulatory framework impacting trade in timber and wood products is evolving rapidly and becoming more complex, in the UNECE region as well as in the rest of the world.

The workshop on “Emerging Trade Measures in Timber Markets”, organized by the UNECE and the Food and Agriculture Organization of the United Nations (FAO) jointly with the Economic Research and Statistics Division of the WTO, and held in Geneva on 23 March 2010 addressed issues such as tariffs, export taxes and subsidies, as well as non tariff measures designed to tackle illegal logging and prevent the spread of pests and diseases. Proceedings are available here. The workshop was followed by presentations and discussions on the prices of forest products and round wood during the 32nd Joint FAO/UNECE Working Party on Forest Economics and Statistics on 24 and 25 March.

Below are made a number of considerations pertinent to this debate. This list is not meant to be exhaustive.

  • There are many different types of forest, which provide a wide range of benefits beyond carbon storage, including biodiversity, the provision of ecosystem services such as the protection of water resources and prevention of soil erosion, as well as social and cultural functions… These functions remain largely underestimated. The valuation of these services remains an open question which is, for instance, at the heart of current REDD and REDD+ mechanisms. This issue should be taken into account when addressing the relationship between the conservation of natural resources and trade.
      

  • How the type of ownership, tenure and management, which can take various legal forms, favours or, on the contrary, hampers long term sustainable management and impacts the ability of industry to mobilize wood from sustainable sources are also questions of critical importance. In the UNECE region as a whole, forest ownership is still predominantly public, however, in Europe outside of Russia, about half of the forest is owned privately.
      

  • World trade in wood and paper products, including value-added products, has doubled over the last 10 years. China is the motor of the global timber trade, having become a major importer of round wood and the major exporter of value-added wood products, such as wooden furniture.
      

  • The wood market is currently evolving fast because of rising demand for wood energy, notably wood pellets. Growth in the use of wood in construction for green building could also fuel demand. This increasing demand for wood may trigger competition with other wood users such as the paper and paperboard industries and may significantly impact trade patterns.
      

  • As with other natural resources, timber markets are characterized by a significant level of volatility. As an example, according to the Wood Resource Quarterly, Wood Resources International LLC, 2009, the global softwood price global index (index 2000=100) rose from a low of 85 in 2001 to more than 140 in 2007, before declining to just under 110 in 2009 (see UNECE/FAO Forest Products Annual Market Review 2008/2009 page 51).
      

  • Forest is a renewable natural resource, which is harvested at a rate reflecting the demand for its various products. The sustainability of the forest stock therefore depends primarily on the size and intensity of harvesting. Human action can however impact on forest stocks in other ways. The forest area can be expanded through natural extension but also by actively establishing new plantations. The boundary between plantation and natural forest is less well identified than the one between aquaculture and natural fish stocks for example. Last but not least, there are many different ways to manage the forest, which also impact on the quantity and quality of forest stocks.
      

  • In this regard, various public and private measures with an impact on trade can be taken with a view to protect and promote good management of forest resources. Measures taken, or in the process of being taken, by some countries or group of countries, notably the United States and the European Union, to fight against illegal logging are of particular relevance here. Private sustainable forestry certification schemes like PEFC (Programme for the Endorsement of Forest certification) and FSC (Forest Stewardship Council) and their possible connection with public measures should also be taken into consideration.
      

  • Export taxes, put in place to achieve different objectives, such as protecting resources or encouraging local processing industries often act unequally between different forest industry sectors and between countries. Of particular significance in the UNECE region are the Russian export taxes. However, since these were implemented during the global economic crisis, it is difficult at this stage to measure accurately their economic effect.
      

  • The question of how subsidies could impact on markets seems to have attracted little interest up to now. There are many different ways to subsidize an industry, e.g. upstream subsidies, support to intermediate consumption or support to final consumption. The issue of subsidies measurement and the subsequent analysis of their market effects, taking into account externalities and possible market failures would require further study.

The joint UNECE/FAO Timber section will continue, within its mandate and work programme, to contribute to the monitoring of the evolution of trade measures and their impacts on markets, notably within its annual Forest Products Annual Market Review and on the occasion of its annual Timber committee meetings.

 

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