U.S./China Announcement on Climate Change Cooperation: Implications for the Forest Industry

By Eric Walberg and Jennifer Hushaw

President Obama and Chinese President Xi Jinping jointly announced a plan to cooperate on climate change and clean energy issues at the conclusion of their November 9th – 11th meeting in Beijing. The new U.S. target is to reduce greenhouse gas emissions by 25% below 2005 levels by 2025. The Chinese goal is to have CO2 emissions peak by 2030 and increase the non-fossil fuel component of the Chinese energy portfolio to 20% by 2030. Several elements of this cooperative effort have the potential to impact the global forest industry.

Biomass energy is likely to play a role in efforts to diversify energy portfolios in both countries. In the U.S. this diversification will be strongly linked to the Clean Power Plan (CPP) that was announced in June of 2014. The proposed CPP regulations are open to public comment through December 1, 2014 (http://www2.epa.gov/carbon-pollution-standards/how-comment-clean-power-plan-proposed-rule). Details on an accounting framework for biogenic CO2 are under development by the U.S. EPA and will play an important role in the utilization of biomass energy in state compliance with the CPP (http://www.epa.gov/ttnchie1/efpac/ghg/).  China has a growing biomass energy industry that will continue to expand in response to the newly announced targets. Thus far the majority of wood pellets consumed in China have been produced in China from domestic sources. This situation is projected to continue, so while the wood pellet market in China may expand it is likely that little of that market will be available to U.S. producers (http://www.fs.fed.us/pnw/pubs/pnw_gtr861.pdf).

The CPP may also lead to the development of new state-level and multi-state carbon markets. The evolution of these new markets will depend on the so called “outside the fence line” provisions of the CPP passing muster in any legal challenges to the new rule. The outside the fence line provisions allow states to meet greenhouse gas targets through a variety of approaches that extend beyond reducing the emissions from existing power generation facilities. Measures could include energy efficiency, energy portfolio diversification, and market-based solutions such as the establishment of new carbon trading programs. The structure and geographic extent of any new markets will be determined as states work though the compliance process.

Another highlight of the recently announced plan, that may have an indirect effect on forest industry, is the push for new fuel efficiency and emissions standards for medium and heavy-duty on-road vehicles, including the semi-trucks used to transport the vast majority of forest products from the woods to processing facilities.

The current emission standard for vehicles in this category only applies to model years 2014 – 2018 and it specifically addresses emissions of CO2, N2O, CH4 and HFCs. In February of this year, the President called for the EPA and the DOT’s National Highway Traffic Safety Administration (NHTSA) to begin developing the next phase of more stringent standards. While this does not affect off-road logging equipment such as skidders, feller bunchers, and forwarders, it will likely have an effect on the fuel efficiency of new log trucks purchased after 2018.

A Notice of Proposed Rulemaking (NPRM) will be issued by March 2015 and the new standards will be complete by March 2016. At this stage, it is unclear exactly what the emissions reduction targets will be in the new standards, but we will keep CSLN members apprised of any relevant developments on this front.