MEMO/12/176. Brussels, 12 March 2012

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1 MEMO/12/176 Brussels, 12 March 2012 Questions & Answers on accounting rules and action plans on greenhouse gas emissions and removals resulting from activities related to land use, land use change and forestry (LULUCF) 1) What is LULUCF? LULUCF stands for Land Use, Land Use Change and Forestry, and the abbreviation is commonly pronounced LU-LU-C-F. It refers principally to the exchange of greenhouse gases between the atmosphere and plants and soils, commonly known as emissions and removals. Removal is a result of the capacity of plants and soils to 'suck in' and retain greenhouses gases from the atmosphere. Emissions take place for instance when plants die and decay or when soils are disturbed so that their capacity to store is decreased. The term LULUCF is used in relation to the forestry and agricultural sector in the international climate negotiations under the United Nations Framework Convention on Climate Change (UNFCCC). LULUCF covers greenhouse gas emissions and removals related to soils, trees, plants in general, biomass and timber. This means in principle all human activities that take place on agricultural land, forested land, wetland and peat land and which result directly in emissions or removals of greenhouse gases, such as draining of peat land, felling of forest or ploughing up grassland for growing crops. 2) What is the LULUCF sector? LULUCF is a sector representing similar human activities - in this case relating to forestry and agriculture - that increase or reduce the amount of greenhouse gases in the atmosphere. Energy production and transportation are examples of other sectors covering activities of a similar nature in their respective domains. Plants and soils, however, are different from factories and cars in that they can not only release carbon dioxide (CO 2 ), but also remove and store it again. When plants grow, they absorb CO 2 (due to the process of photosynthesis) and some of this ends up in the soil beneath the plant. Growing plants therefore store CO 2, but it can easily be released again. When a plant dies, it starts to decay, and that process releases the previously stored CO 2 into the atmosphere again. In technical language, the release of previously stored CO 2 is termed non-permanence or reversal. 3) Why a legislative proposal from the Commission? In adopting the Kyoto Protocol in 1997, Parties recognised the importance for all sectors to contribute to combating climate change. However, scientific knowledge on measuring and monitoring greenhouse gas emissions in the LULUCF sector was insufficient at the time. The scientific progress made since then now allows for measuring and monitoring emissions and removals in this sector with increasing confidence. Therefore it is now time to lay down rules for accounting in the LULUCF sector.

2 The European Parliament and the Council have decided that all sectors should contribute to greenhouse gas emission reduction. They invited the Commission to assess the possibilities for inclusion of LULUCF into the EU's climate policy and if necessary put forward a legislative proposal (Article 9 of Decision 406/2009/EC). To be able to regulate greenhouse gas emissions, it is necessary to be able to measure and monitor them in all sectors. With the proposed LULUCF accounting rules, a significant gap in the EU's greenhouse gas inventory will be closed, opening the prospect of preserving and enhancing significant carbon pools in the future. This enhances the environmental integrity of EU climate policy. The Commission's legislative proposal is for a Decision of the European Parliament and of the Council which would put in place the rules for the EU, and therefore ensure a harmonized legal framework across Member States. 4) What benefit does this legislative proposal produce for the average European? In the long run this accounting framework will help us to be aware of future climate change impacts related to agriculture or forestry, adapt to it, provide cost effective mitigation options, support sustainable growth, enhance continued food production and protect biodiversity and nature in general. By helping to preserve and strengthen the capacity of our forests and soils to capture CO 2 in a sustainable manner, this proposal is of interest to all Europeans. 5) What benefits are there for the forestry-based industry? The Commission's proposal introduces for the first time accounting for harvested wood products. This will provide an enabling framework for more targeted policies at national and / or EU level because carbon can be stored for a very long time in harvested wood products (houses, bridges, furniture, paper products). An increased use of such products will be the same as increasing removals and can also replace the use of more greenhouse gas intensive substitutes (concrete, steel and glass, for example in houses, bridges and furniture). 6) What's in the Commission's proposal? The Proposal is in line with the outcome from the international negotiations in Durban. The major specific elements of the Durban LULUCF decision are the following: - Accounting for forest management becomes obligatory for all countries listed in Annex I 1 of the UN Framework Convention on Climate Change. - The reference level approach for calculating emissions resulting from forest management was confirmed. - Definitions of Natural Disturbances, Wetland Drainage and Rewetting (WDR), and Harvested Wood Products were agreed. These elements are also reflected in the Commission's proposal: - The same complete set of accounting activities are used including the newly established activity Wetland Drainage and Rewetting

3 - The same complete set of carbon pools is used, now including Harvested Wood Products that are important to forest based industries. - The same crediting rules apply for the activities, in particular: - reference level for standing forests; - gross-net for Afforestation, Reforestation and Deforestation, and; - net-net for all other activities 2. - Effect of significant natural disturbances on emissions from forest or agricultural soils can be excluded from accounting, but the carbon stored in trees recovered after a storm event cannot. - There is no cap that would allow exclusion of debits above a certain level, i.e. all debits must be accounted for, and no compensation rule that would allow emissions from deforestation to be compensated by removals in standing forests. Regarding the scope of accounting, the EU has gone further than what was agreed in Durban without compromising the principles and rules laid down internationally. In addition to accounting for the activities of Afforestation, Reforestation and Deforestation and Forest Management, the proposal would also make it mandatory for Member States to account for Cropland Management and Grazing-land Management. This means including the crucial carbon stock in agricultural soils, which improves the visibility of action taken by farmers and provides the basis for designing policy incentives to increase their mitigation action. Since it is not considered appropriate to require the sector immediately to comply annually with the emissions reduction targets that apply for other sectors, Member States are not allowed to count LULUCF towards their individual reduction commitment target, whereas this is allowed in the international framework. In a second step, consideration could be given to formally include the sector in the EU's climate commitment. The proposed EU rules will enter into force after completion of the adoption process in the European Parliament and Council. The international rules will enter into force as of the second commitment period under the Kyoto Protocol. 7) What is the impact of this proposal? The full mitigation potential can only be achieved once LULUCF is part of a target. However, to attain this, preparatory steps are needed. First and foremost, in order to be able to set a meaningful target, sufficient and reliable information is required. The prerequisite for reliable data is to have robust accounting and reporting in place for a number of years. In the meantime, the proposed LULUCF Action Plans (see below) can prepare Member States for developing appropriate incentive schemes. The fact that the proposal does not provide for incorporating LULUCF emissions in a target means that Member States cannot use LULUCF for compliance with the targets set under the EU Climate and Energy Package. 2 A reference level approach is crediting compared to a projected business as usual scenario; the gross net approach is crediting based on total changes in stocks and the net-net approach is crediting based on changes in levels of emissions/removals. 3

4 8) Why doesn't the EU just ban all logging or protect all forests by law? Forests and other elements of a modern countryside provide important services to our societies and yield many benefits of economic importance. By providing incentives for climate friendly behaviour instead of bans, we ensure the continued growth and productivity of our landscapes, while at the same time mitigating climate change. 9 What are the role and benefits of LULUCF Action Plans? Member States should set out measures to limit or reduce emissions and to maintain or increase removals from the LULUCF sector. They will, therefore, be obliged to prepare Action Plans that include specific information on such measures. The proposed Action Plans are needed for four reasons: - to ensure that Member States include LULUCF in their wider climate change mitigation strategies; - to raise the awareness and profile of such measures and their benefits; - to enable a follow-up of trends in emissions and removals of carbon in the sector; and - to complement and balance national renewable energy action plans as well as to develop adequate incentive structures, especially in the future Common Agricultural Policy. The Commission will periodically evaluate the content and implementation of Member States' Action Plans and provide recommendations, where appropriate. 10 Why is there no emission reduction target? Credible data and methodologies are a prerequisite to ensure a solid and appropriate framework for comprehensive and harmonised rules. A gradual approach is therefore needed. Once the rules for the accounting of emissions and removals have been put in place and the data gathered, the second step would be to formally include LULUCF in the EU's greenhouse gas reduction target. It is proposed to take this step when the Member States have implemented the accounting framework and it has proven to be robust. Since there is no target for LULUCF, the accounting is similar to drawing up a financial profit and loss account. The proposal contains rules for compiling figures on emissions and removals from the LULUCF sector in a standardised way. In the future, the 'balance' could then be compared once a target was set. 4

5 11) How is accounting different from reporting? Reporting is about providing data in a structured and transparent way that can be easily understood. The collected data will have to be compared across Member States and compiled for the whole of the EU. Accounting is about putting numbers together and calculating in a commonly agreed manner a final balance that provides indications of how the LULUCF activities in each Member State impact the level of greenhouse gases in the atmosphere. This Commission proposal on LULUCF is about accounting rules. The Commission has put forward a proposal to improve monitoring and reporting through a revision of the Monitoring Mechanism Decision 3 to address the reporting aspect. 12) Why are the different activities accounted for in different ways? Activities differ in nature and in the impacts produced by the changes caused by humans. For example, ploughing up of peat lands results in slow emissions over a very long time (50 years) whereas cutting down a boreal forest can cause emissions over two years if the wood is used for paper. 13 Is it really possible and necessary to measure all soils and trees in Europe? It is not a question of measuring every tree or every plot of land. Soils and trees have many similarities that allow Member States to make general surveys on a periodic basis covering whole forests and areas with similar soils. A lot of forest data is already collected by the timber industry or is reported for environmental monitoring for the purposes of nature or biodiversity protection. This data can also be used for the reporting under this proposal. 14) Should the lack of reliable data for some activities mean that accounting for those activities is voluntary? There is a need for consistency in accounting. Concerns for environmental integrity suggest that activities should be included even if less reliable, but with a view to improving the data quality as soon as possible. Moreover, the intention to move towards full accounting has been acknowledged under the Kyoto Protocol. 15) What is a natural disturbance? It is an event that could not have been prevented by man and which causes trees to fall, burn or die (for example from infection) or carbon from agricultural soils to be released (for example emissions from grassland following a severe drought). Consequently some or all of the stored carbon in the tree or soil is released into the atmosphere again. 3 Commission proposal for a Regulation of the European Parliament and of the Council on a mechanism for monitoring and reporting greenhouse gas emissions and for reporting other information at national and Union level relevant to climate change, (COM) final 2011/0372 (COD) 5

6 The accounting rules provide that any carbon that was stored in wood that could not be saved in the forest does not have to be accounted for even though the carbon entered the atmosphere. However, after storms, snow damage and some other natural disasters, countries usually harvest all wood that can be recovered and used for some purpose afterwards. This is called 'salvage logging'. Emissions in these cases should not be written off as a consequence of a natural disturbance and there is a provision in the proposal to account for them. 16) What is the difference between the Commission's proposal and the Durban Decision? The Commission's legislative proposal is for a legal act that will be enforced across the EU. The text must therefore be clear and concise to ensure its correct understanding and application in all the Member States, including before national judicial courts. This requires unambiguous and succinct definitions. The drafting of these definitions was done with the aim to ensure legal precision, while maintaining the same substance as in the international definitions. In general, however, the accounting rules are so similar that the principles and structures of the accounting would be the same. A significant difference, however, is the treatment of natural disturbances on agricultural soils, which are excluded in the Durban Decision and included in the proposal. There are other minor technical differences, but separate administrative systems would not be required. In the short term, the EU accounting rules are comparable to the Kyoto Protocol accounting rules, and to a large extent the numbers used for accounting should be the same. 17) Will the proposed accounting framework add another layer to existing international obligations? No. International rules for LULUCF, agreed in the UNFCCC negotiations in Durban in December 2011, will apply as from the beginning of a second commitment period under the Kyoto Protocol. With this proposal the EU will build on these international rules, but go further in enhancing environmental integrity and the completeness of accounting. The proposal is simply a more ambitious and comprehensive version of the UNFCCC framework, but does not require any additional type or layer of information. It is straightforward in terms of accounting requirements and will not lead to additional 'red tape' at the level of individual economic agents. 18) How will accounting for LULUCF promote sustainable renewables? Accounting will ensure that the true emissions of biomass used in energy are recorded (today they are accounted as zero) and will therefore promote those domestic bio-energy feedstocks that are sustainable. This addresses the frequent criticism that emissions from biomass in energy production have not yet been accounted for. 6

7 19) How can LULUCF accounting be used in the context of the Common Agricultural Policy for ? Currently only two of the three main greenhouse gases relevant for agriculture and forestry - methane and nitrous oxide - are accounted for in the EU Climate and Energy Package on a mandatory basis, but not CO 2. Introducing mandatory accounting for CO 2 in these sectors would address the flaws of current accounting within the EU. Defining the same accounting rules for all Member States would allow changes in carbon balances in agriculture and forestry to be reported in a comparable manner. This will allow making a link between climate relevant incentives through Pillar I (greening components in the direct payments) and Pillar II (agri-environmental & climate measures under the European Agricultural Fund for Rural Development) under the post-2013 Common Agricultural Policy. Accounting would also provide a measure of progress in the reformed Common Agricultural Policy by capturing the effects on climate change of various measures of the future Common Agricultural Policy, which will cover cropland and grazing land management as well as forestry activities. Accounting is also a way of improving the visibility and providing a justification for the measures funded through the Common Agricultural Policy by Member States and the EU. 7