(Paper prepared for the 2008 BIO-ECON Annual Conference) Ca Foscari University of Venice, Italy

Transcription

1 An Environmental Economics Outlook of the Climate Change Impact of Forest Ecosystem Goods and Services Biodiversity on Human Wellbeing: Results from a MEA application to Europe (Paper prepared for the 2008 BIO-ECON Annual Conference) Helen Ding (2), Silvia Silvestri (1), Aline Chiabai (1) and Paulo A.L.D. Nunes (1,2) * (1) Center for Environmental Economics and Management, Department of Economics, Ca Foscari University of Venice, Italy (2) School for Advanced Studies in Venice Foundation, University of Venice, Italy Abstract In this paper we present an original study on the economic valuation of climate change impacts on forest biodiversity and human welfare at the European scale. The paper first groups the 34 selected European countries in terms of their latitude locations so as to identify the respective predominantly tree species and the related sensitivities to climate change. Next, the Millennium Ecosystem Assessment (MEA) approach is applied to provide a comprehensive mapping of the forest ecosystem goods and services (EGS) and to assess the interrelation between forest ecosystem and human wellbeing. Furthermore, projections are constructed to estimate the future trends of the same EGS in both physical and monetary terms, following the newest IPCC storylines. Particular attention is given to the development of economic valuation strategies with respect to each type of MEA ecosystem service. Finally, some preliminary results are presented and discussed. Keywords: wood products, biodiversity, climate change, market and non-market valuation methods, ecosystem goods and services, millennium ecosystem assessment. Acknowledgement The current research is part of the ongoing EIBURS-CLIBIO project, which is financed by European Investment Bank. The authors are grateful for its financial support. The authors also thank Prof. Carlo Carraro, Dr. Francesco Bosello, Dr. Mateu Turrò, and Dr. Peter Carter for their valuable comments and suggestions in the previous project meetings held at the Department of Economics, Ca Forscari University of Venice, Italy * Corresponding author. Address: Center for Environmental Economics and Management,Department of Economics, University of Venice S. Giobbe 873, Venice, Italy. pnunes@unive.it 1

2 1. Introduction Climate Change due to the enhanced greenhouse effect emerged accompanying the development of human society and economic growth, and has been proved having significant impacts on natural environment and human health (MEA, 2005). As a consequence, an increasing number of scientific studies were carried out world widely to identify the scale of such direct impacts in physical terms and estimate the associated social costs derived from the altered economic activities. In the mean while, parallel studies on assessing ecosystems with respect to their contribution to the economy and human wellbeing have been popularised by the Millennium Ecosystem Assessment (MEA). However, to the authors knowledge, few researches have put their emphasis on estimating human well-being losses with respect to the changes in ecosystem functioning directly driven by Climate Change. In the literature, one can find that the economic costs of climate change mitigation have been relatively well studied by aggregating the data from the sectors and industries most likely to be affected by mitigation policies and measures (e.g. IPCC, 2007). By contrast, the economic costs of climate change impacts on biodiversity are not well mapped due to the complex and not fully understood interactions between climate change and biodiversity, biodiversity and ecosystem provision of goods and services and the respective impacts on human well-being (both in utility and productivity/employment terms). In short, one needs to shed light on the role of biodiversity as it forms the foundation of the vast array of ecosystem services that critically contribute to human well-being (MEA, p.p.18). Therefore, the present paper attempt to value the impacts of climate change on forest biodiversity that assessing the respective impacts on the flow of forest ecosystem goods and services, corner stone to human well-being. The interactions between climate change, forest biodiversity and human well-being are captured by a conceptual framework presented in Figure 1. First, as for climate change impacts, MEA synthesis (2005) has clearly demonstrated that climate change is one of the main drivers that directly alter ecosystem functioning and cause biodiversity loss. The pressures that climate change places on forest ecosystem are identified in terms of changes in species distribution, population sizes, the timing of reproduction or migration events, and an increase in the frequency of pest and disease outbreaks (MEA 2005, p.p. 10). As shown in Figure 1, these pressures may 2

3 be detrimental to the state of forest ecosystem and negatively influence the ability of ecosystem to deliver goods and services, all linked to human well-being. *Figure 1 about here* Second, as far as forest biodiversity is concerned, biodiversity plays an intermediate role in interpreting the linkage between forest ecosystem and human well-being. On the one hand, biodiversity is considered to be an essential element for supporting the existent ecosystem functions (GBA 1995), and for preserving ecosystem resilience, which determines a selforganization s capacity to respond to the stresses imposed by external resources, including climate change (Perrings et al.1995). Both are associated to the ability of forest ecosystem to deliver goods and services, from which human can directly and/or indirectly benefit. On the other hand, biodiversity can be interpreted either as a direct source of provision ecosystem service or as an integral part in ecosystem process that of importance for maintaining ecosystems regulating and supporting services (IEEP 2006). Therefore, the changes in forest biodiversity caused by climate change will ultimately place impacts on well-being. Finally, it is important to note that forest ecosystem also places feedback effects on climate change due to its important contribution to reduce the CO 2 emissions that are concentrated in the atmosphere. This will lead to long-term dynamic changes in the forest ecosystem and biodiversity, which however has gone beyond the scope of this paper. The paper is organized as follows. Section 2 contains a complete valuation strategies that we have developed for quantify climate change impacts in monetary terms, including both the physical term changes and the associated monetary estimation. Section 3 presents the current status of European Forests in terms of (1) the current forest areas, (2) total quantity of provisioning services, and (3) total stored carbon in Europe. This information is served as a benchmark, based on which we projected 4 storylines in light of the IPCC (the Intergovernmental Panel on Climate Change) storylines in the context of climate change. This original work and the output of the projection have been presented in Section 4. Finally, in Section 5, we apply specific economic valuation methods with respect to each type of ecosystem system services, and present the economic estimates respectively. Section 6 concludes. 3

4 2. Developing Economic Valuation Strategies to Monetarise the Climate Change Impacts Step 1 Geographically mapping the selected 34 European countries in terms of their latitude locations In this paper, we adopt the geographic scope and sub-regions defined in the European Forest Sector Outlook Study main report (UNECE/FAO, 2005), covering 34 European countries 1 located in Western Europe and Eastern Europe sub-regions. Furthermore, we regroup the same countries into four sub-groups, i.e. (1) Mediterranean Europe (Latitude N35-45 ), (2) Central-Northern Europe (Latitude N45-55 ), (3) Northern Europe (Latitude N55-65 ) and (4) Scandinavian Europe (Latitude N65-71 ), in terms of their geographical locations in the respective latitude intervals. This new geographical grouping is presented in Table 1. *Table 1 about here* The underlying purpose of this way of regrouping is based on the assumption that identical forest types in each country are closely determined by the specific climate condition of the country, which may differ in terms of the country s respective latitude location. This way of grouping thus enables us to identify the most important tree species in terms of the respective economic and ecological importance at both national and larger regional levels. First, from an economic perspective, different tree species may deliver very different flows of ecosystem goods and services, which thus refer to various economic importance and welfare impacts. Second, ecologically speaking, various tree species can play different roles in ecosystem regulating and life supporting functions, which will ultimately influence the provision of forest ecosystem goods and services. Moreover, as far as climate change is concerned, this way of grouping will also allow us to identify the sensitivity of different tree species to the changes of climate, i.e. the changes in temperature. Step 2 Mapping of ecosystem goods and services provided by European forests The Millennium Ecosystem Assessment (MEA) is a first attempt to fully interpret, understand and assess the interrelation between ecosystems and human wellbeing at a global scale. It is clear 1 Three EFSOS sub-regions are presented in the Annex. Note that in this paper, we exclude the CIS sub-region (i.e. Belarus, Republic of Moldova, Russian Federation and Ukraine) for convenient reasons in our study. 4

5 that two of the important contributions made by MEA are to develop (1) a practical, tractable, and sufficiently rich classification for categorizing the various ecosystems, and (2) a completed and comprehensive classification and definition of goods and services that ecosystems are able to provide. These classifications thus provide a guideline for undertaking ecosystem assessment studies in the future. For this reason, the present paper adopts the framework of Millennium Ecosystem Assessment as a baseline for the classification of European ecosystems as well as the respective provisioning of ecosystem goods and services (EGS). With respect to the ecosystem goods and services from which people can benefit, they can be grouped into four categories, which are provisioning, regulating, cultural and supporting services, respectively. According to the MEA definitions, provisioning services are the products obtained from ecosystems and they include food, fiber, fresh water, and genetic resources. Cultural services are the nonmaterial benefits that people obtain from the ecosystem through aesthetic experience, reflection, recreation and spiritual enrichment. Regulating services include benefits obtained from the regulation of ecosystem processes, including air quality regulation, climate regulation, water regulation, erosion regulation, pollination and natural hazard regulation. Supporting services are those that are necessary for the production of all other ecosystem services, for example soil formation, photosynthesis, primary production, nutrient cycling and provisioning of habitat (MEA, 2003). Given clearly defined EGS categories, we can identify different services sub-categories for each specific ecosystem, map the respective links to human well-being, and provide appropriate economic analysis for the market and non-market values of biodiversity and EGS at European scale. In the present paper, we restrict our emphasis on the European forest ecosystem, for which we provide a clearly defined classification of ecosystem goods and services in Table 2 (This table will be elaborated in more details in section 3). Note that for simplistic reason, we distinguish fresh water ecosystem from the forest ecosystem in the present paper even though the two ecosystems are always closely linked and interacted. In effect, fresh water ecosystem is treated with equal importance as forest ecosystem as part of the valuation strategy, but far beyond the scope of the present paper. The respective valuation study is undergoing parallel as a part of the project to reduce the inaccuracy caused by double-counting. *Table 2 about here* 5

6 Step 3 European trends on forest areas, ecosystem goods and services Given the four classified forest ecosystem services, the relevant quantity and quality information can therefore be collected for all identical ecosystem goods and services under each of the four categories in Table 2. In this paper, all quantitative data regarding forest areas, wood and non wood forest products, carbon stocks in forest biomass and so forth are derived from FRA2005 and disaggregated at national level. The future trends of these selected indicators are projected individually for the period of 2005 to 2050 based on the results of IPCC circulation model, where greenhouse gas concentration and land use changes, with respect to climate change and socioeconomic changes, have been very well studied (Nakicenovic and Swart 2000; Schöter et al. 2004; Schöter et al. 2005). As a consequence, we are able to present four different development dimensions of European forest ecosystem goods and services that are consistent with the four IPCC storylines 2. Step 4 Economic valuation of European forests and welfare economics The physical interactions illustrated above can be analyzed from a socio-economic perspective. This analysis is anchored on welfare economics and the measurement of the individual preferences. Figure 2 shows that the impacts of climate change on the provision of EGS produce two main socio-economic impacts: on the productivity of the economic sectors (e.g. timber, wood fuel, etc), and on consumer utility (e.g. recreation or aesthetic values). The first are assessed using market valuation methods based on market prices, and they can be examined in terms of their direct effects on a specific, single market, or an industrial sector (e.g. timber industry). Prices represent the willingness to pay for every additional unit of the resource purchased on the market. The second type of impact refers to those forest goods and services which are not traded on the market and thus have no market prices. These can be analyzed in terms of their effects on economic activities like the local or regional effect of a reduction of the supply EGS on forest recreation activity. In these cases, it is necessary to use non-market valuation techniques. These techniques elicit the individuals willingness to pay for a change in the level of provision of the 2 IPCC experts described four storylines, i.e. A1FI, A2, B1, and B2, combined with a general circulation model HadCM3 developed Schöter et al. (2004), which are directly related socioeconomic changes to climatic changes through greenhouse gas concentration and to land use change through climatic and socioeconomic derivers, such as demand for food. 6

7 forest good or service. It must be noticed that the forest goods and services are valued in marginal terms (small change in the level of provision), because there is no interest in valuing the total loss of ecosystem goods and services (e.g. Costanza et al. 1997). In this context, willingness to pay value for a given decrease in forest goods and services is an appropriate indicator of economic value. The underlying purpose of the socio-economic valuation is anchored at the assessment of changes in people's welfare, which stems from a change in the provision or enjoyment of the good. This change may relate to the quantity of the good or its characteristics (in this case it affects its quality), and it could be positive or negative. Generally, it is expected that a loss of biodiversity results in a decrease in welfare, and therefore in a negative value expressed in monetary terms (See Figure 2). Once the physical change is identified, the value should reflect the welfare change related to the individuals whose welfare has been affected by it (or the average welfare change of the individuals in a population) (Nunes et al. 2003). *Figure 2 about here* The valuation of the impacts on economic sectors productivity will be presented in detail in section 5. In the next two paragraphs the total economic value and the specific valuation methodologies related to both market and non-market valuation will be discussed. (1) Total economic value There are two main categories of economic values which refer to forests, use values and non-use values (or passive use values). The impacts of a change in biodiversity levels due to climate change can be measured in economic terms taking into account use and non-use values, as shown in figure 3. Use values are reflected in the willingness to pay associated with the use of the resource, and can be classified into direct use values and indirect use values. Direct use values are derived from the actual use of a resource either in a consumptive way (e.g. harvest of food products, timber in forest for fuel or construction, hunting) or a non-consumptive way (e.g., recreation, landscape and cultural activities). Indirect use values refer to the benefits derived from ecosystem functions (e.g., watershed protection or carbon sequestration by forests which give benefits to the community by abating the effects of climate change). These indirect use values often affect activities that can be measured, so these values can be estimated. 7

8 Non-use or passive-use values are associated with the benefits derived simply from the knowledge that a natural resource - such as species or habitat exists, is maintained and may be experienced by other people or future generations. By definition, such values are not associated with the actual use of the resource and are driven by diverse individual motivations for conservation. Biological diversity - and in particular the preservation of threatened species - can affect the welfare of many people, even living far away from the site concerned. In other words, people may derive satisfaction out of knowing that there is an improvement in biodiversity for present and future generations, even if they would not benefit from it directly. Therefore, the relevant population is often not local, but global. These welfare gains are usually known as passive-use values. These values include four different types of value, option values, existence values, warm glow values and bequest values. Option values are attributed by individuals from the knowledge that a resource will be available for future use, so they are related to the potential use of the resource in the future. These values relate therefore to the conservation of the option of future use of the resource. Quasi-option values are included in the same category and they are associated with the preservation of the future potential use of the resource, given some expectation of future increase in relevant knowledge. Existence values are not connected to the real or potential use of the good, but reflect a value deriving from the knowledge that the resource exists and will continue to exist, independently from any actual or future use by the individuals. Thirdly, bequest values are associated with the benefits of the individuals derived from the awareness that future generations may benefit from the use of the resource. These can be altruistic values, when e.g. the resource in question should in principle be available to other individuals in the current or future generations. Finally, the warm glow values represent welfare enhancement stemmed from individual s acts on contributing to forest ecosystem conservation and the provision of ecosystem goods and services. The consideration of both use and passive-use values introduces the notion of total economic value (TEV). This represents the total damage for the society if the forest area is degraded or converted to other uses. In the literature, there is a wide range of systematization of the total economic value of the environment. They differ both in terms of the services included and in the terminological definition. In Figure 3, a widely accepted classification of the economic values of biodiversity is presented. *Figure 3 about here* 8

9 (2) Economic valuation methodologies Given clearly defined TEV classification, the most appropriate valuation methods can be identified with respect to the specific value category considered (See Figure 3). Economic valuation of the impacts of climate change on the provision of forest EGS is based on the individual preferences, which are measured by the willingness to pay for the resource. Market valuation methods are used to estimate the direct use value of forests related to wood forest products (like timber in forest for fuel or construction) and non-wood forest products (like food, fodder, raw material for medicines, ornamental plants, etc). These methods use observations of market prices to estimate the economic value related to the use of the related products. Nonmarket valuation methods are used to estimate passive-use values and some direct use values, which can be defined as un-priced benefits from forest ecosystem because they are not commonly traded in the market. In particular, the direct use values not traded in marketplaces can refer to non-consumptive recreation and ecotourism, landscape enjoyment and aesthetic values, and cultural values. Non-market valuation techniques can be grouped in two main categories, revealed preference and stated preference approaches. The first take into account observable market information which can be adjusted and used for revealing the individual s preference and thus quantifying the associated welfare benefits. They include Travel Cost Method (TCM), Hedonic Price approach (HP) and Averting Behavior approach (see Braden and Kolstad 1991, Mäler 1988). The common underlying feature is a dependency on a relationship between a market good and the environmental benefit. The travel cost method is used to infer the value of forest for recreational purposes and landscape enjoyment, by estimating the willingness to pay from the expenditures to travel to and from the forest. The hedonic price method is used to estimate the differential in house price depending on the location of the property, considering that prices should be higher for properties located in proximity to forests. The estimated difference in house prices represents the economic value of the forest, linked with aesthetic values. The stated preference approach includes the Contingent Valuation Method (CVM) and Choice Experiments (CE). These are survey-based methodologies using constructed or hypothetical markets, in which respondents are asked to state their willingness to pay to enjoy and/or protect the resource (Mitchell and Carson 1989). The use of questionnaires requires economists to work closely with experts from market and survey research, sociology and psychology in order to guarantee the 9

10 authority of the stated choice methods as a valid instrument to assess economic value of an environmental benefit (Carson et al. 1994, NOAA 1993). The respective differences between the two methodologies relate to the way in which the economic values are elicited. In a contingent valuation questionnaire respondents are asked about their maximum willingness to pay, while in a choice experiment questionnaire respondents are presented with a set of choices and are asked to choose the most preferred, or to rank or rate them. Stated preference methods have the advantage to be able to identify and measure passive or non-use values of biodiversity. Contingent valuation has been broadly used to estimate forest values, while choice experiments are more recent. At first sight, the resulting monetary value estimates seem to give unequivocal support to the contention that biodiversity has a significant, positive social value. Nevertheless, most studies lack a uniform, clear perspective on biodiversity as a distinct, univocal concept. In fact, the empirical literature fails to apply economic valuation to the entire range of biodiversity benefits. Therefore, available economic valuation estimates should generally be regarded as providing lower bounds to the unknown value of biodiversity changes. 3. The European Forests 3.1 Introduction Based on data from 34 European countries, forests cover a surface of about 185 million ha (FAO, 2005), which accounts for 32.7% of the territory. By classifying the forest areas in terms of latitude, it is easy to see that European forests are unevenly distributed in the four geographical regions that we have classified above, i.e. some 30% is located in Mediterranean Europe, 35% is located in the Central-Northern Europe, and other 19% and 16% are found in Northern Europe and Scandinavian Europe, respectively (See Figure 4). Due to the diverse climate conditions across latitudes, species diversity and dynamics of forest ecosystems differ considerably throughout Europe, as reflected in the numbers and composition of tree species. According to the latest MCPFE report (2007), about 70% of the forests in Europe are dominated by mixed forest consisting of two or several tree species, and the remaining 30% are dominated by one tree species alone, mainly by conifers (MCPFE 2007). In addition to the natural conditions, the 10

11 current European forest structure, in part, forest species composition has been heavily influenced by anthropophagic interventions, such as past land use and management (Ellenberg, 1986). In particular, driven by the forest protective management strategy in Europe, a 1.0 percent annual expending rate has been found in the area of mixed forests over the last 15-year period (MCPFE 2007), which partly may be because of the widely acknowledged scientific evidence that mixed forests being composed of several tree species are usually richer in biodiversity than the forests dominated by one tree species. *Figure 4 about here* With respect to tree species sensibilities to temperature changes, it has been studied in terms of specific forest types located in different geographical regions in Europe. For instance, in Mediterranean Europe, most forests consist of sclerophyllous and some deciduous species that are adapted to summer soil water deficit. Temperature changes may allow expansion of some thermophilous tree species (e.g. Quercus pyrenaica) when water availability is sufficient (IPCC, 2001). Similar result has been found also in Scandinavian Europe. For example, Garcia-Gonzalo et al. (2007) find that the growth of boreal forests is currently limited by a short growing season, low summer temperature and short supply of nitrogen, whereas the changing climate can increase forest productivity and also carbon (C) stock in the forest ecosystem. This is because an increase in temperature can prolong growing season, enhance decomposition of soil organic matter and thus increase the supply of nitrogen. In turn, these changes may have positive impacts on forest growth, timber yield and the accumulation of carbon (C) in the boreal forests (Melillo et al. 1993; Lloyd and Taylor 1994; Giardian and Ryan 2000; Jarvis and Linder 2000; luo et al. 2001; Strömgre 2001). Up till recently, the long-term trends in most aspects of the European forest sector have been generally stable, but may have gone through some increases in both quantitative and qualitative aspects (UNECE/FAO, 2005; MCPFE 2003). As regards to the quantitative changes, an expansion of the forest resource has been observed at the European level, involving consistent increases in the absolute forest area, growing stock and increment (UNECE/FAO, 2005). Moreover, the qualitative changes in relation to the forest ecosystem are more difficult to be measured. This aspect usually can reflect the degree of naturalness of forest areas, which is closely related to the intensity of human intervention. By MCPFE-definition, the naturalness of 11

12 forest areas is usually distinguished at three levels: (1) forest area undisturbed by man, (2) seminatural forests and (3) plantations (MCPFE 2003). These different levels of utilisation intensity are characterised by changing species composition and population in a specific forest ecosystem and thus may adversely influence both the quantitative and qualitative aspects of the same forest in the long run. Climate change however, may accelerate these changes in forest ecosystems, and ultimately alter the human welfare associated with the consumption of forest ecosystem goods and services in different manners (can be either positive or negative). In the following subsections, we will try to provide a comprehensive estimation of these welfare changes in monetary terms. 3.2 Assessing the forest ecosystems goods and services in Europe: Current Status 2005 Bearing in mind the clear classification of forest ecosystem goods and services, which is a necessary condition for precisely economic valuation study, we adopt the Millennium Ecosystem Assessment (MEA) approach and apply it to forest ecosystem in Europe. Table 2 has shown us a general framework with respect to the classification of ecosystem goods and services developed by MEA experts. In this section, we will elaborate Table 2 with detailed classification of every single service category. As regards the quantitative data this paper focuses on provisioning services. (1) Provisioning Services In this service category, we divide the forest related products into two main subcategories, i.e. wood forest products (WFPs) and non-wood forest products (NWFPs). For both products quantity information on the total annual removal from forests is available on the FAOSTAT- Forestry, regardless of species. We first collected quantity information for all 34 European countries under consideration, and then summed up the total quantities for four individual latitude groupings (see Table 3-1 and Table ). *Table 3 about here * *Table 4 about here * 3 The information of WFPs included in FAOSTAT is well recorded and presented for each country, but with respect to NWFPs, information is rather poorly collected from the market. Therefore, the quantity presented in Table3-2 should be considered as a lower bound of total removal. 12

13 (2) Regulating Services As far as regulating service is concerned, two types of ecosystem services are of particular importance provided by European forests: (1) climate regulation (i.e. carbon sequestration) and (2) water and erosion regulation (i.e. watershed protection). It is important to note that we will focus only on the former service in the present paper due to data availability on European scale. In fact, the role of forest ecosystem in mitigating climate change by storing carbon in sanding forests and in soils has been much better studied and understood in the context of climate change. However, given higher degree of certainty about the complex relationship between watershed protection and climate change, the present work can be further elaborated and improved in the future. (3) Cultural Services In Europe, forests are of particular importance in many countries in terms of cultural services. Among all others, recreational service represents the most important value (MCPFE 2007), including hunting, natural park visiting, forest landscape and other spiritual uses. Some of the services always involve both consumptive and non-consumptive uses of forests, e.g. legal hunting in a natural park. In this case, the consumptive use of forest refers to directly consuming meat and furs of the hunted animals which is part of the provisioning services, whereas the nonconsumptive use of forest refer to the enjoyment derived from the hunting activities. To avoid double-counting problems, we refer cultural services to non-consumptive use of forest ecosystem only. However, the quantitative information related to this type of service is poorly recorded in the market. (4) Supporting Services Finally, with respect to the supporting service, indicators for measuring the respective forest ecosystem changes in response to climate change are not well developed and thus quantity data to measure them are not readily available (MEA 2005). For this reason, we will not directly tackle the valuation study for this service category. However, it is important to realize that the relevant values are implicitly reflected in the valuation of all other three categories of forest ecosystem goods and services. 4. Climate Change Impacts on Forests and the Future Trends 4.1 Climate Change Impacts 13

14 MEA report has assessed a number of important direct derivers, i.e. habitat change, climate change, invasive species, overexploitation and pollution, that can affect biodiversity with relatively high degree of certainty. Comparing to the past biggest impact of habitat and land use changes on biodiversity, climate change is projected to increasingly affect all aspects of biodiversity, from individual organisms, through populations and species, to ecosystem composition and function (MEA 2005, p.p. 49). As a matter of fact, the world has experienced significant temperature increases over the last 30 years, particularly in the northern high latitudes (IPCC, 2001). According to the scenarios corresponding to IPCC classes, the average projected temperature increase in Europe ranged from 2.1 to 4.4 C till 2050, with the strongest warming consistently in the height latitudes. All scenarios foresee a decrease of the precipitations in the south of Europe, particularly in summer, and an increase of precipitation over much of northern Europe (Schöter et al., 2005). The climate in the future is expected to change substantially due to the rapid increase of greenhouse gases in the atmosphere, especially carbon dioxide (CO 2 ) (IPCC, 2001). However, ecosystems have a limited capacity to adapt to climate change, some might not be able to cope as they had done in earlier periods and are expected to suffer damages because: i) the rate and extent of climate change is expected to be faster and greater than in the past and could exceed nature's maximum adaptation speed; ii) human activities and pollution have increased the vulnerability of ecosystems. Forest composition will change depending on trees adaptive capacity and, as regards to which, climate changes will be so important that tree seem will meet with difficulties in migrating to find favourable conditions. There is a lack of knowledge on the adaptive capacity of tree species, but it is likely that an increase of temperature of a few degrees may accelerate productivity of forests, but any further increase will affect forest ecosystems in a clearly negative way (Walker et al., 1999). In line with other industrialized areas, but opposed to global trends, the total European forest area was projected to increase, in particular the Central-Northern Europe region, i.e. Latitude N45-55 (Schöter et al., 2005; Riou-Nivert, 2005). However, results deriving from socioeconomic trends developed by the IPCC show that global changes will not be uniformly distributed across Europe. Both climate and land use changes will have different effects in different regions. For instance, Alpine North and Boreal zones face an increase in precipitation, while Mediterranean zones become dryer. 14

15 4.2 Projection of European Forests Status in Physical Terms: from 2005 to 2050 In section 2.3, we have shown the underlying idea for projecting the future trends of European forest by This paragraph will focus on explaining and discussing the methods that we have applied to constructing the projections for the changes of forest area and the productivity of wood forest products (WFPs) in European forests in the period of 2005 and 2050, following the four IPCC storylines, i.e. A1FI, A2, B1 and B2 storylines. A number of preliminary simulation results will also be presented. The IPCC storylines reported by the Special Report on Emission Scenarios (SRES) have respective specifications in terms of population growth, CO 2 concentration, degree of temperature changes, and change of precipitation in Europe (Nakicenovic and Swart, 2000) (see Table 5). Each scenario family provides a narrative description of alternative futures that goes beyond quantitative scenario features. Furthermore, efforts have been placed on the development of a general circulation model (HadCM3 4 ) so as to relate directly socioeconomic changes to climatic changes through greenhouse gas concentration and to relate land use changes through climatic and socioeconomic drivers, such as demand for food (Schröter D. et al. 2004). As a consequence, the IPCC research team is able to present four brief future histories differently developed in economic, technical, environmental and social dimensions (Nakicenovic and Swart, 2000). According to the IPCC definition, A1FI, A2, B1 and B2 storylines are distinguished in terms of four future development paths, i.e. global economic oriented, local economic oriented, global environmental oriented, and local environmental oriented, respectively. The two economic oriented scenarios (A1FI and A2) focus on material consumption, but A1 scenarios also consider different combinations of fuel, which is expressed as A1FI. While the two environmental oriented scenarios (B1 and B2) mainly concentrated on the concepts of sustainability, equity and environment. It is important to point out that, among all others, the storyline A2 and scenarios family describes a very heterogeneous world, which presents a most likely future world under the current socio-economic development pattern. This future world is characterized by high population growth, regional oriented economic development and fragmented and slow per capita economic growth and technology, and thus becomes a Business- 4 HadCM3, Hadley Centre Couplet Model Version 3 is a coupled atmosphere-ocean GCM developed at the Hadley Centre and described by Gordon et al. (2000). 15

16 As-Usual storyline in the present analysis to be compared with A1, B1 and B2 storylines, respectively. *Table 5 about here* Temperature-change scenarios in Europe vary regionally but show a general trend toward warming. Changes in precipitation are considerable in the scenarios B1 and B2, instead in the first two scenario they are irrelevant. In order to project the quantitative changes of forest area and wood products in terms of climate change, we directly adopted the simulation results derived from the Advanced Terrestrial Ecosystem Analysis and Modelling (ATEAM) project. This project was funded by the 5 th Framework Programme of the European Commission with a specific emphasis of assessing the vulnerability of human sectors relying on ecosystem services with respect to global change (Schröter D. et al. 2004). In its delivered software, the percentage changes of forest area and wood products are projected regarding the four IPCC storylines, but only for EU-17. For the remaining 17 European countries, the respective forest areas are projected on the basis of IMAGE 2.2 program (IMAGE 2001), which provides an aggregated value in The results of our projection for (1) forest area and (2) wood products are aggregated at latitude level and compared between the benchmark year 2005 and the 4 storylines by These will be discussed in detail in following paragraphs. (1) Forest area In the A1FI and A2 scenarios, forest areas decrease about 21% and 9%, respectively - see Table 6. A1FI scenario shows the biggest impact because of no-migration assumption and most severe climate change, with temperature (C ) equal to 4.4 degree (Thuiller et al., 2005). Both B1 and B2 scenarios present an increase in forest area, of about 6% for the former and about 10% for the latter. The higher increasing rate of forest area in scenarios B2 highlights major change due to the hypothesis of afforestation (Schöter et al., 2005). *Table 6 about here* 16

17 The impacts of climate changes vary a lot across latitudes. As we can see from Table 6, Mediterranean Europe (N35-45 ) is facing a general negative forest growth in scenario A1 FI and A2, but a significant expansion in scenario B1 and B2. Central-Northern Europe (N45-55 ) and Northern Europe (N55-65 ) region present negative growth only in the A1FI scenario, in correspondence with the more severe climatic conditions. Scandinavian Europe (N+65 ) always presents a decrease in the forest growth. Finally, baseline scenario shows the future projections by taking into account the historical trend: forest area tends to increase in the countries located at latitude inferior to 65 degree of latitude. This implies that Scandinavian Europe both under currents conditions and under influence of climate change reduces its extension. (2) Wood products Tables 7a-7g show the projection results for each type of the forest wood projects from 2005 to Scenario A2 and Scenario B2 result in the greatest increase in wood supply in both the Eastern-Western Europe (N35-45 ) and the Northern Europe (N55-65 ). In the Mediterranean Europe A1 scenario is less favourable, while the B2 (regional environmental) scenario is the most favourable scenario for the same region. In Scandinavian Europe (N+65 ) there are only small differences between the four scenarios, and all projections highlight a decrease in 2050, even if limited. *Tables 7a-7g about here* For Scandinavian Europe climatic changes have a negative impact in the actual trend, highlighted by a clear increase in the baseline scenario, and produce a reduction of wood products in In Mediterranean Europe, climatic changes do not generally generate a different production from the expectation. For Central-Northern Europe and Northern Europe climatic changes have the more positive effects on wood fuel production, that increases of about 20% from the initial value on (3) Carbon sequestration Carbon cycle connects forests and climate change. The quantity of carbon stocked in trees biomass corresponds approximately at 77% of the carbon contained in the global vegetation, while forest soil stocks 42% of the global 1m top soil carbon (Bolin et al., 2000). Forests 17

18 exchange large quantities of carbon in photosynthesis and respiration, they contribute to the global carbon cycle becoming source of carbon when they are disturbed and sinks when recovering and regrowing after disturbances. Change in forest management and climate could influence European forest sector carbon budget. We construct projections of carbon stocks in forests in 2050 for all four geographical groupings with respect to the four IPCC storylines: i.e. A1FI, A2, B1, B2. The initial value in the projection refers to year 1990, which is important milestone for reporting to the United Nations Framework Convention on Climate Change and also for reporting under the Kyoto Protocol (IPCC, 2001). It should be noticed that our projections of stocked carbon in Western countries were elaborated on the basis of the input coming from the ATEAM program (Schöter D. et al., 2004), whereas projections of carbon stock per hectare for Eastern countries and Iceland were estimated to be equal to the average of the countries located at the same latitude. Average carbon stock in forest for 1990 was 52 Mg C ha-1, while the total amount of carbon was 6 Mt. The average of carbon stock tend to increase in all scenarios, less increase is attributed to A1FI scenario, for which CO 2 concentration and temperature rich the higher value among the expected. Furthermore, as highlights in Schröter et al. (2005), for most ecosystem services the A1FI produced the biggest negative impacts, on the other hand, B storylines contribute in an increase in forest area and as consequence of this in a major quantity of carbon stock. The results of the projection are presented in Table 8. *Table 8 about here* 5. Valuation of Ecosystems Goods and Services Provided by the European Forests 5.1 Background In this section, we shall discuss about the application of the economic valuation methodologies to estimate the total economic value changes of forest ecosystem goods and services in the context 18

19 of climate change. As already shown in section 2.4, two main methodologies can be used to estimate the total economic values, namely the market and non-market valuation methods, according to the type of ecosystem goods and services. However, in this paper we focus on the application of market valuation methodologies on provisioning services. Preliminary results will be presented and discussed. The total economic value of the provisioning services provided by European forests is direct use value and consists of two segments: (1) value of wood forest products (WFPs), and (2) value of non-wood forest products (NWFPs). Market prices are used to value this service category based on quantities and prices derived from Food and Agriculture Organization of the United Nations (FAO) database 5 on forests. In addition, we shall also embrace the economic valuation of the carbon sequestration services, interpreted as regulating service according to the MEA framework. All values are presented in 2005 US$. However, the specific nature and availability of data as well as the different valuation procedures embraced according to the nature of the ecosystems services under consideration will suggest a separate discussion. 5.2 Economic values of wood forest products The undertaken valuation framework for WFPs consists of two main steps: i) calculation of the current aggregate value of WFPs of 7 forestry sectors, i.e. industrial roundwood, wood pulp, and recovered paper, other processed wood products, sawnwood, wood-based panels, paper and paperboard and wood fuel; ii) estimation of the future values of forest productivity derived from the same forestry sectors in With respect to the first step, we build our calculation upon the export values provided by FAOSTAT in year These values are first collected and summed across all the 7 forestry sectors under concern at country level. Further, we aggregate the values at a larger scale in term of the geographical groupings that we have classified in the previous sections (see section 2.1). The same strategy is applied to calculate the extent of forest situated in each geographical grouping. By dividing the total economic values of all forestry sectors by the total forest areas for the four geographical grouping, we therefore can obtain respective forest productivity values in unit of $/ha. It should be noticed that these productive values can vary among the 4 geographical groupings as they reflect the economic values of different forest types

20 situated in different latitudes. In conclusion the calculated productive values for forests situated in each latitude interval in 2005 are served as a benchmark for constructing the storylines in the context of climate change. At the second step, we use a top-down approach to calculate the prices ($/ton or $/m 3 ) of forest products at regional level in terms of differentiated forestry sectors, regardless of forest species. The single value is obtained by dividing total export values of wood forest products by the quantity of production, and calculated at both country and latitude levels. This is because there is no detailed information available on FAOSTAT, for example, with respect to the values of timber products derived from different tree species. Furthermore, to estimate the future forest productivity values, we multiply these single values by the production quantities of WFPs that are projected for year 2050 in terms of 4 scenarios, i.e. A1, A2, B1 and B2 scenarios. Up to this point, we repeat the same procedure as presented in step 1 to calculate the respective productivity values of forests in unit of $/ha in Note that in the current paper, the prices of WFPs are assumed to be constant from 2005 to 2050 following the findings in the literature that no evidence was found of increasing real inflation-adjusted prices for wood over the long-term (Clark, 2001). The results of the two-step calculation above are presented and illustrated in Table 9a to 9g in terms of the four main European regions. Table 10 summarizes. The first outcome is that the total productivity value is much lower in the Mediterranean Europe than in the other three European regions, because the type of forest is different. * Tables 9a-9g about here * * Table 10 about here * If we compare these results with the forest area, we see that the Mediterranean Europe shows a quite high extension of forest area both in the present and in the future projections, under all scenarios, while the total production of WFPs is much lower, suggesting in general a lower productivity of the forests. On the other hand, for some types of forest products, the productivity seems to be higher compared with other European regions. The reason for this discrepancy is due to the market price index applicable to the Mediterranean countries, which appear to be lower. 20

21 Secondly, the impacts of climate change on total productivity value of WFPs are much different in relation to the latitude grouping of European regions. As a matter of fact, the Mediterranean Europe has a lower sensitivity to climate change impacts on total productivity value, if compared with the other three European regions. Table 11 reports the total productivity value of WFPs projected to 2050 and discounted in 2005, with the percentage variation for each latitude from the initial scenario The results show that the lowest variations in total productivity value of WFPs are registered in the Mediterranean Europe, while the highest variations are reported in the Northern and Scandinavian Europe. *Table 11 about here* Another important findings is that the total productivity values of WFPs are generally higher in the scenarios A1 and A2 ( material consumption specific) than in the scenarios B1 and B2 ( sustainability, equity and environment specific) in all latitudes. 5.3 Economic values of non-wood forest products Monetary valuation of NWFPs is more difficult than of WFPs since the relevant data of quantity and price are usually less readily available in the market. However, the trades of NWFPs are relatively better recorded in the economic developed countries, e.g. Denmark, Norway, Sweden, Finland France, Germany and UK, insomuch as their better forestry management (See Table 12). In Europe, forests supply a diversity of tangible NWFPs with potential for contributing to the human welfare, particularly to the local community, in terms of both subsistence and cash income. With respect to the economic importance of NWFPs, it varies from country to country. For instance, in industrialized countries, the collected NWFPs are practically no private or national economic significance, whereas their non-market benefits in relation to recreation and conservation activities are of important concern. On the contrary, in the economic developing countries, the utilization of NWFPs for production and subsistence remains relatively important to the rural communities living in and around forests. The economic benefits derived from their picking activities contribute to a big portion of the household income. For this reason, the social 21