Carbon payments could strengthen forest carbon sink – Impacts on water quality and biodiversity vary

Carbon payments to forest owners have been proposed as a way to strengthen the forest carbon sink. In two recent articles, researchers from Natural Resources Institute Finland (Luke) and Finnish Environment Institute (Syke) have modeled and assessed the environmental impacts of such payments. The results suggest that carbon payments based on carbon in living biomass have a positive climatic impact, which remains even after accounting for greenhouse gas emissions caused by the drying of peat in response to forest management changes induced by the policy. The payments’ effects on biodiversity are positive, although moderate. Nutrient export to water bodies decreases initially. However, this effect weakens over time, and in the long run nutrient export may even increase.

EU climate policy sets binding targets that require member states to strengthen their land-use sector carbon sinks. In Finland, forests play an important role in reaching its target. Carbon payments have been proposed as a means for enhancing forest carbon sink. When carbon storage has value, forest owners have an economic incentive to take it into account alongside timber value when making forest management decisions. The payments encourage lighter thinning and longer rotation periods, which decreases harvests in the coming decades. As a result, forests grow older, accumulate biomass, and their stock of carbon increases more than it otherwise would.

In addition to the carbon sink, the changes in forest management and harvests also affect water quality, soil greenhouse gas emissions, and biodiversity.

“In newly published research, we focused on the environmental impacts of carbon payments. The results provide one important piece to the puzzle. When selecting policy instruments, it is important to consider the overall picture and weigh other impacts as well, such as those on livelihoods and government expenditure,” says Senior Scientist Aapo Rautiainen from Luke.

Broader coverage means greater benefits 

Nutrient export to water bodies decreases initially, as harvests decline, but the effect weakens over time. In the long run, nutrient export may even exceed the baseline level that is observed if no carbon payments are applied. This is because the strong accumulation of forest biomass over time increases evapotranspiration and lowers water tables of peatlands if drainage systems remain unchanged. As peat dries, decomposition accelerates, and more nutrients are released.

“Carbon payments do not solve water quality issues; additional targeted measures are also needed,” says Luke Research Scientist Aino Assmuth.

The policy has mixed impacts on greenhouse gas emissions from peatland forest soils. Carbon dioxide and nitrous oxide emissions increase slightly as peat dries, but methane emissions decrease. Despite uncertainties in the calculations, the overall effects of these emissions remain small compared to the strengthening of the forest carbon sink caused by carbon payments. Hence, emissions from peat soils do not appear to significantly weaken the climate benefits of the payments.

In response to the policy, forests grow older and accumulate more dead wood. Also, the total volume of deciduous trees in forests increases. These changes are favorable to many forest species that depend on these attributes. However, the overall effects on biodiversity remain modest. Thus, halting biodiversity loss also requires separate measures.

Biodiversity impacts vary depending on the site type. The greatest benefits are gained on sites of high or moderate productivity, whereas on poor sites benefits remain limited. The coverage of the payment scheme affects the scale of total benefits achieved. The larger the share of forests included in the scheme, the stronger the effect on the carbon sink, and the smaller the loss in efficiency caused by harvest leakage within Finland. At the same time, biodiversity also benefits as habitats improve.

“Despite model uncertainties, our results provide a good preliminary understanding of the direction and magnitude of the side effects of payments based on carbon in living biomass. The understanding is useful when designing climate policy measures,” says Associate Professor Jussi Lintunen from Luke.

The impacts of carbon payments on forests were examined using the FinFEP model, which describes Finland’s forest and energy sectors and can be used to model policy induced changes in forest owner behavior.