Beyond the trees: Unlocking the bioeconomy for Europe’s climate future

As the world order reshapes in real time, maintaining a clear focus on climate action can be challenging. The EU’s ambition to achieve climate neutrality by 2050 is increasingly tested by other high-priority issues such as territorial security, trade barriers, competitiveness, and social welfare. Staying on track toward emission-reduction goals will require extraordinary efforts and dynamic policymaking that seeks win-win solutions between climate objectives and other priorities.

For this reason, the solutions offered by the bioeconomy must be scaled up and integrated with mechanisms aimed at reducing emissions. This, in turn, requires significant revisions to the current regulations governing carbon removals and storage in the Land Use, Land Use Change and Forestry (LULUCF) sector.

The EU Emission Trading System (ETS) has so far been a successful political instrument for curbing greenhouse gas emissions. Since the launch in 2005, emissions in sectors included in ETS are down almost 50 percent - progress is on track for meeting the ambitious EU climate goals. 

By contrast, progress is lagging for emissions covered under the Effort Sharing Regulation (ESR). The ESR sectors (notably transport, buildings, agriculture and small industry) are to be addressed at member state level and often face domestic political resistance. An expansion of the ETS approach into the ESR sectors (ETS2) will embrace most emissions in EU and aims to speed up action toward the overall 90 percent reduction target from 1990 to 2040. 

Two pathways to reduction

Setting the framework for ETS and ETS2 is one thing. However, rapidly reducing the emission cap over a relatively short period risks derailing the system if the transition to lower emissions becomes economically disruptive or politically contentious. With the majority of EU emissions covered by the cap-and-trade mechanism, it will be increasingly important to identify synergies with other political priorities. The future of ETS and ETS2 must therefore be considered in a broader context, as these mechanisms co-exist with sustainable development goals beyond climate. Creating pathways that reduce emissions without undermining security, economic stability, or social welfare will be crucial.

There are only four pathways to achieving lower emissions within the ETS. Two of these are undesirable: leakage and degrowth. Leakage occurs when the cost of emissions drives production to relocate outside the EU, resulting in economic losses for Europeans and little to no positive – sometimes even negative – impact on the global climate. Degrowth refers to an absolute reduction in economic activity and consumption due to emission costs, which undermines other societal goals as outlined above. Both leakage and degrowth will inevitably, and with good reason, face strong political opposition.

Two pathways - efficiency gains and substitution - offer opportunities and should be supported by policy. Efficiency gains within existing value chains is always a driving force for industrial production and a major factor behind both economic growth and emission reductions in recent decades. The potential for continued emissions reduction is still massive, though an increased focus on the consumer level may be necessary to realize these.

Substitution, finally, refers to processes where low-emission solutions replace legacy high-emission technologies. Obviously, substitution is well underway in many areas. Electricity instead of fossil fuels for road transport is one example, wind and solar power instead of coal-fired energy plants another. We need, however, a stronger focus on substitution to meet the combined challenges of climate, competitiveness, security and welfare. In this context it is obvious that the bioeconomy - especially the forest-based bioeconomy - is undervalued in climate policy, despite the huge potential for substitution offered by wood-based products.

Wood-based value chains

Current estimates show that 400mn tons of emissions are already avoided annually in the EU thanks to wood-based value chains, and that substitution can increase considerably with expansions and innovations in packaging, advanced biofuels and construction. A new ISO standard provides tools for calculating these benefits. With EU emissions standing at more than 3,000mn tons annually, it is clear that contributions from wood-based products in meeting climate goals is very significant. These contributions should have a high profile in EU’s climate package. 

It gets even better. Wood is a domestic and renewable strategic resource for Europe, delivering jobs, rural development as well as 7 percent of EUs economic output. The economic values created from wood also ensure that Europe’s forests are managed sustainably, including for substantial carbon sequestration. Clearly, this is a sector that stands up to the multiple challenges facing the EU.

Unfortunately, however, the EU climate law de facto makes removals in the LULUCF sector (mainly in European forests) a compensation for emissions in other sectors. This effectively limits the role of forests to carbon storage and ignores the major role that wood-based products have for emission reduction in other sectors.

In addition, the climate law is blind to necessary synergies between climate goals and other priorities. As a result, policy initiatives are now focusing on incentives to increase carbon storage to meet the politically constructed LULUCF targets, often aiming at reduced wood harvest. This is counterproductive, not only for the climate goals, but also for other needs in society.

In conclusion, the LULUCF regulation and its role in the EU climate package needs a major revision. Implementing the ETS mechanisms in harmony with other political priorities requires that obstacles for substitution of fossil-based materials and energy are removed and domestic renewable resources promoted. The current focus on carbon storage in forests is counterproductive and ignores the crucial role that wood-based products play at the other end of the value chain. 

In other words: We need to come out of the forest if we are serious about climate solutions.