Climate Fight Breaks Out in Sweden Over Carbon Payments to Forest Owners

(Bloomberg) -- A climate fight has broken out in Sweden, pitting those who think forest owners should be paid for harvesting timber against lawmakers who want to fork out cash to keep the trees standing.

At the heart of the dispute are ambitious targets set by the European Union for removing carbon from the atmosphere to combat climate change. A proposal floated in Sweden, home to the bloc’s largest forest area, has the state offering landowners cash for the carbon sequestered if they agree to delay cutting down their trees for at least five years above the minimum harvest age.

Planting trees for their ability to absorb carbon, rather than for their timber value, has long been seen as a practice for developing countries with less established forest industries. In Sweden, where private citizens are often forest owners, growing trees to fund pensions and passing on the land to the next generation, the mindset is more fixed on profit from harvesting.

“If you see the forest as a common good, it’s natural to think that we should all pay to keep it standing,” said Rebecka Le Moine, a Green Party politician who has long advocated for compensating forest owners to conserve trees. “We all benefit from the recreation, biodiversity and climate mitigation that the forest provides.”

Under rules governing how land use affects carbon sequestration, the so-called LULUCF regulation, the EU needs to remove 310 million tons of CO2 equivalents by 2030, in net terms. As a heavily forested country, Sweden will shoulder much of that burden.

In working out how to get there, the government in 2022 tasked a parliamentary committee with drawing up proposals. What they came up with is so contested that it’s unclear whether Prime Minister Ulf Kristersson’s cabinet will forge ahead and send the bills to lawmakers — or whether parties that make up the legislature would vote to pass it. 

The committee proposed that the state offer contracts legally requiring forest owners to delay cutting down their trees for a fixed period of five or twenty years above the statutory binding minimum harvest age. In return, landowners would receive 400 kronor per additional ton of carbon captured, to an estimated total taxpayer cost of 2.36 billion kronor ($248 million) until 2030.

But the plans are far from universally welcomed. Sweden’s forest industry lobby has warned that 7,200 jobs in the industry are at risk, with about 70% directly because of the carbon income proposal. Leaving trees standing would push up costs for the industry, which makes everything from toilet paper and diapers to cardboard boxes, food cartons and timber construction materials.

It wouldn’t be an isolated blow on the industry, reeling from two decades of declining demand for paper as society continues its shift to digital media from print. Several paper mills have closed as forest companies have focused on pulp and fiber based materials, with significant implications for small municipalities in northern Sweden.

“A lot of raw material will be removed from the market if the legislation is passed,” said Viveka Beckeman, director general at the Swedish Forest Industries Federation. “Small-scale saw mills would also risk closing due to increased raw material costs.”

Her criticism is echoed in the political arena.

“It’s a very bad idea to spend money on this kind of system,” said Martin Kinnunen, the environmental policy spokesperson for the Sweden Democrats, a populist group that supports the government in parliament. The Swedish forest sector would be seriously harmed by the legislation, he said, adding that he hopes that the EU will walk back its carbon capture ambitions, removing the need for such national policies.

While the political fate of carbon income is still up in the air, parts of the private sector have already taken action. Arbonics OÜ is an Estonian startup, which brokers carbon credit agreements between forest owners and companies wishing to cut their climate footprint. It launched operations in Sweden in March, and has already held discussions with close to 500 Swedish forest owners. 

“They’ve been waiting for something like this,” said founder Kristjan Lepik. “Forestry as an asset class is changing.”

He sees a fundamental shift ahead and believes that harvest volumes will decline, saying that “people will be surprised at how much forestry has changed by 2030.”

One early adopter working with Arbonics is Mats Liss. The 54-year-old engineer owns around 100 hectares (247.1 acres) of forest in Dalarna County, in central Sweden. His recent carbon-capture agreement with Arbonics covers around half of his land.

“We already get revenue from timber sales as well as joy from spending time in the forest,” he said. “Carbon income could now add a third advantage.”

The agreement marks the first step, but no money will change hands until Arbonics secures a deal with a buyer of the carbon credits. Airlines, heavy industry and fossil energy companies  are seen as natural buyers of such credits in order to offset their own carbon footprints. For Liss, it’s about testing the waters.

“Since it’s still such a new concept I didn’t want to sign a contract for all of my land,” he said. “I wanted to start small and see how it develops.”

The state budget presented in September will likely signal whether the government wants to move forward with the proposal.

Beckeman at the forest industry lobby argues that forests benefit the climate most when they are harvested and used to replace fossil fuel-intensive materials such as concrete and steel in construction and plastics in packaging. She also cautioned there may also be unintended impacts.

“If some forest owners reduce their harvests that will likely increase the timber prices, which will make other forest owners want to harvest even more,” she said.

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