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The role of sinks in climate policy has been controversial and confused. Different parties had very different motivations that led to the existing 'compromise' design of climate policy as it relates to sinks; moreover, it appears that the poor design in the Kyoto Protocol stemmed from the fact that sinks were added relatively late in the negotiation process. In addition, there was a relative vacuum of information on how big these sinks were, and how they might change over time for the parties involved. The sinks issue was relatively new and not much thought had been given on how to include them. Unfortunately, the Kyoto model for sinks, designed in a rush, has been borrowed in other proposals such as in the McCain-Lieberman Bill in the USA. The crediting approach described in these policies and proposals has led to nearly unsolvable problems. Rethinking how land use activities could be brought within climate mitigation efforts seems worthwhile.

We argue that many of the problems and concerns that analysts and policymakers have spent enormous effort trying to solve are mostly the result of the faulty architecture for sinks in the Kyoto Protocol. Like legislation to close tax loopholes that mostly creates a more complex tax code and more loopholes, attempts to patch the Kyoto approach to sinks have only led to more problems. It has set scientists and policymakers to consider imponderables such as what part of a forest is due to direct human-induced change and how much is due to nature or indirect human inducement. Hundreds of pages have been written attempting to define how many trees make a forest, and what is the difference between reforestation and afforestation.

These issues mostly disappear if one brings land use fully under a cap-and-trade system. This creates incentives both to control land use emissions and to enhance land use sinks. Whether the area is defined as a forest or not is irrelevant - all that matters is changes in the stock of carbon. The problem of leakage has been raised as a special problem related to sinks, but it can best be seen as a problem of incomplete policy, either in space or time. Bringing land use fully under the cap eliminates the problem of leakage. Instead, landowners can exercise the option to maintain or not maintain the storage, by purchasing allowances to cover emissions. This keeps the atmospheric carbon goal intact, and preserves an important flexibility in how land can be used in the future should economic condition change in different ways than we now expect.

Coverage under a cap allows landowners to sell current allowances at current prices but requires them to cover future emissions with allowances when the emissions occur.

The variability in land use storage due to climate or events like forest fires is often seen as a unique problem for sinks inclusion in a carbon market. Land use carbon sinks and sources are subject to much variability but landowners regularly face much variability with regard to current uses of land. Farmers and foresters face risks of natural disasters that damage their crops or their forest stands. They make investments in the face of these uncertainties. Increasingly market intermediaries have come into being to bear or pool risk, or to allow hedging against these uncertainties. There is every reason to believe that these same types of intermediaries would come into being if there were a robust market in carbon allowances. Cost-effectiveness in carbon mitigation actions requires not only an equal carbon price across sectors but also that the risk of estimating future conditions be borne equally across sectors. Proposals that shield landowners from these risks would create an asymmetry between fossil emitters and sinks, and lead to economic inefficiency.

The literature on climate policy often portrays the management of terrestrial sinks as a very different issue than management of carbon emissions from fossil fuels, and that this difference requires special provisions in policy design. There are important biophysical aspects of sinks that make them different in some regard from fossil fuel emissions of carbon. How much sink one gets from specific management practices is highly variable across different sites, and over time. Moreover, sink storage is a combined result of direct management and earth system feedbacks. We conclude that these issues generally do not present insurmountable barriers to inclusion of terrestrial sources and sinks in a cap-and-trade system on equal terms with carbon emissions.

Rethinking the inclusion of land use activities in mitigation activities will require re-evaluating targeted levels of net emissions. The 7% below 1990 fossil emissions in the Kyoto Protocol or a return to 1990 emissions as in the McCain-Lieberman Bill that was under consideration in the US Senate has very different implications if applied to the total of fossil and land use emissions (net of sinks). The benefits of rethinking these targets, in terms of eliminating needless terminology and improving cost-effectiveness of mitigation policy, seems well worth it. There remain some ways in which land use should be treated differently, and some important issues that need further investigation. We argue that the inventory period for land use should be longer than for carbon emissions - a reporting requirement of every 10 or 20 years may be appropriate with the flexibility to produce an inventory more frequently if so desired by the landowner. Measurement, monitoring and enforcement remain important issues. Measurement need not be exact but the measurement process needs to be unbiased, and more accurate measurements will be more broadly accepted. The measurement process needs to include the ability to challenge results and processes to resolve those challenges.

There are also ancillary benefits or costs related to sinks but these also exist for mitigation of CO2 from fossil energy emissions. These are potentially important issues that can lead to an idealized method such as a cap-and-trade system that strives for equal marginal cost abatement across sectors and countries to not be cost-effective. The first best solution in these circumstances is to fix these other problems with instruments designed specifically to address them. Adding mark-ups or mark-downs for different types of mitigation actions would require consideration of how they would likely vary by site and over time. This seems to recommend against such an approach unless a very strong case can be made. An important issue is how to deal with carbon in products harvested from vegetation. Here it is useful to distinguish between short-lived and long-lived products. Emissions with shortlived products should be exempted from a carbon charge, and instead the land from which they are produced should be under a cap so that long-term changes in carbon storage are monitored and incentives are in place to maintain or increase storage as economics dictate. Longer-lived products could require a very involved system to track their fate, as well as their owners. Whether correct incentives in this regard would substantially increase these pools compared to the case where they were simply ignored (and all carbon assumed to return to the atmosphere in relatively short order) needs further investigation.

Inclusion of land use and land-use change in climate mitigation policy has been made impossibly complex, because the architecture contained in current policies for including them is flawed. Solutions and compromises that were pragmatic or were deemed necessary to make progress on a broader agreement appear to have led us to the current climate policy architecture for land use and land-use change. Looking back now at the tangle these compromises have created makes it clear that much could be gained by reconsidering the architecture of sinks in climate policy. To do so will require some very fundamental re-evaluation of goals and targets, but the cost of not doing so means that we may leave a major source of GHGs uncontrolled, and fail to effectively use low-cost sequestration and bio-energy options that will be needed to limit atmospheric concentrations of warming substances.

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