Since the inception of the Kyoto Protocol, the use of land use, land-use change and forestry (LULUCF) activities to combat climate change has been a topic of significant debate. Whether one is a protagonist or an antagonist on the issue, decisions taken within the UN Framework Convention on Climate Change (UNFCCC) have significant implications for the forest sector. Forests are both a source of carbon dioxide (CO2) when they are destroyed or degraded and a sink when conserved, managed, or planted sustainably. Forest vegetation and soils currently hold almost 40% of all carbon stored in terrestrial ecosystems (WRI, 2000a). Much of this is stored in the great boreal forests of the Northern Hemisphere and in the tropical forests of South America and Africa. Further, forest re-growth in the northern hemisphere currently absorbs carbon dioxide from the atmosphere, creating a "net sink". However, in the tropics, forest clearance and degradation are together acting as a "net source" of carbon emissions. Though growth in plantations is expected to absorb more carbon, the likely continuation of current deforestation rates means that the world's forests will remain a net source of carbon dioxide emissions and a contributor to global climate change. The map above shows the areas that are most responsible for this. However, there are also significant opportunities to develop innovative carbon sequestration forestry projects that generate positive synergies between forest restoration, mitigation of climate change and livelihood improvements for the poor. These need to be explored through mechanisms such as the Clean Development Mechanism of the Kyoto Protocol and the Bio-Carbon Fund of the World Bank. However, the success of such carbon trading initiatives will ultimately depend on the resolution of many outstanding issues, including clearly defining the legal ownership of the carbon, and also on the outcome of the negotiations for the next commitment period under the Kyoto Protocol, which are scheduled to begin in 2005. Nonetheless, in many countries, the prospect of trading carbon credits generated by the forestry sector has started influencing decision making in the forest industries of those countries and this can also have effects on future timber markets.

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