As I noted in the first post of this series, there is an ongoing disconnect that tends to resurface in the debate surrounding the use of woody biomass for renewable energy, including power generation and biofuels. The primary point of contention is typically framed as: “Burning trees is permanently decimating southern forests.”
While Forest2Market has presented mountains of data and unique forestry insights that overwhelmingly prove that the wood pellet industry is not a threat to southern forests, the industry’s detractors continue to escalate their criticism of utilizing forest resources. It is also increasingly difficult not to notice that the logical conclusion of their argument takes aim at a timberland ownership characteristic in the US South that makes it such a productive forested region: Private property rights.
Millions of local, family-owned forests provide income, recreation and healthy habitats for plants and wildlife—a respite from the ever-expanding urban landscapes throughout the South. This private property, often held in trusts, assures that forests remain both strong and vital for future generations.
Additionally, it is this ownership structure that has driven the region’s incredible success over the last several decades. Many other forested regions—where a majority of the timberland is owned by a government entity (such as the Pacific Northwest)—are needlessly hamstrung by regulatory burdens and are increasingly prone to large-scale destruction via wildfire and pest invasion. Conversely, the South’s market-based timberland ownership structure in combination with stable and sustainable industrial demand is a global model of success.
How do we know that a market-based system enables economic and environmental interests to work together? Due to concerns about the growth of the wood pellet industry in the US South, Forest2Market was commissioned to examine the history and sustainability of regional forest assets in 2017. For the study, we conducted a statistical analysis for a 70-year period of the forest acreage, demand and inventory, and we uncovered some statistically significant correlations.
Since the middle of the twentieth century, the amount of timberland in the US South has remained stable, increasing by about 3% between 1953 and 2015. During this period, economic growth and increased construction spurred consumer demand for forest products, which led to a significant increase in timber harvests (removals) by almost 60 percent. Yet, over this same period, the amount of wood fiber inventory stored in southern forests more than doubled on essentially the same land base.
Forest2Market’s in-depth analysis of historical data over the past six decades documents the link between increased demand for forest products and increased forest inventory. Further, it explains that the dramatic increase in forest inventory was made possible by even more remarkable increases in forest productivity, especially on privately-owned timberlands.
- Rising demand for forest products drives increased removals from timberlands. As the US population and GDP grew in the last half of the twentieth century, so did its demand for wood-based products. Annual timber removals nearly doubled by 1996 and were 57% higher in 2015 than they were in 1953.
- The forest products industry and landowners responded by increasing the productivity of their forests. To ensure their mills would have a stable, high-quality source of supply, forest products companies invested heavily in research to promote forest productivity by improving management practices. These practices drove the development of high-yield plantations that resulted in a 3.5x increase in wood inventory per acre, which increased availability of wood fiber on timber plantations and thereby reduced harvest pressure on natural stands of timber. The following chart shows the significant impact on standing inventory achieved by advanced silviculture practices in response to market demand.
- Increased demand has not depleted forests. The number of timberland acres has remained stable, increasing by 3%. At the same time, total inventory has doubled (+108% from 142 to 296 billion cubic feet) because growth has outpaced removals.
- Statistical analyses show that increased demand is associated with better growth and larger inventories. Regression models show statistically significant correlation (65-90 percent) between demand and inventory.
The statistical correlation is that increased demand results in increased inventory, not the opposite. How does this happen?
Timber and the land timber occupy are economic assets. As in any market, when there is strong demand, owners actively manage their assets to maximize economic return. In this case, timberland owners manage their forests to maximize tree growth, especially the growth of the highest value product from the forest – sawtimber. This management structure increases their return on investment. In turn, forest products and bioenergy manufacturers use the raw materials that they purchase to the fullest extent possible, including the utilization of low-value trees and residuals for energy purposes where markets exist.
The growth of the forest products industry, including the wood pellet sector, continues to create new demand for biomass, which has resulted in an increase, rather than a reduction, in forest inventory. In other words, healthy demand is driving reforestation, not deforestation across the US South.
Forest Management 101
While much of the feedstock material used to produce biomass and wood pellets consists of wood chip residues generated from other wood products manufacturing processes, it is important to clarify that many pellet producers also use low-value pulpwood (i.e., “whole trees”) in the manufacturing process. This is a major point of contention among industry detractors, though they fail to connect the dots between supply and demand of low-value wood raw materials.
How are harvested trees routed through the forest supply chain?
The sizes of the trees removed from timberland are quite different, serve a range of needs, and therefore vary in value. In general, southern pine logs fall into one of the following categories:
- Logs 5”-7” diameter at breast height (DBH), or 4 ½ feet, are considered “pulpwood”
- Logs 8”-11” DBH are considered “chip-n-saw” (CNS)
- Logs 12”+ DBH are considered “sawtimber”
Timberland owners in the US South who manage their land for timber production have historically managed for large diameter, high-value sawtimber logs. Centuries of demand for solid wood products used for structural purposes has driven this paradigm, as larger logs result in better yield and quality in solid wood product manufacturing. Landowners are therefore incentivized to grow larger logs through high price offerings from solid wood product manufacturers. As such, timberland management practices have evolved over time to maximize real returns on large logs, with landowners implementing silvicultural prescriptions to yield larger, high-value logs faster.
One such management practice known as “thinning” involves removing low-value pulpwood (generally small, misshapen, deformed and off-species) trees. This process reduces competition for soil nutrients and opens the forest canopy to allow more sunlight into the timber stand, which induces higher growth rates for the remaining high-value trees. These trees continue to grow until reaching larger diameter and quality specifications to be considered for solid wood product manufacturing.
The Economics of Wood Consumption
Basic economics and industry best practices ensure that harvested trees are used to maximize their value. Consider the price differential between sawtimber and pulpwood: In 1Q2020, the southwide volume weighted average price (stumpage) for pine sawtimber was roughly $30/ton, and the southwide volume weighted average price of pine pulpwood was roughly $10/ton.
Timberland owners will not harvest all of their timber as small trees at $10/ton when they can harvest mature trees at $30/ton. In addition to the higher value for larger logs, the increased growth of the trees in the intervening years also results in several additional tons of sawtimber that can be sold at the higher price. Economically, it makes no sense to do otherwise.
Therefore, there are three important points to understand about the economics of pulpwood supply:
- Pulpwood is the lowest-value, smallest-diameter product that can be removed from a stand of timber.
- While the incremental cash flows from pulpwood sales are not the primary motive for thinning, demand for pulpwood results in incremental cash flows for timberland owners. The relative stumpage price differential between pulpwood and sawtimber upholds the justification for managing timberland to yield more sawtimber.
- This also ensures pulpwood harvests remain a result of land management prescriptions as opposed to the incentive to manage for pulpwood production.
The Importance of New Markets
The wood pellet industry is dwarfed by the traditional forest products industry. In the US South, roughly 280 million tons of logs are harvested each year. Approximately 145 million tons go to pulp and paper mills as pulpwood; approximately 120 million tons go into dimensional lumber and panel/plywood production as CNS and sawtimber; and roughly 15 million tons of harvested roundwood go into the production of wood pellets. Roundwood used for pellet production represents only 10% of the small diameter roundwood harvested.
While the growth of e-commerce has increased demand for packaging and shipping boxes (containerboard), demand for printing and writing papers declined 20% in 2020 due to impacts associated with the COVID-19 pandemic, and demand will continue to decline 6% annually.
In 2017 alone, newsprint demand was down 10% from the previous year and most of the newsprint plants in the US South have been closed or converted to other products such as lightweight linerboard where possible.
But for southern landowners who have made the long-term investments necessary to significantly improve forest productivity and increase inventory on a stable land base, the wood pellet industry has opened up new markets for their low-value, small diameter timber. In a dynamic economy, these outlets are imperative to ensuring the long-term viability of managed timberland. The result is an environmental/industrial relationship that produces valuable products that we have all come to depend upon, while also using low-value materials for beneficial purposes where markets exist.
An increase in forest stocking levels is the ultimate environmental benefit, which naturally occurs when landowners manage their timber resources for economic purposes. It is this symbiotic relationship that, most importantly, incents timberland owners to keep forestlands forested and invest in advanced timber management practices, which provides both economic benefits to the timberland owner and environmental benefits to all of us.
When forestland ownership becomes uneconomical, the risk for converting the land to other uses increases. With such conversion, the forest is lost forever. Keeping the economics of private forest ownership strong, including the utilization of low-value forest materials, is a key component in preserving the proven relationship between environmental and economic interests of the forest.