A Body of Work

Excited by the new market the pellet sector offers for low value fiber, forest landowners work to assure pellet buyers of existing sustainable practices.
By Tim Portz | September 20, 2014

Nearly 60 percent––more than 430 million acres––of the forested land in the United States is privately owned and managed. Collectively, the lumber and fiber they produce serves a forest products industry worth nearly $200 billion a year, employing nearly 1 million people. These markets are vital to the economies of the regions with forest resources and have created a demand that has kept forest inventories stable for over a hundred years. Recently, the demand for wood pellets for electricity generation in European countries working to drive carbon out of their energy portfolios has created a new market for wood fiber from this resource. Along with this new demand, however, comes rekindled scrutiny about modern forest management practices led largely by nongovernmental organizations (NGOs) who are challenging the sustainability of making power from woody biomass.

As the market continues to gain momentum, so too has the scrutiny, and forest landowners and the associations that represent their interests have ramped up their advocacy and outreach, working with foreign policymakers to educate them on well-established forestry practices. Scott Jones, executive director of the Forest Landowners Association, and its members are optimistic about this new market.“The general feel from our members is excitement. They are excited about the market it provides them to continue to manage their forestlands,” he says. Forest Landowners Association membership is largely private, multigenerational families managing a particular tract of land for secondary income, generation after generation. If the pellet industry is to gain a permanent foothold within the sector, its membership’s participation is vital.

“The landowners who own the resource are really the lynch pin in this discussion because without them, none of this would happen,” say Risher Willard, chief of marketing and utilization at the Georgia Forestry Commission. “Without good markets for timber products, people might be inclined to convert that land to other uses. Providing strong growing markets will encourage people to maintain their land as forests.”

This is the message that Jones, Willard and many others across the forest products industry are working to deliver to policy makers, NGOs and the general public. While the pellet market is new and emerging, the system that will supply is well-established and by all measures, in balance.
Secondary Market Roles

Forests generate revenue by serving a small handful of markets.  Working, productive forests are all aiming to satisfy the highest value markets first, and every management decision made by a landowner can be attributed to these high-value opportunities. These high-value markets are the sawmills that convert mature pine trees into dimensional lumber. “We’re growing for the housing market. That’s what drives prices. That’s what drives financial success on these forestlands is growing that higher value product, that sawtimber, something that is going to make 2 by 4s, something that is going to make 4 by 4 posts,” says Jones. Understanding the journey that an acre of trees takes as it is managed to satisfy these markets is vital to understanding how fiber comes to be available to pellet producers and other, less valuable, but no less important, secondary markets.

Actively managed forestlands engage in a cycle that includes planting, commercial thinning and final harvest. This cycle unfolds over nearly 30 years before the final harvest occurs, when, if a landowner feels it makes financial sense, it all begins again.

Mike Jostrom, director of renewable resources for the large timber real estate investment company Plum Creek, explains the role commercial thinning plays in forest management. “A commercial thinning essentially does what nature does on its own, but it captures the wood fiber for a market,” he says. “With a commercial thinning, the remaining trees are healthier and grow faster. Not only are the individual trees healthier, but the whole stand of trees is more resistant to disease and insects as well as being more resistant to fire. Commercial thinning is a fundamental tool that significantly contributes to sustainable trees management.”

Forest landowners, keen to maximize their forests productivity, know that commercial thinning is vital to the health of their stand. Still, thinning a stand of growing forests is a labor-intensive proposition. “When you cut down lots of small trees, it is a very expensive process,” Jostrom says. “And so if you don’t have a market to pay you for doing that, it really makes it difficult to do it.”

Landowners have traditionally relied upon the pulp and paper markets to support these practices. While the pulp and paper market is broadly stable, there are areas where demand is declining. “Where those markets are declining or have disappeared, we are now starting to see markets for wood pellets develop,” says Jostrom.

Considering the Competition

Those opposed to the use of wood fiber for the production of pellets and electric power or heat assert that this demand will place extreme pressures on forest resources and will ultimately result in deforestation. Professionals steeped in forest management and forest economics know otherwise.

Willard, who closely tracks a growing list of proposed pellet facilities at his office, points to the folly of siting a pellet mill in an area with existing strong demand for wood fiber. “These problems don’t exist because they (pellet producers) can’t afford to hurt themselves by building in an area with a lot of competition. The risk to themselves would be too great,” he says. “Mill siting is probably one of the biggest considerations for these new pellet plants.

Willard points to an altogether different market dynamic that may negatively impact the size of the commercial forest resource. “There are some statistics out there in the southeast, in Georgia too, in some other states where the inventory of small-diameter trees isn’t as great as it has been in the past. That can be attributed to the downturn in the housing markets in the mid-2000s. Not as many final harvests have taken place, which is resulting in not as many acres being reforested,” he notes.

Certification Conundrum

This system of replanting, commercial thinning and final harvest has been governed by state and federal best management practices since the 1980s. Still, recognizing that some consumers wanted more assurance that forests were being sustainably managed, forest owners began to explore and deploy more robust certification programs across the industry. These programs utilize guidelines and third-party audits to guarantee that forests are managed in a sustainable manner.   Moreover, these certification programs are serving as the foundation for the supply chain certification programs foreign policy makers are deploying for inbound wood pellets.

“We (Plum Creek) were the first company to become certified on all of our lands, third-party certified, across the country,” says Jostrom. Certification, however, introduces new costs for landowners, and smaller landowners are reticent to take on these costs without recovering them from marketplace premiums. “If you are providing a product that meets a higher standard, then you should be rewarded for providing that product,” says Jones. “That conclusion has not been realized in the forest certification marketplace. Yet, in all marketplaces with wood products, whether its saw wood, pulp wood, paper products, or pellets, premiums are not being paid for those certified products when compared to uncertified products. That is what creates some of the reluctance you are seeing from landowners to get certified.”

Recognizing that exclusively utilizing certification schemes will dramatically limit its access to wood fiber in the U.S., the United Kingdom’s Department of Energy and Climate Change has introduced a new pathway within its Timber Procurement Policy for fuel suppliers to prove the “legality and sustainability” of their fuel. This pathway is commonly referred to as Category B. This pathway, while eliminating the requirement for full-on fiber certification still requires significant supply chain and chain-of-custody documentation. This distinction is nuanced, but important, points out Seth Ginther, executive director of the U.S. Industrial Pellet Association. “In category B you have other certifications and processes that point to sustainability,” he says. For those in the sector, the challenge now is making sure that the requirements are enough to satisfy foreign governments and fuel buyers without introducing a burden to the landowners and pellet producers who stand ready to serve that market. “We’ll continue to work with DECC and try to influence them to allow the source of the most sustainable biomass in the world to participate in this marketplace and that is the southeastern U.S.,” says Jones.

For Plum Creek, the decision to certify has been made. “Certification is very good for a large commercial operation like Plum Creek,” says Jostrom. “It's a voluntary program so that we can tell our customers that we are doing the right thing. But it is very expensive and we are applying it to multiple age classes every year.”

Plum Creek’s decision to certify its lands predated the emergence of the pellet market. Nevertheless, Jostrom and Plum Creek welcome this new market as an important part of an ongoing, sustainable forest management plan. “Plum Creek is interested in the emergence of energy markets for our low-quality wood fiber,” he adds. “The reason is not because we envision that these will become the money crop for management. It is because it has become a tool for sustainable forestry. They allow us to use more of every tree that we harvest. They give us the economic means to thin our lands for forest health and productivity.”

Author: Tim Portz
Executive Editor, Biomass Magazine