More Thoughts on Foreign Investments in Timberland

My last post generated a couple of comments that referenced FIRPTA (Foreign Investment in Real Property Tax Act) and the likely impact that the law would “keep Asian demand in U.S. timberland muted”. The law has been around since 1981 so I thought that I would take a look at what the impact of foreign investment on timberland has been to date.

At last weeks Timberland Investment Conference, Stephen Schrock with Manning, Morris & Martin, discussed the Agricultural Foreign Investment Disclosure Act which requires “Foreign investors who buy, sell or hold a direct or indirect interest in U.S. agricultural land must report their holdings and transactions…” Agricultural land includes timberland as well. Penalties for not reporting can be very severe (25% of the fair market value of the land). The USDA Farm Service Agency compiles the data and produces an annual report summarizing the data.

Two comments from the summary of the current report:

• “Forestland accounted for 59% of all foreign held agricultural acreage…”
• “Foreign holdings of U.S. Agricultural land were relatively steady from 1999 through 2006; between 2006 and 2007, there was a significant 3.6 million acre increase and between 2007 and 2008, there was an increase of 1.4 million acres. Between 2008 and 2009, there was an increase of 1.3 million acres.”

The total numbers can somewhat mask what has happened with timberland alone but the graph below tells the story pretty clearly.

Trends in Foreign Holdings of Agricultural Land by Type of Use For the Period 1999-2009

I have to interpret the graph as saying that FIRPTA may have an impact but that it certainly does not prevent foreign investment in U.S. timberland. You can read the entire report here.

So that’s the past. What does the future hold?

From my own personal experience, I can assure you that there remains a strong foreign interest in U.S. timberland by both European pension funds and Asian investors. I suspect that the acquisition of pulp and paper mills by the Chinese will continue and I suspect a few sawmills will get thrown into the mix too. And I can’t imagine that the option of vertical integration of pulping operations is not on the table and that timberland ownership will not be the result. Is that good or bad for us? Ask the employees of the pulp and paper mills in Woodland, Maine, Halsey, Oregon and Potsdam, New York. The Asians supply the capital and the markets and we get the jobs. It might not set well at first blush but that’s a reversal of the way things have been and that’s not such a bad thing.

And remember, as we have seen domestically during the past year, all investors are not institutional or industrial! There are some very large investments coming from the high net worth individuals and families that have changed the market. We MAY be on the edge of another significant change in the ownership of U.S. timberland and whatever implications that may bring. --Brian

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Will the Chinese Start Buying Timberland?

In a conversation surrounding timberland investments with Steve Wilent, editor of The Forestry Source, a couple of days ago, the subject of foreign investment in timberland came up. It's pretty well known that there are significant investments being made by the European pension funds. But what about the Chinese that are going all over the world tying up commodities. The Chinese have put a very high priority on vertical integration to assure they have the raw materials necessary to supply their industries.

It is estimated that the gap between China's domestic wood supply and total demand will reach 150 million cubic meters (roundwood equivalent) by 2015. For perspective, that is more than the entire Canadian harvest. Where will the wood come from? They have greatly expanded their domestic paper mill production but where will the pulp come from? We ship them a lot of waste paper but that is not going to do the job.

So..., will they move production to the U.S. and vertically integrate their operations (paper mill to pulp mill to timberland)? If so, when does it start? Just in case you were not watching, it already has begun! Following are extracts from three news releases. --Brian

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From the Bangor Daily News, Dec. 21, 2010: 

New Woodland mill owners investing in facility’s future

WOODLAND, Maine — The new owners of Woodland Pulp LLC, formerly Domtar, are investing in new energy efficiencies at their pulp mill using state and federal funds, Gov. John Baldacci said Tuesday.

Baldacci stopped in to visit the mill Tuesday morning, and offered whatever assistance the state could provide to assist the new owners, IGIC of China and Taiwan, to ensure the mill’s security and expand.

The facility’s director, Bert Martin, said the company’s future was finally secured with the change in ownership. “Christmas actually came here on October 1,” he said, referring to the date the mill was sold.

“We now have an owner that wants this mill,” he said. “This lets our people know they will have a job next week, next month and next year. I think the mill today is in a very good position.”

Martin said 300 people now work at the mill and that up to 10 more people will be hired at the start of the new year.

“This mill was in jeopardy of closing,” Baldacci said after a private meeting with company officials. “Domtar had made it very clear the mill was not part of their core mission and had been actively pursuing other investors and new owners.”

Baldacci called the mill “the lifeblood of Washington County” and said that each mill job represents another three or four jobs in the region, such as clerks, waiters and bank employees. “The ripple effect is huge,” he said, noting the mill has an annual payroll of $20 million to $25 million.

Martin said that the mill is using 1.5 million tons of fiber annually, pulled from every region of Maine and New Brunswick. “We generate jobs all over the state,” he said.

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From OregonLive.com, Feb 4, 2010

Hong Kong corporation buys Oregon pulp mill

 A Chinese company hoping to expand into the North American forest products business has purchased Cascade Pacific Pulp, LLC, a pulp mill at Halsey in the lower Willamette Valley. 
 
The sale to Hong Kong-based International Grand Investment Corporation could be a first in Oregon, which has not seen many foreign owners in the wood products industry. 
 
The Halsey mill had been owned by one of Oregon's most storied forest products companies, Pope & Talbot, which went bankrupt in May 2008 after 160 years. 
 
"I'm not aware of any other mill with owners in China," said Ray Wilkeson, president of the Oregon Forest Industries Council, an industry trade group. "It would not be surprising to see more of that in the future." 
 
The purchase of the mill, for an undisclosed price, is also a first for the Hong Kong company. It mainly has acted as a trading company, buying pulp from all over the world to sell to customers in China, Wayne Henneck, president of Cascade Pacific Pulp, said Wednesday. 
 
It could signal a new shift in the industry as China's growing demand for paper products fills a void left by a shrinking market in the United States. Sales to Asia now make up about one-half to two-thirds of the Halsey mill's business, Henneck said. 
 
"The (Hong Kong) company is integrating vertically," said Henneck, who will remain president. "The Asian markets have been very hot. This is the first mill they'll own in North America. It may not be the last." 
 
International Grand Investment Corporation was just incorporated in Delaware in December 2009. 
 
In the past two years, the Halsey mill has gone through a roller coaster of ownership changes, creating uncertainty for its 170 workers in an area with some of the state's high unemployment. In Linn County, the jobless rate was 13.5 percent as of December 2009. 
 
But Henneck says he sees the sale as providing some stability for the mill, which is seeing an uptick after spells of downtime during the recession. The mill produces over 180,000 tons of bleached and unbleached pulp per year for use in various paper products and building materials. 
 
The mill's previous owners, a Minnesota private equity firm called Wayzata Investment Partners, won the mill for $31.2 million in an auction in June 2008. But it refused to recognize the union for months, creating workplace tensions. 
 
"The private equity firm always intended to buy distressed companies, get them on their feet and sell them," Henneck said. "They were not interested in pulp and paper. These are strategic owners who are interested in what we do." 
 
Union leaders said no workers will be affected by the ownership change because of a protective clause in their contract. Rumors had been flying for months that a new owner was on the way. 
 
"Everyone's feeling good," said Ernie Lamoureux, a staff representative for the United Steelworkers. "The pulp market is still pretty good. They're selling a lot of it to China." 
 
Wilkeson said that China's continuing growth will likely shape the forest products industry in Oregon and the United States for years to come. 
 
"There's no question they're going to be a big dog," Wilkeson said. "It's a competitive world, but there's another side to the coin. There's also a lot of demand."

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From northcountrynow.com

Potsdam paper mill exporting products, technology

Tuesday, August 3, 2010 - 12:01 pm

By CRAIG FREILICH

UNIONVILLE – Potsdam’s century-old paper mill is working to develop new technology that its owner may use in paper plants in China.

Meanwhile, Potsdam Specialty Paper General Manager Ron Charette says the plant worked through a drop in sales that swept the whole industry, and is now back to pre-2008 production levels running three shifts with four crews.

Seafront Specialty Paper, which bought the mill from MeadWestvaco two years ago and dubbed it Potsdam Specialty Paper Inc., is a holding company based in the British Virgin Islands. Seafront has offices in Hong Kong, New York and Toronto, and is chaired by Kenny Chang, also a major stockholder. The Potsdam mill is on Sissonville Road along the Raquette River.

One of Seafront’s major aims is to develop products and procedures that would be put into use in paper mills it plans to acquire in China.

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THE FOREST INDUSTRY OF THE FUTURE: What Will It Look Like?

The following post was originally published by Timber-Mart South 4th Quarter 2009 -- Vol. 14, No. 4, January 2010

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I was recently asked to speak at the North Carolina Forestry Association’s annual meeting in Myrtle Beach on the above captioned topic. Before agreeing to the talk, I had to think about it for a while. The quote “Its tough to make predictions, especially about the future” attributed to Yogi Berra, as most quotes are, hung in my mind for a few days. But I took a shot at it and later agreed to share some of those thoughts with TMS readers.

First, there has to be a basis for the prediction. The basis that I chose was to look at the changes occurring in the forest industry and to look at what I thought the future economic environment might look like.

The three key changes in progress are:

1.    Changing Timberland Ownership
2.    Biomass for Energy
3.    Global Industrial Revolution

Timberland Ownership: The shift in ownership (from forest industry to institutional) is well documented and well underway so there is no need to spend time on it (maybe a couple of comments!). Due to the housing/lumber market collapse, timberland owned by the sawmill industry is following in the footsteps of that formerly owned by the pulp and paper industry. This is illustrated by the timberland ownership shifts of Allegheny Wood Products and Anthony Forest Products to TIMOs. Survival can be tough. The second point is that the institutional owners have no allegiance to a mill so the wood will flow to the highest bidder.

Biomass for Energy:  This is not a new thing but its impact is changing and the magnitude of the issue is not universally well understood so it merits significant discussion. There are three drivers pushing the biomass market shift.

1. Renewable Energy: The desire to shift to energy sources that we cannot “run out” of. Many states already have legislated renewable energy targets and biomass, particularly in the Southern states, is playing a key role toward the advancement of those goals.
2. Climate Change: The desire to shift away from energy sources that add to the perceived problem of man caused global warming. Burning wood is carbon neutral when viewed from a carbon cycle perspective. This appears to be more of a political issue than a scientific one but that is irrelevant to the outcome. Pellet exports from the U.S. to Europe increased over ten fold last year fueled by carbon taxes in EU countries. If Cap and Trade is passed here, expect to see an even greater shift from coal to biomass by utilities.
3. Energy self-sufficiency: This is the most important concern from my perspective. It is significant from both national defense and economic security points-of-view.

So where will this biomass come from? The primary sources of woody biomass are manufacturing residues, harvest residues, urban waste (construction, etc.), pulpwood and short rotation crops grown specifically for biomass. I have looked at available manufacturing residues for multiple clients and there is just not a significant amount available. It is virtually ALL being used and most of it is used by the forest industry to produce products or energy. Harvest residues are there BUT, as the pulp and paper industry knows, harvesting residues is expensive, they have a negative impact on mill processing and they produce a product of inferior quality and value. These traits are equally true for pellets and pulp. I don’t know much about urban waste but there is less of it with the housing market decline. So that leaves pulpwood and that is where the bulk of the woody biomass resource will come from.

To better understand the magnitude of potential biomass demand, let’s look at some of the new facilities.

A Pellet Mill: The pellet mill in Cottondale, Florida started up in April 2008 as the largest pellet production facility in the world. One hundred percent of the plant’s production is for export to Europe where the pellets are mixed with coal to reduce carbon emissions in the production of electricity. The driver behind it is the European carbon tax applicable to coal but not the carbon neutral wood pellet. The plant produces 560,000 tons of pellets annually and consumes about 1,000,000 green tons of wood. The resource used is not “residue” - it is pulpwood. This facility is the equivalent of a new pulp mill.

Cogeneration: This is certainly not new in the forest industry as our pulp mills have been doing this for a long time. What is new is the magnitude of the projects. Industry is expanding the use of cogeneration, schools are installing the systems and one village in Pennsylvania is building a system to use the steam to heat all of the houses in the village as well as supplying the electricity to them. An industrial example is the Sonoco / Peregrine Energy Corporation plan to develop a new $135 million woody biomass-fueled cogeneration plant in South Carolina. Plans are for Peregrine to construct a new 50-megawatt capacity facility that will be capable of generating enough electricity to power approximately 14,000 homes. The new biomass-fueled cogeneration facility will replace Sonoco's existing coal-fired boilers. Peregrine intends to sell the entire electrical output and all renewable energy certificates associated with the plant to Progress Energy Carolinas, Inc., and low pressure steam from the plant to Sonoco for use in the manufacture of recycled paperboard and other converted products. “The project would benefit the regions' forestry industry by utilizing pre-commercial thinnings and waste logging residues as the woody biomass fuel for the project.”

As a rule of thumb, a 100-megawatt plant will consume about a million green tons so this facility will consume about one-half of that but that is still a lot of precommercial thinnings!

A Coal Fired Power Plant: This one really caught my attention. The power companies are struggling with the renewable energy standards. In the East, there is limited opportunity for wind, solar or geothermal so biomass is about the only alternative left (hydro is out for a multitude of reasons). FirstEnergy at Shadyside, Ohio has announced its conversion from coal to biomass. The largest proposed development to date had been Yellow Pine Energy's 110 MW project in GA, a million-plus ton/year wood consumer. FirstEnergy’s is 312 MW and will consume 3 million green tons! This is on a par with the South’s largest pulp and paper mills.

The sheer quantity and magnitude of the announced facilities similar to the examples above is staggering from a resource consumption viewpoint. Not all of them will come to pass but it is very clear that enough of them will reach production levels that will greatly impact the future supply/demand picture for forest products.

Global Industrial Revolution:  The third key change, the global industrial revolution, is well under way but it may never be realized. All of the developing nations have ambitions to reach the standard of living with which we are blessed but the commodities, the natural resources, are just not there to reach that level on a global basis. Commodity shortages, particularly oil and other transportation energy sources, will prevent the world from reaching the level that we have obtained and, more than likely, those same shortages will prevent us from maintaining that level. Escalating transportation costs will cause us to revert back to a society much more dependent on manufacturing. It is significantly less expensive to ship dried lumber than logs.

The three key changes mentioned above combine with a couple of additional economic factors to create the drivers that define my view of our economic future. The drivers are:

• Social drive for renewable energy, energy self-sufficiency and climate change
• High energy costs- The key cost escalator
• High Inflation Rate (perhaps hyperinflation) driven by:
      * Very high government spending
      * Very high oil prices
      * Commodity shortages, including timber
• Declining Value of Dollar (see Figure 1)

Source: fxstreet.com

 The Future of the Pulp Mill: Domestic paper demand will continue its downward trend but I am not as pessimistic about the industry’s future as most people are. The continuing decline in the dollar, although very bad for the consumer, will have a positive impact on the pulp and paper industry. The export market will be much brighter. A great deal of capacity has already been taken out of the market. Although bio-refinery economics are very unclear at this time, more capacity may come out as some mills are converted from pulp to production of “of ultra-clean, renewable motor fuels”. As the energy transportation costs rise, it may be cheaper to burn pulpwood for energy and to convert black liquor to transportation fuels. The key driver is the future price of oil and that may be considerably higher than the current consensus. The major downside for the pulp and paper industry will be the competitive demand for wood. Wood is both its raw material and its energy source and the power companies are going to be very tough competitors.

The Future of Sawmills: Despite the doom and gloom about future housing, domestic lumber demand driven by housing demographics still looks good after the excesses have been worked off. The Global Industrial Revolution combined with a weaker dollar will create a very positive manufacturing and exporting environment for sawmills. Global housing and lumber demand will be high and the U.S. will be one of the key suppliers. Very high energy costs make it more cost effective to ship lumber than logs to export markets, reversing the current norm.  There will be a much more competitive market (higher prices) for mill residues. Consistent and steady demand from biomass consumers will provide a steady supply of logs from producers. Things couldn’t look much better assuming there is a mill somewhere that survives the current crisis! It’s always darkest before the dawn.

The Future of Biomass Consumption:  Biomass utilization is a game changer in the forest industry because of the sheer quantity of biomass that will be utilized. Many schools in cold climates are heating with wood chip boilers today and they are saving money without any subsidies (and this is spreading to the warmer South as well). European villages have moved in that direction and some Canadian and U. S. villages are capitalizing on their experiences. The developing demand by the power companies seems so huge as to be unsustainable. Transportation cost increases will work against the large biomass programs such as the 3 million G ton Ohio facility. Power facilities with less output and shorter haul distances will be more cost effective (diseconomies of scale). If the “man-caused” global warming issue does not result in tax legislation, if consumers scream too loudly about electrical cost increases, government may back off and the power companies will be able to revert to coal to produce electricity more economically. That would take the pressure off biomass and still provide energy self-sufficiency to a degree. But even that scenario will not change the shift to biomass for energy. Oil is a finite resource and more energy must be expended to get each additional barrel. Like it or not, oil prices are on the wrong end of the power curve and that means that transportation costs are too. There WILL come a point, I don’t know when, where cellulosic ethanol (or one of the other wood-based transportation fuels) is less expensive than oil. When that happens, the forest industry is changed forever.

The Future in the Forest: Recent economic drivers supporting longer rotations are creating a “wall of wood” in the sawlog size class. Institutional investors have lengthened rotations from the pulpwood size-class to the sawtimber size-class to capitalize on the price differential. Sawtimber sales have been deferred as a result of poor markets, so harvest followed by planting has slowed (Figure 2).

The graph shows a significant decline in planting, which is troubling to some folks, but more likely reflects increased thinnings and significant reductions in clearcutting. Short rotation energy plantations close to market will happen IF wood costs go up significantly OR planners fail to anticipate increases in transportation costs. There will be more “in-woods” operations (chippers, biomass harvesting, biochar, and perhaps mobile methanol) – all driven by higher oil costs. Biomass harvests will be incorporated into conventional tree planting prescriptions. Much more competitive markets will mean higher stumpage prices for biomass and pulpwood. The current growth/drain ratios are very favorable (Figure 3) but sustainability will probably become a political issue if not a real one.

Changes in Wood Supply Chain: It is the same basic Wood Supply Chain, but…

• Harvest residues will be added, probably more mechanized
• Biomass demand brings more stable wood demand
• No monthly (weekly, daily) shifts in mill consumption
• No shifts in species needed
• Annual contracts for wood producers become practical for biomass production – good news for loggers!
• May force the same for pulpwood and sawlog buyers
•  Logging will become a more robust, stable and competitive market segment

My Synopsis of the Future Forest Industry

• Biomass/Power companies will be a key part of the industry.
• There will be more “in-woods” operations (chippers, biomass harvesting, biochar, and perhaps mobile methanol).
• A smaller pulp and paper industry will survive and exporting will play a larger role.
• Sawmills: Demographics still favor housing and lumber export market will become significant. Imports less competitive.
• Logging contractors will have a more stable operating environment. Annual production contracts.
• Stumpage market will be more competitive and more stable.
• Plantation establishment will consider energy market.
• Timberland ownership will be a good place to be!

So that’s the way I see it. A global economy responding to a failed energy policy built on unsustainable oil production. This view of the future may not be right but it is worth considering as you go forward.

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Differing views welcome, especially if rational is explained. --Brian

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Baptist, Bootleggers and Biomass

When I moved to North Mississippi to buy land in the late 60’s, I landed in a “dry county” where it was illegal to buy or have alcoholic beverages in your possession. Like most folks, I enjoyed an occasional adult beverage. And coming from an Italian family, this was a pretty foreign concept to me. I asked “Why?” and the answer came back “because of the Baptists and the bootleggers”!

It was a coalition of two diverse groups with very different reasons and objectives. The Baptists supported the “blue laws” for religious, moral and ethical reasons and the bootleggers supported the same laws for reasons of personal financial gain (although it was pretty widely known that some members of the latter group were widely outspoken members of the former group!). The differences in their motives were irrelevant with respect to their ability to create a strong coalition that maintained a common objective.

A similar coalition has evolved to oppose the development and use of renewable energy, specifically biomass. The group is composed of environmentalists, power companies and the pulp and paper industry. Strange bedfellows again.

The news media’s focus on renewable energy is pretty much confined to solar and wind and what might be. Here is a graph of what is - courtesy of The Energy Information Administration.


Renewable energy currently supplies a meager 7% of the nation’s energy consumption. A year ago it was 6% and 90% 0f that was equally split between hydropower and biomass. All of the rest combined represented less than 10% of that meager 6%! The significant growth in renewable energy in 2007 came from biomass, and to a lesser degree, from wind. Now, let’s take a look at the coalition and what is driving it.

Environmentalists: The environmental community has been a strong proponent of renewable energies up until the point of actually supporting their implementation. Following is a look at the rational and frequent hypocrisy of its “support” for renewable energy.

On Hydropower
Hydropower dropped from 45% of renewable energy consumption to 36% of renewable energy consumption in one year. Hydropower production of electricity has come at the expense of free flowing rivers and I know of no environmentalists that support the expansion of hydropower by damming additional rivers. In fact, I know of very few Americans at all that support expansion of hydropower by flooding more rivers. Even if there was support, it would be squashed by the “discovery” of an endangered minnow or mussel. There will be no more hydropower sites added and some likelihood that there will be calls to restore some rivers to a natural state creating a loss of hydropower. There may be some gains in efficiency but, for all practical purposes, what we have today is all we can expect. Increases in renewable energy will have to come from other sources.

On Wind
Wind and solar represented the energy mantra of the environmental community until engineers dramatically improved the efficiency of windmills to the point of making them actually cost-effective in many (windy) situations. The environmental downside of windmills includes damage to certain species of birds (call in the Endangered Species Act again) and aesthetics. The only places that aesthetics are at issue are the mountains, oceans, deserts and the places in between.

This is a link to a Grist article entitled The Wind and the Willful: RFK Jr. and other prominent enviros face off over Cape Cod wind farm, By Amanda Griscom Little. It starts with the following quote.

A long-simmering disagreement within the environmental community over a plan to build a massive wind farm off the coast of Cape Cod, Mass., is now boiling over into a highly public quarrel.

It is a good article illustrating the conflict in the environmental community. When the NIMBY attitude combined with the political clout of the Kennedy clan, the entire world watched as the environmental hypocrisy and political power of the Kennedy family emerged to create the reality of what it will take to actually implement renewable energy projects.

On Solar
Here are a few extracts from a FOX News article Feinstein: Don't Spoil Our Desert With Solar Panels.

“Sen. Dianne Feinstein said development of solar and wind facilities in California's Mojave Desert would violate the spirit of what conservationists had intended when they donated much of the land to the public.”
“"It would destroy the entire Mojave Desert ecosystem," said David Myers, executive director of The Wildlands Conservancy.”
"This is unacceptable," Feinstein said in a letter to Interior Secretary Ken Salazar. "I urge you to direct the BLM to suspend any further consideration of leases to develop former railroad lands for renewable energy or for any other purpose."

Need I say more?

On Biomass
There are others much more in tune than me with the battles that have raged recently over the definition of biomass in this year’s Energy Bill but I have seen enough of the terminology to understand the role of the environmentalists. In an effort to suppress a fear that natural forests would be converted to plantations they were successful in creating a definition that excluded most trees from the definition. In the end, more rational heads prevailed within the environmental community and they worked to provide a reasonable, workable definition. Still, biomass growing on our federal lands has been excluded as a source of renewable energy. And that’s a lot when you consider that about 1/3 of our forests are on federal lands.

On Nuclear Energy
Nuclear power is not technically classified as renewable but it too, is an option that could replace much of the coal and biomass for electrical production. One publication by an environmental organization claims that 30,000 deaths a year are caused by particulates from U. S. coal-fired power plants yet none (that’s zero) have ever been caused by a nuclear power plant. Environmentalists have done a very effective job at scaring the American public to the point where it is questionable whether we can look at nuclear power in a rational manner. IF we are going to do it, some folks in the environmental world will have to play a leadership role. What would the environmentalist’s position be if 30,000 people were killed each year in nuclear accidents? We have options and it is up to all of us to pursue them in rational manners without the scare tactics.

Power Companies:
The power companies have an industry pretty much built on coal. It’s not that they love coal, it’s that coal is the least expensive way to produce electricity and their customers want low cost power. As an industry, biomass as a replacement for coal is an expensive proposition and they want to hold their costs down so there is a good reason for the resistance to the move to biomass.

But not all power companies are in the same boat. A large part of the cost of coal is freight. The largest cost component of biomass is transportation. So look where the resource is and it is pretty easy to see which states have an economic incentive to support or oppose the utilization of biomass. Transporting low sulphur coal from Colorado to Georgia or wood from Georgia to Colorado doesn’t make a lot of sense economically or environmentally. The utilization of energy resources close to the power facility makes a lot of sense and that is what we are seeing evolve from the plans of the power companies. The power companies outside of the nation’s “woodbasket”, sitting on coal reserves, are and will continue to be a part of the coalition. The companies in the Southern woodbasket will remain a part of that coalition UNTIL the 15% renewable energy standard really is a standard, then biomass becomes the least expensive option. In fact, in the South, it is pretty much the only option for both carbon neutral and renewable energy so some of the companies are moving quickly to secure their woodbasket.

Pulp and Paper Industry:
The pulp and paper companies, like the power companies, are looking at both costs and their ability to survive. They are faced with increased global competition, severely declining demand and now a new threat that is competing for both their raw material and one of their primary energy sources. Although they probably use more renewable energy than any other industry, don’t expect them to embrace a national shift to biomass that will make it even more difficult for them to compete or survive. Inflation, followed by a weak dollar, may save the industry but “hope is not a strategy”. The industry must fight for its survival on all fronts and we should expect to see little change on the biomass front.

The question that the industry poses is whether or not the forest can sustain both the pulp and paper industry and a robust biomass industry. Collectively, is it sustainable? One solid argument is that the economic value of the pulp and paper industry (employment, value added, and multipliers) is much greater than can be achieved by the biomass industry. Below is a graph produced by the South Carolina Forestry Commission that illustrates how important pulp and paper is to the forestry sector in that state.


On the value added issue, it is questionable. The resource supply chain for the two industries is identical – stumpage, harvest, transport to mill, and woodyard handling. I’m not sure how many more people a pulp mill employs relative to a pellet mill. If you throw in the paper mill, you have to throw in the power generation plant on the other side of the equation. I’m not sure how much difference there really is AND I’m not convinced that there isn’t room for both. I just don’t accept the argument that it has to be one or the other.

The industry is crying “sustainability”. And they are doing it in an organized and deliberate fashion. As a 40-year veteran of the pulp and paper industry, I am disappointed with the industries position. Twenty years ago the industry would have taken a strong positive approach and embarked upon an effort to substantially increase planting, growth and future availability of wood. Landowner assistance programs would be growing and new ones would be sprouting. Tree improvement programs would be well-funded in an effort to grow more and better trees on each acre. This time the industry has taken a position that is negative to all of the components of their entire wood supply chain. Negative to the growers of the wood, the loggers who harvest it and to those that transport the wood to the mills. People remember such things.

Some Final Thoughts:
If a shift to renewable energy is to be successful, some environmentally responsible environmentalists must step up to the plate and show some leadership. It is doubtful if an effective renewable energy policy can be developed with an environmental community unified behind antagonistic policies for every form of renewable energy but hemp. Additional hydroelectric sites are out of the question. That leaves wind, solar, geothermal and biomass. The environmental community must decide how best to utilize and mix the combination of those four renewable energy options or oil, gas and coal will be the answer. The environmentalists continue to fiddle as Rome burns.

The power companies are looking strictly at cost. Most of them have some level of governmental support, usually in the form of a monopoly supported by government control of prices. If a national goal of energy self-sufficiency, with a strong component of renewable energy and carbon reduction, is the goal, the pricing issue is something the power companies can understand. That problem can go away quickly if Americans want renewable energy and are willing to pay for it. If Americans are not willing to pay for it, then the power companies are right on target with their objections.

The pulp and paper companies have traded a level of self-sufficiency (typically in the neighborhood of 25% - 30%) for the cash received for selling their land. This was a deliberate decision done after weighing the options and now the industry must live with it and it may not be pretty. The market will determine what products the new timberland owners will grow and sell. The pulp and paper industry has long touted its ability to compete in a fair and level playing field. The playing field has changed as the nation seeks energy independence, renewable energy sources and reduced carbon emissions.

If the anti-renewables coalition is not broken, Rome will be in ashes.

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