26 March 2015
Chopping down trees for fuel is a controversial form of energy production. With demand predicted to grow rapidly, this roundtable organised by Environmental Finance with the support of GreenTrees and Gryphon Carbon Consultancy discusses the sustainability issues surrounding this fuel source, and what can be done to improve standards and certification
Ben Heathcoat Amory, supply chain development/policy analysis, Estover Energy
Benedikt Von Butler, carbon/biomass trading and structuring, Mercuia Energy
Marta Ciszewska, business developer, Statkraft
Peter Clarke, partner, Affine Global
Ben Cotton, external relationships, Earth Capital Partners
Carey Crane, founding partner, GreenTrees
Joost Kanen, founder, Gryphon Carbon Consultancy
Marko Katila, senior advisors, Dasos Capital
Alidad Moaveni, COO, AllMerus Energy
Fabio Nehme, CEO, Nehme Commodities
Gian Paolo Potsios, partner, Timberland Investment Resources
Chandler Van Voorhis, managing partner, GreenTrees
John Westmacott, managing director, Land Energy
Graham Cooper (chair), consulting editor, Environmental Finance
Graham Cooper: It may surprise people to know that biomass accounts for more than half of all renewable energy consumed in the EU. If we are going to meet our targets for 20% of renewables by 2020, there seems to be a consensus, certainly among politicians and policymakers, that biomass consumption is going to remain at least at that level.
Some projections see biomass consumption doubling between 2012 and 2030 in the EU.
Supply is falling short of demand in the EU, so there are growing imports, particularly from the US.That has obviously raised questions about the economics and net carbon benefits of shipping the material over the Atlantic.
To begin with, I would like to invite Chandler Van Voorhis from GreenTrees to give us a little more detail about the scale of the trade from the US, where the material is coming from, who is buying it and how the market looks likely to evolve.
Chandler Van Voorhis: What we have seen since 2007 in the US is the blossoming of the pellet industry.We have gone from one million tonnes of pellets, mainly for residential use, to 25 million tonnes (50 million tonnes of green wood) a year of pellets being planned, produced in the US and shipped across the world.
Europe has been the primary driver of buying a lot of it, although the Japanese and the Chinese have been buying as well.
In the US, 70% of all coal plants are 30 years of age or older, and 33% are 40 years or older. Utilities are weighing up whether it makes sense to convert an old coal plant to burn biomass or go into natural gas.
John Westmacott: There seems to be a perception [in the UK] that the US is not actually doing very much in terms of sustainability. How would you respond?
Fabio Nehme: Also, I think there was maybe six or nine months ago a statement from several scholars in the US questioning the impacts on biodiversity?
Chandler Van Voorhis: Largely, the green groups are concerned about the impact the biomass industry could have on the sustainability of wood.
This is primarily being fuelled through a study called the Manomet Study up in the North East where they looked at whether harvested trees would create a carbon debt. This report basically looks at the lifecycle at the point of harvesting.
One of the issues with the Manomet study is, yes, you are pulling wood off a given acre, but that acre is growing more wood than is being consumed.
There is a perception that there is no sustainability in the US. I would say that is largely false. As far as sustainability is concerned, the wood in the US and the forest inventories is better than it was a 100- odd years ago.
Joost Kanen: What I am seeing in Holland is that there will be huge growth in biomass consumption in the Netherlands, like in the UK. For example, in Holland now there is a big subsidy, a 3.5 billion subsidy, which will be released.The release depends on agreeing on the sustainability status for its biomass.
However, 80% of that biomass will come from the US. I think biomass will grow to a very large extent because the UK and the Netherlands actually only have biomass as a cost-effective option for reaching their renewable energy targets.
Carey Crane: Where that will come from is the South. In Mississippi, we measure tree growth in feet per year, in the rest of the country and in Canada they measure the tree growth in inches per year.
Marko Katila: There is no reason to suspect that forest management for woody biomass production in the US is not sustainable. However, you need to be able to verify it in the European market, which is introducing tighter standards for sustainability of solid biomass.
You look at the companies that are involved and the assumption is that the Forest Stewardship Council (FSC) certification and the Programme for the Endorsement of Forest Certification (PEFC) are minimum requirements.
“It is just a little bit confusing because there are so many standards and labels” Marko Katila
In some countries in the EU, certification will be voluntary, but countries such as the UK and Netherlands are introducing mandatory requirements, and Belgium and Denmark have also considered this option.
The EU last year scrapped the idea of introducing EU-wide binding solid biomass sustainability criteria, but it is likely that in five years they will introduce a directive.
Joost Kanen: One problem is that a lot of European countries have their own national standards. I think it is a very important point that we should strive for, that these biomass protocols and criteria are streamlined between the various countries in Europe as well as in the US.
Chandler Van Voorhis: One of the things to bear in mind when we talk about the various certification standards like FSC is that it is only economical if you start talking about 2,500 acres or more.There are 10 million private forest landowners in the US. There are only 19,000 that own more than 1,000 acres.
We think some of the carbon forestry standards actually go much further and deeper than where FSC goes. Ultimately, FSC and Sustainable Forestry Initiative (SFI) standards are about how material is extracted from the land.
When you go through a forest carbon standard you are getting down inside the tree, inside the parcel of property, in addition to all the forest management plans and all the controls and accounting for the wildlife and the environment on it.
One of the opportunities to put on the table is to create a mechanism that will allow flexibility where we could attach carbon credits from reforestation or forestry in general to pellets, and sell that as meeting these requirements.
What better way of getting sustainable, knowing that for every tonne of wood that I am combusting in the atmosphere I have got one tonne associated from a reforestation project?
That is where you are going to get a big bang for the buck in terms of sustainability.
Gian Paolo Potsios: From an institutional investor perspective, we have been resisting certification for a while. Basically, on the ground, local state and federal rules for people in the US are actually more stringent than the certification requirements.
Unfortunately, what is happening is if you are a large pension fund or insurance company and you have invested a couple of hundred million dollars of your portfolio into forestry, you want to be sure that whoever starts sniffing around does not find out that you are not certified. Reputational risk is basically what I am talking about here.
We have had to SFI certify 100% of our portfolio over the past two years.You cannot operate now any more in the institutional investor space without having certified.
Marko Katila: At Dasos, 100% of the forest assets must be certified, FSC or PEFC.
It is not enough for some potential investors that biomass is FSC-certified.
It is just a little bit confusing because there are so many standards and labels.
It adds to the cost, not only to a small producer. It adds to the cost of a bigger producer also.
The idea of streamlining sustainability criteria is crucial, and there is potential. FSC has been looking at the potential of linking with voluntary carbon standards.
So, if we have carbon standards of high quality and premium quality then it already demonstrates the commitment to sustainability. However, the market, for whatever reason, may require FSC.
Carey Crane: The market might require FSC, but with a carbon scenario, you have a contract with the landowner.That is a little different than saying, 'I promise to do something in a particular way.'With carbon, we could show you the contract. There are penalty clauses and everything else that are involved in it.
I could tell you what is being maintained on the land from a carbon contract perspective. However, I cannot necessarily tell you that from an FSC point of view.
Gian Paolo Potsios: I think one of the challenges with biomass is not only having this number of certifications, but also it feels like a moving target. It almost boils down to evolving regulatory risk.
I think the issue is not only getting one or a few standards that everybody is comfortable with quickly, but also bringing them to a point that you are not reviewing this every year.
Joost Kanen: I am also interested about the subsidies for biomass in the UK, and maybe Ben could comment on that?
Ben Heathcoat Amory: In 2009, the UK government said, 'Right, we will unconditionally support the conversion of biomass to energy, whether that is heat, electricity or combined heat and power on any scale.' Since then, they have refined their support and basically now support heat-only projects, the conversion of some coal plants and combined heat and power plants.
They do support new dedicated power, but only up to the 400MW cap, but many are not now being built. The main focus is on heat. As a result, there was a huge pipeline of projects which were going to be built and loads of coal plants that were going to be converted. Very few are now going ahead, compared to the original pipeline of about 150 projects.
Part 2 of this roundtable can be read here.