02 April 2015
With demand for woody biomass predicted to grow rapidly, part two of this roundtable organised by Environmental Finance with the support of GreenTrees and Gryphon Carbon Consultancy asks whether the industry has done enough to promote sustainability standards
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: Can we go back to the question of standards? There is still uncertainty, which is a big concern for the industry, about standards.What criteria do Drax and the other buyers in Europe ask for?
Chandler Van Voorhis: Initially, Drax and RWE had their own internal standards that they were developing.
Drax has been procuring a fair amount in the Carolinas and they have two plants in the Mississippi Delta region.We have visited them numerous times and they were bringing in third parties to do stuff in the absence of standards. Every utility is a little bit different.
With carbon, you have agreed standards like Winrock International's American Carbon Registry.
Ben Heathcoat Amory: In the UK they have introduced the Timber Standard. Ideally, everyone would do everything to an FSC/PEFC standard.The reality is it is either non-economic because producers are too small, or the regulation in the country of origin is more than enough.
What they are really trying to tackle and make sure is that you are not going to the Southern hemisphere and driving people off their land and not replanting.
What the Timber Standard is trying to do is say, 'Yes, if you are FSC certified, fantastic. You may call that Category A. If you are not, then you need to report through Category B', which basically needs to show that you have obeyed the local laws, which take into account land ownership, land rights, access rights, environmental quality, water quality and biodiversity.
Gian Paolo Potsios: The Sustainable Biomass Partnership, which I think is a response to this issue, is a group of utilities coming together to develop their own standards and, in addition to that, selecting and approving third-party certifiers, and starting to create a common set of criteria to make the market more efficient, with a standard that all of them would participate in.
As I understand it, approving certifying bodies is something that is probably going to go live in a few months.
Carey Crane: What are we trying to achieve by these standards? To me, we should be focusing on the risk of reversal. In other words, what is the risk of losing that forest? To me, having some kind of contract with the landowner is going to have a lot longer lasting effect than something saying, 'Well, I promise to harvest in a particular way.'
"All this confusion adds to the costs" - Gian Paolo Potsios
Gian Paolo Potsios: One thing that has not been addressed is that all this confusion adds to the costs. From my institutional investors' perspective, and I am their outside manager, that is a drag on performance. If you start dragging down their performance 100 basis points, 200 basis points... Cost is critical.
Marko Katila: You can have sustainability of forest management, and still not have sustainable bioenergy production.
There was some really strong research commissioned by an EU agency last year showing that when it comes to the overall impact of carbon balance, it is possible that converting bare land into a sustainably- managed plantation and then logging it, transporting it, not to talk about shipping it from the US to Europe, and converting that into energy may be, over the lifecycle, similar to coal in terms of carbon emissions.
So, it is not any more only a question about sustainability in forest management. They are looking at the lifecycle approach, across the entire production chain.
Alidad Moaveni: I think that study that you mention is probably a very good thing, not because of the quantitative conclusion it draws but because it attempts to bring in all the various factors with which the industry, and frankly the biomass power generation and the feedstock side, is trying to come to grips.
My understanding is [that] in the UK, one of these wholesale standards does try to quantify the cradle-to-use impact of bioenergy.They do try to quantify the energy content of actually growing forest, fertilisers, the growing, the transport and the use.
The transport, which makes big headlines when you are cutting trees down in the US and bringing it over to burn in the UK, is actually not a huge component of the overall equation.
I think it is also clear that using locally sourced and waste wood is probably ultimately more carbon neutral than other means.
"Transport, which makes big headlines when you are cutting trees down in the US and bringing it over to burn in the UK, is actually not a huge component of the overall [carbon] equation" - Alidad Moaveni
All of this data is slowly being understood for what it is, and that will allow the proper price signals to work their way through the system.What is very clear is that we are not there yet.
Marko Katila: You go to Sweden and Finland, in these countries 20% of total energy is produced by woody biomass. Most of it does not come from plantations targeted at bioenergy production. It is "waste" wood (early thinnings, stumps, branches) from harvesting, and by-products from sawmills and then from pulp mills.
It is a different story to the dedicated biomass plantations in the Southern US. In a way, in Nordic and many other European countries it can be considered as a kind of by-product.
Chandler Van Voorhis: It is interesting because, having worked closely with Duke Energy on some of their plants in the US, they looked at waste wood and the conclusion that we came to about waste wood was two things.
When you are making a $300 million–$400 million capex decision on converting a coal generation facility to biomass, why would you base your power supply on a derivative of an industry that you know nothing about ie waste wood?
The second is there is a certain amount of waste wood that needs to be kept on the forest floor. From an ecosystem standpoint it is not waste wood. It is food to re-nitrify that soil. So you are really starting to impact on the activity of that forest decades down the road.
"Fundamentally, when you look at a tree, a tree has no economic value until it is cut down" - Chandler Van Voorhis
We have seen a lot of utilities move away from this notion of picking up all the waste wood from pulping operations and other timber activities. At first, the price is attractive, but in reality it is not how you want to make a supply chain work.
I do want to throw one parallel out there. I think one of the reasons that some of the green groups are concerned is the underlining fear of what we have seen with corn for bioethanol in the US.
Since 2005, the number one consumer of corn in the US is not humans. 40% of all corn in the US is going into the gas tank. We did the calculations. It is something like 38 million acres of land is designated in the US just for gasoline consumption.That causes all kinds of issues.What the environmental community is concerned about is, is the industrial appetite for bioenergy greater than we really realise?
Benedikt Von Butler: Maybe I am cynical, but in a way I think sometimes biomass could really be the Mini Disc which is replaced by an MP3 player, which is other sorts of renewable energy. The reason I say this is that at the moment biomass is a means to an end, in that it has a renewable energy carrier and storage function. However, as soon as you have alternative storage and carrier options, then this becomes a redundant fuel.
We see how the energy market in the EU is diversifying, so the whole business of big dedicated centralised power plants is falling away, giving way to households having their rooftop solar and battery storage.
So, as soon as you have a breakthrough in battery storage, then...
Chandler Van Voorhis: I agree there is a lot of advancement on storage for what is largely peak energy right now, in wind and solar.There is not enough tellurium in the earth's crust to efficiently develop solar across broad economies.There is not enough iron ore in the earth's crust to power the US off wind, even though there is enough wind that blows across the US.
When it comes to biomass, there is just not enough land. Every one of these energy outputs has a peak commodity input that is governing it, let alone a technology hurdle and challenge.
"Biomass could really be the Mini Disc which is replaced by an MP3 player, which is other sorts of renewable energy" - Benedikt Von Butler
Alidad Moaveni: On storage it is very exciting, and particularly what is happening in California. It is a bit of a Holy Grail. I think that that is certainly something that is going to develop and is going to take large chunks out of peak as well as distributed grid roll-out. But there is a lot of room for biomass to play for many years to come.
Ben Heathcoat Amory: The UK government has always seen biomass as a transition fuel, and it is something that helps us get to our short-term targets, 2020, 2030. You can see that in the policies that I mentioned earlier.
Peter Clarke: I have always advocated that sustainable biomass from the US, is clearly a lot more of a secure fuel source for UK power generation than Russian coal. I think from an investor point of view, the concerns that I am hearing for smaller projects is about US dollar currency volatility and how we can hedge against that.
Marta Ciszewska: Statkraft is mostly involved in building hydro plants and windfarms. Recently it has also decided to be involved in biomass, starting with trading, but also acquired an old pulp and paper mill in Norway to start sending wood chips from there to Denmark.
We have been thinking a lot with other utilities about wood chips, and we have noticed that, apart from price, they are very focused on sustainability, greenhouse gas calculations and certification. We have not seen a lot of action from the forestry industry. There only seems to be movement on the other side.
Ben Cotton: The fundamental problem with the biomass market, certainly in the UK and probably in Europe, is that we have not got together as an industry to define the carbon footprint of what we do. The NGOs hate us burning trees for energy; however, I am with you. I cannot see how it is possible that it is not better for us to be growing trees and burning them than building new gas plants, yet I get paid more by the government to build a gas plant.
As an industry we have failed to define what standards are meaningful from a sustainability point of view and from a carbon point of view.
We should actually stop waiting for someone else to do something and take what you have said and turn the argument upside down as to what actually is the carbon footprint of biomass.
Graham Cooper: Chandler, I know you have this new ACRE methodology, which I believe tries to embody the benefits apart from carbon that you get from your wood pellets. Can you explain a bit about that?
Chandler Van Voorhis: In our GreenTrees programme, we have 100,000 acres that we manage in carbon reforestation in the Mississippi Delta.We use a fast-growing species like a cottonwood or a willow interplanted with slower growing mixed hardwoods.The cottonwoods are growing at anywhere from 8–15 feet a year.
The carbon gets verified through American Carbon Registry (ACR).When we work with landowners, we build the relationship around what we call Advanced Carbon Restored Ecosystem (ACRE). ACRE looks at how we monetise different streams of ecosystem services, whether it is carbon, water storage credits, biodiversity credits, nutrient credits and so forth.
We believe that ACRE, ultimately, will be a very tradable instrument.
There are people who say, 'You can never put a price and value on nature'. If you do not, there is a default price, and the default price is zero and will be treated as such.
On top of that, when you look at where your clean water comes from, it comes from forested ecosystems.We anticipate that in the US the water markets in the next five to ten years are going to probably eclipse the carbon markets.
We have registered 90%-plus of all reforestation carbon credits in the US. Reforestation carbon is a harder asset class than buying existing forest, changing the management plan and creating carbon. With reforestation, you are building equity back into an ecosystem and creating wildlife corridors and habitats.
Ultimately, reforestation is about being good. Other forestry options are about being less bad in how you manage the land and ecosystem.
When it gets right down to it, carbon is probably the least valuable ecosystem service going on in a forest. However, it is the one that has got a lot of market growth and a lot of history.
We commissioned a study by SCS Global. It shows if reforestation/afforestation is scaled to its maximum across the globe, we can sequester 5.5 billion tonnes of CO2 globally a year, which is about 15% of the reductions that we need. By 2100 this would reduce the temperature curve by 10%, or by 0.2°C.
Gian Paolo Potsios: This credit would be issued by ACR?
Chandler Van Voorhis: Right now, privately we issue the ACRE credits to the investors but we are working with ACR on going beyond just carbon, looking at the forestry standards that deal with water storage.
Marko Katila: The unit covers these different streams, including carbon?
Chandler Van Voorhis: Exactly.
Gian Paolo Potsios: I guess the market for that will be the voluntary market in the first place?
Chandler Van Voorhis: Voluntary initially. We participate in the California market but the California market for offsets has struggled, not through lack of interest – it has got some structural impediments in how it was designed.
Marko Katila: Who would be financing all these investments? If you started expanding, who would be the investors?
Chandler Van Voorhis: We were just in New York at the invitation of Credit Suisse looking at conservation finance, both with the traditional investment houses, and pension guys looking at how to get involved and allocate capital.What we have done through aggregation is scale up to 100,000 acres which is comprised of 350 different private landowners.The ability for us to aggregate lots and lots and lots of lands [can] get the scale up to where it starts to attract institutional investment.
Joost Kanen: Using, for example, your credits would be a valid alternative besides the Dutch local standard and FSC standard. It would give a bit more flexibility which might be a first step towards synchronising all these protocols.
Graham Cooper: Could this be categorised as a Reducing Emissions for Deforestation and forest Degradation (REDD) credit product, or is it an alternative to that system?
Chandler Van Voorhis: The ACRE could go into REDD. However, REDD may not be best as a commodity but rather as an insurance backstop.
"The fundamental problem with the biomass market, certainly in the UK and probably in Europe, is that we have not got together as an industry to define the carbon footprint of what we do" - Ben Cotton
Marko Katila: I read there is more and more evidence that carbon credits alone based on REDD are unlikely to promote enough incentives to cover the opportunity cost of land. However, your approach would actually provide additional revenue streams that would help, possibly.
Chandler Van Voorhis: Fundamentally, when you look at a tree, a tree has no economic value until it is cut down. It does not show up on the balance sheet. What happened when carbon came along is it started to have some economic value.
When you start adding other ecosystem values like water and biodiversity, you start creating a capital stack. This enables you to start to ask the question: is that tree worth more up than down? In some cases it will be one and in some cases it will be the other. If we can put a price and value on a tree as a tree, then we are going to start to change how we manage our natural capital. That is where the ACRE methodology comes in. I do think carbon alone cannot carry it. We think ACRE will and the water component will be one of the driving forces behind forestry.
Ben Cotton: I have got to go and see an investor now who is putting money into a fund we are doing. He wanted to build biomass plants in the UK but we are talking about waste-to-energy now because it is far easier to build waste-to-energy plants than biomass. It is absolutely ridiculous that waste-to-energy is a better use of my time than biomass-to-energy.
Graham Cooper: A cautionary tale on which to end.
Part 1 of this roundtable can be read here.