Forest Certification: Opportunity and Challenge for the Wood Pellet Industry
The surge in energy costs, the new direction toward renewable energy sources, and European initiatives to limit carbon emissions all have created a tremendous opportunity for North American wood pellets.
In the wood products industry, however, you can’t go very far without hearing the word green. Customers are demanding assurances that the wood products they buy are from legal and sustainable sources. And they often purchase with a preference or requirement for wood products that are independently certified to a recognized forest certification standard.
But forest certification is an alphabet soup of standards, claims and labels, all of which can be confusing and overwhelming to those in the pellet industry who have other demands on their time. Thankfully, help is available from standard-setting organizations, trade associations and consultants.
Demand for Pellets
RISI projects that by 2014, demand for North American wood resources for pellet production will grow to around 30 million green tons.
In 2008, more than 80 percent of U.S. pellets were used domestically, while 90 percent of Canadian pellets were exported to Europe, according to the U.S. Forest Service. Interest in North American pellets continues to grow because of constrained wood supplies in Europe and regulatory mandates to increase the use of renewable fuels. Because wood pellets are cheaper than solar and wind power, demand for them is expected to explode.
The use of wood for pellets, however, is causing concern among environmental activists, government agencies and competing sectors of the forest and paper industries. A study by a team of environmental organizations, including the National Wildlife Federation and the Southern Environmental Law Center, says the atmospheric impact of biomass production, at least in the short term, is not carbon neutral. But a number of studies argue otherwise.
While early domestic pellet demand was mostly bags for fireplace inserts and free-standing stoves, bulk delivery is increasing with greater demand for industrial boiler feedstock. In Europe, bulk deliveries to electric power plants are common, as power generators are under pressure to increase their use of renewable fuels by up to 20 percent.
Pellets are an excellent supplement to coal in power plants and can reduce carbon emissions by about 15 percent without disrupting current power plants and industrial processes, according to the February study “Biomass Supply and Carbon Accounting for Southeastern Forests.” With about half of the electricity in the U.S. produced by coal plants, a domestic switch to wood pellets represents another huge market opportunity.
As with any fuel source, customers want to know where the feedstock comes from and if it is sustainable. Third-party certification is a valuable tool to reassure them that pellets come from sustainably managed forests, eliminating the need to continually justify that the resource is renewable. It is a growing criterion for export to Europe, where numerous policies mandate renewable energy production.
The Sustainable Forestry Initiative, American Tree Farm System, Forest Stewardship Council, and Program for the Endorsement of Forest Certification are the largest forest certification standard organizations and systems in the world. SFI and FSC are recognized in the U.S., while FSC and PEFC have solid reputations in Europe. Moreover, PEFC recognizes the SFI and American Tree Farm Standards as criterion for its Chain of Custody program.
All major certification programs include chain-of-custody standards and land management standards. The latter require protection of water, wildlife, visual quality, special sites and other important resources. Chain-of-custody standards allow consuming mills to track wood inputs back to independently certified forests. All programs mandate compliance with national laws and regulations, as well as different balances between social, environmental and economic considerations.
About 19 percent of U.S. commercial forestland is certified to three major U.S. standards, but certified lands are not evenly distributed. Most are located in the lake states, in the midst of large state and county public ownerships, while the majority of forestlands in the south are owned by small private family owners and are not widely certified. The challenge for the U.S. in general is the roughly 10 million fiercely independent family forest owners who own 60 percent of the forest land.
SFI incorporates a third approach to its standards: the certified sourcing claim, by which consuming mills that procure wood can also be third-party certified to use the SFI claim and label. While not a chain-of-custody certification, the certified sourcing procurement standard requires promotion of sustainable forestry with those that own the forests, but does not require that landowners undergo separate third-party audits of their forests.
To make a chain-of-custody claim where certified and uncertified wood is mixed together, the uncertified portion of the wood supply must be from sources that meet the respective FSC controlled wood and/or the SFI and PEFC noncontroversial criteria.
The FSC controlled wood standard dictates five categories that must be avoided: illegally harvested wood; wood harvested in violation of traditional or civil rights; wood harvested in forests where high conservation values are threatened by management activities; wood harvested in forests being converted to plantations or non-forest use; and wood harvested from forests that contain genetically modified trees.
Claims and Labels
The home or bagged pellet market offers a real opportunity to prominently affix an on-product label to packages. That creates, in theory, demand pull where discriminating consumers look for the certified pellets the next time they shop. The most common on-product labels are attractive and help communicate certification efforts to the customer. Each standard has rules for the use of its trademarks and labels.
Wood products customers have adopted procurement policies seeking to weed out wood that is not legally sourced or from sustainably managed forests. The European Commission recently adopted a regulation that will require operators, including importers, to exercise due diligence to assure legality.
“Certification has been one of the tools to encourage the sustainability of forest management and allow consumers to discriminate positively in favor of wood products originating from sustainably managed forests,” reads a statement from the European Commission.
But some customers do not understand the different and often competing certification standards. It is also understandable that pellet manufacturers don’t know where to start and are equally confused by the array of standards, claims and labels. Many procurement policies support major certification schemes to ensure maximum availability of certified wood inputs.
Companies in other sectors of the wood and paper industry can attest that without substantial assistance, they would not be able to achieve certification in a timely and efficient manner. Because pellet manufacturers are in the middle of the supply chain between their customers and the wood supply base, it is critical to understand which certification standards are the best.
So, what’s a pellet company to do to satisfy its customer base and ensure market access? Clearly, pellet producers need to take steps to address the new market realties dictated by the increasing demand for renewable, certified products.
Pellet producers interested in certification should first conduct an internal gap analysis addressing demand for certified product, type of certification needed (chain-of-custody or certified sourcing), availability of certified wood inputs, market opportunity to label product, and whether customers are willing to pay a premium for certified wood pellets.
Next, producers need to compare their situation to the standards in order to determine which certification protocol best fits their objectives. Discussions with the standard-setting bodies, trade associations and specialized, experienced consultants can simplify the process.
The U.S. wood pellet industry is no longer below the radar. While hurdles such as wood supply, transportation and markets still linger, certification removes consumer and environmental group concerns, perhaps before they even develop, and favorably positions the pellet industry squarely in the renewable clean fuel camp.
Those pellet producers who get ahead of the learning curve have a better chance at being successful. Those who do not address customer concerns about the sustainability of the forest could face a number of jarring speed bumps along the way.
Producers should ensure that they know more about forest certification issues and applicable standards, claims and labels than their customers do, and that they are prepared to assure customers that their wood pellets are legally and sustainably sourced.
Authors: Scott Berg
R.S. Berg & Associates, Inc.
Ron Lovaglio, LLC