Renewable energy sources, including wood biomass and biofuels, have the potential to contribute to fuel diversification to help offset our nation’s dependency on foreign fuels.

At Issue–

Legislative efforts to promote development of renewable energy, if not carefully crafted, pose substantial risks to the economic health of the U.S. forest products industry and the sustainability of U.S. forests.

The U.S. forest products industry is one of the nation’s leading users of biomass energy, with an average of 60 percent of the industry’s power needs being met through the use of renewable fuels. For several decades, the industry has successfully offset high natural gas prices by turning wood waste into energy.

The Perfect Storm–

Current state and federal legislative efforts are proposing subsidies and tax incentives only for the construction of new biomass and biofuel plants. The increased demand is driven by a number of recent developments, including:

•State government mandated “renewable portfolio standards” (RPS) to encourage power companies to generate more electricity from renewable sources (wind, solar, biomass, geothermal, etc.). The federal government is also considering a national RPS.

•Several states and the federal government want to promote greater use of biofuels (ethanol and wood-based cellulosic alcohol) by mandating “renewable fuel standards” (RFS).

•New wood pellet plants now being constructed in the U.S. to ship domestic fiber overseas to help meet the European Union’s own RPS mandates on renewable fuels.

•Regulated electric utilities using their customer rate base to fund tremendous investment in the development of renewable electricity sources and biofuels by partnering with “start-up” biomass energy companies.

•Language in the Senate-passed Farm Bill tax package would provide production tax credits to cellulosic (wood) alcohol producers equating to $1.25 per gallon.  Combined with the Renewable Fuels Standard, this provision, if passed, would equip biofuels producers with the ability to pay above market prices for the purchase of biomass fiber.

The debate lies with the government incentives and subsidies proposed to encourage new biomass/biofuel industries and the threat to existing manufacturers who won’t qualify for the incentives but already use biomass for a fuel source. These subsidies will redirect thousands of truckloads of fuel, wood chips and pulpwood to renewable energy plants, thereby costing existing forest products manufacturers millions of dollars in the form of higher prices to replace the lost tonnage. Published wood fiber cost data for the New England states report price increases of 100 percent to 200 percent where similar subsidies have led to the construction of new biomass power plants.

Forest landowners are understandably excited about the opportunity to sell more wood fiber at higher prices, while forest products manufacturers fear the new biomass plants are being provided a significant market advantage over them as existing consumers of the same material. In some situations, this corresponds to a greater than 50 percent subsidy for the commodity.

Poor Public Policy–

Forest products manufacturers do not oppose renewable energy sources, only the proposed government subsidies that would endanger existing forest manufacturing jobs, consumer prices, raw material costs, and utility bills. Since 2001, raw material commodity inflation (PPI for crude materials less food and energy) have increased 117 percent (13 percent per year). Existing cost increases in fiber and energy are expected to continue and will affect the industry this year. These subsidy initiatives proposed by government will increase fiber costs further.

In the case of the proposed wood biomass fueled plants, the challenges are: 1) Is there enough wood waste in the region to support one or more new biomass plants?  2) Are there enough logging contractors with the necessary trucks and harvesting equipment to supply new power or biofuel plants? Both woods workers and truck drivers are increasingly scarce resources today. Timber harvesting and biomass collection are low margin - high volume, bulk intensive businesses. It would take several competent and well-financed wood dealers and loggers to meet the demand for any new biomass plants.

Independent research has established that with government subsidies, theoretical cellulosic ethanol plants can be profitable, thus competing in the wood baskets used to produce roll stock and containerboard. In some regions of the country, the imposition of one cellulosic plant in a tight fiber market is unsustainable, yet not precluded under the tax subsidy envisioned.

Why Should Box Makers Be Involved?–

•The distortive nature of incentives to existing users

•The regional differences in availability of wood fiber to meet RPS and RFS mandates

•The potential inflationary effect on the cost of the corrugated box and, in turn, the PPI (a component of almost every consumer good)

•The lack of legislative focus on 1) requiring sustainability of the forest resource; and 2) environmental impacts

•The risks of picking winners and losers

What Can Box Makers Do?–

•Oppose new RPS and RFS mandates

•Oppose all subsidies that disadvantage our industry

•Allow incentives only for unmerchantable logging residue and other wood waste sources not in use today

•Propose incentives for prompt reforestation to ensure a sustainable resource

•Communicate with your state & federal law makers

“Going Forward” Option: Organize a Box Maker “Bioenergy Incentives Task Force”–

•Develop a policy document on bioenergy incentives

•Determine the level of legislative advocacy desired – ranging from a coordinated use of company lobbyists (low cost), to the retention of a lead lobbying firm in Washington (higher cost)

•Develop a media relations plan targeting “earned media.”OBM