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Tuesday, August 14, 2012

North American Pellets for European Power

You may do European countries justify the production, use, and transportation of North American wood pellets for their power production facilities, when we know that power production is a relatively inefficient use of wood energy?

In the video below, the answer is..."Europe has strong renewable energy policies"...and it cites their goal of 20% renewable energy by 2020. The full set of policies is embodied in the phrase "20/20/20 targets"; 20% reduction in greenhouse gases, 20% production of total energy consumption from renewable resources, and 20% reduction in energy consumption.

Update, 1/20/2015: The original video has disappeared; this newer video gives us an update of EU goals for the period 2020 - 2030...which has a target of 27% renewables by 2030.

The first report referenced in the video is European Power from U.S. Forests, and it is a useful document for getting a handle on the current and projected wood pellet markets in North America and the EU, and for the policy drivers and shifts in each country. Indeed, if the renewable energy world goes as projected in the studies cited in the document, wood pellet markets look very bright indeed.

This is the Conclusion of the first document referenced in the video:
While there is much uncertainty in pellet demand projections for the next 5–10 years within Europe, it is likely that imports will remain important and will continue to increase, especially in countries such as Denmark, the Netherlands, Belgium, Italy, the UK, and Sweden. Within the scope of the reports studied here, import projections range from 16 million to 60 million tonnes. It is also possible that new markets will develop, particularly in Germany and Austria. Demand for pellets for CHP and district heating will likely increase, as those technologies are considered highly efficient and are strongly encouraged in several EU policies. The mandatory development of National Heating and Cooling Plans for all Member Countries should provide an additional stimulus. Demand for pellets for electricity generation will likely increase as well, as some countries are implementing mandatory co-firing regulations, or encouraging dedicated biomass firing in power plants through financial schemes. The large potential capacity for pellet production in the U.S. (currently estimated at 6 million tonnes) could be made available for increased EU demand, but will require production practices and supply chain logistics meet sustainability and quality requirements for the EU markets. 
Sustainability is likely to remain a pivotal issue into the future. The general trend is toward harmonization of sustainability requirements, yet it remains to be seen whether this will be industry-led or through EU legislation. Topics such as carbon accounting and indirect land use changes need to be resolved, if possible with a global consensus, in both certification schemes and national or international agreements on sustainability requirements. This will help to decrease trade and market barriers globally while ensuring climate goals are met through bioenergy development. 
It is probable that certification of pellets will become the norm within the EU, and U.S. producers need to consider how they might begin to meet those requirements. Within the Southern U.S., only 17% of commercial forest land is certified sustainable through one of the major U.S. schemes: Forest Stewardship Council (FSC), Sustainable Forestry Initiative (SFI), and American Tree Farm System (ATFS) (Lowe et al. 2011). Of that 17%, FSC certified land makes up 1%, while SFI and ATFS represent 16% of the total certified land within the southern U.S. (Lowe et al. 2011). Whether or not forest management practices within North America are generally considered to be “sustainable,” it is necessary to ensure that specific sustainability requirements for wood pellets in the EU are met or exceeded by U.S. forestry practices. 
Sustainability requirements laid out in the EC-RED and Report COM (2010)11 likely will remain the baseline for future policies. Domestic producers need to examine how sustainability pathways, whether through certification, biomass harvest guidelines, or other conservation programs, might be consistent with the sustainability requirements of the EU. See the companion report Pathways to Sustainability by Environmental Defense Fund and Pinchot Institute on this topic. The upcoming report from the EU examining the different national sustainability schemes should provide additional guidance as to which European schemes will be appropriate in the near future and will further define what sustainability standards will be required for production of wood pellets in the United States.
- Environmental Defense Fund, European Power from U.S. Forests

The projections are clearly ambitious and at the same time, unrealistic in the face of the gathering economic storm in the EU. Otherwise laudable sustainability goals will seem minor in importance to the Euros as they struggle to keep economic and social stability on the continent. The rather isolated and forest resource-rich Scandinavian countries may come close to meeting the goals, but the others really don't have a prayer. Or if they do, it will be because the Eurozone is economically crashing and can't afford the energy, not because they're transitioning seamlessly to renewable energy resources.

As our wood pellet industry ramps up for these overly optimistic projections, look for the pellet market to go soft in the coming years. Demand will probably fall short of the projections, and sustainability-certified supply requirements will drive costs higher. Once again, unintended consequences of good intentions enforced by government fiat instead of free markets will probably fudge the whole thing up.


Tom Brickman said...

The "green" energy industry - from corn ethanol to solar to wood pellets - suffers from a serious afliction . . . no natural markets.

No one would make or buy these products given a choice So we get government subsidized production and government mandated consumption.

What could go wrong?

As long as we allow our leaders to spend our money on such foolishness, we get what we deserve.

Chuck Ray said...

Thanks for the comment, Tom. I received a couple of emails with the same sentiment. But I disagree with including wood pellets as a product without a natural market.

The wood pellet market does have its own niche. Naturally, it would be smaller if not for (Euro) government policy. But wood pellets are great for both space heating and in pellet boilers for residential and district heating. At this point in time, wood pellets are disadvantaged relative to the low price of natural gas...but they have distinct advantages over oil, coal, electricity, solar, and firewood in residential and commercial heating applications. As education spreads of these advantages, and as the price of natural gas normalizes, the wood pellet market will grow naturally, in free and unsubsidized markets.

I realize that many out there would like to see federal or state rebates or tax credits for pellet stoves or boilers...but I just can't see the wisdom of paying for 5 or 10% of a person's heating device when we need to make some serious reductions in public spending. That's not enough to help poor folks upgrade their heating, it's only enough to allow us middle-classers to save a little off our purchases. I'm OK with helping poor folks with their fuel purchases as we do here in PA, but not just for pellets.

In short, I'm for smart policy, and I'm for wood pellets for heating, but I'm not for government manipulation of the free market. It always works out the wrong way. See ethanol.

John said...

Most forms of energy are subsidized in one way or another, and hard to say if a "free market" really exists in the energy field. The pellet demand from Europe is based on European subsidies, and often, I think those subsidies work pretty well. I agree that there are poorly designed ones, like many of the ethanol subsidies.

And, true, a 5 or 10% rebate is not much of a motivation for a family to buy a pellet stove, and even a 30% will likely, as you say, benefit middle class folks. But to me, that is a good thing, since current residential renewable energy policy gives tax credits and rebates mainly to very wealthy people to install solar PV.

If everyone is getting rebates for solar PV, solar thermal, geothermal, the Prius, the electric car, etc. do you really think we should stand on principle and say we don't want them because it goes against the principals of some of us? In an ideal world, maybe we could strip subsidies from both fossil fuel and renewables. But given the likelihood of that happening, isn't it better to work with the system we got?

John Ackerly

Chuck Ray said...

Interesting point, John, but I still can't bring myself to agree. I would rather we stop the subsidies for the solar PV, solar thermal, geothermal, Prius, Volt, etc., than add wood pellets to that list.

I believe that global knowledge is reaching the point where we don't need govt prodding to do the right thing...people can research ideas on their own and make their own purchasing decisions according to their convictions. That may not meet the goals of a particular agenda, but it always works out the best for the majority of the folks in the long run.