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Ecological and Economic Implications of the US Wood Pellet Industry - Resources Magazine

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An efficient and cost-effective method of biomass combustion to produce heat or electricity is burning wood pellets. Creating pellets enhances energy density of the wood product. “Pelletization” also reduces wood moisture, which reduces costs by improving combustion efficiency through increased energy extraction from wood while reducing harmful air particulate emissions during combustion. Relative to firewood, pellets are structurally more consistent and have higher energy content, which allows easier handling and automation along the supply chain to final combustion. Combustion then can generate heat and/or electricity in the industrial sector, or serve as a heating source in the residential sector.

In this Q&A, Francisco X. Aguilar describes a recent journal article about the wood pellet industry that he’s coauthored with RFF’s Dallas Burtraw and colleagues at the University of Missouri. Their research takes a comprehensive look at more than a decade of data that illuminates some important ecological and economic implications of the US wood pellet industry.

Resources: Please provide a brief summary of the work you published recently. Can you discuss your methodological approach, given that this study ambitiously spans 13 years and 38,000 forest inventory plots?

The aim of the study was to identify changes in forest conditions where mills procure wood fibers for pelletization. Wood fibers may include residues from other sectors (e.g., shavings, sawdust), logs, and byproducts from timber harvest operations. Our analysis looked specifically at the changing conditions of timberlands—lands that can grow timber for commercial management. We measured how timberland conditions were associated with variables ranging from human-made factors, such as the locations of pulp and paper mills, to naturally occurring events such as drought. We relied on forest inventory data from the US Forest Inventory and Analysis National Program to infer conditions within these procurement landscapes, which often are referred to as “wood baskets”—a term that pretty effectively captures the idea of how the industry procures wood locally.

We studied timberland changes from 2005 to 2017, a relatively short window in forestry terms. Even so, the US wood pellet industry grew substantially in that period: in the eastern United States (i.e., east of the Rockies), annual wood pellet manufacturing capacity grew from about 0.2 million metric tons to more than 10 million metric tons. Wood pellets exported to the European Union and United Kingdom originate in the coastal southeastern United States; we compared timberland conditions in the coastal southeastern United States to the rest of the eastern United States, also accounting for differences between large- and lower-capacity mills.

Among large-scale mills of the coastal southeast, we detected carbon increases within larger trees. We inferred this result from the greater amounts of carbon stocks in live trees associated with the annual operation of large-scale wood pellet mills across the entire region and fewer live and growing-stock trees with every year of milling operation in the coastal southeastern United States. However, we also detected some potentially negative trends. Specifically, fewer standing-dead trees were associated with the annual operation of large-scale wood pellet mills, along with lower levels of carbon in soils.

What relevance does this work have for policy and the economy in the United States?

Domestically, much of the recent growth in wood pellet manufacturing began during the Great Recession and at a time of high fossil fuel prices. In the United States, wood pellet use in homes most often occurs in stoves for space heating, commonly as a complement to another primary heating source—whereas in Europe, wood pellet use in single and multifamily homes most often is burned in furnaces. Wood pellets also can be used for non-energy purposes as for animal bedding. Wood pellets have emerged in the United States as a cost-competitive alternative to other heating sources, and we saw an expansion in pellet manufacturing across the northeastern and midwestern United States to serve residential demand. In addition, domestic expansion has occurred because economic trends and technological advances have reduced air pollution significantly as a byproduct of wood pellet combustion.

The procurement of wood fibers for pelletization can create new harvesting pressures on forests, because of competition for locally available wood fibers among related sectors such as the pulp and paper industries.

However, over the past two decades, we have seen demand for some types of paper shrink as the rise of digital media has made printed media less common. On the other hand, more online commerce has driven demand for packaging fibers, and that demand is expected to support and possibly expand wood pulp manufacturing. Across the United States, shutdowns of pulp and paper mills pose a big risk to the well-being of people and communities; the wood pellet industry can help fill some of the void when a paper mill shuts down.

What’s the significance of the coastal southeastern United States supplying pellets to the European Union, versus the rest of the eastern United States servicing the domestic market?

Domestic demand for wood that generates energy is projected to increase by 20 percent over the next decade, but the lion’s share of predicted growth in US wood pellet manufacturing is expected to be driven by European demand. As noted above, wood pellet exports to the European Union and United Kingdom originate in the coastal southeastern United States. The US Department of Agriculture Foreign Agricultural Service has estimated that the United States potentially can supply 65 percent of EU import demand if EU trade flows continue their current trajectory.

The availability of wood fibers, along with proximity to ports that facilitate access to European markets, have been major factors in the concentration of industrial wood pellet manufacturing along the southeast coast. The region offers an important mix of softwood and hardwood fibers from residues of other manufacturing sectors (e.g., sawdust, shavings), along with roundwood and other coproducts from timberlands. Moreover, the growing acreage of forests certified for sustainable management is an important factor, given that environmental sustainability is a required eligibility criterion for the European Union’s Renewable Energy Directive (EU RED).

Canadian mills were some of the first to supply the European industrial wood pellet market in response to the EU RED in 2009. But the United States quickly built capacity, and by 2012 surpassed Canadian exports. With increasingly ambitious renewable energy targets set by the European Union, one might reasonably expect that most—if not all—growth in US export capacity will continue to take place in the southeastern United States, thanks to an efficient supply chain, wood availability, and investments in manufacturing and handling infrastructure. Some companies—such as the Drax Group, which is the largest importer and user of industrial wood pellets in the United Kingdom—have invested in US port facilities to ease trade.

The US domestic market for wood pellets is likely to continue to revolve around residential heating as an alternative or secondary heating source. Some niche markets for use in cooking are emerging, too.

What is the international impact of the trends you studied?

Overall, we detected a net increase in carbon stocks at procurement areas for large-scale facilities in the coastal southeastern United States. Growth has occurred among live trees, while some losses were found within soils. This growth and loss might result from more intensive land management, and researchers need to better understand the dynamics of any drops in carbon stocks within soils.

These findings indicate successful compliance with the EU RED to date, but there seems to be room for improvement. For instance, it might be valuable to discuss economically sound approaches involving the retention of dead trees to preserve valuable ecological functions within forests, which could have cumulative effects over larger landscapes. The same might be said about soils and possibly how land management practices can minimize soil disturbance. Examples from the forest sector demonstrate how protecting noncommercial timberland resources during harvesting, as recommended by established best management practices, helps protect water quality.

The European Union and United Kingdom provide the largest market for wood pellets in the world. Demand for wood pellets has been driven by the implementation of the EU RED to increase the use of renewables, reduce greenhouse gas emissions, and enhance the efficiency of energy systems. Notably, the EU RED never targeted US forests as a prospective source of bioenergy. Growth in manufacturing capacity of wood pellets occurred organically, partly due to cost-competitive factors and production advantages in the United States. The United States also has shown it can readily and cost-competitively comply with the legal and environmental sustainability criteria set by the European Union.

Based on your research, what advice would you give to industry, environmental groups, and policymakers in the United States who are tracking new EU policies?

I would advise the industry to continue engaging in an honest effort toward sustainability and proactively ensuring good forest stewardship. The wood pellet industry continues to grow and can help ameliorate the impacts of job losses in other wood-related sectors. Domestic use of wood for energy—whether pellets or wood chips—can support local economies. Other research shows that wood-based bioenergy is associated with about 20 percent more added value in local economies than coal-based power. Bioenergy markets can be part of the process that encourages rural development, creates value for forests, and keeps land forested.

Historically, wood often has been unsustainably extracted from forests. Unsurprisingly, some citizens and environmental groups have concerns about this emerging and fast-growing industry. Our results show that there seems to be room for improvement for the US wood pellet industry to support ecological functions in forests, but overall, carbon pools have increased across procurement landscapes. My advice to concerned citizens and environmental groups: engage in constructive dialogue that leads to practices that improve the sustainability of the bioenergy sector, and don’t assume that the wood pellet industry is necessarily hazardous.

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