SAF 3/3/09 1 Potential Biomass Demand Impact on Forest Markets and Resources Bob Abt NC State University

SAF 3/3/09 Context  Forest resource modeler focused on regional outlooks for the medium run 5-20 years.  Usually take current inventory, growth, and removals as a starting point –  Then look at the impact of various demand scenarios 2

SAF 3/3/09 AF&PA 1/14/0933

SAF 3/3/09 44

Bioenergy Approach  The challenge of projecting emerging bio-energy markets  A few unknowns: which technologies, using which feedstocks, at what scale, where, and when ? 5

SAF 3/3/09 6 Key Factors Examined  Demand for wood as an energy source Potential (policy driven) Observed (“announcements” are observed many actual plants are potential)  What would a woody biomass supply curve look like?  How important are logging residuals? Determines timing and size of impact on roundwood markets

SAF 3/3/09 Outline  Policy Driven Scale Implied by NC RPS Implied by national RFS “regionalized” Relative to Logging Residuals  The Relationship between Residuals and Roundwood Feedstock Supply  Announced Capacity Regional Case Study Role of Residuals Impact on Economic / Physical Sustainability Impact on Traditional Forest Based Industry 7

SAF 3/3/09 8 NC RPS Impact

SAF 3/3/09 9 NC RPS Impact

SAF 3/3/09 10 Potential Impact of RFS Christopher Galik - Duke

SAF 3/3/09 11 Biomass Supply Curves

SAF 3/3/09 12 Gulf Coast Biomass Impact  Demand (2008) from F&W Forestry 3 new plants 15 proposed or under consideration Emphasis on pine Potential demand of 5.75 mill green tons annually

SAF 3/3/09 AF&PA 1/14/0913 Gulf Coast Biomass Impact  Demand Scenario.5%/yr demand increase for current products Over 10 yr period (2007 – 2016) increase demand by.575 mill tons/yr 100% pine Reduce demand by available logging residuals (45%,35%,25%,15% recovery)

SAF 3/3/09 14 Where is the wood now – where will it be in 20 years

SAF 3/3/09 AF&PA 1/14/0915 Gulf Coast PPW Removals

SAF 3/3/09 16 Demand Increase

SAF 3/3/09 17 Price/Harvest/Inventory Impact No Roundwood Biomass Demand Max Roundwood Biomass Demand

SAF 3/3/09 18 Higher Prices and Lower Inventory Reduce Harvest

SAF 3/3/09 19 What if biomass demand is not price responsive?

SAF 3/3/09 20 Caveats  “Worst Case Scenario” for traditional wood- users or “Best Case” if you are a timberland owner  Everything being considered adds to demand  Biomass demand perfectly inelastic (no short run substitutes)  No silvicultural response, energy crops, or non-wood substitution

SAF 3/3/09 21 Caveats  On the other hand:  Power companies already negotiating long term supply agreements  New projects announced monthly  Current roundwood prices are very attractive  These runs don’t include timberland loss (1.5%/yr)  Plantation plantings are down significantly

SAF 3/3/09 22 Market-Sustainability  Residuals could be important but current demand will quickly exceed residual availability  Inelastic timber supply means that there will likely be a higher price than harvest response  Energy and biofuel firms are looking at roundwood first  Resulting higher wood prices may make other renewable energy sources look better and reduce “realized” biomass demand  Timing - this is the transition period – recession for traditional forest product industries – boom for bio-energy – makes roundwood use more attractive

SAF 3/3/09 23 Policy  Expansive policies focused on demand and technology  Restrictive policies focused on supply (e.g. certification, natural stands, residuals)  Not a good combination, will likely lead to unanticipated policy “leakage”  Incentives and outcomes will result from interaction of energy, forest, agriculture, environmental, and carbon policy

SAF 3/3/09 24 QUESTIONS