Let’s Look at the True Cost of Wood Pellet Exports

For the past few years the drum beat for wood pellet exports in the Southern US has gotten louder and louder. State Governors, local officials, European utilities and wood pellet executives have all touted the impact of new jobs in rural communities and growing markets for small, private landowners. Behind the rosy picture that’s been painted about job creation and economic prosperity is another not so pretty picture of the true costs of the unfettered growth in wood pellet exports.

Our new report “WOOD PELLET MANUFACTURING: RISKS FOR THE ECONOMY OF THE US SOUTH” sheds much needed light on the economic downsides of this rapidly expanding new industry.

The bottom line? The wood pellet export market is simply not a very smart 21st Century economic development strategy for our Southern rural communities. We can and must do better to support the economic well-being of the South’s rural communities.

Highlights from the report include:

  • Switching from coal to wood  pellets as fuel for generating electricity is likely to accelerate climate change with enormous economic costs that would disproportionately impact our coastal communities.
  • The wood pellet industry’s increased degradation of forests and the natural services they provide could significantly limit a community’s ability to attract new businesses and residents, one of the most important factors affecting economic growth across the South.
  • If the rapid build-out of wood pellet manufacturing is allowed to continue to expand without limits, it will likely negatively impact the region’s traditional local lumber, panel and paper manufacturing industries, which create more jobs than wood pellet exports.
  • Increased logging and the conversion of more natural forests to plantations could harm long-term timber productivity.
  • All signs point to wood pellet exports being a boom-bust market, which will leave rural communities with stranded assets, denuded forests and diminished jobs when the massive government subsidies in Europe come to an end.
  • Standing forests provide critical ecosystem services, providing coastal communities with natural storm protection and abundant, clean drinking water. Accelerated logging for wood pellet exports threatens to degrade these economically valuable services with potentially substantial costs borne by the public.

Economists are increasingly recognizing the important economic value forests have when left standing.

They not only naturally generate and purify the water we drink, but they protect us from storms and provide for a stable climate. Beyond that, the scenic, wildlife and recreation opportunities afforded by healthy forests are magnets for creative entrepreneurs and retirees, which encourages a multitude of diverse service and other related businesses to grow and thrive. When forests are degraded, a community’s ability to diversify its economy is limited.

A recent peer-reviewed study on the size and impact of the ecological restoration economy found that the restoration industry is a $25 billion dollar a year industry and employs more people than the logging, steel and coal mining industry.

We should be investing in forest protection and restoration, not wood pellet exports, to support economic growth and rural community well-being.

Further, the South’s traditional and local wood products industries provide jobs and livelihood to people across the rural coastal plain of the South. Yet according to recent USDA reports, the new kid on the block: the wood pellet export industry and its explosive growth threaten to displace traditional wood products markets. Considering the fact that each new job in a saw mill or paper mill creates between two and three additional jobs in the regional economy, while each new job in wood pellet manufacturing creates less than one additional job, it’s fairly clear that if it’s jobs in the forest industry we want to create, wood pellet exports aren’t the answer.

Another major economic issue arises from the fact that the Southern wood pellet export industry is wholly reliant on foreign government subsidies. Massive government subsidies in Europe are supporting big utility companies to convert power plants to burn wood in place of coal. These subsidies have been the sole driver of the wood to fuel market and the rapid expansion in wood pellet manufacturing and export capacity across the South. According to a recent analysis by UK NGO Biofuelwatch, in 2014 UK utility Drax received over 79% of their gross annual profit in subsidies, the equivalent of over $1.5 million per day. That number could rise to over $3 million per day in 2015. Without these subsidies, it doesn’t make sense to burn wood imported from across the Atlantic to generate electricity.

The tax structure that artificially holds this industry up is starting to crumble.

High-ranking government officials in the EU have been on record stating that burning wood “is not a long-term answer to our energy needs” and that the energy policies driving the use of wood as fuel need to be re-examined as scientific reports document that burning wood may actually increase carbon emissions when compared to coal. The UK government just announced that it was scrapping the Carbon tax exemption for Drax, causing the company stock to plummet 28%.

All signs point to this being a temporary European market for wood pellets from the South. This market is driving a lot of new investments now, but Europe isn’t going to subsidize this market for long. As more and more scientific evidence emerges, documenting that burning wood actually increases carbon emissions and destroys forests, the policies driving the substitution of wood for coal must and will shift. When the subsidies run out and the market falters, our rural communities will be left high and dry with a degraded landscape, stranded assets and lost jobs.

The net effect of the wood pellet market has been to develop the US South as a resource colony, exploiting its natural resources for the short-term benefit of a foreign governments and utility companies.

So why are wood pellet manufacturers being subsidized by taxpayer money here in the US? An Enviva facility in Southampton County, Virginia, for example, received $300,000 in the form of one grant from the Commonwealth, plus unspecified amounts in the form of subsidized recruitment and job training assistance, funds from a community development block grant and a Virginia Port Tax Credit. In North Carolina, Enviva was awarded $500,000 from a Community Development Block Grant for its wood pellet facility in North Hampton, NC as well as a Job Development Investment Grant that will yield $1.7 million over 12 years. These subsidies totalling nearly $2.5 million are mere examples of the level of subsidies here at home that are being doled out to wood pellet manufacturers in the name of “economic development”.

Our hard-earned taxpayer dollars are being funnelled to fuel the profits of a few wood pellet company executives for the short-term benefit of utility companies overseas at the expense of the public, our rural communities and our broader regional economy. What are we getting in return? Sure, Enviva and others will provide some possibly short-term jobs, but at what cost? If we factor in the accelerated degradation of important ecological services, forgone economic development opportunities due to forest destruction and displacement of jobs in the traditional wood products industry, the net effect could very well be a loss not a gain in jobs. Landowners aren’t even getting that good of a deal. The wood pellet market pays landowners a mere $2 to $8 a ton for the lowest value wood.

We hope policy-makers and investors on both sides of the Atlantic will take the time to seriously consider the economic costs associated with wood pellet exports. Our rural communities deserve better, and we can do better.

One Response to “Let’s Look at the True Cost of Wood Pellet Exports”

  1. Jeff Barrie

    Fantastic report Danna. It paints a clear picture of this issue that Dogwood Alliance is addressing. Thank you to your organization’s leading role in finding solutions!


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