International Wood Energy Market Developments Ed Pepke Forest Products Marketing Specialist UNECE/FAO Timber Section, Geneva Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania Subjects I. Overview of forest products market developments II. Market drivers III. Policy drivers IV. Wood energy markets V. Conclusions VI. Recommendations VII. Questions and discussion Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania Main sources of information W W W W W W W W W W W • UNECE/FAO Forest Products Annual Market Review, 2007-2008 • UNECE/FAO Forest resources assessment • UNECE/FAO Timber database • FAO Statistics • State of Europe’s Forests 2007 by Ministerial Conference for the Protection of Forests in Europe, November 2007 W Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania I. Overview of forest products market developments Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania “United States forest products market crash impacts UNECE region” • In 2007, US housing construction continued its sharp decline, severely impacting world markets. • Green building systems are a market driver, but also a constraint. • UNECE region consumption of wood and paper products fell in 2007 for the first time in 6 years (downturn in North American overcoming a rise in European and CIS). • Oil prices soared, stimulating wood-based biofuels and policies to mobilize more wood from both forests and other sources. • Certified forest area rose to over 300 million hectares worldwide. Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania UN Economic Commission for Europe region Europe 42 North America 2 Commonwealth of Independent States, 12 Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania “US forest products market crash impacts UNECE region” • Some European market sectors exceeded their North American counterparts: production of sawn softwood and consumption of panels and paper and paperboard. • China’s trade with countries in the UNECE region continues to increase. • In Europe, wood products prices generally rose in 2007, then fell in 2008 as markets weakened • In North America prices for some wood products, such as sawnwood dropped to their lowest levels since 1991. • Russian export taxes on roundwood are disrupting supply and changing trade patterns. Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania II. Market drivers • • • • US housing market Energy prices Russian export taxes China’s trade Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania Million starts (SAAR) United States housing starts • • • 2 1.8 1.6 US residential housing: 2.2 million 1.4 2008: under 1 million, -40% 1.2 1 Recovery beginning 2010 (NAHB) 0.8 0.6 0.4 0.2 0 08 20 07 20 06 20 05 20 Single family homes in 2006 Multi-family Source: US Census Bureau, 2008. Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania Oil prices 140 Rising fossil fuel costs driving wood energy 100 Spike at $145/barrel in July 2008 80 production in Europe, Canada, Russia Pellet Competition with wood industry 60 Concern for sustainability certification 40 Biofuels vs. food wood $/barrel • • • • • • 120 20 0 08 20 07 20 06 20 05 20 04 20 Source: US Department of Energy, 2008. Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania Russian exports & taxes 100 • Roundwood export tax Million m3 • • 90 – 2008 €15/m3 80 3 – 2009 70 €50/m 60 Log exports to Europe down 50 With 40 new Forest Code – Autonomy to regions 30 20 – Attracting foreign investment 10 – Value-added processing 0 44% in early 2008 • Illegal harvesting and exports 07 20 06 20 05 20 04 20 03 20 02 20 01 20 00 20 99 19 98 19 Roundwood Market pulp Sawnwood Paper and paperboard Source: UNECE/FAO TIMBER database, 2008 Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania China’s forest products output impacts Million $ 180 000 • Impacting every market sector 160 000 • Roundwood imports profit UNECE region exporters 140 000 120 000 • European roundwood exports affect sawmills 100 000 exports benefit consumers • China’s 80 000 • European, American manufactures impacted 60 000 does not include furniture • Graph 40 000 20 000 0 07 20 05 20 03 20 01 20 99 19 97 19 Source: International Wood Markets Group, 2008 Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania Chinese furniture exports 25 $22 billion 2007, total furniture exports $11 billion, wooden furniture exports 20 $69 billion, total furniture production 15 66% of production for domestic market 10 2,322 manufacturing plants 5 Most plants have some foreign investment Billion $ • • • • • • 0 07 20 06 20 05 20 04 20 03 20 02 20 01 20 00 20 99 19 98 19 97 19 Total furniture Wooden furniture Source: IBISWorld, 2008 and Tan,X. et al., 2007 Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania Chinese forest products production 80 60 50 3 Million m or m.t. 70 40 30 20 10 0 07 20 06 20 05 20 04 20 03 20 02 20 01 20 00 20 99 19 98 19 97 19 Roundwood m3 Woodpulp m.t. Plywood m3 Particle board m3 Sawnwood m3 Paper products m.t. Fibreboard m3 Source: International Wood Markets Group, 2008 Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania Chinese forest products imports 6000 Million $ 5000 4000 3000 2000 1000 0 07 20 05 20 03 20 01 20 99 19 97 19 Roundwood Sawnwood Panels Woodpulp Waste paper Paper products Source: International Wood Markets Group, 2008 Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania Chinese forest products exports 4000 3500 Million $ 3000 2500 2000 1500 1000 500 0 07 20 06 20 05 20 04 20 03 20 02 20 01 20 00 20 99 19 98 19 97 19 Sawnwood Particle board Paper products Plywood Fibreboard Source: International Wood Markets Group, 2008 Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania Chinese forest products consumption 70 3 Million m or m.t. 60 50 40 30 20 10 0 07 20 06 20 05 20 04 20 03 20 02 20 01 20 00 20 99 19 98 19 97 19 Paper and paperboard Sawnwood Wood-based panels Sources: FAOStat, 2008 and Tan, X., et al, 2007. Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania III. Policy drivers • • • • • • • Climate change Carbon markets Wood energy, biofuels vs food Green building Deforestation Corporate responsibility Illegal logging and trade Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania Policies can level or distort the playing field • • • • • Laws, duties, tariffs, taxes, regulations Raw material costs Labour costs & benefits Manufacturing costs Goal: Raise standard of living and domestic consumption of and paper wood products Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania Climate change • UN Intergovernmental Panel on Climate Change: “evidence of a warming trend is unequivocal” • Policies mitigating climate change – – – – National and sub-national governments International organizations Trade associations Non-governmental organizations Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania Climate change • 17.4% of global greenhouse gas emissions caused by humans are from forestry, mainly deforestation • Direct links between sustainable forest management and climate change • EU targets for 2020 – 20% renewable energy – 20% improved energy efficiency Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania Volume damaged by storms in Europe (million m3) 200 180 160 140 120 100 80 60 40 20 0 Factor “X” for forests: Climate change Greenhouse effect on growth? Species substitution? Storms and their damage? 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 1999 Source: UNECE/FAO Forest Products Annual Market Review Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania Cumulative (CHF millions) Annual losses (CHF millions) Storm damage in Swiss forests, 1972-2005 Source: Institute fédérale de Recherche Suisse, 2007 Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania Carbon markets • Active forest management reduces carbon emissions • Following Kyoto Protocol, carbon trading established • Pulp and paper industry included in the EU Emissions Trading Scheme • Future in marketing carbon sequestration in forests and products of wood and paper? Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania Wood energy policies • Targets for wood energy – European and North American – Must be balanced with current and future availability from forests – Must be balanced with wood processing industry needs • 60% of annual growth in European forests harvested – 80% in North America – 34% in Russia Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania Biofuels versus food • • • • Food security Food shortages Production of liquid biofuels from food crops Wood-based biofuels do not compete with food – Forests, including harvesting residues – Wood processing residues – Recycling of wood and paper products Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania Green building systems • New market • New market driver Photo: APA. Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania Deforestation • Issue plaguing the forest sector • Consumers confused between tropical deforestation and state of forests in Europe • Strong policies in UNECE region for sustainable forest management Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania Change in annual forest area, 1990-2000 3 Asia & Pacific Million hectares 2 1 Europe 0 Mideast -1 North America -2 -3 -4 Africa S. America -5 Natural Plantation Central America Total Source: FAO Global Forest Resources Assessment 2000 Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania Change in annual forest area, 1990-2000 (million hectares) Deforestation Increase Net change Tropics -14.2 +1.9 -12.3 Temperate -0.4 +3.3 +2.9 World -14.6 +5.2 -9.4 Note: The change in annual forest area was recalculated at -7.3 million ha per year from 2000 to 2005 by the FAO Global Forest Resources Assessment in 2005. Source: FAO Global Forest Resources Assessment 2000 Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania Causes of deforestation • Forest conversion – Agricultural, including • Pastures for animals • Bioenergy plantations: palm oil, sugar cane – Urbanization • Unsustainable forest management – – – – Poor harvesting practices Insufficient regeneration Fire, insects, disease Over harvest of fuelwood • Poverty and over population Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania Forest resources growing stock 70 60 50 40 s 30 20 10 0 Europe (41) Growing stock North America CIS Net annual increment Fellings Source: UNECE/FAO Forest Resources Assessment 2005 Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania Net annual growth vs. fellings 1 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 Europe (41) N. America CIS Net annual increment Fellings Source: UNECE/FAO Forest Resources Assessment 2005 Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania Forest resources in Europe* • Only 60% of the annual growth is harvested • Forest volume increases ~700,000 m3 daily • Forest area growing: ~700,000 ha annually * Europe = 42 countries for the UN Economic Commission for Europe Source: UNECE/FAO Forest Resources Assessment Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania Timber Committee: corporate social responsibility • Trade associations issuing codes of conduct • Companies developing CSR policies to demonstrate their positive social impact • CSR policies are a means to – Shape consumer perceptions – Gain competitive edge – Improve international recognition and perception • Mutual recognition of trade associations’ CSR policies could facilitate trade. Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania Illegal logging and trade • G8 – “support existing processes to combat illegal logging” – “one of the most difficult obstacles to further progress in realizing sustainable forest management and thereof , in protecting forests worldwide” • Legislation in US and EU • Trade associations establishing and updating codes of conduct – UK TTF proactively made members establish “due diligence risk assessment systems” – Timber Trade Action Plan coordinates associations Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania IV. Wood energy markets (the oldest and newest market) Nice discovery Og, but what about global warming? Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania Wood energy markets • • • 50 Driven by high fossil fuel costs Driven by policies to promote renewable energies – 20% by 2020 in EU – 10% of transport fuels by 2020 in EU Driven by policies for energy security Renewable energy in European Union, 2005, 2011, 2020 Percentage 40 30 20 10 0 U n ite gdo m d Kin en Swed Sp ain Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania ia ds 2020 target n Slo ve k ia Slo va n ia Ro ma gal Po rt u erlan ia bo urg d Po lan N et h Malta m Lu xe an Lit h u d 2011 target a Lat vi Italy Irelan ce an y ar y H un g G ree G erm e Fran c nd Fin la ark b lic R ep u ia Est on De n m us C zech C ypr ria Bulga ia um Belgi A ustr 2005 share Wood energy markets • Similar targets in North and South America, Asia, Oceania and Africa – US target of 15% biofuels for transport by 2022 – US target of 30% by 2030 • Most energy demand for space and water heating • Wood pellet industry growing – Warm winters of 2006/2007, 2007/2008 oversupply – Transportation costs, especially Canada to Europe • Future: cellulosic ethanol Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania Pellet consumption et production Pellet production (1000 tons) 7000 6000 5000 4000 N. American production European production Other production Total production N. American consumption European consumption Other consumption Total consumption 3000 2000 1000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: Canadian Wood Pellet Association, 2007 Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania Wood fuel production 120 80 60 40 Europe Russia 2008 2007 2006 2005 2004 2003 2002 2001 2000 0 1999 20 1998 Million m3 100 N. America Sources: UNECE/FAO TIMBER database, UNECE Timber Committee forecasts, October 2007 Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania French fuelwood production 40 Million m3 35 30 25 20 2006. New French study on consumption and production. Old statistics not yet corrected. 15 10 5 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Sources: UNECE/FAO TIMBER database, and UNECE Timber Committee forecasts, October 2007 Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania Situation today • • • • Record high petroleum prices Energy sources security problems Climate change policies Wood industries’ raw material needs increasing • Wood energy production increasing • Roundwood and residue prices increasing Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania Utilization of biomass in the EU 80 Liquid biofuels 70 60 40 Wood 80% Other wood & wood waste 30 20 Wood & wood waste in households & services 10 04 20 03 20 02 20 01 20 00 20 99 19 98 19 97 19 96 19 95 19 94 19 93 19 92 19 91 19 90 0 19 Mtoe Biogas Municiple waste 50 Source: EurObserv'ER, 2007 Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania Wood for the wood-based industries • Increasing demand forecast • Wood raw material prices climbing • Competition for roundwood and residues – Local and regional – Short-term intense! – Medium term? Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania Demand for wood and fibre in western Europe, without energy, 1960-2020 800 Recovered paper Net pulp imports Amount (in million cubic metres WRME) 700 Gap = residues Industrial roundwood Total wood and fibre requirement 600 500 Growth in demand without energy 400 300 200 100 0 1975 1980 1985 1990 1995 2005 2010 2015 2020 Modern Wood Energy Systems and2000 Markets Year 16-17 September 2008, Timisoara, WRME = Wood raw material equivalent Source: UNECE/FAORomania European Forest Sector Outlook Study, 2005 1960 1965 1970 Results of a UNECE/FAO study on “Wood resources availability and demands: Implications of renewable energy policies” • Wood is the major renewable energy source in Europe • Woodfuel consumption much greater than previously measured • Lack precise statistics • Increasing wood energy changes long-term forecasts for the sector’s wood needs Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania Dilemma or opportunity? (million m3) Year Supply Demand “Gap” 2005 775 821 -47 2010 791 976 -185 2020 825 1274 -448 Source: UNECE/FAO “Wood resources availability and demands: Implications of renewable energy policies”, 2007. Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania How to fill the “gap” • Increase harvests from European forests – More of annual growth – More standing timber • Remove more biomass from forests – Tree tops – Branches, needles, leaves • • • • Harvest wood outside forests (urban, hedgerows) Increase wood recycling and residue reuse Import biomass, wood fuels Improve energy use efficiency Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania Possible consequences of a future gap • Renewable energy targets not achieved • Goals achieved, but not only with wood – Other sources of biomass – Other renewable energy sources • Wood industry growth slowed – Raw material unavailable – Price of raw material too expensive Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania Import more fibre? From Russia?? Billion m3 90 80 Europe-Annual growth 70 Europe-Annual harvest 60 Europe-Growing stock 50 40 Russia-Annual growth 30 Russia-Annual harvest 20 10 0 Russia-Growing stock 1990 2000 2005 Source: UNECE/FAO Forest Resources Assessment Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania Import more fibre? From Russia?? Annual growth vs. annual harvests 0.9 Europe-Annual growth Europe-Annual harvest Russia-Annual growth Russia-Annual harvest 0.8 Billion m3 0.7 0.6 0.5 59% 0.4 ATTENTION! 0.3 New Russian export taxes 0.2 April 2008: € 15/m3 conifers 34% 0.1 0 1990 2000 2005 Jan. 2009: € 50/m3 conifers Jan. 2011: € 50/m3 birch Source: UNECE/FAO Forest Resources Assessment Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania Mobilize more wood • Remember ~40% of annual growth remains in Europe’s forests each year • Confederation of European Forest Owners estimates on private forest lands – 150 million m3 more harvest possible (~half of surplus 40%) – 25% more production through better silviculture • How many billion cubic metres of standing timber are enough? Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania V. Conclusions Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania UNECE Timber Committee on “Energy” • Entire forest sector being transformed by increased wood energy in the UNECE region – Forest owners and managers – Wood industry and markets – Bioenergy industry • Growing wood energy is both a challenge and an opportunity • Government policies must consider – Needs of the forest sector, especially the wood industry – Needs for bioenergy Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania UNECE Timber Committee on “Energy” • Interaction of policies and markets is complex • Policies promoting bioenergy – Strongly increase wood energy consumption – Open important markets – Create new trade Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania Swedish imports of wood fuels Source: UNECE/FAO Forest Products Annual Market Review Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania UNECE Timber Committee on “Energy” • Pellet demand at record level • Pellet prices peaked in 2007, except Sweden • Increasing pellet trade – Especially strong in Germany, Sweden, Austria – 80% of N. American production exported to Europe • Consumption of wood energy much greater than previously known Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania Future of the forest sector • Integrated production of wood & paper products with energy production • Greater value of energy production by integrated plants than by “primary wood & paper” products?! • Profitability of the sector linked to wood energy – Challenge for certain industries, e.g. panels – Opportunity for forest owners, sawmills, energy suppliers Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania VI. Recommendations • Know the provenance of your wood, for products and energy – Be sure it’s sustainable and legal – Not only for your company today, and for your company tomorrow – But for the sake of the entire sector's reputation • Work together to increase wood demand through effective promotion • Promote modern wood energy systems • Use wood efficiently, with highest values first, and eventually recycle for new products and energy Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania VII. Discussion & questions Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania Ed Pepke Forest Products Marketing Specialist UNECE/FAO Timber Section 448 Palais des Nations CH-1211 Geneva 10, Switzerland Tel. +41 22 917 2872 Fax +41 22 917 0041 www.unece.org/timber Ed.Pepke@unece.org Modern Wood Energy Systems and Markets 16-17 September 2008, Timisoara, Romania