Energy subsidies push up the price of wood

Pile of logs Environmental groups have questioned the policy of encouraging power stations to burn wood

Technology, they say, will provide the answers to all our future energy needs.

Harnessing the power of the sun, wind and ocean currents using state-of-the-art instruments is seen the world over as key to achieving domestic energy security and combating carbon dioxide emissions that contribute to global warming.

But in amongst all this technological wizardry remains one energy source that humans have relied upon since time immemorial; an energy source that is now being seen as a key component in renewable energy production for future generations: the humble tree.

Energy security

Governments around the world are paying power stations to burn wood to generate electricity.

In the UK, subsidies for so-called biomass energy were introduced in 2002, and some of the country's biggest stations are burning an ever increasing amount of wood alongside more traditional coal; and being paid handsomely for doing so.

Biomass plant Burning wood is seen as more environmentally friendly by the government than burning coal

In theory, burning wood only releases the carbon that was stored by the trees when growing, so there is no net increase in C02 emissions. But there is, of course, an increase in emissions compared with keeping the tree standing.

And there is little benefit in terms of energy security, as much of the wood burned on an industrial scale is imported from overseas.

Indeed many environmental groups argue the push for burning wood will increase deforestation.

"Biomass stations that rely on wood imports from abroad are a threat to the world's forests and may even increase climate-changing emissions," says Paul Steedman from Friends of the Earth.

Even the government's own adviser on climate change questions the environmental benefits of burning wood on an industrial scale.

"The extent to which bioenergy should contribute to economy decarbonisation is highly controversial," says David Kennedy, chief executive of the Committee on Climate Change.

"The government should change its approach to supporting new biomass power generation, which as proposed could raise costs with limited carbon benefits."

Higher prices

But there are much more tangible, no doubt unintended, consequences to biomass subsidies.

Since 2005, the price of the kind of wood used in the construction and wood panel industries has gone up by more than 50% in the UK.

Price of UK wood

The reason, the wood industry says, could not be simpler - biomass subsidies have increased demand for wood, pushing prices higher.

As Dr Peter Beele at the Furniture Industry Research Association says: "There is no doubt the two are connected".

Alastair Kerr at the Wood Panel Industries Federation is even more unequivocal, arguing that timber prices are significantly higher than five years ago despite the economic downturn. "The only factor is biomass," he says.

'Serious effect'

And if the companies that make wood have to pay more for their raw materials, it's not long before these additional costs are passed on to builders, furniture makers and, ultimately, consumers.

Drax power station Drax, the UK's largest coal-fired power station, is burning more and more wood

The effects are already being felt.

"The increases in costs eroded our bottom line significantly, until the point when, about 12 months ago, we were forced to pass them on to our customers," says Gavin Adkins at wood panel manufacturer Kronospan.

The customers of panel makers are furniture makers, and they too are feeling the heat.

Julian Roebuck at Gresham Office Furniture says that recent increases in the price of chipboard have been "incredible".

"In the past 12 months, we have had two increases of 6% and 9% which, in the current economic climate, we have been unable to pass on to our customers," he says.

"This is having a serious effect on our business and the damage to the office furniture sector will be untold."

Eventually, these additional costs on furniture makers will be passed on to consumers, if they have not already.

Karl Morris at Norbord, one of the world's biggest wood panel makers, says UK consumers will be looking at paying an additional £200 on a standard kitchen.

Cost advantage

But these cost increases are just the beginning, according to the wood industry.

"It's not so much what's happening now as what's going to happen in the next five years," says Mr Kerr.

He says under the current subsidy regime, a dedicated biomass power station gets about £75 for each tonne of wood it burns. A co-firing station - one that burns biomass alongside coal, for example - gets about £25-£50.

This gives power stations quite an advantage over more traditional buyers when UK-harvested wood can cost £60 a tonne - although, of course, the subsidy is designed to cover the cost of building or converting traditional stations, which can run into many millions of pounds.

Biomass plant Planning applications for biomass energy plants have increased sharply because of government subsidies

In fact, the subsidies have encouraged more and more power stations to look at burning wood, not to mention a swathe of applications for new-build biomass stations.

"Planning applications either submitted or granted are just the tip of the iceberg," says Mr Kerr.

Demand for wood, he says, will rocket.

The total wood harvested from UK forests last year was 10 million tonnes, and yet the projected demand will be between 50 and 80 million tonnes by 2030, says Mr Kerr.

The government has set an unofficial target that 10% of wood used for biomass energy production should be sourced domestically, which means between five and eight million tonnes in 20 years.

So either the UK needs to grow an awful lot of trees very fast to meet this demand, which appears entirely unrealistic, or the price of wood will continue to rise.

The government says it will try and increase forest expansion, and suggests imported wood can make up any shortfall in domestic production.

"We are taking action to increase the supply of wood from within the UK by using more waste wood and bringing forests back into economic production," a spokesman for the Department of Energy and Climate Change says.

"Operators of bioenergy plant will import wood for fuel too, and studies have shown there is no shortage of sustainably-sourced biomass in the world."

Fairer system

That may be so, but it costs an awful lot more to buy wood from overseas, more than double in most cases, so power stations will inevitably buy as much as they can from domestic forests.

And as long as they do, the price of wholesale wood and furniture in the shops is likely to keep rising.

The wood industry does not oppose biomass subsidies in principle, but wants a system that doesn't push up demand for domestic wood to such an extent.

More importantly, "we don't want to burn things in the first instance. We want to use them first, then burn them", Mr Kerr says.

Carbon emissions from the wood may ultimately be the same, but at least something useful and valuable - to companies, consumers and the wider economy - will have been created, and the unintended consequences not quite so severe.

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