Natural Resources: Woody Biomass Users' Experiences Provide Insights for Ongoing Government Efforts to Promote Its Use
Published: 2006-04-27T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The federal government is placing greater emphasis on thinning vegetation on public lands to reduce the risk of wildland fire. To help defray the cost of thinning efforts, it also is seeking to stimulate a market for the resulting material, including the smaller trees, limbs, and brush--referred to as woody biomass--that traditionally have had little or no commercial value. As GAO has reported in the past, the increased use of woody biomass faces obstacles, including the high cost of harvesting and transporting it and an unpredictable supply in some locations. Nevertheless, some entities, such as schools and businesses, are utilizing the material, potentially offering insights for broadening its use. GAO agreed to (1) identify key factors facilitating the use of woody biomass among selected users, (2) identify challenges these users have faced in using woody biomass, and (3) discuss any insights that these findings may offer for promoting greater use of woody biomass. This testimony is based on GAO's report Natural Resources: Woody Biomass Users' Experiences Offer Insights for Government Efforts Aimed at Promoting Its Use (GAO-06-336).
section_title: What GAO Found
paragraphs: Financial incentives and benefits associated with using woody biomass were the primary factors facilitating its use among the 13 users GAO reviewed. Four users received financial assistance (such as state or federal grants) to begin their use of woody biomass, three received ongoing financial support related to its use, and several reported energy cost savings over fossil fuels. Using woody biomass also was attractive to some users because it was available, affordable, and environmentally beneficial. Several users GAO reviewed, however, cited challenges in using woody biomass, such as difficulty obtaining a sufficient supply of the material. For example, two power plants reported running at about 60 percent of capacity because they could not obtain enough material. Some users also reported that they had difficulty obtaining woody biomass from federal lands, instead relying on woody biomass from private lands or on alternatives such as sawmill residues. Some users also cited increased equipment and maintenance costs associated with using the material. The experiences of the 13 users offer several important insights for the federal government to consider as it attempts to promote greater use of woody biomass. First, if not appropriately designed, efforts to encourage its use may simply stimulate the use of sawmill residues or other alternative wood materials, which some users stated are cheaper or easier to use than woody biomass. Second, the lack of a local logging and milling infrastructure to collect and process forest materials may limit the availability of woody biomass; thus, government activities may be more effective in stimulating its use if they take into account the extent of infrastructure in place. Similarly, government activities such as awarding grants or supplying woody biomass may stimulate its use more effectively if they are tailored to the scale and nature of the targeted users. However, agencies must remain alert to potential unintended ecological consequences of their efforts, such as excessive thinning to meet demand for woody biomass.

section_title: Letter
paragraphs: I am pleased to be here today to discuss factors influencing woody  biomass use among several users we reviewed, as well as potential  insights these users’ experiences may offer as the federal government  seeks to increase woody biomass use. As you know, the federal  government has responded to our nation’s increasing wildland fire threat  by placing greater emphasis on thinning forests and rangelands to help  reduce the buildup of potentially hazardous fuels. These thinning efforts  are expected to generate large amounts of woody material, including many  small trees, limbs, and brush—often referred to as woody biomass—that  traditionally have had little commercial value.
Widespread thinning efforts will be costly to the federal government. To  help defray these costs, and to enhance rural employment and economic  development, the government is promoting a market for woody biomass.  However, as we have reported in the past, increasing the use of the  material faces several obstacles. Officials in federal agencies promoting  woody biomass use—including the Departments of Agriculture, Energy,  and the Interior—told us that its use is hampered by the high costs of  harvesting and transporting it and the difficulty in obtaining a reliable  supply in some areas. Nevertheless, some businesses and government  entities are using woody biomass for various purposes, including heating  buildings, making lumber, and generating electricity.
My testimony today summarizes the findings of our report being released  today that discusses factors facilitating woody biomass use among  selected users, the challenges these users faced in using the material, and  the insights these users’ experiences may have for the federal government  as it seeks to promote greater use of woody biomass. This report is based  on information we collected from 13 users of woody biomass, including  power plants, pulp and paper mills, and school and hospital facilities in  various locations around the United States, as well as on our prior study of  woody biomass.
subsections: section_title: Background
paragraphs: Woody biomass—small-diameter trees, branches, and the like—is  generated as a result of timber-related activities in forests or on  rangelands. Small-diameter trees may be removed to reduce the risk of  wildland fire or to improve forest health, while treetops, branches, and  limbs, collectively known as “slash,” are often the byproduct of traditional  logging activities or thinning projects. Slash is generally removed from  trees on site, before the logs are hauled for processing. It may be scattered  on the ground and left to decay or to burn in a subsequent prescribed fire,  or piled and either burned or hauled away for use or disposal.
Woody biomass can be put to various uses. Among other uses, small- diameter logs can be sawed into structural lumber or can be chipped and  processed to make pulp, the raw material from which paper, cardboard,  and other products are made. Woody biomass also can be used for fuel.  Various entities, including power plants, schools, pulp and paper mills, and  others, burn woody biomass in boilers to turn water into steam, which can  be used to make electricity, heat buildings, or provide heat for industrial  processes.
Federal, state, and local governments, as well as private organizations, are  working to expand the use of woody biomass. Recent federal legislation  contains provisions for woody biomass research and financial assistance.  For example, the Consolidated Appropriations Act for Fiscal Year 2005  made up to $5 million in appropriations available for grants to create  incentives for increased use of woody biomass from national forest lands.  In response, the Forest Service awarded $4.4 million in such grants in  fiscal year 2005. State and local governments also are encouraging the  material’s use through grants, research, and technical assistance, while  private corporations are researching new ways to use woody biomass,  often in partnership with government and universities.
section_title: Financial Incentives and Benefits, Access to an Affordable Supply, and Environmental Benefits Facilitated the Use of Woody Biomass among Users We Reviewed
paragraphs: The users in our review cited several factors contributing to their use of  woody biomass. The primary factors they cited were financial incentives  and benefits associated with its use, while other factors included having  access to an affordable supply of woody biomass and environmental  considerations.
subsections: section_title: Financial Incentives and Benefits Encouraged Woody Biomass Use by Several Users
paragraphs: Financial incentives for, and benefits from, using woody biomass were the  primary factors for its use among several users we reviewed. Three public  entities—a state college in Nebraska, a state hospital in Georgia, and a  rural school district in Montana—received financial grants covering the  initial cost of the equipment that they needed to begin using woody  biomass. The state college received a state grant of about $1 million in  1989, the Georgia hospital received about $2.5 million in state funds in the  early 1980s, and the Montana school district received about $900,000 in  federal funds in 2003 for the same purpose. A fourth user—a wood-fired  power plant in California—received financial assistance in the form of tax- exempt state bonds to finance a portion of the plant’s construction.
Three users in our review also received additional financial assistance,  including subsidies and other payments that helped them continue their  use of woody biomass. For example, the California power plant benefited  from an artificially high price received for electricity during its first 10  years of operation, a result of California’s implementation of the federal  Public Utility Regulatory Policies Act of 1978. Under the act, state  regulators established rates for electricity from certain facilities producing  it from renewable sources, including woody biomass. However, the initial  prices set by California substantially exceeded market prices in some  years, benefiting this user by increasing its profit margin. The Montana  school district also received ongoing financial assistance from a nearby  nonprofit organization. The nonprofit organization paid for the installation  of a 1,000-ton wood fuel storage facility (capable of storing over a year’s  supply of fuel) and financed the purchase of a year’s supply of fuel for the  district, which the district repays as it uses the fuel. The third user, a  Colorado power plant generating electricity by firing woody biomass with  coal, realized ongoing financial benefits by selling renewable energy  certificates associated with the electricity it generated from woody  biomass.
Energy cost savings also were a major incentive for using woody biomass  among six users we reviewed. Two users—rural school districts in  Pennsylvania and Montana—told us that they individually had saved about  $50,000 and $60,000 in annual fuel costs by using wood instead of natural  gas or fuel oil. Similarly, the state college in Nebraska typically saves  about $120,000 to $150,000 annually, while the Georgia state hospital  reported saving at least $150,000 in 1999, the last year for which  information was available. And the two pulp and paper mills we reviewed  each reported saving several million dollars annually by using wood rather  than natural gas or fuel oil to generate steam heat for their processes.
section_title: An Affordable Supply Facilitated the Use of Woody Biomass
paragraphs: An affordable supply of woody biomass also facilitated its use, especially  in areas where commercial activities such as logging or land clearing  generated woody biomass as a byproduct. For example, the Nebraska  state college was able to purchase woody biomass for an affordable price  because logging companies harvested timber in the vicinity of the college,  hauling the logs to sawmills and leaving their slash; the college paid only  the cost to collect, chip, and transport the slash to the college for burning.  Similarly, a Pennsylvania power plant obtains a portion of its wood fuel  from land-clearing operations in which, according to a plant official, the  developers clearing the land are required to dispose of the cleared material  but are not allowed to burn or bury it. The plant official told us developers  often are willing to partially subsidize removal and transportation costs in  order to have an outlet for it.
Thinning activities by area landowners also contributed to an affordable  supply for a large pulp and paper mill in Mississippi. In this area, as in  much of the southeastern United States, small-diameter trees are  periodically thinned from forests to promote the growth of other trees,  and traditionally have been sold for use in making pulp and paper. Further,  according to mill officials, the level terrain and extensive road access  typical of southeastern forests keep harvesting and hauling costs  affordable—particularly in contrast to other parts of the country where  steep terrain and limited road access may result in high harvesting and  hauling costs.
section_title: Environmental Benefits and Other Factors Played a Role in the Use of Woody Biomass
paragraphs: Three users cited potential environmental benefits, such as improved  forest health and air quality, as prompting their use of woody biomass;  other users told us about additional factors that increased their use of  woody biomass. Two users—the Montana school district and the coal- fired power plant in Colorado—started using woody biomass in part  because of concerns about forest health and the need to reduce hazardous  fuels in forest land. They hoped that by providing a market for woody  biomass, they could help stimulate thinning efforts. Another user, a  Vermont power plant, began using woody biomass because of air-quality  concerns. According to plant officials, the utilities that funded it were  concerned about air quality and as a result chose to build a plant fired by  wood instead of coal because wood emits lower amounts of pollutants.
Other factors and business arrangements specific to individual users also  made using woody biomass advantageous. For example, one user, which  chips woody biomass for use as fuel in a nearby power plant, has an  arrangement under which the plant purchases the user’s product at a price  slightly higher than the cost the user incurred in obtaining and processing  woody biomass, as long as the product is competitively priced and meets  fuel-quality standards. Three users whose operations include chipping of  woody biomass and other activities, such as commercial logging or  sawmilling, also told us that having the operations within the same  business is important because equipment and personnel costs can be  shared between the chipping operation and the other activities. And some  users helped offset the cost of obtaining and using woody biomass by  selling byproducts resulting from its use. One pulp and paper mill in our  review sold turpentine and other byproducts from the production of pulp  and paper, while a wood-fired power plant sold steam extracted from its  turbine to a nearby food-canning factory. Other byproducts sold by users  in our review included ash used as a fertilizer and sawdust used by particle  board plants.
section_title: Challenges Faced by Woody Biomass Users Included Inadequate Supply and Costs Associated with Handling and Using the Material
paragraphs: Users in our review experienced several factors that limited their use of  woody biomass or made it more difficult or expensive to use. These  factors included an insufficient supply of the material and increased costs  related to equipment and maintenance.
subsections: section_title: Woody Biomass Was Not Always Sufficiently Available
paragraphs: Seven users in our review told us they had difficulty obtaining a sufficient  supply of woody biomass, echoing a concern raised by federal officials in  our previous report. Two power plants reported to us that they were  operating at about 60 percent of their capacity because they were unable  to obtain sufficient woody biomass or other fuel for their plants. Officials  at both plants told us that their shortages of wood were due at least in part  to a shortage of nearby logging contractors, which prevented nearby  landowners from carrying out all of the projects they wished to undertake.  While officials at one plant attributed the plant’s shortage entirely to the  lack of sufficient logging contractors, an official at the other plant stated  that the lack of woody biomass from federal lands—particularly Forest  Service lands—also was a significant problem.
The lack of supply from federal lands was a commonly expressed concern  among woody biomass users on the West Coast and in the Rocky  Mountain region, with five of the seven users we reviewed in these regions  telling us they had difficulty obtaining supply from federal lands. Users  with problems obtaining supply from federal lands generally expressed  concern about the Forest Service’s ability to conduct projects generating  woody biomass; in fact, two users expressed skepticism that the large  amounts of woody biomass expected to result from widespread thinning  activities will ever materialize. One official stated, “We keep hearing about  this coming ‘wall of wood,’ but we haven’t seen any of it yet.” In response  to these concerns, officials from both the Department of the Interior and  the Forest Service told us that their agencies are seeking to increase the  availability of woody biomass from federal lands.
section_title: Users Choosing Woody Biomass over Oil or Natural Gas Made Additional Investments in Equipment and Incurred Additional Operations and Maintenance Costs
paragraphs: Several users in our review told us they incurred costs to purchase and  install the equipment necessary to use woody biomass beyond the costs  that would have been required for using fuel oil or natural gas. The cost of  this equipment varied considerably among users, from about $385,000 for a  school district to $15 million for a pulp and paper mill. Wood utilization  also increased operation and maintenance costs for some users, in some  cases because of problems associated with handling wood. During our  visit to one facility, wood chips jammed on a conveyor belt, dumping  wood chips over the side of the conveyor and requiring a maintenance  crew member to clear the blockage manually. At the power plant mixing  woody biomass with coal, an official told us that a wood blockage in the  feed mechanism led to a fire in a coal-storage unit, requiring the plant to  temporarily reduce its output of electricity and pay $9,000 to rechip its  remaining wood.
Other issues specific to individual users also decreased woody biomass  use or increased costs for using the material. For example, the Vermont  wood-fired power plant is required by the state to obtain 75 percent of its  raw material by rail, in order to minimize truck traffic in a populated area.  According to plant officials, shipping the material by rail is more  expensive than shipping by truck and creates fuel supply problems  because the railroad serving the plant is unreliable and inefficient and  experiences regular derailments. Another power plant was required to  obtain a new emissions permit in order to begin burning wood in its coal- fired system.
section_title: Current Users’ Experiences Offer Insights for Government Efforts to Expand the Use of Woody Biomass
paragraphs: Our findings offer several insights for promoting greater use of woody  biomass. First, rather than helping to defray the costs of forest thinning,  attempts to encourage the use of woody biomass may instead stimulate  the use of other wood materials such as mill residues or commercial  logging slash. Second, government activities may be more effective in  stimulating woody biomass use if they take into account the extent to  which a logging and milling infrastructure to collect and process forest  materials is in place. And finally, the type of efforts employed to encourage  woody biomass use may need to be tailored to the scale and nature of  individual recipients’ use.
subsections: section_title: Market Forces May Lead Wood Users to Forgo Small-Diameter Trees in Favor of Alternatives
paragraphs: Unless efforts to stimulate woody biomass utilization are focused on  small-diameter trees and other material contributing to the risk of  wildland fire, such efforts may simply increase the use of alternative wood  materials (such as mill residues) or slash from commercial logging  operations. In fact, several users told us that they prefer such materials  because they are cheaper or easier to use than woody biomass.
Indeed, an indirect attempt to stimulate woody biomass use by one  Montana user in our review led to the increased use of available mill  residues instead. The Forest Service provided grant funds to finance the  Montana school district’s 2003 conversion to a wood heating system in  order to stimulate the use of woody biomass in the area. As a condition of  the grant, the agency required that at least 50 percent of the district’s fuel  consist of woody biomass during the initial 2 years of the system’s  operation. Officials told us that the district complied with the requirement  for those 2 years, but for the 2005-2006 school year, the district chose to  use less expensive wood residues from a nearby log-home builder.
It should be noted that the use of mill residues is not entirely to the  detriment of woody biomass. Using mill residues can facilitate woody  biomass utilization by providing a market for the byproducts (such as  sawdust) of industries using woody biomass directly; this, in turn, can  enhance these users’ profitability and thereby improve their ability to  continue using the material cost-effectively. In addition, the availability of  both mill residues and woody biomass provides diversity of supply,  allowing users to continue operations even if one source of supply is  interrupted or becomes prohibitively expensive. Nevertheless, these  indirect effects, even where present, may be insufficient to substantially  influence the use of woody biomass.
Mill residues aside, even those users that consumed material we define as  woody biomass often used the tops and limbs from trees harvested for  merchantable timber or other uses rather than small-diameter trees  contributing to the problem of overstocked forests. Logging slash can be  cheaper to obtain than small-diameter trees when it has been removed  from the forest by commercial logging projects—which often leave slash  piles at roadside “landings,” where trees are delimbed before being loaded  onto trucks. Unless woody biomass users specifically need small-diameter  logs—for use in sawing lumber, for example—they may find it cheaper to  collect slash piled in roadside areas than to enter the forest to cut and  remove small-diameter trees.
section_title: The Effectiveness of Efforts to Encourage Woody Biomass Use May Depend on the Presence of Other Wood-Related Industries
paragraphs: Government activities may be more effective in stimulating woody  biomass use if they take into account the extent to which a logging and  milling infrastructure is in place in potential users’ locations. The  availability of an affordable supply of woody biomass depends to a  significant degree on the presence of a local logging and milling  infrastructure to collect and process forest materials. Without a milling  infrastructure, there may be little demand for forest materials, and without  a logging infrastructure, there may be no way to obtain them. For example,  an official with the Nebraska college in our review told us that the lack of  a local logging infrastructure could jeopardize the college’s future woody  biomass use. The college relied on slash from commercial loggers working  nearby, but this official told us that the loggers were based in another state  and the timber they were harvesting was hauled to sawmills over 100 miles  away. According to the official, if more timber-harvesting projects were  offered closer to the sawmills, these loggers would move their operations  in order to reduce transportation costs—eliminating the nearby source of  woody biomass available to the college.
In contrast, users located near a milling and logging infrastructure are  likely to have more readily available sources of woody biomass. One  Montana official told us that woody biomass in the form of logging slash is  plentiful in the Missoula area, which is home to numerous milling and  logging activities, and that about 90 percent of this slash is burned because  it has no market. The presence of such an infrastructure, however, may  increase the availability of mill residues or other materials, potentially  complicating efforts to promote woody biomass use by offering more  attractive alternatives.
section_title: Efforts to Encourage Woody Biomass Use May Be More Effective If They Are Tailored to the Scale and Nature of Recipients’ Use
paragraphs: Government activities may be more effective in stimulating woody  biomass use if their efforts are tailored to the scale and nature of the users  being targeted. Most of the large wood users we reviewed were primarily  concerned about supply, and thus might benefit most from federal efforts  to provide a predictable and stable supply of woody biomass. Such  stability might come, for example, from long-term contracts signed under  stewardship contracting authority, which allows contracts of up to 10  years. In fact, one company currently plans to build a $23 million woody  biomass power plant in eastern Arizona, largely in response to a nearby  stewardship project that is expected to treat 50,000 to 250,000 acres over  10 years. Similarly, officials of a South Carolina utility told us that the  utility was planning to invest several million dollars in equipment that  would allow a coal-fired power plant to burn woody biomass from  thinning efforts in a nearby national forest. In both cases, the assurance of  a long-term supply of woody biomass was a key factor in the companies’  willingness to invest in these efforts.
In contrast, small users we reviewed did not express concerns about the  availability of supply, in part because their consumption was relatively  small. However, three of these users relied on external financing for their  up-front costs to convert to woody biomass use. Such users—particularly  small, rural school districts or other public facilities that may face  difficulties raising the capital to pay needed conversion costs—might  benefit most from financial assistance such as grants or loan guarantees to  fund their initial conversion efforts. And as we noted in our previous  report on woody biomass, several federal agencies, particularly the Forest  Service, provide grants for woody biomass use.
However, federal agencies must take care that their efforts to assist users  are appropriately aligned with the agencies’ own interests and do not  create unintended consequences. For example, while individual grant  recipients might benefit from using woody biomass—through fuel cost  savings, for example—benefits to the government, such as reduced  thinning costs, are uncertain. Without such benefits, agency grants may  simply increase outlays but not produce comparable savings in thinning  costs. The agencies also risk adverse ecological consequences if their  efforts to develop markets for woody biomass result in these markets  inappropriately influencing land management decisions. As noted in our  prior report on woody biomass, agency and nonagency officials cautioned  that efforts to supply woody biomass in response to market demand rather  than ecological necessity might result in inappropriate or excessive  thinning.
section_title: Concluding Observations
paragraphs: Drawing long-term conclusions from the experiences of users in our  review must be done with care because (1) our review represents only a  snapshot in time and a small number of woody biomass users and (2)  changes in market conditions could have substantial effects on the options  available to users and the materials they choose to consume. Even so, the  variety of factors influencing woody biomass use among users in our  review—including regulatory, geographic, market-based, and other  factors—suggests that the federal government may be able to take many  different approaches as it seeks to stimulate additional use of the material.   Because these approaches have different costs, and likely will provide  different returns in terms of defraying thinning expenses, it will be  important to identify what kinds of mechanisms are most cost-effective in  different circumstances. In doing so, it also will be important for the  agencies to take into account the variation in different users’ needs and  available resources, differences in regional markets and forest types, and  the multitude of available alternatives to woody biomass. If federal  agencies are to maximize the long-term impact of the millions of dollars  being spent to stimulate woody biomass use, they will need to design  approaches that take these elements into account rather than using  boilerplate solutions.
Mr. Chairman, this concludes my prepared statement. I would be pleased  to answer any questions that you or other Members of the Subcommittee  may have at this time.
section_title: GAO Contact and Staff Acknowledgments
paragraphs: For further information about this testimony, please contact me at (202)  512-3841 or nazzaror@gao.gov. David P. Bixler, Lee Carroll, Steve Gaty,  and Richard Johnson made key contributions to this statement.
This is a work of the U.S. government and is not subject to copyright protection in the  United States. It may be reproduced and distributed in its entirety without further  permission from GAO. However, because this work may contain copyrighted images or  other material, permission from the copyright holder may be necessary if you wish to  reproduce this material separately.