Natural Resources: Woody Biomass Users' Experiences Offer Insights for Government Efforts Aimed at Promoting Its Use
Published: 2006-03-22T00:00:00

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. In responding to a draft of this report, the Departments of Agriculture, Energy, and the Interior all generally agreed with GAO's findings.
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.

section_title: Letter
paragraphs: In recent years, extensive wildland fires have drawn attention to the  abnormally dense vegetation in many of our nation’s forests. The federal  government has responded by placing greater emphasis on reducing the  danger of such fires by 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, the increased use of woody  biomass faces several obstacles. Officials in federal agencies seeking to  promote its use—including the Departments of Agriculture, Energy, and  the Interior—told us that woody biomass use is hampered by the high costs  of removing and transporting it from forests and the difficulty in obtaining  a reliable supply in some areas. Nevertheless, a number of businesses and  government entities are using woody biomass for various purposes,  including heating schools and hospitals, making lumber and other  products, and generating electricity.
In this context, and in response to our previous report describing agency  activities to promote woody biomass, you asked us to review current users  of woody biomass to determine whether their experiences offer any  insights for expanding its use. Specifically, we 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 our findings may offer for promoting greater use  of woody biomass.
To conduct our review, we used a structured interview guide to collect  information 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. Appendix I contains information about each of  the 13 users in our review. We first identified users by interviewing federal  and nonfederal officials knowledgeable about the use of woody biomass  and by reviewing pertinent documents such as federal agency studies of  woody biomass utilization. Users in our review were then selected from a  range of industries and geographic regions. The information we collected  about these 13 entities should not be generalized to other woody biomass  users because of variations in the characteristics of different users.  Appendix II provides further details on the scope and methodology of our  review. We conducted our work from May 2005 through January 2006 in  accordance with generally accepted government auditing standards.
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 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. Figure 1 depicts woody biomass in the  form of small-diameter logs and slash.
Woody biomass, both small-diameter logs and slash, can be put to various  uses. Small-diameter logs can be sawed into structural lumber, particularly  as some sawmills have retooled to process these logs in addition to, or  instead of, larger logs. Other users of whole small-diameter logs include  some log-home builders and post and pole makers. After bark, branches,  and leaves are removed, logs can be chipped and processed to make pulp,  the raw material from which paper, cardboard, and other products are  made. Chipped wood also is used by manufacturers of oriented strand  board and other such engineered wood products. Both small-diameter logs  and slash also can be chipped or ground and used for fuel, either in raw  form or after being dried and made into fuel pellets. Various entities,  including power plants, schools, pulp and paper mills, and others, burn  woody biomass in boilers to turn water into steam, which is used to make  electricity, heat or cool 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,  including the Biomass Research and Development Act of 2000, Healthy  Forests Restoration Act of 2003, Consolidated Appropriations Act for  Fiscal Year 2005, and Energy Policy Act of 2005, 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 use of woody biomass through  grants, research, and technical assistance. For example, the Bitter Root  Resource Conservation and Development Council, a nonprofit organization  sponsored by state government entities and three counties in Montana, is  helping to coordinate a federally funded effort—known as the Fuels for  Schools program—to install wood-fired heating systems in rural school  buildings. Other states, such as Idaho, Nevada, and North Dakota, also are  participating in the Fuels for Schools program.
Private corporations also are researching new ways of using woody  biomass and wood waste, often in partnership with government and  universities. For example, one corporation has partnered with the  University of Georgia, and has developed and plans to license biorefinery  technology for making chemicals, agricultural fertilizer, and transportation  fuels such as ethanol from woody biomass. Another private company has  developed technology that it hopes will significantly increase the ethanol  yield from any type of biomass, including woody biomass.
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, primarily financial incentives and benefits but also other  factors such as an affordable supply of woody biomass and environmental  considerations. Financial incentives encouraging the use of woody biomass  included financial assistance, while financial benefits included energy cost  savings from using woody biomass in place of other fuels. In addition, some  users had access to a readily available and affordable supply of woody  biomass, particularly in areas where material was being removed as part of  commercial activities such as logging. Other users told us that their use of  woody biomass was due in part to environmental or other perceived  benefits.
subsections: section_title: Financial Incentives and Benefits Encouraged the Use of Woody Biomass 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. Four of the 13  users in our review told us that initial financial assistance in the form of  grants or bonds allowed them to begin using woody biomass. 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. In  the case of the state college, a state grant of about $1 million in 1989  covered the cost of installing two wood-fired boilers used to heat about 1  million square feet of campus building space, as well as an expansion to the  college’s central heating plant to house the new boilers and the requisite  wood storage and handling system. The college received a subsequent  grant of about $100,000 in 2003 to help defray the costs of installing a  chiller powered by woody biomass, which supplies cool air to campus  buildings. The state hospital in Georgia received about $2.5 million in state  funds during the early 1980s to pay for the purchase and installation of  wood-handling equipment, and the Montana school district received about  $900,000 in federal funds in 2003 for the same purpose. The 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, part of a statewide effort to promote the use of biomass  power plants and thereby reduce air pollution created by burning the  material in the open.
Three users in our review also received additional financial assistance,  including subsidies and other payments that helped them continue their  use of woody biomass.
The California wood-fired power plant received about $10 per megawatt  hour from the state government during 2003 and 2004, according to a  plant official. This subsidy, which also was provided to other biomass- fueled electricity producers in the state, was paid for by a “public goods”  surcharge on consumers’ utility bills. The plant also 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. The act—a response to the  unstable energy climate of the late 1970s—required utilities to purchase  electricity from certain facilities producing electricity from renewable  sources, including woody biomass, at prices established by state  regulators. However, the initial prices established by California— based on expectations of sharply rising oil and natural gas prices— proved to substantially exceed market prices in some years, benefiting  this power plant by increasing its profit margin.
The Montana school district also continues to receive financial  assistance through its participation in the Fuels for Schools program.  For example, the Bitter Root Resource Conservation and Development  Council paid for the installation of a 1,000-ton wood fuel storage facility  at the school district, capable of storing over a year’s supply of fuel. The  council also financed the up-front purchase of a year’s supply of fuel for  the district, which the district repays as it uses the fuel. This ongoing  assistance helped the district obtain wood fuel for about $24 per ton  during the 2005-2006 school year, in contrast to the $36 per ton it paid  for woody biomass in the previous year. Moreover, when some of the  school district’s wood fuel supply decayed more rapidly than expected,  the council also arranged for the Forest Service to provide higher-quality  woody biomass from a nearby fuels reduction project at a price of $10  per ton. Figure 2 shows the 1,000-ton wood fuel storage facility.
One Colorado power plant that generated electricity by firing woody  biomass with coal received ongoing financial benefits for using woody  biomass by selling renewable energy certificates. Renewable energy  certificates (sometimes referred to as “green tags”) represent the  environmental benefits of renewable energy generation—that is, the  benefits of displacing electricity generated from nonrenewable sources,  such as fossil fuels, from the regional or national electric grid. The  certificates are sold separately from the electricity with which they are  associated. Certificates can be purchased by utilities seeking to meet  state requirements for renewable energy generation or by other entities  seeking to support the use of renewable energy sources, and their sale  can serve as an additional source of revenue to power plants using such  sources. The Colorado power plant in our review generated about 730  megawatt hours of electricity through its use of woody biomass, and  sold the associated renewable energy certificates to the Forest Service  for $23 per megawatt hour, or about $17,000 in total. The Forest Service  purchased the certificates in order to promote woody biomass use and  to offset the power plant’s costs for using woody biomass.
Energy cost savings also were a major incentive for using woody biomass  among six of the users we reviewed. Of the four users that produce central  heat with wood, two users—small 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.  Officials at one of these districts told us that these savings represented the  equivalent of one teacher’s annual salary, stating “we could either burn fuel  oil and watch that money go up the chimney, or burn wood and put the  money toward education.” Likewise, the state college in Nebraska, which  uses woody biomass to heat and cool about 1 million square feet of space in  several campus buildings, 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. Similarly, 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; officials at one mill stated that the  mill’s operating costs would increase significantly without the savings  generated by burning wood, making it difficult for the mill to remain  competitive. Each of these users told us that they planned to continue their  use of woody biomass because they anticipated continuing high fossil fuel  prices.
section_title: An Affordable Supply Facilitated the Use of Woody Biomass
paragraphs: An affordable supply of woody biomass 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 activities in the area made slash readily available. 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. One official told us  that without the area’s logging activity, the affordable supply of woody  biomass used by the college would be severely jeopardized and the college  would have to pay much higher prices to heat and cool its campus.
Two Pennsylvania users in our review also obtained an affordable supply of  woody biomass generated through commercial activities. Officials of a  rural school district told us that nearby lands are being cleared for  development, and that a portion of the wood generated from land clearing  is chipped by contractors for purchase by the school. Similarly, a  Pennsylvania power plant uses wood from a combination of sources,  including woody biomass from land-clearing operations that are, on  average, more than 130 miles from the plant, according to a plant official.  This official told us that the developers clearing the land are required to  dispose of the cleared material but are not allowed to burn or bury it, so  they often are willing to partially subsidize removal and transportation  costs in order to have an outlet for the material.
Forest management activities also contribute to the availability of an  affordable supply of woody biomass. For example, small-diameter trees  have been available to a large pulp and paper mill in Mississippi in part  because of thinning activities by area landowners. In this area, as in much  of the southeastern United States, forests are largely privately owned, and  much of the forests are plantations meant for production. Small-diameter  trees are periodically thinned from these forests to promote the growth of  other trees, and traditionally have been sold for use in making pulp and  paper. Officials at the Mississippi pulp and paper mill told us that these  trees are a relatively inexpensive source of material compared with the  cost of the material in other parts of the country because the structure of  southeastern forests—with level terrain and extensive road access— reduces harvesting and hauling costs, 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 also hoped that by providing a market for woody biomass,  they could help stimulate thinning efforts. The Montana school district was  the first of a series of Fuels for Schools projects intended to stimulate  demand for woody biomass generated from forest fuels reduction, and the  Colorado power plant began using woody biomass in an effort to  contribute to the health of the forest by using material from nearby fuels  reduction projects.
Air-quality concerns spurred the use of woody biomass at a Vermont power  plant in our review. 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 users cited the air-quality benefits of burning woody biomass under  the controlled conditions of a boiler rather than burning it in the open air  (whether through slash pile burning, prescribed burning, or wildland fire)  because doing so generates significantly fewer emissions.
Finally, other factors and business arrangements specific to individual  users encouraged the use of woody biomass, either by insulating users  from the effects of changes in the price and availability of woody biomass  or by enabling users to profitably add woody biomass use to their business.  For example, an official at one wood-fired power plant told us that the  plant has been able to operate because the plant’s owners—a group of  utilities—have the financial capacity, as well as a long-term outlook, to  withstand short-term fluctuations in its profitability. Without this  ownership, according to officials, the plant might have shut down during  periods of decreased revenues resulting from variations in the price or  availability of woody biomass. Another user, which chips wood for use as  fuel in a nearby power plant, has an arrangement with the power plant  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 user’s product is competitively priced and meets  fuel-quality standards. The arrangement guarantees the user a long-term  market for its product at a price that allows it to cover its costs. Three  users whose operations include chipping woody biomass and other  activities, such as commercial logging or sawmilling, told us that having  these other operations within the same business is important because costs  for equipment and personnel can be shared between the woody biomass  chipping operation and the other activities.
Other users helped offset the cost of obtaining and using woody biomass by  selling byproducts resulting from their use of the material. For example,  one pulp and paper mill in our review sold turpentine and other byproducts  that were produced during the production of pulp and paper, while another  user—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, bark for landscaping material, 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 factors that limited their use of woody  biomass or made it more difficult or expensive to use, including insufficient  supply and increased costs related to equipment and maintenance. Two  users were unable to obtain a sufficient supply of woody biomass, and  several more told us they had difficulty obtaining the material from federal  lands. Several users also told us that, despite the economic advantages of  using woody biomass in place of oil or natural gas, they had incurred costs  that they would not have incurred had they burned oil or natural gas— including additional equipment for handling woody biomass and added  operation and maintenance costs, such as costs arising from problems in  storing and handling woody material.
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, either because of constraints on the supply of  the material or because of insufficient availability of loggers to collect it.  Two users, both 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, each of which burned mostly woody biomass but also  supplemented the material with mill residues and urban wood waste, told  us that their shortages of wood were due at least in part to a shortage of  nearby logging contractors. According to plant officials, the lack of logging  contractors meant that nearby landowners were unable to carry out all of  the projects they wished to undertake, resulting in what one plant official  termed a “backlog of standing timber.” While officials at one plant  attributed the plant’s shortage entirely to the insufficient availability of  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. One plant reported taking a financial loss in  each of the past 3 years, the result of operating below capacity.
The lack of supply from federal lands was a commonly expressed concern  among the woody biomass users on the West Coast and in the Rocky  Mountain region, with five of the seven users we reviewed in these regions  (including one of the power plants running at about 60 percent capacity)  telling us they had difficulty obtaining supply from federal lands. One such  user ceased operations for several months because of an interruption in its  supply of woody biomass 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,” adding that emphasizing uses for  woody biomass without an adequate supply “is putting the cart before the  horse.” Of the remaining six users in our review, one obtained about 5  percent of its woody biomass from federal lands while the other five used  no federal woody biomass at the time of our review. In such cases, users  obtained woody biomass from state or private lands, or relied on  alternative wood materials such as sawmill residues or urban wood waste.
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. These costs  included scales for weighing incoming material; truck tippers to assist in  unloading material; wood-storage buildings or concrete pads for storing  wood; chippers to chip the material to the proper size; and conveyors and  other mechanisms for transporting the material to the boiler. Some users  needed other equipment as well; an official at one location told us a front- end loader was dispatched every 45 minutes to push wood chips to a  loading area, where a mechanical conveyor could pick the chips up. Figure  3 is a schematic of the equipment and process used by one user in our  review.
The cost of this equipment varied considerably among users, in part as a  result of the differences in the amount of wood consumed. For example, a  school district burning about 850 tons of wood fuel per year reported  spending about $385,000 for the necessary equipment, including the boiler,  while a pulp and paper mill burning about 216,000 tons per year in its  boiler—about 250 times the school district’s annual consumption— reported investing $15 million in equipment necessary to use the material.  Not all users reported additional substantial expenditures on equipment,  however; one power plant burning wood mixed with coal told us that the  only additional equipment it needed was a ramp for a front-end loader,  which was constructed at minimal cost.
Wood utilization also tended to increase operation and maintenance  requirements for users. One power plant official told us that wood is more  expensive to handle than coal, citing handling costs of $4.50 per ton for  wood compared with $1.50 per ton for coal. Wood also can create  problems; for example, if wood chips are not properly sized, they can  create blockages in machinery that require prompt action. 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 manually clear the blockage. Figure 4 shows the crew member  attempting to clear the blockage.
After one facility converted from natural gas and fuel oil to wood, it  reported that the number of personnel needed to maintain its central  heating plant nearly doubled, from about 8 or 9 to about 14 to 16. At  another facility—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  one of the plant’s coal-storage units, requiring the plant to temporarily  reduce its output of electricity and leading the plant to pay $9,000 to have  its remaining stock of wood rechipped. Two users also reported  spontaneous combustion in their wood storage piles that resulted from  decaying wood.
Other issues specific to individual users also decreased woody biomass use  or increased costs for using the material. For example, an official with one  user, which chips small-diameter trees and sells the resulting chips to pulp  and paper mills, told us that the pulp and paper mills prefer sawmill  residues to chipped trees and will purchase his product only when  sufficient sawmill residues are unavailable. This official told us that  demand for his product has been so low in some years that he has operated  his chip processor for only 6 months during the year. Another user, 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. This same power plant is required by the  state to restrict its purchases of woody biomass to material coming from  forest projects that meet state-approved environmental standards. To  ensure that it meets this requirement, the power plant employs four full- time foresters—an investment the plant would not have to make if it did  not use woody biomass. Another power plant was required to obtain a new  emissions permit in order to begin burning wood in its coal-fired system.  An official at a third power plant told us that “woody biomass is expensive  to harvest, process, transport, and handle—and it has only half the   of coal”; he summed up his concerns by stating, “Biomass energy is not  the most efficient way to make electricity.” However, he added that using  woody biomass to make electricity provides benefits to society by  consuming material that would otherwise be burned in the open or  deposited in landfills.
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.
It should be noted, however, that drawing long-term conclusions from the  experiences of users in our review must be done with care because our  review represents only a snapshot in time and a small number of woody  biomass users. Changes in market conditions could have substantial effects  on the options available to users and the materials they choose to consume,  and the effects of changes in the market are complex and difficult to  predict. For example, the price of fossil fuels such as natural gas plays a  role in determining the cost-effectiveness of woody biomass use; if the  price of natural gas were to rise, increased energy cost savings through  woody biomass use might persuade more entities to convert to the material  despite the up-front costs of conversion. On the other hand, if the cost of  diesel fuel were to rise along with that of natural gas, the cost of harvesting  and transporting woody biomass would increase because the machinery  used to perform these tasks generally runs on diesel fuel—diminishing the  advantages to be gained by using woody biomass.
subsections: section_title: Market Forces May Lead Wood Users to Forgo Small- Diameter Trees in Favor of Alternatives
paragraphs: One goal of the federal government’s efforts to stimulate woody biomass  use is to defray the cost to the government of thinning millions of acres of  land at risk of wildland fire by creating a market for the resulting materials.  Because a substantial component of these materials consists of small- diameter trees, it is important that government efforts include a focus on  finding uses specifically for these trees. Without such a focus, efforts to  stimulate woody biomass use may simply increase the use of mill residues  or other wood materials—which several users told us were preferable to  woody biomass for a variety of reasons—or slash from commercial logging  operations.
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; the agency  required as a condition of the grant 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 rather than  woody biomass. The cost of these residues was $24 per ton, in contrast to  the $36 per ton the district paid for woody biomass the previous year. A  district official said that the district was willing to use woody biomass in  the future if it could be obtained more cheaply than alternative materials.  The district was not alone among users in our review in its use of mill  residues and other wood materials; eight users in our review used such  materials in addition to, or instead of, woody biomass. Officials at one of  these users—a pulp and paper mill—told us that they began their operation  by using mill residues, switching to woody biomass only when competition  for mill residues began driving up the price. Emphasizing users’ preference  for mill residues, a Forest Service official in Montana told us that his  national forest sometimes has difficulty finding a market for woody  biomass resulting from forest projects because the numerous log-home  builders operating in the area offer a cheaper and more accessible source  of wood in the form of mill residues.
This is not to say that the use of mill residues is entirely to the detriment of  woody biomass. The use of mill residues can play an indirect role in  facilitating woody biomass utilization by providing a market for the  byproducts of industries using woody biomass directly, such as sawdust or  other residues from small-log sawmills. The existence of a market for these  byproducts can enhance the profitability of woody biomass users and,  consequently, improve their ability to continue using woody biomass cost- effectively. In addition, the availability of both mill residues and woody  biomass provides diversity of supply for users, allowing them 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, particularly those that used wood for fuel, often used the  tops and limbs from trees harvested for merchantable timber or other uses  rather than the small-diameter trees that contribute to the problem of  overstocked forests. One woody biomass user in our review reported using  only the slash from commercial logging rather than small-diameter trees,  while another user reported that 80 percent of the woody biomass it used  consisted of logging slash and 20 percent consisted of thinned small- diameter trees. Two users reported using residues from land-clearing  operations conducted as part of commercial land development. Logging  slash can be cheaper to obtain than small-diameter trees when it has been  already removed from the forest by commercial logging projects; such  projects often leave slash piles at roadside “landings,” where trees are  delimbed before being loaded onto log 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. And while  consuming logging slash may have environmental benefits—by, for  example, decreasing smoke emissions by reducing the amount of slash  burned in the open—it does not necessarily contribute to the government’s  goal of stimulating forest thinning or reducing thinning costs. Further,  users’ reliance on material whose cost of removal was subsidized by  commercial activities suggests that, even if the government succeeds in  stimulating a market for the woody biomass, it still may need to bear a  substantial portion of thinning costs in order to make the material  economically attractive for users.
The experience of the Montana school district also illustrates the  unintended market consequences that may result from indirect attempts to  stimulate woody biomass use. The school district is located in an area  where several industries, including pulp and paper, plywood, and others,  purchase commercially produced mill residues for their operations. By  purchasing mill residues, the school district began competing for the same  raw materials desired by these other industries. The impact on the market  is likely to be small, as the school district uses only a small fraction of the  wood used by these other industries. Nevertheless, in addition to spurring  woody biomass use from forest-thinning operations, as originally  envisioned by Forest Service officials, these grant funds also introduced  more competition into an existing market for mill residues.
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 the materials. Indeed, officials at one power plant  operating at less than full capacity because of a shortage of wood for the  plant told us that the shortage was due to the lack of a local logging  infrastructure—in other words, there simply weren’t enough loggers to  carry out the forest projects that nearby landowners wanted to undertake.  The user said it was not cost-effective to obtain the material from more  distant sources because of transportation costs.
Similarly, an official with the Nebraska state college in our review told us  that the lack of a local logging infrastructure could potentially jeopardize  the college’s woody biomass use in the future. The college relied on logging  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. The official said the  loggers would prefer to work closer to the sawmills in order to reduce  transportation costs, but could not find closer logging opportunities.  According to the official, if more timber-harvesting projects were offered  closer to the sawmills, these loggers would immediately move their  operations—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 a logging and processing infrastructure,  however, may increase the availability of mill residues, potentially  complicating efforts to promote woody biomass use by offering more  attractive alternative materials.
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, such as pulp and paper  mills or wood-fired power plants, 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 the White Mountain stewardship  project in the area, a thinning project expected to treat 50,000 to 250,000  acres over 10 years. Although the company is relying in part on $16 million  in loan guarantees furnished by the Department of Agriculture, the  assurance of supply offered by this long-term project was a key factor in  the company’s decision to build the power plant. Furthermore, a  Department of Agriculture official told us that the assurance of supply also  was critical to the department’s decision to provide the loan guarantee.  Similarly, in November 2005, officials of a South Carolina utility told us that  the utility was planning to burn woody biomass resulting from thinning  efforts in a nearby national forest, and was intending to purchase about  75,000 tons annually to burn along with coal in a coal-fired power plant.  Although the utility did not yet have an agreement in place to purchase the  woody biomass, the officials told us that the utility anticipated investing  $4.4 million in wood-handling equipment and realizing substantial annual  fuel and emissions cost savings. The national forest expects to conduct  several long-term thinning projects, and officials told us that the utility  would not have considered making this investment in woody biomass use  without this likelihood of a stable, long-term supply.
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 provide grants for woody  biomass use—particularly the Forest Service, which is, among other  efforts, providing grants of between $50,000 and $250,000 to increase the  utilization of woody biomass from or near national forest lands.
However, federal agencies must take care that their efforts to assist users  are appropriately aligned with the agencies’ own interests, and that their  efforts do not create unintended consequences. For example, while  individual grant recipients might reap substantial benefits from their ability  to use woody biomass—through fuel cost savings, for example, as  demonstrated by several users in our review—benefits to the government,  such as reduced thinning costs, are uncertain. Without such benefits,  agency grants may simply increase agency 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: 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.  However, 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 and what types of resource  investments are most cost-effective in different circumstances. This will be  a difficult task, given 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. Nevertheless, 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.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to the Secretaries of Agriculture, Energy,  and the Interior for review and comment. The departments generally  agreed with our findings and provided technical comments that were  incorporated into this report, as appropriate. Comments from the  Departments of Agriculture and the Interior are reprinted in appendixes III  and IV, respectively. The Department of Energy provided comments via e- mail.
As agreed with your office, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies to the Secretaries of  Agriculture, Energy, and the Interior; Chief of the Forest Service; Director  of BLM; and other interested parties. We also will make copies available to  others upon request. In addition, this report will be available at no charge  on GAO’s Web site at http://www.gao.gov.
If you or your staff have any questions about this report, please contact me  at (202) 512-3841 or at nazzaror@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. Key contributors to this report are listed in appendix V.
section_title: Characteristics of Woody Biomass Users Included in Our Review
paragraphs: Table 1 provides information on the type and amount of wood fuel  consumption reported by each woody biomass user in our review. This  information is based on the amount of wood used in the last full year for  which complete data were available.
section_title: Objectives, Scope, and Methodology
paragraphs: The objectives of our review were 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 the insights our  findings offer for promoting greater use of woody biomass. To meet these  objectives, we reviewed the operations of 13 public and private  organizations throughout the United States that use woody biomass to  make a variety of products.
Because no comprehensive list of woody biomass users exists, we asked  knowledgeable federal and nonfederal officials to identify woody biomass  users. As part of these interviews, we asked for names of additional  officials—regardless of location or agency affiliation—who could provide  additional information about, or insights into, woody biomass users.  Federal officials we met with included various officials from the  Department of Agriculture’s Forest Service, Department of Energy, and  Department of the Interior. We also contacted nonfederal officials,  including representatives of the Appalachian Hardwood Center, Biomass  Energy Resource Center, Bitter Root Resource Conservation and  Development Council, Center for Biological Diversity, Montana Community  Development Corporation, National Association of Conservation Districts,  Natural Resources Defense Council, Society of American Foresters,  Southern Alliance for the Utilization of Biomass Resources, USA Biomass  Power Producers Alliance, and Wilderness Society. We asked these federal  and nonfederal officials to identify woody biomass users across the United  States. We continued this expert referral technique until the references we  received for woody biomass users became repetitive. We also reviewed  documents that identified possible woody biomass users and provided  background information about woody biomass use.
From the several hundred entities that were reported to us as using woody  biomass, we selected for further review a nonprobability sample of 14  woody biomass users from different industries and geographic locations.  These users produced a range of different products from woody biomass,  such as building heat, electricity, pulp, paper, and wood fuel, and were  located in various geographic locations around the country. Of these users,  13 participated in our review; the remaining user, a sawmill using small- diameter logs to make lumber, did not respond to our request to  participate. The woody biomass users we reviewed included  a state college in Nebraska,   a state hospital in Georgia,   two rural school districts in Montana and Pennsylvania,   two pulp and paper mills in Mississippi and Montana,  three logging and wood products operations in Michigan, Montana, and   four electric power producers in California, Colorado, Vermont, and  Pennsylvania.
The general locations of the users we reviewed are shown in figure 5.
We then developed a structured interview guide to review the operations of  the 13 woody biomass users and to obtain general information about their  operations. Because the practical difficulties of developing and  administering a structured interview guide may introduce errors—resulting  from how a particular question is interpreted, for example, or from  differences in the sources of information available to respondents in  answering a question—we included steps in the development and  administration of the guide for the purpose of minimizing such errors. We  pretested the guide at one location and conducted a second pretest by  telephone. We also provided a draft version of the guide to federal officials  knowledgeable about woody biomass in order to obtain their comments on  the draft. Based on these steps, we modified the structured interview guide  to reflect questions and comments we received.
subsections: section_title: Factors Facilitating the Use of Woody Biomass among Selected Users
paragraphs: To collect information about the factors that facilitate woody biomass use,  we used our structured interview guide to obtain information about the 13  users in our review, including the types and amount of woody biomass  used, when their woody biomass use began, and the type of materials that  woody biomass use replaced. We also asked users about economic factors  that facilitated their use of woody biomass, such as the cost and availability  of their supply. During discussions, we also gathered users’ opinions about  factors that might increase their use of woody biomass. To corroborate the  information we gathered through interviews, we compared interviewees’  responses with other information we reviewed, when available, such as  contracts, third-party evaluations of user activities, financial analyses, and  the like. Because the documentary evidence we reviewed generally agreed  with the information provided by woody biomass users, we believe the data  are sufficiently reliable to be used in providing descriptive information on  the factors facilitating woody biomass use by users in our review.
section_title: Challenges Faced by Selected Users of Woody Biomass
paragraphs: We also used our structured interview guide to ask the 13 users about  challenges they faced or other factors that might diminish their use of  woody biomass. For example, we asked users about the affordability of  their supply of woody biomass and the farthest distance from which they  can affordably obtain it, and gathered users’ opinions about factors that  might diminish their use of woody biomass. To corroborate the information  we gathered through interviews, we compared interviewees’ responses  with other information we obtained, when available—again including  documentation such as contracts, third-party evaluations of user activities,  financial analyses, and the like. Because the documentary evidence we  reviewed generally agreed with the information provided by woody  biomass users, we believe the data are sufficiently reliable to be used in  providing descriptive information on challenges associated with the use of  woody biomass by users in our review.
section_title: Insights Offered by Our Findings
paragraphs: To describe the insights offered by our findings, we relied principally on the  information gathered during our discussions with woody biomass users. In  addition, we used information gathered from interviewing potential and  current users as well as agency officials and others knowledgeable about  woody biomass use, including information gathered during our prior  review of woody biomass. Our intent was to highlight issues that we  observed in our review of current woody biomass users and that we believe  should be considered by those seeking to develop a market for woody  biomass.
We performed our work from May 2005 through January 2006 in  accordance with generally accepted government auditing standards.
section_title: Comments from the Department of Agriculture
section_title: Comments from the Department of the Interior
paragraphs: The following are GAO’s comments on the Department of the Interior’s  letter dated March 1, 2006.
subsections: section_title: GAO Comments
paragraphs: 1. We agree that the multiple benefits listed by the department may indeed  flow from the increased use of woody biomass. However, the objectives  of our review were to evaluate the experiences of individual users, not  to identify the general benefits of using woody biomass. In instances in  which users cited certain benefits facilitating or resulting from their use  of woody biomass, we included such benefits in our report. 2. We have modified our draft to include reference to the department’s  contracting clause. 3. We understand that projects focusing on after-treatment stand  conditions may generate a variety of materials, including commercial  sawtimber and lower-value materials, and that the commercial  component of these materials can help offset project costs. However,  while it is not possible to separate the two issues entirely, the focus of  our report—embodied in our definition of woody biomass—is on small- diameter trees and other traditionally noncommercial material. 4. The focus of our report goes beyond heat and electricity production,  and includes two users manufacturing pulp and paper from woody  biomass and three contractors processing woody biomass for other  users. Nevertheless, we recognize that users in other industries—or  even other users in the same industries we examined—may offer  additional insights into expanding the use of woody biomass. 5. Large-scale operations or widespread penetration of small wood  industries might, as the department suggests, create competition for  the materials and increase the value of small-diameter trees. However,  while such a scenario may come about in the long term, our intent was  to provide insights and information applicable to the current situation.  Similarly, the scope of our report generally is limited to the experiences  of individual users in our review, not to broader efforts such as the  northern California woody biomass thinning program. 6. We do not necessarily look at mill residues as a negative influence on  using woody biomass—in fact, we acknowledge that the use of mill  residues and other sources of wood can benefit woody biomass  utilization in several ways. However, we do believe that it can serve as a  complicating factor in the government’s efforts to stimulate the use of  small-diameter trees specifically. 7. We have modified our draft to reflect the current expiration date of  2013 for Forest Service and Bureau of Land Management stewardship  contracting authority, as well as to note the related authorities available  to other Interior agencies. 8. While the department’s suggestions regarding stewardship contracting  and market and tax incentives are beyond the scope of our review, the  agencies or the Congress may wish to consider these options as they  evaluate the success of contracting and grant programs.
section_title: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, David P. Bixler, Assistant Director;  Lee Carroll; Steve Gaty; Tim Guinane; Richard Johnson; Amanda Miller;  Alison O’Neill; and Judy Pagano made key contributions to this report.