Natural Resources: Woody Biomass Users' Experiences Offer Insights for Government Efforts Aimed at Promoting Its Use
Released: 2006-04-27T00:00:00

Letter

Background

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.

Financial Incentives and Benefits, Access to an Affordable Supply, and Environmental Benefits Facilitated the Use of Woody Biomass among Users We Reviewed

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.

Financial Incentives and Benefits Encouraged the Use of Woody Biomass by Several Users

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.

An Affordable Supply Facilitated the Use of Woody Biomass

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.

Environmental Benefits and Other Factors Played a Role in the Use of Woody Biomass

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.

Challenges Faced by Woody Biomass Users Included Inadequate Supply and Costs Associated with Handling and Using the Material

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.

Woody Biomass Was Not Always Sufficiently Available

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.

Users Choosing Woody Biomass over Oil or Natural Gas Made Additional Investments in Equipment and Incurred Additional Operations and Maintenance Costs

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.

Current Users’ Experiences Offer Insights for Government Efforts to Expand the Use of Woody Biomass

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.

Market Forces May Lead Wood Users to Forgo Small- Diameter Trees in Favor of Alternatives

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.

The Effectiveness of Efforts to Encourage Woody Biomass Use May Depend on the Presence of Other Wood-Related Industries

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.

Efforts to Encourage Woody Biomass Use May Be More Effective If They Are Tailored to the Scale and Nature of Recipients’ Use

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.

Concluding Observations

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.

Agency Comments and Our Evaluation

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.

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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.

Characteristics of Woody Biomass Users Included in Our Review

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.

Objectives, Scope, and Methodology

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.

Factors Facilitating the Use of Woody Biomass among Selected Users

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.

Challenges Faced by Selected Users of Woody Biomass

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.

Insights Offered by Our Findings

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.

Comments from the Department of Agriculture

Comments from the Department of the Interior

The following are GAO’s comments on the Department of the Interior’s letter dated March 1, 2006.

GAO Comments

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.

GAO Contact and Staff Acknowledgments

GAO Contact

Staff Acknowledgments

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.