Outlook for bioeconomy in Europe and implications to Finland

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1 @FORBIOproject Outlook for bioeconomy in Europe and implications to Finland Lauri Hetemäki Assistant Director, European Forest Institute Bioeconomy Studia Generalia Lecture, University of Eastern Finland, 21 February 2017

3 Lecture Outline 1. Motivation, background and focus 2. Outlook for current forest industry: paper & wood products 3. New bioeconomy products 4. Policy challenge 5. Key messages Purpose: Provide insights of the Finland of forest-based sector in the EU &

4 Lecture based on, among others:

5 Background, motivation & focus

6 Forest utilization is derived demand based on the products and services people need for everyday life Figure: Metla buildings books, magazines furniture food textiles packages heat, light & power recreation hunting silence, health biodiversity

7 How, and how much, we use forests has big impact on forest management and how forests look We can not determine how forests should be managed, and in what condition they are, if we do not take into account how they are used This lecture focuses in forest based products in Europe, which is one of the most important usages of forests Other uses are also very important (tourism, recreation, ecosystem services) but do not focus on these here Lecture focus on demand (products) not supply or resource (forest)

8 Some terminology and concepts Forest sector = forestry and forest industry (wood products, pulp and paper) Forest-based sector = forest sector + forest-based energy, chemicals, textiles, etc. + services Forest-based bioeconomy ~ forest-based sector, but especially emphasizes the role of new and innovative biomass-based products in transforming societies to lowcarbon and circular economy

9 Relevance of traditional EU forest products industry Turnover equal to Daimler + Siemens + Nestlé Empolyment equal to Volkswagen + Siemens + Nestlé + Daimler Including further forest-based processing industries + forestry + logistics + services could easily double the numbers EU forest products industries turnover & employment Data source: EUROSTAT Paper and Wood Products Total Paperboard Turnover value (2014, in billion euros) Employment (2013, number of workers) million

10 Background: Forest industry in the 20 th century Context and concept

11 The forest industry in The operating environment in the 20 th century Double Helix of the forest industry DNA structure: 1. pulp & paper & 2. solid wood products

12 Tomorrow was just another yesterday, only bigger - Forcasting in 1987 to 2007, you could use the past trend - Also, product portfolio structure was almost the same in 1987 and Production in Finland million tons or cubic meters Paper and paperboard Sawnwood

13 Context and concept remained stable There were changes of course (EU, euro, industry concentration, more wood, new global players, etc.) Yet, the overall operating environment context was not dramatically different The old concept (double helix) seemed to still work in this context In 2007, the Finnish paper and wood products production volumes were at their historical peak

14 But, another story - Structural change - Trend forecast is not anymore working 15 Production in Finland million tons or cubic meters Paper and paerboard Sawnwood

15 The context started to change in Major paper industry shut-downs. the Diamond Product - communication paper - started to decline (digital IT) Historically long economic slump started in 2008 Bad time also for wood products (construction sector in slump) The global and European setting changing in many ways In the changing global context, need a new concept

16 What is happening in global forest products markets?

17 Gobal & European Forest-Based Sector are going through major structural changes in coming decades 1. Population and income growth 2. Climate change 3. Boundaries of the planet and resources (circular economy) 4. Emerging economies and changing competitive advantages 5. Digital technology development 6. New forest-based products (biofuels, biomaterials, nanopulp, etc.) 7. Services - the big megatrend of the 21 st Century

Income growth > more demand for using forests World forest area per capita 1990-2015 ha / per capita.80.

18 Income growth > more demand for using forests World forest area per capita ha / per capita Balancing demand and supply will require increasing resource-efficiency & better forest management Need more from less! Data: FAO & World Bank Proj. = 0.44 in

19 Shares of world paper and paperboard production in three main producer regions (FAOSTAT) percentage share Asia North America Europe

20 World Paper & Paperboard Production 2000 & 2015 European countries dropping out from the top 10 COUNTRY 2000 (mil. tons) COUNTRY 2015 (mil. tons) 1. USA China 111 (+3 times) 2. China USA Japan Japan Canada Germany Germany South Korea Finland Canada 10.6 (-half) 7. Sweden Brazil France Finland South Korea Indonesia Italy India 10.2 Data: FAOSTAT

21 Structural changes already taking place in communication paper markets in China Not captured by market outlook studies 3-year moving average annual growth rate of newsprint and printing and writing paper consumption in China Printing and writing paper = 2004 percentage change, % New sprint Data: FAOSTAT

22 European Forest Products Markets

23 Current state of European forest-based sector could be labelled as one of Creative Destruction Joseph Schumpeter

and stagnating demand for number of other

in the EU since 2008 and its many impacts

24 Destructive processes include Declining demand for communication paper products, and stagnating demand for number of other forest products Very long economic slump in the EU since 2008 and its many impacts Move of some forest industry investments to fastgrowing markets in Asia, or low-cost production regions like South America

25 EU Sawnwood and Paper Production : new normal? = = 2007 million tons or m Sawnwood Paper Data: FAOSTAT

26 Outlook for current forest products production (Source: JRC, European Commission, BAU-projection in 2017) Only packaging paper production slightly increasing in the EU to Index 2000= Sawnwood EU Sawnwood World Panels EU Panels World Graph.Paper EU Graph.Paper World Pack.Paper EU Pack.Paper World

27 EU roundwood production declined Average production vs was 46 Mm3 lower > equal to Germany s annual production EU Industrial Roundwood Production million m Europe Irwprod = 426 Mm 3 in Longest decline in past 50 yrs yrs 8 yrs Data: FAOSTAT

nonsustainable products or food production disturbing raw materials with forest-based materials Basically, you

28 Creative or innovative processes include Forest industry and other industries are changing strategies and business models, investing in new forest-based products Demand is driven by the need to substitute nonsustainable products or food production disturbing raw materials with forest-based materials Basically, you can produce from woodfibre all the same products than from fossil raw materials Moving to new type of forest bioeconomy

Difference to past is new innovative and more resource-efficient products and processes that are a

29 What is bioeconomy? Many definitions of bioeconomy. To put it simply, using renewable biomass or forest (biome) for materials, products and services Difference to past is new innovative and more resource-efficient products and processes that are a necessary solution to climate change, sustainability and helping world to live within the boundaries of our planet and resources (circular economy)

32 New forest products already in markets

33 New forest based bioproducts: 3 examples Forest biomass Increasing demand in textile markets to replace e.g. cotton and polyester 2. Biofuels Increasing demand in transportation sector Increasing demand for low CO 2, healthy and cost competitive construction material

Global changes are creating demand for wood fibres: Example dissolving pulp for textiles 2.8 2.4 2.0 1.6 1.2 0.

34 Global changes are creating demand for wood fibres: Example dissolving pulp for textiles European production of dissolving pulp Old world & technology Rise of oil-based textiles & problems with technology Environment and food issues causing substitution for competing textile fibres 2.8 Mil. tons Data: FAOSTAT

Example: Enocell mill in Uimaharju, Finland Founded 1967.

35 Example: Enocell mill in Uimaharju, Finland Founded Produced only pulp for paper industry until 2012 from pine pulpwood mainly to European markets Since 2012 has produce also dissolving pulp for textile industry from birch pulpwood, and exports mainly to China 2015 produced tons dissolving pulp with value of 94,4 million euros

Outlook for dissolving pulp R&D helps to lead to environmentally less problematic dissolving pulp products Viscose and modals (needs carbon disulphide) > problematic Lyocell Ioncell (Stora

36 Outlook for dissolving pulp R&D helps to lead to environmentally less problematic dissolving pulp products Viscose and modals (needs carbon disulphide) > problematic Lyocell Ioncell (Stora Enso, Metsä Fibre/Itochu trading house) Diversification and focusing in specific materials for textiles and other uses (food, medicine, cosmetics, paints, etc.) Marimekko Ioncell dress

37 Dissolving pulp consumption outlook to 2030 World demand is forecast to grow by 3.9%/a, driven mainly by China & India Million tonnes Rest of Asia Japan Europe North America Source: Pöyry 2015 North America

Engineered wood products outlook promising Move towards more value added engineered wood products (EWP) has taken place For example, Cross Laminated Timber (CLT) modules have a very promising outlook

38 Engineered wood products outlook promising Move towards more value added engineered wood products (EWP) has taken place For example, Cross Laminated Timber (CLT) modules have a very promising outlook in multi-storey buildings This has many important implications (industry structure, business model, etc.) The major driver for the sector in the coming decade is increasing cost competitiveness of the products (prefabrication) and institutional changes (regulations, education and training) Environmental benefits can be a + in the future, but so far little impact

wooden library to be opened 2018 Image: Keskustakirjasto arkkitehtuurikilpailu For a 1 ton of wood products replacing

39 Example wood construction: bioeconomy & CO 2 mitigation for urban areas Cross Laminated Timber (CLT) for buildings in a high growth path (>10%) Promises: less primary energy more healthy living environment less carbon emissions Helsinki City new wooden library to be opened 2018 Image: Keskustakirjasto arkkitehtuurikilpailu For a 1 ton of wood products replacing Portland cement, estimated average of 2 tons of CO 2 avoided Photo: Blumer- 7 storey office building in Zurich Lehmann AG

40 Cross Laminated Timber (CLT) modules promising new wood product and concept 4 x 12 x 3 metre ready room Building like lego blocks Photos and concept: Stora Enso company

41 Old and new products: very different demand patterns

42 How about forest bioenergy markets?

Forest bioenergy is part of larger forest bioeconomy Bioenergy largest renewable energy source in EU: 44% of renewable energy production in 2014 Forest bioenergy integral part of forest management,

43 Forest bioenergy is part of larger forest bioeconomy Bioenergy largest renewable energy source in EU: 44% of renewable energy production in 2014 Forest bioenergy integral part of forest management, forestry, forest-based products & energy-industry system > not helpful to look at it as a separate entity Bioenergy contributes significantly to energy supply in most scenarios that meet ambitious climate targets* *Berndes et al Forest biomass, carbon neutrality and climate change mitigation. From Science to Policy 3, European Forest Institute,

44 European energy wood production again increasing European Wood Fuel Production = Data: FAOSTAT million cub. meters 50% of wood fuel comes from wood residues, and most of the rest form logging residues, thinnings and coppice Growing wood residues consumption implies increasing resourceefficiency and cascading use Wood fuels is the concept used by FAO and is basically energy wood. It is defined as all types of biofuels originating from woody biomass, e.g., firewood, log wood, wood chips, wood pellets, wood briquettes (FAO def.). These come from forests, plantations (coppice), urban forests, by-products (chips, bark, etc.), post-consumer wood

45 Diversity: Wood Based Energy 1000 different things Natural and planted forests Directly to wood fuel use Forest industry roundwood Industry Process side streams and forest residues Forest Industry Wood and Paper Products Society Post consumer wood Consumers Rawmaterial Sawlogs Pulpwood Energywood (wood rawmaterial not fit for industry) Fields Logging residues from regeneration felling s Young stands (whole tree) Short rotation Plantation forests (willow) Whole tree Purned whole tree Stumps Forest chips Forest Chips Logging residues Whole tree chips Chopped firewood Pulp chips chips Crsuhed stumps To Pulp industry Wood Products Industry Solid Wood Fuels Wood Panel residues industry Sawdust without bark wood residues Chips Value added fuels Pellets Chips Briquets Original slide source Eija Alakangas, VTT; from which the slide has been modified and translated from Finnish by Lauri Hetemäki, EFI 45 Grinding dust HEAT + POWER + TRANSPORT FUEL Bark Pulp and Paper Industry Black liquor + other liquors Black liquor Mixing with bark Mechanically treated wood Fiberintesive sludge Drying Chips/crsuhed wood Distribution Chemically treated wood Chips/crsuhed wood Wastepaper Paper and board not suitable for recycling Shredded paper and board Recycled paper Raw-material Mechanical treatment Chemical treatment / pulp and paper industry Chemical treatment /wood products Biofuels End product

Wood-based biodiesel UPM s biorefinery: 100,000 tonnes (120 million litres) of 2 nd generation biodiesel for transport from tall oil (sidestream of pulping) Decreasing transport emissions up to 80%

46 Wood-based biodiesel UPM s biorefinery: 100,000 tonnes (120 million litres) of 2 nd generation biodiesel for transport from tall oil (sidestream of pulping) Decreasing transport emissions up to 80% compare to fossil fuels More will be demanded due to EU and Finland s biofuel targets (FIN: 10% 2020; %*) UPM Biofuels *biopolttoaineiden energiasisällön fyysinen osuus kaikesta tie-liikenteeseen myydystä polttoaineesta

47 How does the future look in Finland?

Finland's top forest export products 2015 1.

60% of Finland s P&P volume Key challenge: time.

48 Finland's top forest export products Paper and paperboard 7,0 bill. EUR 4. Wood pulp 1,8 bill. EUR 6. Softwood sawnwood 1,6 bill. EUR Graphics (communication) papers account still about 60% of Finland s P&P volume Key challenge: time. How to succeed renewing product portfolio before current products not good business anymore?

49 Forest Industry Companies Company Sales 2015 bil. / ROC, % Key products Key strategy features UPM 10.1 / 10.5 Stora Enso 10.0 / 10.6 graphics papers, pulp, labels, plywood, energy (nuclear, biodiesel, CHP) packaging, biomaterials, paper, wood products Growth-sectors (energy & biorefining, labels, emerging economies) and non-growth-sectors (graphics papers, Europe) Growth-sectors (packaging, biomaterials, emerging markets) and non-growth-sectors (graphics papers, Europe) Metsa Group 5.0 / 13.7 pulp, paperboard, wood products Finland key investment area (ownership structure). Starting to be interested also in USA packaging markets. Paperboard and pulp, wood products Borregaard, Norway 0.5 / 15.6 lingin-based products, speciality cellulose, vanillin Increasing specialization to high-value-added and nonlarge-volume-products. R&D investments more important than forest products industry in general. Niches-within-the-niches

50 One size-fits all strategy does not exist Products and end uses are numerous, companies involved diverse, with different structures, strategies and goals > same strategy does not work for all Companies differing purposes, business models, knowhow, partnering, and technologies lead to different bioproducts portfolios Capital and operations located in Finland will be heavily softwood and exporting based Need also new companies to develop bioeconomy. For this, need new capital (e.g., Chinese)

51 Under consideration: Kaidi Finland, Kemi Sunshine Kaidi New Energy Group (China) investment 900 mil. ; tons 2 nd generation biofuels using forest residues, chips and thinnings 2.8. mil. m 3 investment decision is promised in 2017 and start

Under consideration: Boreal Bioref Oy, Kemijärvi CAMC Engineering Co. Ltd. (China) investment 800 mil. ; 500 000 tons paper + dis. pulp + energy, etc.

52 Under consideration: Boreal Bioref Oy, Kemijärvi CAMC Engineering Co. Ltd. (China) investment 800 mil. ; tons paper + dis. pulp + energy, etc. using pulpwood (mainly pine) 2.6 mil. m 3 + chips m 3 investment decision is said to be made by 2017 and start 2020 Old Kemijärvi pulp mill. The new would be built north of this site

53 3 things to pay more attention in Finnish bioeconomy development

there is no bioeconomy without biodiversity.

54 R&D, biodiversity & narrative 1. R & D investments still way too low. A must for long-run development and competitiveness 2. Understand that biodiversity is the other side of the coin - there is no bioeconomy without biodiversity. Need to increase funding to biodiversity, not to cut it 3. Tell a fact-based bioeconomy narrative that is appealing for urban population

55 The key challenge: How to succeed in sustainable resourceefficient bioeconomy development without compromising other forest related needs?

56 How to push production possibility frontier outwards in a sustainable way? Units of forest services 7 e.g. biodiversity or carbon sink Frontier in 2017 trade-offs Frontier in 2047 This requires max. synergies and min. trade-offs! Units of products e.g. wood products or bioenergy

57 Big question mark impacting the future: Global, EU and Finland s polices

than ever Bioeconomy Road How lasting and consistent?

58 Future policies play a key role Net effects hard to quantify Renewable energy policy Policies impact more than ever Bioeconomy Road How lasting and consistent? Many polices and cross linkages

59 Key messages

60 Creative destruction enforces and enables a change to European forest sector

61 Changed context needs a new concept 1. The context of forest industry operation environment has changed significantly in this century 2. The past double helix structure does not work anymore. Key word is diversity of products and business models 3. Sustainabile and circular bioeconomy new concept for the new context 4. Well tought and predictable regulating environment necessary for investments in bioeconomy 5. Today and tomorrow, forest based industry is much more interesting than when I started in 1987!

62 Ad: Mark the day > 14 December

63 Thank you! Photo: Erkki Oksanen

Role of sustainable forest based bioeconomy in Europe

Role of sustainable forest based bioeconomy in Europe Lauri Hetemäki European Forest Institute ThinkForest, 15 November 2016, Brussels Presentation based on a synthesis & insights of recent EFI studies