Projects and Pellets. Karen L. Abt Scientist Forest Economics and Policy Research Southern Research Station US Forest Service

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1 Projects and Pellets Karen L. Abt Scientist Forest Economics and Policy Research Southern Research Station US Forest Service

2 Outline USFS SRS Forest Economics and Policy Work Unit Current SOFAC related research TPO forecasting EISA Renewable Biomass Definition Change Southern Timber Market Response to EU Pellet Demand (SAF 2013) Pellet Industry Study current situation and outlook for the 2015 RPA update Logging Capacity Study

3 Forest Economics and Policy Work Unit Southern Research Station US Forest Service

4 Forest Economics and Policy Research Forest disturbance and management economics Fire Exotic and endemic pests (MPB, SPB, HWA, EAB) Storms Policy and Program Evaluation Taxes, Law, Policy Natural Resource Assessment and Forecasting Regional, national, international assessments Ecosystem services (markets, payments) Traditional product markets Wood-based bioenergy markets International trade (policies, market relationships)

5 Forest Economics and Policy Staff Scientists Karen Abt Biomass markets, fire economics, forest sector economic impacts John Greene, Emeritus Scientist Taxes and incentives Tom Holmes Pest economics, nonmarket valuation, market analyses Evan Mercer Payments for ecosystem services, fire economics, restoration economics Jeff Prestemon Markets and trade, economics of forest disturbances and management Natasha James International carbon programs, REDD in Central and South America Support staff Brian Doherty Charlotte Ham Michaela Foster

6 What s New at the RTP Forestry Sciences Lab Moving Last several years, planning for a new office building at our current location Last fall, approached by RTF who want to buy our site as the centerpiece of a new RTP Main Street. We are planning to sell our site, build a new facility, and move into it (in RTP) in 3 years Hiring Currently advertising for a tax/policy position in our unit to replace John Greene

7 Renewing the Charter for Forest Economics and Policy Unit Every 5 years or so, we get a new charter. Often, we get a new name Forest Investments across the South and Nation ( ) Economics of Forest Protection and Management ( ) Forest Economics and Policy (2005-present) Next? Within the next year, we will have a virtual Technical Assistance Visit with our partners and collaborators, and will develop a new charter after that meeting.

8 USFS R&D Publications All of our publications can be found at Includes publications by all USFS scientists, and all research done by funded cooperators.

9 CURRENT SOFAC-RELATED RESEARCH

10 TPO Forecasting Karen Abt Objective: Improve traditional demand projections using available information from TPO and US Census. TPO is surveyed every two years (2009, 2011, etc), and takes 1.5 years to publish. That means the data can be up to 3.5 years old. TPO is used to update the SRTS input files by using percentage changes.

11 Econometric Modeling of TPO Short time series ( ) every other year=8 observations Aggregating by multi-state region provides observations Best available industry data is Monthly Survey of Manufacturing, Value of Shipments by 3 digit NAICS

12 Two Stage Least Squares Because VOS is a kind of price, and TPO a kind of quantity, we have the common problem of simultaneity bias. Instrumental variables and two stage least squares used to address bias Uses lagged VOS as instruments (regressors) to predict current VOS, and then uses the predicted VOS to predict TPO

13 Results High R2 for all species groups and regions ( ) Out of sample prediction accuracy, however, is poor when series are unsettled (which is precisely when you want forecasts the most.) Predictions are possible by state and for interim years. Further tests are needed to determine if improvements can be made to better reflect more recent conditions.

14 Harvested Volume NC Pine Sawtimber TPO vs 2SLS predicted vs 2 year trend

15 EISA Renewable Biomass Definition Change Karen Abt, Ken Skog, Jeff Prestemon, Bob Abt Energy Independence and Security Act of 2005 and regulations govern what can be called renewable biomass in the production of renewable biofuels. Originally intended to ensure that neither natural forest nor crop land were converted to plantations solely to provide feedstock for biofuels. What would happen to supply uncertainty, natural stands, and forest health if we changed the definition of renewable biomass?

16 Renewable Biomass for Biofuels The EISA definition affects ONLY biomass used in development of renewable biofuels being used to meet EISA. Future production of cellulosic biofuels is still uncertain. Some production, not yet commercial scale, of cellulosic diesel by KiOR, Columbus Mississippi, but cannot compete with other fuels without subsidies. Definition changes would not affect nonqualifying production, exports, other bioenergy uses.

17 EISA Renewable Biomass Roundwood and mill residue are allowed only from plantations that are certified as being active plantations in existence as of December 19, Slash and precommercial thinnings are allowed from all lands. Roundwood, slash, precommercial thinnings and residue are allowed from all lands within the WUI that are removed to reduce the risk of wildfire. Specifically excluded are federal lands and ecologically sensitive lands.

18 Assuming the demand for biofuels exists Any removal of restrictions could lead to increased investment in biofuels IF supply uncertainty is currently a national limiting factor in industry development. Possible to craft changes that could both improve forest health and reduce supply uncertainty. Allowing post-2007 pine plantations OR all forests to qualify would Likely lead to increased harvest of natural stands and conversion to PP Would reduce supply uncertainty Effect on forest health would depend on whether you view a harvest-and-plant as better or worse than a low-health natural forest.

19 Pellet Industry Study Karen Abt, Bob Abt, Ken Skog, Christopher Galik, Anna Stephenson 2010 RPA Assessment National scale IPCC forecasts of bioenergy One industry (bioenergy) One region (US) 2015 RPA Update Special Study Current situation of pellet industry Future outlook, especially key drivers and international demand Due January 31, 2014

20 Pellet Study Outline Demand Past and current demand Key drivers of future demand International climate change/carbon/security policies Domestic policies Energy demand Supply Inventory and land area changes Landowner income Market outcomes Questions for future modeling Effects on and interaction with traditional wood users Small basin price studies

21 Carbon Consequences of Southern Timber Market Response to EU Pellet Demand Bob Abt, Christopher Galik, Karen Abt, Ray Sheffield Determining whether the use of wood for energy will be considered sustainable or carbon neutral depends on What land is converted to pine plantations What metrics are used to measure carbon What scale is used Typically, previous research fixes the scale; uses a single metric; and assumes historical conversions continue.

22 EU Pellet Study Outline Data inputs needed EU pellet demand scenarios Pine plantation conversion projections Transition matrices from FIA data Natural stand shortage Carbon scoring metric choices Scale choices Geography Forest type/age/condition Use SRTS to model the sensitivity of carbon outcomes under different pellet demand scenarios, land transition projections, carbon scale, and carbon scoring rules

23 Logging Capacity Fred Cubbage, Karen Abt, MS Student New Joint Venture Agreement Objective and Methods Examine and correlate historical trends in timber harvesting capacity with forest products manufacturing trends. Solicit expert opinion on future conditions and trends in timber harvesting capacity. Using externally developed forecasts on forest products manufacturing, pellets and other timber uses, evaluate the potential future of timber harvesting capacity in the South.

24 Q & A