Climate exit deal could hit U.S. pellet exports

The U.S. not being part of the Paris agreement will make it difficult for wood pellet producers to export to E.U. markets after 2020, if the E.U.’s proposed renewable energy directive is passed in its current form.

The directive proposes that if forest biomass is to contribute to a E.U. member state’s renewable energy targets then it must come from countries which have ratified the Paris agreement.

The requirement is part of the directive’s proposal to develop sustainability criteria for forest biomass under the land use and land use change and forestry (LULUCF) sector, which accounts for the greenhouse gas inventory of forests.

The proposed directive states that biomass fuels produced from forest biomass can count towards a member states’ renewable energy targets, and be eligible for financial support for the consumption of biomass fuels, only if the country of origin meets defined criteria including that the country has ratified the Paris agreement. If the country does not meet the required criteria the forest biomass can be counted if a management system is in place at the forest holding level to ensure carbon stock and sink levels in the forest are maintained.

U.S. wood pellet producers would have to put in place these management systems if they are to export to E.U. member states.

A lot of U.S. southeast forest, where the majority of exporting wood pellet production plants are situated, is privately owned by small landowners and does not have forest level certification, making it unlikely they have management systems to monitor carbon stocks. Wood pellet production is not the primary market for their forest products, making some foresters unwilling to invest in additional certification or management systems for pellet production.

The E.U. imported 4.9mn t of wood pellets from the US last year but the U.K.’s exit from the E.U. could provide an opportunity for U.S. producers. The majority of U.S. wood pellet exports go to the U.K. — 90pc of U.S. exports, around 4.2mn t, went to the U.K. in 2016.

If the U.K. is no longer subject to E.U. law following its exit from the E.U., then the proposed directive may not apply to U.K. biomass consumption. The directive will apply to biomass consumption post-2020, and the U.K. is scheduled to leave the E.U. on 29 March 2019.

If the U.K. continues to be subject to E.U. law after exiting the E.U., U.S. producers may shift their focus towards supplying Asia rather than the U.K.

The barrier to trade could also prompt U.S. producers to increase their focus on the Asia-Pacific markets. U.S. wood pellet producers are yet to export large volumes to the region, but Canada has been sending pellets to the region for a few years and both countries are looking to increase their market share of the growing market. North American biomass suppliers are already committing long-term supply to Asia-Pacific for 2020 and beyond, Canadian wood pellet producer Pinnacle said in April.

The deadline for amendments to the directive is the end of June 2017, and the E.U. has committed to deal with the proposed directive as a priority in 2017. The final text must be approved by the European parliament and E.U. member states. The adoption of the proposal will lead to repeal of the existing renewable energy directive from January 1, 2021.

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