US Paris Agreement withdrawal may have severe implications for North American pellet industry
President Trump’s announcement to withdraw the US from the Paris Climate Accord may have catastrophic consequences for the US industrial wood pellet industry, for European biomass power utilities, and even for the Canadian wood pellet industry. This is due to a new proposed European requirement that wood pellets may only be sourced from countries that are party to the Paris Agreement and have ratified it writes Gordon Murray, Executive Director, Wood Pellet Association of Canada (WPAC).
US President Donald Trump announced June 1 that the United States will withdraw from the Paris climate accord, framing his decision as “a reassertion of America’s sovereignty”, adding he was “elected to represent the citizens of Pittsburgh, not Paris.” President Trump’s decision may have catastrophic consequences for the US industrial wood pellet industry, for European biomass power utilities, and even for the Canadian wood pellet industry. The fallout may adversely affect Canadian pellet producers despite Canada’s support of the Paris Agreement.
In November 2016, the European Commission (EC) released its Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on the promotion of the use of energy from renewable sources (RED II), which includes rules regarding renewable energy and biomass sustainability. Article 26.6 of the Proposal provides that biomass – i.e. wood pellets – must be sourced from a country that “is a Party to, and has ratified, the Paris Agreement”. If a country has not signed the Paris Agreement, RED II specifies that forest management systems must be “in place at the forest holding level to ensure that carbon stocks and sinks levels in the forest are maintained”.
Since the US wood pellet industry sources its fibre from thousands of small private landowners, it is highly improbable that such forest management systems can be put in place at the forest holding level. This would mean that every single US landowner who supplies pellet feedstock would henceforth prepare his/her own written forest management plan and that European power utilities could prove the existence of each such plan to the satisfaction of European regulatory authorities.
Presently, European industrial-scale power utilities consume about 10 million tonnes of wood pellets annually, with several new projects at advanced stages of development that will bring this total up to about 13 million tonnes within the next two years. In 2016, the US accounted for 4.6 million tonnes or 46 percent, followed by Canada at 1.9 million tonnes or 19 percent, and various European countries and Russia at 3.5 million tonnes or 35 percent.
The US industrial pellet industry is totally reliant on Europe, exporting its entire production to just a few European countries – notably the United Kingdom (UK), Belgium, and Denmark. If due to President Trump’s announcement, Europe no longer accepts US sourced pellets, the consequences would be catastrophic. European power utilities would have to replace US pellets from other sources such as Canada, northern Europe, and Russia.
In the short term, pellet prices would likely increase. However, it would be difficult for those countries to scale up production fast enough to meet the needs of European power utilities. Without access to sufficient raw material, European power plants would be at risk, putting the entire wood pellet supply chain in jeopardy. Although Canadian wood pellet exporters are also highly reliant on the European power market, shipments to Asia have been increasing, especially to Japan.
However, this may not be enough. First, should Europe become closed to US producers, the result would be that many US producers would more aggressively seek to compete with Canada in Asia. Second, although Asian markets are presently growing nicely, the rate of growth may not be fast enough to accommodate a wholesale redirection of US pellet exports.
How likely is it that these scenarios will all materialize? The answer lies with two legislative bodies: the European Parliament (EP) and the European Council (EC). The European Union (EU) adopts legislation through a variety of legislative procedures. RED II is still in the form of a proposal from the EC. It still must be approved by the Council of the European Union in order to become law.
However, recently there has been no indication by European legislators that they are willing to relax any proposed rules regarding biomass sustainability. Moreover, given the belligerent nature of President Trump’s announcement and ensuing negative reaction from European political leaders, it is all the more likely that they will bear down on the requirements of Article 26.6.
The eventual withdrawal of the UK from the EU could potentially offer some relief, but it is not likely to occur quickly enough and there is no guarantee that the UK would not ultimately impose similar requirements.
The only certainty is that we are in for turbulent times ahead.