House of Commons - Environmental Audit

Select Committee on Environmental Audit Second Report

BACKGROUND

4. Forests are a vital part of the world's ecosystems. Natural forests, which once covered 48% of land on the planet, are irreplaceable and their loss has profound economic, social and environmental impacts. Forest cover has now been reduced to 29% (3,900 million hectares) and continues to decrease every year at an alarming rate. Sixty million indigenous people are almost wholly dependent on forests to live, and forests support up to 1.6 billion people to greater or lesser extent worldwide. Forests also act as an enormous carbon sink.[3] The total carbon stored in forest biomass, deadwood, litter and soil represents roughly 50 percent more than the amount of carbon in the atmosphere. The destruction of these forests is estimated to contribute almost two billion tonnes of carbon to the atmosphere every year. This carbon is being released into the atmosphere as a result of deforestation, forest degradation and land use change. This represents a staggering 25% of all man-made emission into the atmosphere every year.[4] Furthermore there are concerns that the impacts of climate change may increase carbon emissions further, as a result of forest die-off in tropical and temperate areas caused by the predicted increase in temperatures and droughts. Forests, particularly tropical forests, are also one of the most biodiverse habitats on earth and a vast natural resource, containing the majority of the worlds terrestrial species, many as yet unknown, and some which may be of great use to society should they survive to be discovered.

Only 12% of the world's forests lie in protected areas
The world lost an estimated 14.6 million hectares of natural forests per year from 1990 to 2000. An area half the size of the UK is cleared every year.
The ten most forest-rich countries account for two-thirds of the total forest area: Australia, Brazil, Canada, China, the Democratic Republic of the Congo, India, Indonesia, Peru, the Russian Federation and the United States of America
Around 20% of the world's mangrove forests have disappeared during the past 25 years as a result of over-exploitation and conversion to other uses
Logging at current rates in some of the world's most pristine habitats, such as Papua New Guinea, is predicted to destroy their forests and habitats in as little as 10 years from now.
50% of all logging takes place in vulnerable forests in SE Asia, Central & South America, Russia, Africa.
80% of orangutan habitat has disappeared in the last ten years.

5. Timber and forests are also an international economic resource. The value of global forest products traded internationally is estimated by the World Bank to be in the order of US$270 billion, of which developing countries account for 20%. A significant proportion of this is illegal timber (timber which is harvested, transported, processed, bought or sold in violation of national laws) estimated to be worth $10-15billion per year. This is only a rough estimate because, as a recent UN Forest and Agriculture Organisation (FAO) report acknowledged," an unknown proportion of the world's timber is illegally felled, processed and traded".[5] The illegal timber trade is estimated to depress world prices between by 7% and 16%. It also represents a significant loss of government revenue, often in poorer countries where it is needed the most. It is estimated, for example, that Indonesia's government suffers $1bn loss of revenue a year as a result of illegal logging.[6] In addition, illegal logging is often associated with criminal activities, such as money laundering, tax evasion and violence to indigenous people. The three main international markets for timber and timber products are the EU, US and Japan. In addition China and India are playing a significantly increased role in importing timber from producer countries, particularly in Asia and Africa, and exporting processed goods to the main markets. A significant part of the timber trade involves a world market in what are effectively illegal and stolen goods, worth up to $15 billion a year, for which the EU (including the UK), the US and Japan are the main markets. The impacts of this illegal trade on valuable ecosystems, the world's poor, the economies of developing countries and climate change mean there is a moral imperative to address this problem in every way possible.

6. Within the context of the international timber trade it must be remembered that the FAO estimates that 50% of all timber illegally felled is for domestic consumption. The adverse impacts of this are equal to those of the international trade although it is a much harder issue to tackle internationally. As an economic and governance issue it must be resolved at country level—for which countries like the UK should offer all assistance possible in the form of capacity building and aid where required. Addressing the issue of domestic illegal consumption of timber is as important from a development and environmental perspective as is the need to tackle the international illegal timber trade. We hope to see DFID and the EU, within the context of its work on the timber trade and governance, continue to address this issue through development aid and assistance.

Legality and Sustainability

7. The difficult task of addressing the issue of the sustainability of the international trade in timber within the context of the serious problem of illegal logging means that the main international focus has been on this second area, illegality, with the aim of ensuring that all timber exports are at least compatible with the legislation of the country of origin. The underlying causes of illegality were summarised by the FAO as including a flawed policy and legal framework; minimal enforcement capacity; insufficient data and information about the forest resource and illegal operations; and corruption in the private sector and in government.[7] All these are areas that need to be addressed if forest protection worldwide is to become a reality.

8. The issue of legality is less pressing in temperate forests, which form the major source for timber purchased in the UK and EU—although there are serious concerns regarding timber sourced from Russia and the Baltic States. However, issues of sustainability are a very real concern even in temperate forests. Legality and sustainability are both problems in many tropical countries, something that is beginning to be addressed to some degree in Asia, but is still most serious in both Africa and Latin America.

9. Forest certification systems, which offer a varying degree of certainty of sustainability—though they do for the most part offer a certainty of legality—cover 10% of forests worldwide. This figure, whilst encouraging, needs to increase significantly if forests are to be protected in the long term. Unfortunately, tropical forests which are in the greatest need of protection are also those forests which are least likely to be certified and struggle the most to achieve the governance standards required to achieve certification.

10. Logging for timber is not the only threat to forest sustainability. In Brazil large expanses of forests are being cleared to allow cattle farming to feed the beef export market and in Indonesia, particularly Borneo, large areas continue to be cleared to be replaced by palm oil plantations. Palm oil is, according to Friends of the Earth in a recent report The Oil for Ape Scandal, an ingredient found in 1 in 10 supermarket products and 84% of UK companies that import palm oil have done little or nothing to make sure their palm oil is not from a destructive source.[8] This highlights the fact that in order to protect the world's forests not only are controls on logging required, efforts must also be made to tackle how and by whom other detrimental activities, such as forest clearance, are funded. Those who make procurement decisions need to consider the sustainability of all the products they purchase, not just timber.

11. Throughout this Report there will be a great deal of focus on how to achieve a legal timber trade. It must be remembered, however, that achieving this can only be regarded as a step in the right direction and should go hand in hand with achieving sustainability. This means not only putting in place what—in this context—could be regarded as the easier measures to combat illegality, but also addressing the more complex demand and investment issues that fuel forest destruction. For natural and ancient forests to survive and function properly in providing livelihoods and protecting the planet's climate and species, the final goal must be not just a legal timber trade but also a sustainable timber trade. In the long term, anything less would have to be regarded as failure.

The International Timber Trade

12. In a world market of timber and timber products worth around $270billion the value of tropical woods exported from producer countries as logs, sawn timber, veneer and plywood in 2003 was $7.3billion. The export of secondary processed wood products (SPWP) from tropical timber producing countries was worth $8.3billion.[9] The value of timber and timber products exported from Russia and the Baltic states , where there are significant concerns regarding illegality, was $8.3billion in 2003 according to FAO figures.[10]

13. Tropical hardwood log production for 2004 was estimated to be 58% from Asia- Pacific, 27% from Latin America and 14% from Africa, a total of 136 million m³. There are very significant discrepancies between reported exports of tropical hardwood logs from producer countries and the significantly higher figures reported by importing countries: 17% in 2003 and 14% in 2004. This is taken to be an indication of the extent of illegally logged tropical timber being traded worldwide.[11]

14. China was the world's biggest importer of tropical logs, with over half of the total, or 7.3 million m³, which is almost triple its 1997 imports. Malaysia, Papua New Guinea, Mynamar and Liberia were the main sources, though it must be remembered that Indonesian timber (80% of which estimated to be logged illegally) is often exported as Malaysian timber. China also imported 17.7 million m³ of temperate timber from Russia in 2003, where a third of production is thought to be illegal. The five major importers of tropical logs were China, followed by India, Japan, Taiwan and Portugal. China is also the world's largest exporter of timber products or SPWP, exporting $7.5 billion worth in 2003. The biggest markets for timber products in 2003 were the US ($3.9 billion and 21% of the US market) and the EU ($2.6billion and 11% of the EU market) followed by Japan.[12]

15. The most significant change in the world timber markets in the last eight years has been the enormous increased imports of timber by China, together with its increased export of timber products to the EU, Japan and the US. This shift has the potential to undermine many of the efforts to address the illegal timber trade by the EU. Any measures put in place to tackle illegal logging in the EU must be considered in the context of China and India as alternative, and very hungry, markets where there are few if any existing controls on the sources of timber entering the country and very little prospect of this changing for the better in the near future.

THE UK MARKET

16. According to the Office of National Statistics the import value of timber and timber products into the UK in 2004 was £2.9 billion.[13] The Timber Trade Federation (TTF) told us that "about 70 per cent of wood used in the UK is imported and, of that, 95 per cent is either temperate softwoods or temperate hardwoods, the lion's share being the softwoods principally imported from Scandinavia and the Baltic States, with 5 per cent of the wood coming into this country from tropical sources." [14] Timbmet, one of the largest hardwood timber merchants in the UK, told us that 60% of its timber came from tropical regions and that "We see ourselves on the hardwood side competing in a marketplace of about £300-350 million, and of that we possibly represent 15 to 20 per cent. It is a very fragmented industry."[15]

17. Figures for the proportion of certified timber products consumed in the UK are difficult to come by. However the Forestry Commission reported that 66% of wood consumed by UK based sawmills was certified.[16] It also reports that, particularly for softwoods which usually come from temperate areas, it is difficult to obtain a premium for certified timber products.

18. What proportion of timber in the UK is illegal? According to a recent WWF report up to 26% of the UK's and up to 28% of the EU's imports of timber from six key producing areas could be illegal.[17]^,[18]The difficulty in producing accurate estimates—due to a lack of reliable data—has resulted in these figures being disputed by Forest Industries Intelligence, an industry consultant. Its response to WWF's report highlights Sweden and Finland as the major importers of illegal logs due to heavy reliance on Russian timber, followed by the UK due to heavy reliance on the Baltic States. The estimate it gives for the UK is that 9% of 930,000 m³ primary wood product imports are illegal.[19]

19. Illegal timber is currently a fact of life within the UK timber trade. It is therefore virtually impossible for even those companies that are attempting to eliminate illegal timber from their chain of supply to guarantee that they have done so. This was clearly expressed to us by Simon Fineman of Timbmet, who added a strong plea for Government intervention:

THE TIMBER TRADE FEDERATION

20. The Timber Trade Federation calls itself the voice of the UK timber industry and states that its mission is to help create and sustain the conditions in which its members can prosper. It represents around 85% of the timber industry in the UK. It lists its members as UK and overseas sawmillers, timber importers, agents and timber merchants.

21. In its evidence to the Sub-Committee the TTF was very keen to emphasise the economic importance of the industry and the small proportion of timber imported into the UK from tropical areas. We were told that " TTF and the wood industry are wholly against illegal logging and practices that support it"[21] and great emphasis was placed on the TTF's Code of Conduct and the recently introduced Responsible Producer Policy. The first line of the Code of Conduct states:

22. According to the TTF failure to comply with the Code would result in expulsion from the Federation.[23] However, in the two and a half years of the Code's existence no company been expelled. This we find surprising given that the level of illegal timber in the UK market is estimated by industry consultants at 9% and by WWF at 26%, and in the light of the difficulties acknowledged by even those companies that are working the hardest to eliminate illegal timber from their stocks. It would seem to us that given that TTF membership covers 85% of the timber trade in the UK, it is very unlikely that all its members deal exclusively in legal timber. Given this and the lack of any expulsion of members due to non-compliance with the Code we can only conclude that it is more or less meaningless. By allowing its members to use the Code of Conduct in promotional material, without thorough and transparent enforcement, the Timber Trade Federation is in danger of misleading customers as to the legality and sustainability of the industry it represents.

23. Our view of the Code is reinforced by the relatively low take up of the Responsible Purchasing Policy (RPP) introduced by the TTF in July 2005.[24] Twenty-six members signed up at its launch, which according to TTF covers around 30% of the volume of wood traded in the UK. We are concerned about those companies that have not and what this indicates as to their commitment to the Code which they have signed up to. The RPP, unlike the Code of Conduct, commits members to taking meaningful action and to producing an annual report on progress, which will be externally audited. We very much look forward to seeing these when they are published next year for the first time. Whilst the establishment of the Responsible Purchasing Policy by TTF is encouraging, the low uptake at its launch is definitely not. It also raises the question as to why it was needed given that all its members are supposedly already complying with the Code of Conduct and therefore sourcing their timber and timber products from legal and well-managed forests. We have since been told by the TTF that all its members will be signing up to the RPP and that they will be investigating ways of auditing their supply chains with the aim of improving their purchasing policies.[25] This is all very welcome and we hope to see this resulting in meaningful changes in how the UK timber trade operates and the implementation of proper chains of custody for all the timber products they supply

Imports from third party countries

24. Our concerns regarding the legitimisation of the timber trade by the TTF, and also China's prominent role in the timber market, were highlighted by a report published by Greenpeace in October 2005, Partners in Crime. The report set out the findings of the organisation's investigation into the use of illegal timber from Malaysia and Papua New Guinea in making plywood in China, which is then exported to developed countries including the UK. Greenpeace highlighted the fact that 1 in 2 illegally felled tropical timber logs are currently exported to China and that imports of Chinese plywood into the UK have increased by 155% over the last few years. Greenpeace was able to purchase plywood produced in China, made with illegal timber, from companies such as Wolseley, who are members of TTF and have signed up to both the Code of Conduct and the Responsible Producer Policy. Indeed on its website, Wolseley highlights steps it is taking to achieve Chain of Custody accreditation for its outlets and goes on to state that even where this has yet to be achieved it is able to "provide evidence of legal felling and sustainability to customers, if requested."[26]

25. We were very concerned to hear the defence for the purchase of Chinese plywood put forward by the TTF, both to us and in a letter in The Independent.[27] TTF confirmed that Chinese plywood has increased its share of the UK market significantly over the last year to around 30% and "is probably in the region of 100,000 cubic metres"[28] and that as only the veneer on the plywood is tropical hardwood "of that 100,000 cubic metres of timber, 95 per cent of it comes from this plantation-grown poplar with 5 per cent from this questionable source in Papua New Guinea about which we now have serious concerns as a supplier country and which two years ago was not supplying the UK".[29] Whilst this, if correct, means that the volume of illegal timber involved is less than might originally be assumed, it still reveals that every single piece of plywood entering the UK from China has a 1 in 2 chance of having an illegal timber component. This is entirely unacceptable.

26. The above is a perfect illustration of why, if illegal logging is to be addressed, there is a need for legislation. Progressive timber companies struggle to ensure they have legal supplies of timber. For those UK companies that are less committed to ensure legality and a reliable chain of custody, the only real drivers for improvement will be the need to comply with legislation and a very real threat of prosecution.

27. The TTF told us about the work it has been doing with producers in Indonesia, a country whose Government has declared that 80 per cent of timber is illegally logged, to assist them in working towards producing verified legal timber. As a result of its work there is now a supply of FSC certified plywood from Indonesia available in the UK. Unfortunately, according to reports from the Tropical Forest Trust, due to its inability to compete with Chinese produced plywood, which undercuts most other producers by around 25%, it did not initially find any buyers.[30] Whilst buyers have now been found for the FSC plywood, this is a perfect illustration of the problems faced by sustainably produced timber products competing in a market of illegal and unsustainable products, an issue to which we will return to later on in this report.

28. It is clear that the companies that form part of the timber industry are a very diverse and differing group of organisations, at least when it comes to their environmental record. Given this and the significant efforts being made by some progressive timber companies, such as those involved in the G8 industry and ministerial round table, to move towards sustainable and legal timber supplies—independently of any trade association—it is surprising to us that they is not greater co-ordination amongst them to publicise their efforts. Companies who have taken the long view and have realised that their survival depends on maintaining a sustainable supply of timber worldwide would surely benefit from increasing awareness both in the private sector and among the general public of the differences between themselves and less conscientious companies—and the impacts of the timber they supply—with the aim of increasing their market share. We urge these companies to consider greater investment in this approach. This could be done directly or through supporting credible certification schemes, such as the FSC, to raise awareness. It was apparent from their evidence to us that FSC is an organisation that is achieving a great deal with very limited resources, but which could do much more. In our view, FSC is ideally positioned to expand its role and work to raise awareness of sustainable timber and related issues, if increased resources were made available to it.

Destructive Forest Activities

29. The flow of finance into industries that have a serious impact on illegal logging is a complex issue, but one that has profound impacts on the world's forests. It is also an area for which there is little clear and comprehensive data on the scale of investment.

30. The private sector has in the past invested heavily in the timber processing industry, which is often dependent on illegal timber. In Indonesia this investment resulted in a significant processing over-capacity which fuelled the need for timber. The scale of the problem is illustrated by the fact that after the economic collapse in Indonesia in 1998, £1.8billion was owed to US and EU investors by timber-processing companies that did not have any access to secure or demonstrably legal sources of raw materials.[31] Agri-business, which in tropical regions is heavily linked to forest clearance to access land, is also an area of significant investment. For example, of the 6.5 million hectares of oil-palm plantations across Sumatra and Borneo in 2004 almost 4 million hectares where originally forest cleared for plantation.[32]

31. Extracts from a recent International Herald article, from November 2005, on Indonesia's intention to seek $3billion from investors for three paper pulp factories illustrate the scale of the problem and the increasing influence of China and other developing countries on the trade in timber and timber products:

This is in a country which has recognised it has a serious problem and has banned the export of unsawn timber to try to tackle the issue of illegality. This also illustrates the fact that whilst it is important that logging activities comply with national legislation this is in no way a guarantee of sustainability and raises the question of whether there is a need for an internationally agreed definition of legality—rather than simple compliance with national legislation—to ensure that requirements to purchase legal timber have meaningful impacts.

32. In 2003, ten major world banks signed up to the Equator Principles, which include a commitment to ensuring safeguards are in place when carrying out investments that affect forestry, natural habitats and indigenous peoples.[34] However there is little information on how these commitments are being implemented and monitored and when one hears, for example, that analysts have been recommending investing in China, again in the pulp and paper mills industry (despite the fact that the industry is already at overcapacity if only legally available pulp supplies are considered), it raises the question as to whether these principles are having any significant impact.[35]

33. Public sector finance includes finance available through national Export Credit Agencies (ECA). Development banks such as the World Bank and the Asian Development Bank (ADB) also play a role in forest destruction. Whilst there have been efforts to ensure that environmental and sustainability issues are taken into account when considering funding projects that may affect forests directly, this has not always translated into good practice on the ground, particularly with the ADB.[36] There have also been concerns that imposing strict standards on ECAs puts a country at a competitive disadvantage when competing with countries whose ECAs set lower standards.

34. Some effort is being made within Europe to address the issue of investment, although progress so far has been minimal. We would like to see the UK Government take the initiative within Europe on working towards ensuring multinational companies make more considered investment in activities that could finance forest destruction. Unfortunately there appears to be little willingness outside DEFRA to tackle the issue of corporate responsibility head on. This was exemplified by the Chancellor's announcement in November 2005 that he would be dropping the proposed Operating and Financial Review reporting requirements that were due to come into force in April 2006. This would have obliged large companies to report on, among other areas, their environmental performance and impacts. The Government has also recently been criticised for failing to properly implement the OECD's guidelines on corporate responsibility for multinationals.[37] Both of these could be - if properly implemented—powerful tools, not only in ensuring the investment decisions of companies based in the UK are not harmful to forests worldwide, but in protecting the environment generally.

35. This lack of willingness to make companies accept responsibility for their environmental impacts is short sighted indeed. In the case of illegal logging significant effort is going into addressing the issue through the FLEGT Action Plan, but the lack of willingness to impose restrictions on how companies operate through legislation threatens to jeopardise all the hard work undertaken. There is a double standard operating that we find deplorable. We are expecting other national Governments to change their laws and implement significant changes in how their industries operates to prevent us from consuming their illegal timber. At the same time in this country we are unwilling to properly implement international guidelines, which we have signed up to and agreed to enforce, as to how multinationals should operate abroad or simply to make large companies report on their environmental performance. It is shameful.

3 Forest biomass is estimated to contain around 283 Gigatonnes (Gt) of carbon. Back

4 FAO, Global Forest Resources Assessment 2005. http://www.fao.org/newsroom/en/news/2005/1000127/index.html Back

5 FAO Forestry Paper 145, Best Practices for Improving Law Compliance in the Forestry Sectors, 2005 Back

6 Emily Fripp, Overview of Market Drivers, Ghana Timber Trade Forum, Kumasi, May 2005 Back

7 FAO, Best practices for improving law compliance in the forestry sector (145), 2005 Back

8 FOE, The oil for ape scandal: How palm oil is threatening the orang-utan, September 2005 Back

9 International Tropical Timber Organisation, Annual Review and Assessment of the World Timber Situation, 2004

http://www.itto.or.jp/live/PageDisplayHandler?pageId=199 Back

10 FAQ, FAOSTAT data, 2005. http://faostat.fao.org/ Back

11 International Tropical Timber Organisation, Annual Review and Assessment of the World Timber Situation, 2004 Back

12 ibid Back

13 The UK apparent consumption of wood products in 2004 was 45,000thousand m3 of timber, imports where 52,000 thousand m3, whilst domestic production and export where 8600 and 15600 thousand m3respectively. The UK imported 18,000 thousand m3 of wood, 7,100 thousand m3of pulp, 8,000 thousand m3of pulp and 18.4 thousand m3of paper. Back