Environmental Audit CommitteeWritten evidence submitted by the Wood Panel Industries Federation (WPIF)
About WPIF
The Wood Panel Industries Federation (WPIF) represents all UK manufacturers of wood based panels, including OSB, particleboard and MDF. The industry annually consumes around 4.1 million green tonnes of wood (around 0.9 million of which is post-consumer wood waste). WPIF’s members supply 60% of the UK demand for wood panels.
There are six wood panel plants in the UK—three in Scotland, two in England and one in Wales. These are in areas of high rural unemployment, and provide valuable employment opportunities, as well as contributing to the local and national economies.
The Impact of Energy Subsidies
The wood panel industry relies on domestic wood to produce its products. As well as post-consumer waste wood, over two thirds of the industries wood requirements comes from the sawmilling and forestry industries. This includes small roundwood and sawmill products (sawdust and chips), the very types of wood which are now being targeted by biomass burning power companies. Historically such wood was considered to be a waste, but the introduction of the wood panel industry and other product manufacturers has resulted in a strong market demand for all of these sources.
WPIF is extremely concerned about the unintended consequences of the Government’s subsidy regime which supports energy companies in burning wood which has an alternative use, and could be processed into furniture or construction materials. The unintended consequence of this policy is that the wood market is being distorted, prices are rising, and if left uncontrolled, existing users of the wood will be priced out of the market and displaced.
Biomass is unique amongst renewables, as the only technology which requires a fuel for which there are existing and competing users. This means that part of the subsidy paid to energy companies goes towards their purchase of the fuel (in this case wood), and consequently has an impact on the wider market for that material. WPIF does not believe that the uniqueness of biomass in this regard has been adequately considered in the design of the subsidy regime. The Renewables Obligation, and the proposed Contracts for Difference, are too blunt an instrument, and urgently need to be reassessed.
The scale of biomass required to meet the UK’s forecasts for deployment of this technology is around six to ten times the domestic wood harvest (a harvest which is already consumed in full by existing wood processors). As a result, it is inevitable that many tens of millions of tonnes of biomass will have to be imported to satisfy demand. The Government has long been aware of this, and has set the subsidy level at a rate which supports those importing wood. There is currently only one level of subsidy support (per technology band). No differentiation is made between domestic and imported wood, despite the fact that importing wood costs twice as much as using domestic wood. As a result, energy companies can buy domestic wood at higher than the normal market rate, and pass the additional subsidy benefit on to their shareholders. This will distort the wood market, and price traditional users, who operate in low margin businesses, out of the market completely. WPIF has, on very many occasions, proposed to DECC that support should be differentiated for imported and domestic wood, and that only imported wood should receive a subsidy. WPIF has received a Legal Opinion from a top QC which states there would be no trade barriers to such a move, and we are happy to share this with the Committee if it would be helpful for your inquiry.
Given their commitment to ensure best returns for their shareholders, and the vast difference in price between domestic and imported wood, energy generators will use the subsidy to buy domestic wood. Despite most biomass installations still being in the planning process, Ofgem’s Annual Sustainability Report Dataset 2011–12 reports that around 1,621,393 tonnes of UK wood biomass was burnt during 2011–12, around 16% of the UK’s annual wood harvest. This includes reporting that “virgin wood”, “small round wood”, “wood chip”, “forestry residues”, “pellets” and “waste wood” were all burnt. The wood panel industry’s wood take is around one third roundwood, one third sawmill co-products, and one third waste wood. These feedstocks are particularly attractive to generators as they are traditionally of lower value than sawlogs. This leaves the wood panel industry particularly vulnerable to the growth in biomass burning.
Industry reports show that since 2008 the wood price paid by our sector has increased by 57%. However, the sales prices of our panels has only increased by 31%. In real terms sale prices are now at 52% of the 1995 price (when records began). This rate of divergence has increased since 2010 and, although we understand that in any market prices can fluctuate, it is this divergence between feedstock and product sales price that is particularly concerning for our industry.
As well as an economic impact, and a potential loss of jobs, the risk of displacement also has environmental consequences. Wood panel production produces only 378kg (with CHP) or 458kg (without CHP) per tonne of wood used, whereas burning wood for electricity generation produces 1,950kg of CO2. An independently produced report by Carbon River report states that over the lifecycle of a tree 1,370kg CO2 is sequestered per tonne of timber processed in the wood panel industry. Over the lifecycle of a tree the net emission is 157kg CO2 per tonne of timber processed in the biomass industry. Carbon River’s report also states that displacement of the wood panel industry would increase net emissions by six million tonnes per annum (more than 1% of the UK’s reported emissions in 2008).
We believe that the Government needs to act urgently to address the unintended, but very real, consequence of current subsidies to biomass power stations. The Scottish Government has accepted the risk, to existing wood users, of large new entrants into the market for this finite resource, and has capped at 15MW the size of dedicated biomass plant which is eligible for subsidy support. WPIF supports this measure, however this does not address the impact of the largest entrants into the field (converted coal plants, and co-firing coal plants). WPIF urges the UK Government to look at means of reducing the impact of these plants, and ensuring that wood processors have a future in the UK.
12 June 2013