Wood For Energy and Bio-refining American Loggers Council March 10, 2005

Discussion Items Forest Industry Business Condition Industry Actions Forest Industry Outlook –Logging Sector –Finding new market opportunity

Forest Business Conditions Import/ Export Imbalance Deteriorated Excess Capacity Worldwide for pulp and paper production Forest Industry under pressure: –Aging Facilities –Excess Global Capacity –High Financial Leverage –Strong U. S. $ –Substitutes –Limited End Uses Demand 2002–2005 Structural Change significant with recovery underway Paper Markets improving Solid wood markets Strengthen Mergers Consolidation of Industry major players Energy Impacts cost of production of timber Reduction in overall capacity of logging drops by 20-26%

Manufacturing Job Losses Total 47,000 Since 1997 in Pulp and Paper

Merger & Acquisition Activity Affecting Alabama Companies Mead & Westvaco Weyerhaeuser & Willamette Bowater & Alliance Forest Products Georgia-Pacific & Fort James Plum Creek & The Timber Company International Paper & Champion International Weyerhaeuser & Trus Joist International Weyerhaeuser & MacMillan Bloedel International Paper & Union Camp Stone Container & Jefferson Smurfit Bowater & Avenor James River & Fort Howard Kimberly-Clark & Scott Paper

Timber Market Conditions Soft Timber Markets –Capacity related downtime –Reduced local market competition –Increased Recycle –Weak Product Pricing Will Product Market strength transfer to timber market? –Abundant supply will cap price for pulpwood

Forest Industry Actions Significant Movement in Forest Operations –Increased merger and acquisition 14 million ton loss of production in in pulpwood production FL, GA, MS, AR,TX Permanent closure of high cost mills Market related downtime at production facilities Divestiture of Timberland Assets –TIMO’ s –REIT” s

Outlook for Forest Industry New Pulp Mills Highly Unlikely –Worldwide demand, Slow Domestic Demand, Cost Competitive issues, Environmental Constraints –Incremental Expansion possible but not likely unless accompanied with Bio-refining or energy options –Additional Shutdowns possible but slower pace –Major capital investment milestones, New Environmental Regulations

Forest Products Bio-refining and Energy Forest resource Overview Forest Residues Managing Forest for Biomass fuels

500 Million Acres of Timberland 45 Billion Green Tons of Wood

2002 If wildfires were converted to energy??? 7 million acres burned would equal –7000btu/kw or enough electricity to supply U S with 22% of annual demand –973 billion barrels of oil

Forest Residues Forest operations yield significant volume of wood residue: –Up to 30 tons of woody biomass at age seven in salvage operations –Up to 20 to 25 tons per acre on first thin of southern pine plantations

Alabama Forest Resources 23 Million acres Timber –46% Hardwood –35% Pine Approximately 20% plantations –19% Mixed Pine Hardwood –900 Million Tons of Dry woody biomass –Production off 22% since 1997 or about 7 million tons per year

Logging Residue Alabama generates 2.6 million dry tons annually from logging Most logging residue is not recovered These residues represent a cost to subsequent forest operations

Is it Sustainable ? Alabama’s total timber inventory is 138% larger than it was fifty years ago, and is the largest ever recorded Alabama’s annual harvest increased by 150% between 1963 and Harvests peaked in 1998 and have declined by about 25% since then Alabama’s pine timber inventory is 125% larger than it was fifty years ago, and is the largest ever recorded. Alabama’s hardwood timber inventory is 150% larger than it was fifty years ago, and is the largest ever recorded

Finding Markets? Approximately 15% of pine saw timber volume is left as woody debris, for hardwood almost 24% according to USFS research Alabama Could recover 5.4 million tons of forest residues annually Amount equal to 15 million barrels of crude oil These residues are currently not recovered and represent a cost to logging operations

Two Ways to manage for Woody Biomass –1) Energy Crops »Some research done mostly outside of the south »Economics have not been previously viable »More research is needed –2) Co- manage for Energy and Conventional Products »Economics have not been available »Requires market development for biomass »New research needed for development and management

Woody Biomass Status and Outlook Existing Forest Biomass Operations Potential for expanded use of woody biomass Needs to Stimulate Development Potential Public Benefits

Existing Woody Biomass Operations in AL Five to Six operations on Forest Harvesting Sites ( Fincher, Castleberry, Baseline, Farley, Mobile Forest) Yield on Pine Plantations: –AGE First Thin 1/1 –Age Second Thin 2/1 –Age Saw Timber 4/1 –Over 25 about 15% of total wood is residue –For Hardwood about 24% is wood residue

What are the benefits of developing wood biomass markets? Logging only Vs. Logging with Fuel Wood Markets 1) Economic Benefits - new markets for timberland owners - new jobs to grow, harvest & transport woody biomass fuels - new incentives to invest in productive forests - new investment in energy conversion technologies 2) Environmental Benefits - reduction in greenhouse gases & noxious emissions from fossil fuels - additional carbon sequestration from managing forests for energy

Outlook for Wood Residue Markets 1) Increased Use of Woody Biomass Within the Forest Industry - mills still using natural gas are converting steadily to wood 2) Growing Interest in Woody Biomass in Other Industries - mills using natural gas are interested due to cost factors - mills using coal & fuel oil are interested due to environmental factors - unfamiliarity & complexity = risk - initial capital investment - economic incentives are definitely growing, but are not compelling 3) Use of Woody Biomass by Electric Utilities Is the Key to Development of a Woody Biomass Fuel Industry - including a small percentage in the fuel mix could have big impact - incentives are needed to induce utilities to action

Natural Gas ? Tenaska Peeking Plant Billingsly AL

Conclusions !!! Forest industry is emerging from a difficult business period which has resulted in a down-sizing of the industry and reduced demand for timber, particularly for pulpwood. Our public and private forests are growing in both timberland area and timber inventory volume, and have never been more productive. A decrease in timber demand and an increase in timber supply has resulted in weak prices, particularly for pulpwood and low-valued timber. There are abundant sources of woody biomass within the existing forestry system that could be used for energy purposes at the present time. The development of a viable market for woody biomass fuels would likely result in productive new systems for managing forests for energy production. Public policy initiatives are needed to provide the leadership and incentives needed to make woody biomass an attractive and sustainable source of energy. There are multiple and substantial benefits that could result from the large-scale use of woody biomass for energy, both to Alabama and to the Nation.

Bio Energy ! What are we waiting for? Special Thanks to: Ken Muehlenfeld Auburn University John Tourtelotte TALLC Scott Spear AIME Dan Daly AIME Gene Quick SAUBR

Bio Energy Needs Assessment Clearinghouse for Technology Development and Investment –SAUBR Southern Alliance for the Utilization of Biomass Resources needs full time coordinator. SAUBR needs allied group in each sub-region up to one million annually partnered with appropriate University systems for a period of five years at which time investment should take on responsibility for funding. Open loop Bio mass language in JOBS Bill must recognize longer investment period to attract capital and extend investment tax credits and capital to harvest operations Tax credits extended to co-firing and syn-gas operations Find incentives for states to go to a net metering system Amplify emission credits for conversion to blended fuels Demonstration Projects funded Market development for liquid fuels Loans over $25 million limited to Coops- Expand the range of B&I USDA loan program.