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Climate exit deal could hit US pellet exports

06 Jun 2017 16:00 (+01:00 GMT)
Climate exit deal could hit US pellet exports

London, 6 June (Argus) — President Donald Trump's plan to withdraw from the Paris climate accord could have huge consequences for the US wood pellet exporting industry post-2020.

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

The directive proposes that if forest biomass is to contribute to a EU 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.

US wood pellet producers would have to put in place these management systems if they are to export to EU member states.

A lot of US 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 EU imported 4.9mn t of wood pellets from the US last year but the UK's exit from the EU could provide an opportunity for US producers. The majority of US wood pellet exports go to the UK — 90pc of US exports, around 4.2mn t, went to the UK in 2016.

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

If the UK continues to be subject to EU law after exiting the EU, US producers may shift their focus towards supplying Asia rather than the UK.

The barrier to trade could also prompt US producers to increase their focus on the Asia-Pacific markets. US 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 EU has committed to deal with the proposed directive as a priority in 2017. The final text must be approved by the European parliament and EU member states. The adoption of the proposal will lead to repeal of the existing renewable energy directive from 1 January 2021.