Texas forest owners want incentives from Congress

WASHINGTON – Cleaning up the environment could mean more green for East Texas’ oldest industry: trees.

The region’s piney woods have always absorbed carbon dioxide from the air – but their owners never got paid for it.

And paper mills have produced their own electricity from leftover tree matter for decades without help from subsidies or tax breaks. Under a bill to combat climate change and boost clean energy, both activities would be rewarded.

“Forests have been storing carbon dioxide way before anybody cared about it, and providing wildlife habitat,” said Burl Carraway, head of sustainable forestry for the Texas Forest Service.

“From their [owners'] perspective: ‘My forest has been providing these services to the public for free for a long time, and it’s about time we paid for them.’ ”

Some Texas forest owners have already joined a small market that pays them for “offsets,” mostly projects that restored pastures to forestland. That market is now voluntary, but would become a necessary part of the system to reduce heat-trapping emissions under the legislation, which passed a House committee three weeks ago.

For the paper industry, the stakes are even higher.

The largest mills, which emit carbon dioxide and other greenhouse gases as part of the papermaking process, would face “very substantial” new costs related to reducing emissions, according to the American Forest & Paper Association.

At the same time, the industry sees an opportunity to qualify for green energy subsidies. The legislation would allow them to claim subsidies – known as renewable energy credits – for producing power using a by-product called black liquor and other types of forest waste. That provision is supported by environmental groups such as the Sierra Club. Paper mills also want to get a tax credit that currently goes to wind farms and solar installations.

Important incentives

The industry says these goodies won’t make up for the costs imposed by the bill. But House Democrats, who need the support of Southern members to pass the legislation, have already cut deals that make it easier on several key industries. They may need to deal more to move the bill through other panels, including the House Agricultural Committee, which will consider the legislation today.

“The industry has been a huge energy producer without any subsidies, mandates or incentives,” said Ann Wrobleski, vice president of global government relations for International Paper, which has 2,150 workers in Texas.

“To the extent the tax code is used to encourage the production of green energy, [it] shouldn’t pick between the different producers of green energy.”

The new incentives are important for the paper industry, which stands to lose a bounty when an alternative-fuel tax credit – which some critics call a boondoggle – expires at the end of 2009.

The credit allows the industry to claim a tax rebate tied to each gallon of black liquor – an “alternative fuel” – it mixes with diesel fuel to make electricity. The law allows paper manufacturers to receive the credit, but it has provoked outrage among lawmakers who think it rewards them for using more diesel fuel.

This year, the credit is projected to earn almost $1.3 billion for International Paper, the industry’s largest firm, according to Deutsche Bank Securities. International Paper says its plants produce 6 million megawatt-hours of electricity annually, enough to power about 500,000 households.

“We produce an enormous amount of green power, and we don’t think we should be singled out among others who produce green power not to receive the credit,” Wrobleski said.

Not clearly defined

But there is debate about how “green” that power is.

The industry calls biomass power “carbon-neutral” – saying that burning forest waste doesn’t add new emissions – and wants this spelled out in the legislation.

“There is a gray area in the definition,” said Brett Smith, director of government affairs for the American Forest & Paper Association. “If it’s not carbon neutral, the impact on our competitiveness and what they have to cap is a much higher level.”

Environmental groups see promise in biomass power, but warn that environmental benefits depend on a range of factors, including how much forest is removed to harvest the fuel and whether biomass actually replaces fossil fuels.

Even the paper industry expresses concern about whether all these new power plants will cause over-harvesting – not unlike the anxiety associated with increasing corn production to make more ethanol. New biomass power plants have been announced all over the South, including four in East Texas.

“People should not simply assume that by using trees to produce renewable electricity, the net benefit is positive,” said David H. Moulton, director of climate policy and conservation funding for the Wilderness Society.

“If demand gets high enough – so you now create a reason to go cut down forests – you could have a pretty negative impact on ecology, fragmentation of the land and wildlife corridors.”

Interest in offsets

Forest owners and advocates are also weighing this question as they deal with a slump tied to the collapse of homebuilding and closing of some mills.

“The electricity stuff is the very bottom of the barrel, the lowest use of it,” said Carraway of the Texas Forest Service. “We could have been burning wood chips to make electricity for 40 years.”

Forest landowners are more excited about the possibility of expanding the market for offsets. Under the climate legislation, companies can meet the pollution cap by purchasing offsets from domestic or international sources.

“Our focus is to bring another revenue stream to the forest landowner,” said Nolan Alders, a 77-year-old farmer from Nacogdoches who works as an aggregator, recruiting hundreds of landowners for offset projects. “We think it has excellent possibilities, unless we’re thrown a curveball by the U.S. Congress.”

Environmental groups say offsets offer potential for reducing carbon emissions. But critics say they can be a cheap way for big emitters to claim they’re complying with pollution limits, and can spawn bogus projects.

Under the House legislation, the EPA would decide what kind of projects qualify as offsets. The forest industry wants Congress to decide this.

There have been 29 offset projects in Texas, which take credit for reducing emissions by 2.4 million metric tons of carbon dioxide, tops among U.S. states, according to Point Carbon. They include wind farms, efforts to reduce methane emissions from landfills, and projects that inject carbon dioxide into the ground to improve oil recovery.

Last year, government auditors raised questions about the offset market, which is voluntary and unregulated. The U.S. House of Representatives abandoned its own offset purchases – tied to carbon dioxide emitted by the Capitol Power Plant – after learning most of the projects had been completed before the House bought the offsets.

With the price of carbon barely above $1 per ton, the projects aren’t earning much for the typical forest landowner.

“Maybe it pays your taxes or something like that,” Carraway said.

But the EPA envisions carbon prices rising to between $13 and $17 per ton after the system gets up and running.

An offset program that provides meaningful revenue could persuade some landowners to keep land forested, and perhaps manage it better, according to forestry experts.

Such a program could be particularly meaningful in Texas, where individuals and real-estate investment trusts own a high percentage of forests – not the U.S. government, as is the case in the West. Southeast Texas has lost forest acreage as real estate developers push further into rural areas, according to the Texas Forest Service.

“There is always the economic opportunity to develop that land,” Carraway said.