Tilhill: Forestry’s appeal is a growth area

As of now, the only resource we have for removing significant amounts of carbon from the atmosphere are trees. Ideas such as pumping CO2 into depleted North Sea oil and gas reservoirs are interesting but have still to get off the ground. Forests and the large-scale planting of trees are a tried and tested way of sequestering carbon.

It is no surprise then, to find forestry attracting widespread interest from governments, climate change activists, investors and companies.

Stuart Pearson, Business Development Director at Tilhill, the UKs leading Forestry company, points out that Tilhill is seeing growing enthusiasm for buying into forestry assets of all types, from new plantings and existing forests to land suitable for woodland planting.

There is also considerable interest from organisations interested in using woodland carbon credits as carbon-offsets help them achieve their Net Zero goals.

“I have been involved in the forestry sector for almost 40 years and I cannot recall a time when there has been such a sense of optimism about the sector,” he comments. “It is particularly helpful that the UK government are committed to planting around 30,000 hectares of new woodlands a year by 2050,” he adds.

On top of all the ‘green interests’ driving the growing appeal of forestry as an asset class, there is the sector’s excellent performance record as a real asset class.

“Timber is a commodity, and like any commodity, prices can go up and down. However, forestry is not like a grain or a fruit crop. There is a very wide window for harvesting. Owners can elect to delay when there is a glut of timber on the market and can bring forward harvesting in order to take advantage of peaks in market prices,” he comments.

Pearson points out that there is a growing interest in the UK in building with sustainable materials, and this too, is playing well for the forestry sector. “The UK construction industry has traditionally lagged far behind Scandinavia and much of Europe when it comes to building with timber.

Stuart Pearson, Business Development Director at Tillhill Forestry

“We still favour bricks, concrete and steel, which have a very high carbon footprint, as against wood, which removes carbon and sequesters it for very long periods. We currently have less than 11 % of our new houses builds as timber framed so there is tremendous room for growth here,” he comments.

The UK is already the second-largest importer of wood, ranking behind China. The UK Construction Industry uses around 32.2 million tonnes of sawn timber a year and only around a third of that volume comes from domestic supplies. The overwhelming majority of the domestic supply comes from productive Scottish forests.

Pearson points out that the global appetite for timber is already either outstripping supply or is close to doing so. The current near equilibrium is bound to be pushed into a shortfall as construction industries around the world embrace timber as a sustainable building material.

This coming imbalance between supply and demand can be expected to make woodlands an even more highly valued asset class as time goes on.

Pearson notes that there is plenty of marginal land across the UK that could be planted up as new woodlands.

“We can plant a very large area of new woodlands without in the least diminishing the UK’s ability to grow food,” he says.

He argues that there is a significant area of land that, due to changing farming practices, a desire for farm diversification and changing subsidies and incentives, is likely to become uneconomical to farm in traditional ways. Planting trees can offer a real alternative approach that could generate very attractive revenues over the medium to long term, while at the same time, helping to save the planet.

“We will not achieve Net Zero just by planting trees. There is a whole plethora of other areas that will need to be decarbonised, including transport and heating. But trees will be a very key part of the Net Zero strategy. They also bring a range of other positive environmental benefits, such as mitigating flooding, assisting in promoting biodiversity and moving us away from degrading land through over-intensive farming,” he comments.

Pearson points out that we now have excellent science on just how much carbon a forest is able to sequester and for how long. A cubic metre of wood takes around one tonne of carbon out of the atmosphere.

A conifer crop will sequester carbon until it is harvested in thirty-five to forty years, while broadleaf forests will not be harvested for 60 to a 100 years.

However, while that looks on paper as if broadleaf forests are ‘better’ at sequestering carbon than say, a Sitka spruce forest, this kind of analysis ignores the much-increased growth rate of conifers and the lifespan of the timber. When turned into building products, that timber could be a carbon store for a further 50 to a 100 years or more.

“Once you start factoring in embedded carbon from an actively managed forest, the green side of things looks better and better,” he points out. Even the small roundwood, which is the term given to cuttings resulting from thinning a new forest after 10 to 15 years, may go in to chipboard. This too will seal in the carbon for decades after the forest has been harvested.

“We are now seeing interest growing in the UK for the creation of structural products from cross-laminated wood. These products weight for weight can be stronger than steel and are getting a lot of interest from building engineers. These types of wood products could sequester carbon for a couple of centuries or more,” he notes.

MORE RESOURCES NEEDED TO GROW THE CARBON CODE

The voluntary Woodland Carbon Code (WCC) was a far-sighted move by the Scottish Government and the Forestry Commission when it was set up in 2011.  The initial idea, which still holds good today, was to produce a Carbon Code that would provide a consistent approach to evaluating how many ‘carbon units’ a particular woodland could be said to be sequestering.

The WCC also initiated and maintains to this day a set of rules that determine when a company buying WCC certified carbon offset units from a WCC approved woodland can actually report those units as offsetting its own carbon emissions in any particular year.

The point of this caveat is that if I’ve just planted up a 100-hectare woodland, you can’t claim that the units of carbon that my woodland will eventually sequestrate are good to offset your current carbon output this year. Obviously, those baby trees have hardly sequestrated anything at all yet.

The problem for the forestry sector, and for potential investors and corporates interested in buying carbon units, is that the team at Scottish Forestry that runs the Woodland Carbon Code (WCC) on behalf of the Forestry Commission, is just that, a small team. It is clearly going to need more resources and beefing up as time goes on and the market for the carbon units it certifies heats up.

Another problem, as Stuart Pearson, Business Development Director at Tilhill, the UKs leading forestry company, notes, is that currently the rules and tests applied can restrict which woodlands are eligible to be registered under the WCC.

The main concern is the financial viability test which states that the only woodlands that are eligible would be those which would not be economically viable without the additional revenues that could be derived from having WCC carbon units attached to them. If applied vigorously this could exclude productive schemes.

“Clearly, it makes no sense in the current climate, where companies are trying to get to net zero, to disadvantage commercially viable woodlands by excluding them from the WCC,” Pearson says. “We understand that the WCC is in the process of reviewing this restriction and there is talk of the WCC team getting additional resources.”

“We would really like to see this happen. The great thing about the WCC is that it provides woodland owners with a way of calculating the total carbon sequestration capability of their woodland over its complete life cycle, from planting to harvesting,” he comments.

The code takes into account factors such as ground preparation work, the types of trees included in the woodland, and the stocking density of the new plantings. Its calculations have a strong scientific basis to them and WCC carbon units have won a considerable degree of acceptance in the market.

“We would also like to see the WCC adapted to reflect the fact that the carbon sequestered by a conifer forest is not lost back into the atmosphere when the trees are harvested.

“Those trees are turned into wood-based building products and the carbon from them can be assumed to be sequestered for many decades thereafter. There is a huge body of work going on to map embedded carbon through the lifecycle of timber products,” he comments.