Forest crown research institute Scion is set to launch its Woodscape report on the viability of generating biofuels from trees, a move that could throw a much needed financial lifeline to the sector.
Turning tree waste into biofuels and bioplastics has long been thought of as a Holy Grail for the forestry and wood processing industry, turning marginal pulp wood earnings and saw mill waste into real revenue streams.
Biofuels have huge economic upside potential for the country. If forest plantings doubled, about $5.5 billion worth of biofuels could be produced annually on top of the $4.2b currently earned by the export of forestry and timber goods.
That could set New Zealand up to be an exporter of carbon neutral energy in the form of biocoal, which could be used in power stations in China for example.
While the technology has been proven in the lab, questions remain over long-term commercial viability despite extensive research by forestry-dependent countries such as Canada and Sweden.
Scion's Woodscape report due next month, also funded by Woodco, the Ministry for Primary Industries and New Zealand Trade & Enterprise, will look at ways of generating the greatest return for the forestry and timber sector with a heavy focus on biofuels.
Investment in forest planting tailed off since the 1990s due to rising land costs, falling log prices, and the sharp rise of dairy farming.
Only a portion of a harvested log is usable as structural timber. The remainder and damaged wood are sold as pulp to be turned into paper, but returns on pulp are slim due to transport and harvesting costs. Falling demand for printed materials is adding further price pressures. It was hoped the investment case would improve with the introduction of the Emissions Trading Scheme (ETS) in 2008, giving forest owners a carbon revenue stream while their trees were growing.
However, the introduction of cheap international credits into ETS saw the price of New Zealand carbon units plummet from $25 a tonne when the scheme was launched in 2008 to $2.50 a tonne. It was at $22 a tonne about a year ago.
"Investors don't look at very long-term investments, and forestry is long term," said Mike King, chief executive at consultancy Interpine. "The ETS in its heyday corrected those return imbalances."
Biofuels are a potential panacea of the renewable energy sector, providing a means to produce fuel on a carbon neutral basis, but the production process is fraught with problems because of its reliance on energy to turn organic material in hydrocarbons. If that energy comes from power generated by fossil fuels such as coal fired power stations or boilers, it's no longer carbon neutral. Often, the amount of energy put in was greater than the equivalent units of biofuel produced.
Scion head of sustainable design Trevor Stuthridge believes that's where New Zealand is uniquely placed to play a leading role in producing biofuel from the forestry industry.
"Above the ground we have some of the biggest sustainable forest plantations, and below the largest energy resources in the form of geothermal," he said. "We have a tremendous opportunity to turn heat and steam into bio products."
Resource Management Services forestry economist Andres Katz said previous attempts to quantify the forestry biofuel market by Canadian officials had showed opportunities were not huge.
"That doesn't mean we can't do it, especially once scale kicks in, but it's an untested and unproven market," he said.
Forest Management New Zealand forestry manager Sally Sisson said it was early days. "I would expect that it's probably not going to be a silver bullet - do this and you'll earn gazillions - but it is a path." The sector is waiting for the report and the "hard metrics" promised by Scion before it even starts thinking about the capital commitment needed to get biofuel revenues flowing. But at the very least the mood is optimistic. That's something the industry - which this month had major player Norske Skog axe 110 Kawerau mill jobs - has not seen for a while.