Forest2Market wishes you a safe and happy Independence Day holiday.

Economic Outlook
Stubbornly high crude oil prices dominated news headlines during the past month. If crude becomes more expensive near-term, as expected, the fragile U.S. economy could be thrown into a tail spin. With the outlook for higher inflation, a weak dollar and an uncertain employment picture, consumers are leery of making big-ticket purchases.

Because of the weak general economy, tightened lending standards and the prospect of foreclosures more adding to the current housing inventory overhang, many are now calling for the housing market to remain in the doldrums past 2009 and into 2010. However, we believe there are some fundamental changes underway that suggest the market will begin to recover within the next eight to 10 months.

Amidst all the doomsday projections, we see some progress being made in housing. The fundamental principal of economics is that as supply (i.e., months of unsold homes) expands, price falls; as price falls, demand is stimulated once again. We expect sales of new and existing homes to remain soft through at least 3Q2008, but home prices will continue to fall and result in greater affordability that should stimulate demand by year-end 2008.

The above is an excerpt from the June issue of the Forest2Market® Economic Outlook. To learn more about the F2M® Economic Outlook or to subscribe, click here.

Gordon Culbertson: PNW Bioenergy Needs Sensible Policy from Congress
The search for an “OPEC of Renewable Energy” has led some to the Pacific Northwest, where abundant forest resources could offer the bioenergy equivalent of a major oil strike. Renewable energy, or what has been touted in this election year as the “green economy,” offers a real opportunity to bring together ideologically diverse and sometimes adversarial proponents of forestry in this region to address locally some of the economic and environmental concerns that are converging in the national arena.

Forestry in the Pacific Northwest can and should play a central role in supplying “green energy” for America. In order to realize this benefit, Congress must eschew the type of misguided and often obstructive measures evident in this year’s energy bill. With a single provision in one bill, Congress has erected a legislative maze that dead ends at a 20 foot fence around the one resource required by the burgeoning bioenergy industry and creates a congressionally imposed and artificial shortage of an otherwise abundant, renewable resource.

To read more, click here.

Rural County Timber Payments to End
Logging communities in the Pacific Northwest will be among those hit hardest by the recent decision in the U.S. House to vote down a bill to reauthorize a federal payment program for schools and other services in rural counties due primarily to disagreements about how to make oil companies pay for it. At dispute is whether to collect royalties from existing offshore oil and gas leases or to collect them from new offshore oil projects.

Under the “timber payments program,” rural counties received federal funding to offset lost revenue caused by conservation measures that sharply reduced logging on federal lands. The Public Land Communities Transition Act (H.R. 3058) was defeated June 5 under special House rules which required a two-thirds vote, rather than a simple majority. Proponents of the timber payments programs were dealt a second blow when an emergency one-year funding measure was cut from a Senate defense spending bill June 19. The bill could be revived for a House vote under normal rules, but no action is expected before the July recess. Congress will reconvene in September.

The NAHB Petitions Congress for Swift Action to Address Housing
The National Association of Home Builders (NAHB) released an open letter urging congress to pass the American Housing Rescue and Foreclosure Prevention Act of 2008 (H.R. 3221) before going to recess in July. The bill could provide first time homebuyers with a tax credit of up to $8,000. “The tax credit would increase home sales, which would cause inventories to fall and stabilize home prices and mortgage markets” said Joe Robson, first vice president of NAHB.

The NAHB supports three additional measures that would:
• Expand the mortgage revenue bond program by $10 billion and ease the rules governing state and local agencies.
• Modernize of the Low Income Housing Tax Credit (LIHTC) to promote investment in affordable housing.
• Extend the net operating loss (NOL) carryback provision beyond two years.

The bill, passed by both the House and Senate, was sent to committee earlier this quarter where differences in the two versions will be resolved. Although it is expected to reach a vote before the July recess, it is unclear whether key provisions favored by the NAHB will be included in the final version of the bill.

House Passes Green Energy School Bill
Legislation passed in the U.S. House this month could set schools on the path to green-energy in 2009. The 21st Century Green High-Performing Public Schools Facilities Act (H.R. 3021), passed overwhelmingly in the U.S. House, would authorize approximately $33.7 billion from fiscal year 2009 through 2013 to be allocated equally among all fifty states. The money would fund school modernization and renovation projects including conversion to wood fuel heating systems.

The bill could immediately help states with robust wood fuel conversion programs such as Vermont and Montana.

Today, 35 schools in Vermont have installed wood fuel heating systems and saved about 60 percent of their heating costs. “The cost of fuel is starting to kill the budgets of our schools and our families,” said U.S. Rep. Peter Welch (D-VT), who proposed the measure to include renewable energy and heat systems in the bill. Welch estimates Vermont public schools could receive up to $15 million in new funding for Vermont’s robust movement away from conventional heating systems to wood fuel systems.

Eight schools in Montana, in partnership with the Fuels for Schools and Beyond program, have installed wood heating systems and save more than $580,000 annually on heating costs. Currently, the Fuels for Schools and Beyond program has helped 14 partners bring biomass boiler systems online; two projects are now in construction and expected to reach completion during the 2008-2009 school year. Together, the Fuels for Schools and Beyond projects save local schools more than $1.831 million dollars annually and consume 24,340 tons of wood fiber. Pre-feasibility assessments have been completed at 44 sites throughout the programs operating region (Mont., N.D., Wyo., Nev., Idaho and Utah).

Rep. Welch is optimistic about the bill’s chances in the U.S. Senate due to the strong support seen in the House – the bill passed by 409-5.

Tree Power?
Anecdotal evidence suggests some U.S. power companies are taking a good, hard look at forest biomass as a possible source of renewable electricity. Woody biomass accounts for very little of today’s generation of electricity by U.S. utilities (less than 1 percent) and experts have been skeptical about the development of this industry without state or federal legislation establishing a Renewable Portfolio Standard (RPS) that would mandate electric utilities to generate a portion of their electricity output using renewable sources. Currently almost 30 states, including heavily forested states in the Pacific Northwest and the Northeast, have instituted a mandatory RPS. Although only three states (N.C., Texas and Va.) in the pine-rich south have implemented an RPS, some utilities in the U.S. South are beginning to take matters into their own hands.

Georgia Power and Alabama Power, both subsidiaries of Southern Company, could be harbingers of growing interest in forest biomass as a renewable energy source and real change in the way southern utilities produce electricity. Georgia Power has contracted with two dedicated biomass companies to purchase 100 megawatts of electricity produced using forest biomass beginning in 2010. Alabama Power is taking a different approach – rather than using dedicated biomass plants which use only biomass fuel, Alabama Power co-fires both wood and switch grass with coal. Southern Company owns almost 40 coal-fired utilities in four states.

Collecting Biomass
Urban wood waste, municipal solid waste, construction debris, logging slash and pre-commercial thinnings – these are a few of the raw materials targeted by a fledgling biomass industry that has emerged to meet growing demand for renewable sources of energy. Bioenergy offers the promise of new revenue to loggers, who have the greatest access to clean wood waste, but considerable challenge. Collecting and transporting logging residues would require most loggers to invest in new equipment, training and personnel – gathering small pieces of wood is work intensive. In-woods chipping, arguably the most efficient method of processing logging slash into a useable material, is costly to set up and operate.

Although new demand from bioenergy does exist and more is on its way, the timing and location of these demand sources are spotty at present. Two early entrants in the biomass supply industry, Wood To Fuel, LLC and Green Energy Resources, Inc., recently signed a 10-year supply agreement to deliver 200 tons of wood chips per day to a power plant in New York. There are numerous other examples of biomass energy developments across the U.S., from Green Circle Bio’s 550,000 ton capacity wood pellet plant in Florida to Range Fuel’s Soperton, Ga., cellulosic ethanol plant and Rapid River Renewable Energy’s proposed bioenergy plant in Michigan. These facilities will necessitate the development of biomass collection and distribution systems, but, as they are fairly wide spread, some loggers may be unwilling to make the capital investments required to collect the waste wood for only one or two potential clients in their area.

Learn more about the economics of forest biomass in the soon-to-be-released study, The U.S. South Forest Biomass: An Emerging Industry in Wood Fiber Markets, here.

***Correction***
Last month in the article “Keeping Family Forests Intact,” we used the terms ‘general partner’ and ‘limited partner’ to differentiate between members of a Limited Liability Company (LLC) with management powers and members who do not have management powers. Members of an LLC are simply called “members.” Individual members can be assigned management authority over all, part or none of the timber management decisions.

If you do not want to receive our e-newsletter, you may remove your name and email address by clicking here.