Financial Analysis of Innovative Wood Products and Carbon Finance to Support Forest Restoration in California

Abstract

Traditional funding strategies of grants, congressional appropriations, and income from timber sales are insufficient to complete the level of forest restoration necessary throughout California. Stimulating investment into markets for low-value biomass—such as tops and branches of trees, small trees, and dead trees—will add value to forest raw materials and provide additional revenue streams to pay for forest restoration. We evaluate the investment potential of products made from low-value biomass using a discounted cash-flow analysis of several possible forest products including fuels and nonfuels under various climate policy and market scenarios. We demonstrate the carbon benefits provided by these products, attributed to their substitution for fossil-fuel feedstocks and long-term carbon storage. Our work finds that there is an opportunity to develop several highly profitable products, most notably fuels, many of which are eligible for energy and climate policy programs such as California's Low Carbon Fuel Standard and the federal Renewable Fuel Standard. Nonfuel products have an average internal rate of return (IRR) of 13 percent, whereas fuels have an average IRR of 19 percent in our baseline scenario. Although products ineligible for government incentives are generally less profitable, income from the voluntary carbon market greatly increases the IRR. Fostering investment into these products can encourage critically needed funding for forest management while developing a high-impact carbon removal solution enabled by state, federal, and voluntary climate initiatives. On this basis, we conclude that climate policy can support forest restoration in California.

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“…Co-benefits are not limited to land-based CDR. In fact, scientists are studying how forest biomass with carbon capture and storage can reduce the risk of wildfires when paired with forest thinning projects (Sanchez et al 2021;Elias et al 2023). Social cobenefits for industrial CDR with carbon capture and storage could include jobs or economic revenue in areas and fields affected by the energy transition (Romig 2021).…”

Optimizing Forest-Biomass-Distribution Logistics from a Multi-Level Perspective—Review

“…Technological and business research aims to assess the cost feasibility of processes for using wood biomass to produce a specific type of energy product [38][39][40] or wood product [52][53][54][55][56][57]. Business evaluation involves comparing the use of different raw materials [58][59][60][61], pre-processing technologies [62,63], product manufacturing [29,[64][65][66], plant locations [67][68][69], or alternative products [70][71][72][73] in supply chain configuration. The most frequent business indicators in this group of studies were the obtained manufacturing cost ratios and the internal rate of return of the adopted technology.…”

Multifunctional Forest Restoration in Brazil: A Critical Analysis of the Trends and Knowledge Gaps in the Scientific Literature

“…Only recently has forest restoration been studied from a socioeconomic perspective around the world [8,52,[86][87][88]. In California, Elias et al [89] showed that the exploitation of several, highly profitable products from forest restoration is not only possible but can provide financial support for the restoration efforts. In addition, Montagni and Piotto [90] found that revenues from timber harvesting can exceed the costs of establishing and managing mixed plantations of native species.…”