Robert McKellar
Canada is safe, stable, far away from any hot spots, and the great bulk of its “international business” is still done next door. Thus, for many Canadian businesses political risk seems like an exotic challenge that only applies to global multinationals with operations in volatile and dangerous places. …However staid the Canadian forest product sector’s experience with political forces has been, there are two basic problems with this perception. One is that political risk is not just about arcane and dangerous problems in faraway places. What it really means is potential challenges from exposure to the political domain, wherein ideologies, values, power contention, social identities, governance and inter-state relations give rise to rationalities and imperatives that can be very different from those of legitimate businesses. …The second problem is that by not explicitly taking the political dimension into account, companies can easily fail to notice when its political, or more broadly socio-political, operating environment has become more volatile and risky, and continue with business as usual even when it would lead to serious vulnerabilities.
If we are aware of political risk, we can still use a tacit approach where it works, but we will know when and how political risk is a significant factor and will have the option of ramping up political risk management capabilities accordingly. Is it time for the Canadian forest products sector to develop an explicit sense of political risk and how to manage it? The answer depends on the specific products produced and markets served but also the company or owner’s propensity for risk aversion. …The approach here is to look at a four broad political dynamics that are either affecting Canadian forest products sector firms or significantly increasing uncertainty, by way of illustrating the potential relevance of political risk awareness and management. The four political dynamics are: the China-West rivalry; climate action confusion; Canada-US trade friction; and emerging market challenges.
The Washington-based Recycled Materials Association (ReMA) has been tracking a decline in recovered paper exports from the U.S. that shaped the 2023 market and has sustained throughout this year. Although China’s door is again slightly open to imports that meet specific standards, a combination of its withdrawal from the market and adjustments by U.S. mills to accept more grades of recovered paper has caused at least a temporary change in the import-export balance. In Europe, the shrinking Chinese market has been a factor, but in the past two years, that trend has been offset by different geopolitical and recycling market circumstances that have created a surplus of recovered paper on a continent that now has a higher volume moving offshore. …The increase in global recovered paper trade from Europe counters a trend seen in the U.S., where recovered paper exports dropped 18 percent last year and continue to fall in early 2024, according to ReMA.
NEW YORK — Mercer International reported second quarter 2024 results. …Highlights include: second quarter sales of $499 million, down from $553 million in Q1, 2024; Operating EBITDA of $30.4 million, an increase from negative Operating EBITDA of $68.7 million in the same quarter of 2023; Net loss was $67.6 million, which included a non-cash impairment of $34.3 million against goodwill related to the Torgau facility, compared to a net loss of $98.3 million in the second quarter of 2023, which included a non-cash loss on disposal of $23.6 million related to the dissolution of the Cariboo Pulp and Paper joint venture. …Mr. Juan Carlos Bueno, CEO, stated: “The second quarter was another improved quarter for our pulp segment as we continued to benefit from strengthening markets. In the second quarter, pulp prices continued to improve in all key markets due to strengthening demand and supply-side disruption. 
Europe is the world’s largest wood pellet market, producing just slightly more than it consumes. According to Bioenergy Europe’s Statistical Report 2024, released in June, the EU alone produced 20.7 million metric tons in 2023 and consumed 21.9 million MT. That equates to producing 44% and consuming 50% of the world’s pellets. But while production and consumption has steadily climbed in the EU and United Kingdom without interruption for nearly the past decade, last year saw a deviation from that trend. Wood pellet consumption actually declined by a collective 2 million tons from 2022 to 2023, from 32.1 million MT to 30.1 million MT, the culmination of a number of market forces. …Bioenergy Europe highlights the challenges the European pellet industry has faced as being threefold: higher input prices, falling industrial demand and a record warm winter. 
The cost of emitting carbon dioxide into the atmosphere is set to decouple from gas prices in the European Union, marking an historic shift in the dynamic between the two markets, according to the EMEA head of natural resources research at Goldman Sachs Group. The EU is facing “a complete break from the historical relationship where lower gas always meant lower carbon,” Goldman’s Michele Della Vigna said. The development reflects the changing dynamics affecting the carbon market, including shrinking emissions caps, with industry replacing power producers as the biggest buyers of permits to pollute and “a complete change in the gas market,” he said. Russia’s invasion of Ukraine triggered a new wave of energy investment in Europe. …Goldman predicts that infrastructure investments will drive up global liquid natural gas supplies by 50% in the next five years, leading to a halving of gas prices over the period.
NEW ZEALAND — The wood vs concrete debate elicits lots of huffing and puffing, but the three little pigs didn’t have to worry about hitting carbon emission targets. Red Stag chief Marty Verry says the use of engineered wood has reached “significant” scale in New Zealand, as more developers and designers specify mass timber products across residential and commercial builds. …Mass timber might be grabbing market share from steel and concrete, largely on the back of its carbon zero credentials, but its competing products say it’s not playing by the same rules. …Timber framing is the most common home construction system in New Zealand, but there’s also been a surge in large-scale use of mass timber in the commercial space, with its proponents touting its inherent benefits, in the form of sustainability and speed. Steel fabricators, in particular, suggest the sector should still be using product declarations. [to access the full story a NBR subscription is required]
The Forest Stewardship Council (FSC) is seriously concerned about allegations regarding 
Queensland has an opportunity to secure a sustainable and stable source of timber through a full plantation-based industry, but the government must build from the state’s Stakeholder Timber Advisory Group (STAG), which met for the first time today. On Thursday, the Australian Climate and Biodiversity Foundation and Queensland Conservation Council advocated for the transition to a full plantation-based timber industry that will chart a new future for Queensland’s forests, construction industry and forestry jobs while protecting Queensland’s natural assets. Softwood plantations provide more than 90 per cent of all wood used for construction in Queensland, with the state producing 3.6 million m3 of timber from 180,000 hectares of softwood plantations, according to ABARES. The STAG meeting was a landmark moment for Queensland by bringing together leaders from the forestry, environment, construction and political sectors, as well as First Nations leaders in what is a collective response to the state’s timber and environmental needs.
Australia’s forestry industry raised eyebrows this month when it 
The trade in black market timber is now the third most profitable cross-border crime after counterfeiting and drug trafficking, according to Interpol. The global fraud is destroying critical forests, undermining international sanctions and decimating indigenous lands and livelihoods. But authorities are hitting back. The Financial Times’s Madeleine Speed visits the high-tech forest detectives fighting the multibillion-dollar trade in tarnished timber. [Video story]
SAO PAULO — Brazil’s President Luiz Inacio Lula da Silva came into office in 2023 pledging to tackle deforestation in the Amazon. …But a new study indicates that deforestation alone accounts for an only fraction of climate damage involving the Amazon. Logging, forest burning and other forms of human-caused degradation, along with natural disturbances to the Amazon ecosystem, are releasing more climate-warming carbon dioxide than clear-cut deforestation, the study published on Monday in the journal 
The German Government is preparing to introduce a CO2 fee on energy derived from wood, including biomass. This is according to the latest yet unpublished draft of the “National Biomass Strategy” from February 2024, as reported by “Welt am Sonntag”. …This document pays particular attention to developing a strategy that includes applying a CO2 factor for woody biomass. Germany plans to develop a concept by 2025 that will adequately reflect the impact of the energetic use of woody biomass on the climate, especially at the European level. As part of this strategy, the introduction of a realistic and appropriate CO2 factor for the combustion of woody biomass is being considered. …Until now, wood was considered a climate-neutral, renewable fuel. Martin Bentele, the managing director of the German Association for Wood Energy and Pellets, has announced that he will consider taking legal action, arguing that “whoever made this decision must reckon with legal consequences.”
UK — The Drax power station was responsible for four times more carbon emissions than the UK’s last remaining coal-fired plant last year, despite taking more than £0.5bn in clean-energy subsidies in 2023, according to a report. The North Yorkshire power plant, which burns wood pellets imported from North America to generate electricity, was revealed as Britain’s single largest carbon emitter in 2023 by a report from the climate thinktank Ember. The figures show that Drax, which has received billions in subsidies since it began switching from coal to biomass in 2012, was responsible for 11.5m tonnes of CO2 last year, or nearly 3% of the UK’s total carbon emissions. Drax produced four times more carbon dioxide than the UK’s last remaining coal-fired power station at Ratcliffe-on-Soar in Nottinghamshire, which is due to close in September.
