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Getting Lost in the Woods?

The role of biomass in the energy transition requires further scrutiny from investors and policymakers. 

There are a number of innovative and sustainable solutions being invested in and upscaled to replace the world’s dependence on fossil fuels. Biomass is perhaps one of the most controversial.  

Biomass takes many forms and is typically defined as any renewable organic waste from plants and animals that can be replenished and regrown. Gathered waste is then either used directly as biofuels or converted into other forms of bioenergy, generating electricity, through combustion.  

Since 2000, biomass has seen an annual growth rate of 6%, the World Wide Fund for Nature (WWF) noted in a 2021 report. By the end of the decade, Fitch Solutions, part of Fitch Group, has estimated total global biomass and waste power capacity will increase by 40 gigawatts (GW), reaching 177 GW by 2030, expanding by 2.4% a year. 

But there are questions around how sustainable biomass-based power generation actually is.  

“A big negative is that biomass has an emissions profile that needs to be offset; it requires striking the right balance,” says Thomas van Lanschot, Associate Director of the Renewables Team at Fitch Solutions.  

“The degree of sustainability depends on what form it’s taking,” he adds.  

Some feedstock generates more emissions than others and can take hundreds of years to regenerate – which is hardly conducive to achieving net zero by 2050.  

Because of this, different forms of biomass-based power generation simply cannot be lumped in together, industry experts told ESG Investor, calling for policymakers and investors to more closely scrutinise the types of feedstocks being burned, how localised biomass project operations actually are, and what is being done with the resulting emissions.  

“The use of bioenergy can lead to either increased or reduced emissions, depending on the scale of deployment, conversion technology, fuel displaced, and how and where the biomass is produced,” the Intergovernmental Panel for Climate Change (IPCC) noted in its report on climate impacts, adaptation and vulnerability.  

Despite the ongoing debate, bioenergy is expected to remain a small, but nonetheless important, part of the net zero transition alongside solar and wind. 

The International Energy Agency’s (IEA) 2050 roadmap includes a pathway for bioenergy, and therefore the continued upscaling of biomass-based projects.  

We aimed to ensure that the peak level of total primary bioenergy demand – including losses from the conversion of biomass into useful fuels – falls within the lowest estimates of global sustainable bioenergy potential in 2050, namely around 100 exajoules (EJ),” the IEA noted. By 2050, 60% of global bioenergy demand will be for solid bioenergy (i.e. biomass), 30% for liquid biofuels and 10% for biogases, the roadmap said.  

Only 5% of total electricity generation in 2050 should come from bioenergy, but it is nonetheless “an important source of low emissions flexibility to complement variable generation from solar PV and wind”, the IEA said.  

There is therefore room for further investment in biomass, but caution is a must. 

A burning secret  

By and large, experts argue that bioenergy produced by burning wood is not sustainable. 

The counter-argument is that, when trees die and decompose, they release most of the CO2 they have captured throughout their lifespan anyway, so why not utilise them for energy? 

“Bioenergy companies don’t dispute the scale of CO2 emitted by burning wood for power, but argue that all emissions released are offset by the growth of new trees to replace those harvested for burning,” says Tomos Harrison, Biomass Analyst at independent energy think tank Ember. 

“However, the majority of scientific evidence shows that burning wood for power is often not carbon neutral – and in some circumstances can be a worse polluter than coal,” he adds. 

In the US, woody biomass produced 93.80 kilograms of CO2 per million British thermal units (kg CO2 per mmBtu) last year compared to 95.52kg CO2 per mmBtu from coal used in the electricity sector, according to 2021 data published by the IPCC. 

“[Energy companies] may manage their forests in a very ecologically sustainable way and plant a tree for every tree burned, but sustainable forest management isn’t a proxy for carbon impact,” Alex Mason, WWF’s Head of EU Climate and Energy, tells ESG Investor. 

And we don’t have the time to wait for new trees to grow and reabsorb CO2 emitted from woody biomass, he warns. 

“We’ve got a handful of years to halve global emissions if we have any hope of keeping global warming to 1.5°C,” he says. “So if you’re burning something that will result in more carbon in the short term, then that’s a terrible idea.” 

Woody biomass nonetheless remains a popular option around the world.  

For example, burning wood for electricity was the UK electricity sector’s second largest source of CO2 emissions in 2020, according to Ember research. The same year, the UK government pledged to spend £13 billion to support wood-burning power stations – £10 billion of which went to renewable energy company Drax. 

Ember compared Drax’s CO2 emissions to Europe’s coal fleet, noting that it is the fourth largest CO2 emitter out of the ten assessed companies, producing 14.8 metric tonnes (Mt) of CO2 a year.  

Asset managers have been under pressure to stop backing wood-burning. In March 2020, a coalition of 32 organisations spanning 17 countries wrote to the world’s biggest asset manager BlackRock, calling for the firm to divest its 5% stake in Drax, citing carbon intensity of woody biomass. 

Beyond the risks of fuelling climate change, there is also the risk that more trees will be burned for energy than are planted, causing increased deforestation, destruction of land and habitat, and ultimately shrinking the world’s natural carbon sinks.  

“In the shorter term, biomass should not be used if it leads to increased deforestation or an increased loss of biodiversity,” says Arjan Ruijs, Senior Responsible Investment Officer at Dutch asset management firm ACTIAM. 

A 2021 report published by the European Commission’s Joint Research Centre (JRC) highlighted that, in 23 out of 24 assessed scenarios, biomass had a negative impact on climate, biodiversity or both, with most forest biomass burned for energy in the EU actually increasing emissions compared to fossil fuels. 

Waste not, want not  

From black liquor to sawdust and food waste, there are a number of different and more sustainable sources of biomass that can be used to generate energy. 

Specialist infrastructure investment firm ThomasLloyd has invested in three biomass power plants in the Philippines, which are powered by locally-generated agricultural waste. The crops regenerate in less than 12 months and the local community is paid in exchange for providing the waste.  

“There are few emissions associated with transporting the waste, because the fields we collect from are just a few miles away from the power plants,” says Tony Coveney, Head of Infrastructure Asset Management at ThomasLloyd.  

“Although we’re then burning that waste, we use specially designed boilers that help us to mitigate and reduce the pollutants from the burning process, meeting all the International Finance Corporation’s (IFC) emissions standards for clean air.” 

The development and upscaling of bioenergy with carbon capture and storage (BECCS) is another area of opportunity for investors, allowing for feedstocks to be burned with resulting emissions captured and stored. 

Drax first launched a BECCS pilot project in 2018 and aims to have the technology fully operational by 2027. 

The IEA’s 2050 roadmap has also said that BECCS will play a “critical role” in the energy transition by “offsetting emissions from sectors where full decarbonisation is extremely difficult to achieve”. In line with its 2050 pathway, around 1.3 billion tonnes of CO2 will be annually captured using BECCS, the IEA said. Forty-five percent of this will be captured from biofuels production, 40% from the electricity sector and the rest in heavy industry, such as cement production.  

However, BECCS carries the “same risks and uncertainties as unabated bioenergy burning”, Ember’s Harrison warns. “Other routes to negative emissions may be lower risk, including land use restoration and afforestation,” he adds. 

To reduce deforestation and unsustainable land use, companies like biomaterials producer Hexas have developed regenerative and plant-based raw materials to replace wood, corn and fossil-based materials across industry activities, including energy production.  

One of its products, XanoGrass, yields 25-35 dry tonnes of biomass per acre year-over-year. It has been designed to be versatile, growing in different climates and soil types. 

“While there’s some good biomass, there’s not much of it,” points out WWF’s Mason. 

Van Lanschot agrees, noting that, in many countries around the world – including Northern Europe – we are “reaching a saturation in terms of what is acceptable biomass-driven power generation”.  

Sorting wheat from the chaff 

To ensure that the right projects are backed and upscaled, it’s vital that policymakers “distinguish good biomass from the bad”, says ThomasLloyd’s Coveney. 

“This is the main problem with EU rules at the moment,” notes WWF’s Mason. “Broadly speaking, they don’t differentiate and instead consider all biomass to be renewable.” 

This is beginning to change. Earlier this month, climate activists welcomed the decision by the European Parliament’s Committee on the Environment, Public Health and Food Safety (ENVI) to vote in favour of new rules in the Renewable Energy Directive , which clarified what can be counted as sustainable biomass.  

Under the proposed changes, primary woody biomass – such as trees and branches – would no longer be eligible for incentives meant to promote the development of renewables. However, secondary woody biomass, like post-consumer wood waste, will still be considered renewable.  

The draft rules are subject to a vote later this month by the rest of the European Parliament and all member states before being passed into law.  

Elsewhere, the UK intends to publish its own Biomass Strategy later this year, which will outline the government’s views on how biomass can best contribute to the country’s net zero trajectory. It will also introduce the policies and supporting frameworks needed to deploy biomass in “priority areas”, such as ensuring a sustainable supply of resources, air quality requirements and GHG accounting mechanisms. 

“While there has been a gradual tightening of the rules, it’s not nearly enough,” Mason says, adding that investors need to do their due diligence prior to investing in biomass.  

“Be clear on what is being burned and where that waste came from,” he says. 

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