-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-06-336		

TITLE:     Natural Resources: Woody Biomass Users' Experiences 
Offer Insights for Government Efforts Aimed at Promoting Its Use

DATE:   03/22/2006 
				                                                                         
----------------------------------------------------------------- 


******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO Product.                                                 **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
******************************************************************
GAO-06-336

     

     * Report to the Chairman, Committee on Resources, House of
       Representatives
          * March 2006
     * NATURAL RESOURCES
          * Woody Biomass Users' Experiences Offer Insights for Government
            Efforts Aimed at Promoting Its Use
     * Contents
          * Results in Brief
          * Background
          * Financial Incentives and Benefits, Access to an Affordable
            Supply, and Environmental Benefits Facilitated the Use of Woody
            Biomass among Users We Reviewed
               * Financial Incentives and Benefits Encouraged the Use of
                 Woody Biomass by Several Users
               * An Affordable Supply Facilitated the Use of Woody Biomass
               * Environmental Benefits and Other Factors Played a Role in
                 the Use of Woody Biomass
          * Challenges Faced by Woody Biomass Users Included Inadequate
            Supply and Costs Associated with Handling and Using the Material
               * Woody Biomass Was Not Always Sufficiently Available
               * Users Choosing Woody Biomass over Oil or Natural Gas Made
                 Additional Investments in Equipment and Incurred Additional
                 Operations and Maintenance Costs
          * Current Users' Experiences Offer Insights for Government Efforts
            to Expand the Use of Woody Biomass
               * Market Forces May Lead Wood Users to Forgo Small- Diameter
                 Trees in Favor of Alternatives
               * The Effectiveness of Efforts to Encourage Woody Biomass Use
                 May Depend on the Presence of Other Wood-Related Industries
               * Efforts to Encourage Woody Biomass Use May Be More Effective
                 If They Are Tailored to the Scale and Nature of Recipients'
                 Use
          * Concluding Observations
          * Agency Comments and Our Evaluation
     * Characteristics of Woody Biomass Users Included in Our Review
     * Objectives, Scope, and Methodology
          * Factors Facilitating the Use of Woody Biomass among Selected
            Users
          * Challenges Faced by Selected Users of Woody Biomass
          * Insights Offered by Our Findings
     * Comments from the Department of Agriculture
     * Comments from the Department of the Interior
          * GAO Comments
     * GAO Contact and Staff Acknowledgments

Report to the Chairman, Committee on Resources, House of Representatives

March 2006

NATURAL RESOURCES

Woody Biomass Users' Experiences Offer Insights for Government Efforts
Aimed at Promoting Its Use

Contents

Table

Figures

March 22, 2006Letter

The Honorable Richard Pombo Chairman Committee on Resources House of
Representatives

Dear Mr. Chairman:

In recent years, extensive wildland fires have drawn attention to the
abnormally dense vegetation in many of our nation's forests. The federal
government has responded by placing greater emphasis on reducing the
danger of such fires by thinning forests and rangelands to help reduce the
buildup of potentially hazardous fuels. These thinning efforts are
expected to generate large amounts of woody material, including many small
trees, limbs, and brush-often referred to as woody biomass-that
traditionally have had little commercial value.1

Widespread thinning efforts will be costly to the federal government. To
help defray these costs, and to enhance rural employment and economic
development, the government is promoting a market for woody biomass.
However, as we have reported in the past,2 the increased use of woody
biomass faces several obstacles. Officials in federal agencies seeking to
promote its use-including the Departments of Agriculture, Energy, and the
Interior-told us that woody biomass use is hampered by the high costs of
removing and transporting it from forests and the difficulty in obtaining
a reliable supply in some areas. Nevertheless, a number of businesses and
government entities are using woody biomass for various purposes,
including heating schools and hospitals, making lumber and other products,
and generating electricity.

In this context, and in response to our previous report describing agency
activities to promote woody biomass, you asked us to review current users
of woody biomass to determine whether their experiences offer any insights
for expanding its use. Specifically, we agreed to (1) identify key factors
facilitating the use of woody biomass among selected users, (2) identify
challenges these users have faced in using woody biomass, and (3) discuss
any insights that our findings may offer for promoting greater use of
woody biomass.

To conduct our review, we used a structured interview guide to collect
information from 13 users of woody biomass, including power plants, pulp
and paper mills, and school and hospital facilities in various locations
around the United States. Appendix I contains information about each of
the 13 users in our review. We first identified users by interviewing
federal and nonfederal officials knowledgeable about the use of woody
biomass and by reviewing pertinent documents such as federal agency
studies of woody biomass utilization. Users in our review were then
selected from a range of industries and geographic regions. The
information we collected about these 13 entities should not be generalized
to other woody biomass users because of variations in the characteristics
of different users. Appendix II provides further details on the scope and
methodology of our review. We conducted our work from May 2005 through
January 2006 in accordance with generally accepted government auditing
standards.

Results in Brief

The primary factors facilitating woody biomass use among users we reviewed
were financial incentives or benefits associated with its use, either in
the form of financial assistance for using the material or in energy cost
savings. Other factors included the availability of an affordable supply
of woody biomass and users' interest in environmental benefits associated
with its use. Four of the 13 users in our review received financial
assistance to begin using woody biomass, including state and federal
grants and tax-exempt bonds. Three users also were given ongoing support
as a result of their use of woody biomass, including grant funds for
expanding their wood storage facilities and payments for producing
renewable energy. Moreover, six users reported energy cost savings from
using woody biomass in place of fossil fuels such as natural gas. For
example, two small school districts individually reported about $50,000
and $60,000 in annual fuel cost savings, while two large pulp and paper
mills reported several million dollars in such savings. Several of the 13
users also cited the availability of an affordable supply of the material
as important in their use of woody biomass-particularly in cases where it
was already being removed as a byproduct of other activities, such as
commercial logging or private land clearing. Finally, three users told us
that their use of woody biomass was due in part to anticipated
environmental benefits associated with using the material, including
improved forest health and reduced emissions.

Using woody biomass, however, was not without challenges for the users we
reviewed. Users cited insufficient supply, increased equipment and
maintenance costs, and other factors that limited their use of woody
biomass or made it more difficult or expensive to use. In contrast to
users citing an available supply of woody biomass, seven users reported
they found it difficult or impossible to obtain a sufficient supply of the
material. For example, two power plants reported running at about 60
percent of their capacity because they could not obtain enough material to
operate at full capacity. Five users told us they had difficulty obtaining
woody biomass from federal lands, which was of particular concern to users
located in areas where federal lands constitute a substantial portion of
the landscape. Such users relied more on woody biomass from private lands
or on alternative wood materials such as sawmill residues (including
sawdust, chips, bark, and similar materials) or urban wood waste (made up
of tree trimmings, construction debris, and the like). Several users also
told us that, despite the financial advantages of using woody biomass in
place of oil or natural gas, they had incurred costs in using woody
biomass that they would not have incurred had they burned these other
fuels. Users cited costs for additional wood-handling equipment, such as
storage bins and conveyors, and added operation and maintenance costs,
including costs arising from problems in storing and handling woody
material.

Our findings offer several insights for promoting greater use of woody
biomass, specifically: (1) attempts to encourage the use of woody biomass
may serve to stimulate the use of alternative wood materials such as
sawmill residues instead, (2) government activities may be more effective
in stimulating woody biomass use if they take into account the extent of
logging and milling infrastructure, and (3) efforts to encourage woody
biomass use may need to be tailored to the scale and nature of individual
recipients' use.

o If not appropriately designed, attempts to encourage the use of woody
biomass may simply stimulate the use of mill residues or other alternative
wood materials, which some users told us are cheaper or easier to use than
woody biomass. For example, in 2003, the Forest Service provided a grant
to fund a Montana school's conversion to a wood heating system in order to
stimulate the use of woody biomass in the area. However, at the time of
our review, the school was using less expensive wood residues from a
nearby log-home builder rather than woody biomass. Further, in using woody
biomass, users in our review often used the tops and limbs from trees
harvested for merchantable timber or other uses rather than the
small-diameter trees that contribute to the problem of overstocked
forests. As the federal government seeks to stimulate the market for
materials that result from forest-thinning activities, it should consider
the potential impacts of its actions to ensure that they promote greater
use of small-diameter trees and not simply increase the use of other wood
materials.

o Government activities may be more effective in stimulating woody biomass
use if they take into account the extent to which a logging and milling
infrastructure is in place in potential users' locations. The availability
of a reasonably low-cost supply of woody biomass depends in part on the
presence of a local logging and milling infrastructure to collect and
process forest materials, even though this infrastructure also generates
alternatives to woody biomass. Without a milling infrastructure, there may
be little demand for forest materials, and without a logging
infrastructure, there may be no way to obtain the materials. Indeed,
officials at one power plant operating at a reduced capacity because of a
shortage of wood for the plant told us that the shortage was due to the
lack of a local logging infrastructure-in other words, there simply were
not enough loggers to carry out needed forest projects, and it was not
cost-effective for the plant to obtain material from more distant sources.
In general, the type and amount of effort needed to increase the use of
woody biomass may vary among locations, depending on the extent to which a
logging and processing infrastructure is already in place. The presence of
such an infrastructure, however, may also increase the availability of
mill residues-potentially complicating efforts to promote woody biomass
use by offering cheaper or more readily available alternative materials.

o Similarly, government activities may be more effective in stimulating
woody biomass use if their efforts are tailored to the scale and nature of
the users being targeted. Most of the large wood users we reviewed, such
as pulp and paper mills or power plants, were primarily concerned about
supply, and thus might benefit most from federal efforts to provide a
predictable and stable supply of woody biomass. In fact, one company
currently plans to build a woody biomass power plant in eastern Arizona
largely in response to a nearby federal thinning project that is expected
to last 10 years and generate a stable, long-term supply of the material.
In contrast, small users we reviewed did not express concerns about the
availability of supply, in part because their consumption was relatively
small; however, several relied on external financing for their up-front
costs to convert to woody biomass use. Such users might benefit most from
financial assistance such as grants or loan guarantees to fund initial
conversion efforts, and indeed, federal agencies are providing grants
intended to promote the use of woody biomass, including a Forest Service
grant program specifically intended to help defray federal thinning costs
by stimulating woody biomass use. However, agencies must remain alert to
potential unintended consequences of their efforts to stimulate the use of
woody biomass. As we noted in our prior report, some officials expressed
concern that developing a market for woody biomass could result in adverse
ecological consequences such as unnecessary forest thinning to meet demand
for the material. Further, while agency grants to woody biomass users may
provide the users with benefits such as fuel cost savings, these grants
may not in all cases defray agency thinning costs.

In responding to a draft of this report, the Departments of Agriculture,
Energy, and the Interior all generally agreed with our findings.

Background

Woody biomass-small-diameter trees, branches, and the like-is generated as
a result of timber-related activities in forests or rangelands.
Small-diameter trees may be removed to reduce the risk of wildland fire or
to improve forest health, while treetops, branches, and limbs,
collectively known as "slash," are often the byproduct of traditional
logging activities or thinning projects. Slash is generally removed from
trees on site, before the logs are hauled for processing. It may be
scattered on the ground and left to decay or to burn in a subsequent
prescribed fire, or piled and either burned or hauled away for use or
disposal. Figure 1 depicts woody biomass in the form of small-diameter
logs and slash.

Figure 1: Small-Diameter Logs and Slash Generated from a Montana Fuels
Reduction Project

Woody biomass, both small-diameter logs and slash, can be put to various
uses. Small-diameter logs can be sawed into structural lumber,
particularly as some sawmills have retooled to process these logs in
addition to, or instead of, larger logs. Other users of whole
small-diameter logs include some log-home builders and post and pole
makers. After bark, branches, and leaves are removed, logs can be chipped
and processed to make pulp, the raw material from which paper, cardboard,
and other products are made. Chipped wood also is used by manufacturers of
oriented strand board and other such engineered wood products. Both
small-diameter logs and slash also can be chipped or ground and used for
fuel, either in raw form or after being dried and made into fuel pellets.
Various entities, including power plants, schools, pulp and paper mills,
and others, burn woody biomass in boilers to turn water into steam, which
is used to make electricity, heat or cool buildings, or provide heat for
industrial processes.

Federal, state, and local governments, as well as private organizations,
are working to expand the use of woody biomass. Recent federal
legislation, including the Biomass Research and Development Act of 2000,3
Healthy Forests Restoration Act of 2003,4 Consolidated Appropriations Act
for Fiscal Year 2005,5 and Energy Policy Act of 2005,6 contains provisions
for woody biomass research and financial assistance. For example, the
Consolidated Appropriations Act for Fiscal Year 2005 made up to $5 million
in appropriations available for grants to create incentives for increased
use of woody biomass from national forest lands; in response, the Forest
Service awarded $4.4 million in such grants in fiscal year 2005. State and
local governments also are encouraging the use of woody biomass through
grants, research, and technical assistance. For example, the Bitter Root
Resource Conservation and Development Council, a nonprofit organization
sponsored by state government entities and three counties in Montana,7 is
helping to coordinate a federally funded effort-known as the Fuels for
Schools program-to install wood-fired heating systems in rural school
buildings. Other states, such as Idaho, Nevada, and North Dakota, also are
participating in the Fuels for Schools program.

Private corporations also are researching new ways of using woody biomass
and wood waste, often in partnership with government and universities. For
example, one corporation has partnered with the University of Georgia, and
has developed and plans to license biorefinery technology for making
chemicals, agricultural fertilizer, and transportation fuels such as
ethanol from woody biomass. Another private company has developed
technology that it hopes will significantly increase the ethanol yield
from any type of biomass, including woody biomass.

Financial Incentives and Benefits, Access to an Affordable Supply, and
Environmental Benefits Facilitated the Use of Woody Biomass among Users We
Reviewed

The users in our review cited several factors contributing to their use of
woody biomass, primarily financial incentives and benefits but also other
factors such as an affordable supply of woody biomass and environmental
considerations. Financial incentives encouraging the use of woody biomass
included financial assistance, while financial benefits included energy
cost savings from using woody biomass in place of other fuels. In
addition, some users had access to a readily available and affordable
supply of woody biomass, particularly in areas where material was being
removed as part of commercial activities such as logging. Other users told
us that their use of woody biomass was due in part to environmental or
other perceived benefits.

Financial Incentives and Benefits Encouraged the Use of Woody Biomass by
Several Users

Financial incentives for, and benefits from, using woody biomass were the
primary factors for its use among several users we reviewed. Four of the
13 users in our review told us that initial financial assistance in the
form of grants or bonds allowed them to begin using woody biomass. Three
public entities-a state college in Nebraska, a state hospital in Georgia,
and a rural school district in Montana-received financial grants covering
the initial cost of the equipment that they needed to begin using woody
biomass. In the case of the state college, a state grant of about $1
million in 1989 covered the cost of installing two wood-fired boilers used
to heat about 1 million square feet of campus building space, as well as
an expansion to the college's central heating plant to house the new
boilers and the requisite wood storage and handling system.8 The college
received a subsequent grant of about $100,000 in 2003 to help defray the
costs of installing a chiller powered by woody biomass, which supplies
cool air to campus buildings. The state hospital in Georgia received about
$2.5 million in state funds during the early 1980s to pay for the purchase
and installation of wood-handling equipment, and the Montana school
district received about $900,000 in federal funds in 2003 for the same
purpose.9 The fourth user-a wood-fired power plant in California-received
financial assistance in the form of tax-exempt state bonds to finance a
portion of the plant's construction, part of a statewide effort to promote
the use of biomass power plants and thereby reduce air pollution created
by burning the material in the open.

Three users in our review also received additional financial assistance,
including subsidies and other payments that helped them continue their use
of woody biomass.

o The California wood-fired power plant received about $10 per megawatt
hour from the state government during 2003 and 2004, according to a plant
official.10 This subsidy, which also was provided to other biomass-fueled
electricity producers in the state, was paid for by a "public goods"
surcharge on consumers' utility bills. The plant also benefited from an
artificially high price received for electricity during its first 10 years
of operation, a result of California's implementation of the federal
Public Utility Regulatory Policies Act of 1978.11 The act-a response to
the unstable energy climate of the late 1970s-required utilities to
purchase electricity from certain facilities producing electricity from
renewable sources, including woody biomass, at prices established by state
regulators.12 However, the initial prices established by California-based
on expectations of sharply rising oil and natural gas prices-proved to
substantially exceed market prices in some years, benefiting this power
plant by increasing its profit margin.

o The Montana school district also continues to receive financial
assistance through its participation in the Fuels for Schools program. For
example, the Bitter Root Resource Conservation and Development Council
paid for the installation of a 1,000-ton wood fuel storage facility at the
school district, capable of storing over a year's supply of fuel. The
council also financed the up-front purchase of a year's supply of fuel for
the district, which the district repays as it uses the fuel. This ongoing
assistance helped the district obtain wood fuel for about $24 per ton
during the 2005-2006 school year, in contrast to the $36 per ton it paid
for woody biomass in the previous year. Moreover, when some of the school
district's wood fuel supply decayed more rapidly than expected, the
council also arranged for the Forest Service to provide higher-quality
woody biomass from a nearby fuels reduction project at a price of $10 per
ton. Figure 2 shows the 1,000-ton wood fuel storage facility.

Figure 2: Wood Fuel Storage Facility at a Montana School District

o One Colorado power plant that generated electricity by firing woody
biomass with coal received ongoing financial benefits for using woody
biomass by selling renewable energy certificates. Renewable energy
certificates (sometimes referred to as "green tags") represent the
environmental benefits of renewable energy generation-that is, the
benefits of displacing electricity generated from nonrenewable sources,
such as fossil fuels, from the regional or national electric grid. The
certificates are sold separately from the electricity with which they are
associated. Certificates can be purchased by utilities seeking to meet
state requirements for renewable energy generation or by other entities
seeking to support the use of renewable energy sources, and their sale can
serve as an additional source of revenue to power plants using such
sources. The Colorado power plant in our review generated about 730
megawatt hours of electricity through its use of woody biomass,13 and sold
the associated renewable energy certificates to the Forest Service for $23
per megawatt hour, or about $17,000 in total. The Forest Service purchased
the certificates in order to promote woody biomass use and to offset the
power plant's costs for using woody biomass.

Energy cost savings also were a major incentive for using woody biomass
among six of the users we reviewed. Of the four users that produce central
heat with wood, two users-small rural school districts in Pennsylvania and
Montana-told us that they individually had saved about $50,000 and $60,000
in annual fuel costs by using wood instead of natural gas or fuel oil.
Officials at one of these districts told us that these savings represented
the equivalent of one teacher's annual salary, stating "we could either
burn fuel oil and watch that money go up the chimney, or burn wood and put
the money toward education." Likewise, the state college in Nebraska,
which uses woody biomass to heat and cool about 1 million square feet of
space in several campus buildings, typically saves about $120,000 to
$150,000 annually, while the Georgia state hospital reported saving at
least $150,000 in 1999, the last year for which information was available.
Similarly, the two pulp and paper mills we reviewed each reported saving
several million dollars annually by using wood rather than natural gas or
fuel oil to generate steam heat for their processes; officials at one mill
stated that the mill's operating costs would increase significantly
without the savings generated by burning wood, making it difficult for the
mill to remain competitive. Each of these users told us that they planned
to continue their use of woody biomass because they anticipated continuing
high fossil fuel prices.

An Affordable Supply Facilitated the Use of Woody Biomass

An affordable supply of woody biomass facilitated its use, especially in
areas where commercial activities such as logging or land clearing
generated woody biomass as a byproduct. For example, the Nebraska state
college was able to purchase woody biomass for an affordable price because
logging activities in the area made slash readily available. Logging
companies harvested timber in the vicinity of the college, hauling the
logs to sawmills and leaving their slash; the college paid only the cost
to collect, chip, and transport the slash to the college for burning. One
official told us that without the area's logging activity, the affordable
supply of woody biomass used by the college would be severely jeopardized
and the college would have to pay much higher prices to heat and cool its
campus.

Two Pennsylvania users in our review also obtained an affordable supply of
woody biomass generated through commercial activities. Officials of a
rural school district told us that nearby lands are being cleared for
development, and that a portion of the wood generated from land clearing
is chipped by contractors for purchase by the school. Similarly, a
Pennsylvania power plant uses wood from a combination of sources,
including woody biomass from land-clearing operations that are, on
average, more than 130 miles from the plant, according to a plant
official.14 This official told us that the developers clearing the land
are required to dispose of the cleared material but are not allowed to
burn or bury it, so they often are willing to partially subsidize removal
and transportation costs in order to have an outlet for the material.

Forest management activities also contribute to the availability of an
affordable supply of woody biomass. For example, small-diameter trees have
been available to a large pulp and paper mill in Mississippi in part
because of thinning activities by area landowners. In this area, as in
much of the southeastern United States, forests are largely privately
owned, and much of the forests are plantations meant for production.
Small-diameter trees are periodically thinned from these forests to
promote the growth of other trees, and traditionally have been sold for
use in making pulp and paper. Officials at the Mississippi pulp and paper
mill told us that these trees are a relatively inexpensive source of
material compared with the cost of the material in other parts of the
country because the structure of southeastern forests-with level terrain
and extensive road access-reduces harvesting and hauling costs, in
contrast to other parts of the country where steep terrain and limited
road access may result in high harvesting and hauling costs.

Environmental Benefits and Other Factors Played a Role in the Use of Woody
Biomass

Three users cited potential environmental benefits, such as improved
forest health and air quality, as prompting their use of woody biomass;
other users told us about additional factors that increased their use of
woody biomass. Two users-the Montana school district and the coal-fired
power plant in Colorado-started using woody biomass in part because of
concerns about forest health and the need to reduce hazardous fuels in
forest land; they also hoped that by providing a market for woody biomass,
they could help stimulate thinning efforts. The Montana school district
was the first of a series of Fuels for Schools projects intended to
stimulate demand for woody biomass generated from forest fuels reduction,
and the Colorado power plant began using woody biomass in an effort to
contribute to the health of the forest by using material from nearby fuels
reduction projects.

Air-quality concerns spurred the use of woody biomass at a Vermont power
plant in our review. According to plant officials, the utilities that
funded it were concerned about air quality and as a result chose to build
a plant fired by wood instead of coal because wood emits lower amounts of
pollutants. Other users cited the air-quality benefits of burning woody
biomass under the controlled conditions of a boiler rather than burning it
in the open air (whether through slash pile burning, prescribed burning,
or wildland fire) because doing so generates significantly fewer
emissions.

Finally, other factors and business arrangements specific to individual
users encouraged the use of woody biomass, either by insulating users from
the effects of changes in the price and availability of woody biomass or
by enabling users to profitably add woody biomass use to their business.
For example, an official at one wood-fired power plant told us that the
plant has been able to operate because the plant's owners-a group of
utilities-have the financial capacity, as well as a long-term outlook, to
withstand short-term fluctuations in its profitability. Without this
ownership, according to officials, the plant might have shut down during
periods of decreased revenues resulting from variations in the price or
availability of woody biomass. Another user, which chips wood for use as
fuel in a nearby power plant, has an arrangement with the power plant
under which the plant purchases the user's product at a price slightly
higher than the cost the user incurred in obtaining and processing woody
biomass, as long as the user's product is competitively priced and meets
fuel-quality standards. The arrangement guarantees the user a long-term
market for its product at a price that allows it to cover its costs. Three
users whose operations include chipping woody biomass and other
activities, such as commercial logging or sawmilling, told us that having
these other operations within the same business is important because costs
for equipment and personnel can be shared between the woody biomass
chipping operation and the other activities.

Other users helped offset the cost of obtaining and using woody biomass by
selling byproducts resulting from their use of the material. For example,
one pulp and paper mill in our review sold turpentine and other byproducts
that were produced during the production of pulp and paper, while another
user-a wood-fired power plant-sold steam extracted from its turbine to a
nearby food-canning factory. Other byproducts sold by users in our review
included ash used as a fertilizer, bark for landscaping material, and
sawdust used by particle board plants.

Challenges Faced by Woody Biomass Users Included Inadequate Supply and
Costs Associated with Handling and Using the Material

Users in our review experienced factors that limited their use of woody
biomass or made it more difficult or expensive to use, including
insufficient supply and increased costs related to equipment and
maintenance. Two users were unable to obtain a sufficient supply of woody
biomass, and several more told us they had difficulty obtaining the
material from federal lands. Several users also told us that, despite the
economic advantages of using woody biomass in place of oil or natural gas,
they had incurred costs that they would not have incurred had they burned
oil or natural gas-including additional equipment for handling woody
biomass and added operation and maintenance costs, such as costs arising
from problems in storing and handling woody material.

Woody Biomass Was Not Always Sufficiently Available

Seven users in our review told us they had difficulty obtaining a
sufficient supply of woody biomass, either because of constraints on the
supply of the material or because of insufficient availability of loggers
to collect it. Two users, both power plants, reported to us that they were
operating at about 60 percent of their capacity because they were unable
to obtain sufficient woody biomass or other fuel for their plants.
Officials at both plants, each of which burned mostly woody biomass but
also supplemented the material with mill residues and urban wood waste,
told us that their shortages of wood were due at least in part to a
shortage of nearby logging contractors. According to plant officials, the
lack of logging contractors meant that nearby landowners were unable to
carry out all of the projects they wished to undertake, resulting in what
one plant official termed a "backlog of standing timber." While officials
at one plant attributed the plant's shortage entirely to the insufficient
availability of logging contractors, an official at the other plant stated
that the lack of woody biomass from federal lands-particularly Forest
Service lands-also was a significant problem. One plant reported taking a
financial loss in each of the past 3 years, the result of operating below
capacity.

The lack of supply from federal lands was a commonly expressed concern
among the woody biomass users on the West Coast and in the Rocky Mountain
region, with five of the seven users we reviewed in these regions
(including one of the power plants running at about 60 percent capacity)
telling us they had difficulty obtaining supply from federal lands. One
such user ceased operations for several months because of an interruption
in its supply of woody biomass from federal lands. Users with problems
obtaining supply from federal lands generally expressed concern about the
Forest Service's ability to conduct projects generating woody biomass; in
fact, two users expressed skepticism that the large amounts of woody
biomass expected to result from widespread thinning activities will ever
materialize. One official stated, "We keep hearing about this coming `wall
of wood,' but we haven't seen any of it yet," adding that emphasizing uses
for woody biomass without an adequate supply "is putting the cart before
the horse."15 Of the remaining six users in our review, one obtained about
5 percent of its woody biomass from federal lands while the other five
used no federal woody biomass at the time of our review. In such cases,
users obtained woody biomass from state or private lands, or relied on
alternative wood materials such as sawmill residues or urban wood waste.

Users Choosing Woody Biomass over Oil or Natural Gas Made Additional
Investments in Equipment and Incurred Additional Operations and
Maintenance Costs

Several users in our review told us they incurred costs to purchase and
install the equipment necessary to use woody biomass beyond the costs that
would have been required for using fuel oil or natural gas. These costs
included scales for weighing incoming material; truck tippers to assist in
unloading material; wood-storage buildings or concrete pads for storing
wood; chippers to chip the material to the proper size; and conveyors and
other mechanisms for transporting the material to the boiler. Some users
needed other equipment as well; an official at one location told us a
front-end loader was dispatched every 45 minutes to push wood chips to a
loading area, where a mechanical conveyor could pick the chips up. Figure
3 is a schematic of the equipment and process used by one user in our
review.

Figure 3: Equipment and Process for Using Wood Fuel at One Location

The cost of this equipment varied considerably among users, in part as a
result of the differences in the amount of wood consumed. For example, a
school district burning about 850 tons of wood fuel per year reported
spending about $385,000 for the necessary equipment, including the boiler,
while a pulp and paper mill burning about 216,000 tons per year in its
boiler-about 250 times the school district's annual consumption-reported
investing $15 million in equipment necessary to use the material. Not all
users reported additional substantial expenditures on equipment, however;
one power plant burning wood mixed with coal told us that the only
additional equipment it needed was a ramp for a front-end loader, which
was constructed at minimal cost.

Wood utilization also tended to increase operation and maintenance
requirements for users. One power plant official told us that wood is more
expensive to handle than coal, citing handling costs of $4.50 per ton for
wood compared with $1.50 per ton for coal.16 Wood also can create
problems; for example, if wood chips are not properly sized, they can
create blockages in machinery that require prompt action. During our visit
to one facility, wood chips jammed on a conveyor belt, dumping wood chips
over the side of the conveyor and requiring a maintenance crew member to
manually clear the blockage. Figure 4 shows the crew member attempting to
clear the blockage.

Figure 4: Maintenance Crew Member Clearing Wood Blockage in Conveyor
Equipment

After one facility converted from natural gas and fuel oil to wood, it
reported that the number of personnel needed to maintain its central
heating plant nearly doubled, from about 8 or 9 to about 14 to 16. At
another facility-the power plant mixing woody biomass with coal-an
official told us that a wood blockage in the feed mechanism led to a fire
in one of the plant's coal-storage units, requiring the plant to
temporarily reduce its output of electricity and leading the plant to pay
$9,000 to have its remaining stock of wood rechipped. Two users also
reported spontaneous combustion in their wood storage piles that resulted
from decaying wood.

Other issues specific to individual users also decreased woody biomass use
or increased costs for using the material. For example, an official with
one user, which chips small-diameter trees and sells the resulting chips
to pulp and paper mills, told us that the pulp and paper mills prefer
sawmill residues to chipped trees and will purchase his product only when
sufficient sawmill residues are unavailable. This official told us that
demand for his product has been so low in some years that he has operated
his chip processor for only 6 months during the year. Another user, the
Vermont wood-fired power plant, is required by the state to obtain 75
percent of its raw material by rail, in order to minimize truck traffic in
a populated area. According to plant officials, shipping the material by
rail is more expensive than shipping by truck and creates fuel supply
problems because the railroad serving the plant is unreliable and
inefficient and experiences regular derailments. This same power plant is
required by the state to restrict its purchases of woody biomass to
material coming from forest projects that meet state-approved
environmental standards. To ensure that it meets this requirement, the
power plant employs four full-time foresters-an investment the plant would
not have to make if it did not use woody biomass. Another power plant was
required to obtain a new emissions permit in order to begin burning wood
in its coal-fired system. An official at a third power plant told us that
"woody biomass is expensive to harvest, process, transport, and handle-and
it has only half the [energy] of coal";17 he summed up his concerns by
stating, "Biomass energy is not the most efficient way to make
electricity." However, he added that using woody biomass to make
electricity provides benefits to society by consuming material that would
otherwise be burned in the open or deposited in landfills.

Current Users' Experiences Offer Insights for Government Efforts to Expand
the Use of Woody Biomass

Our findings offer several insights for promoting greater use of woody
biomass. First, rather than helping to defray the costs of forest
thinning, attempts to encourage the use of woody biomass may instead
stimulate the use of other wood materials such as mill residues or
commercial logging slash. Second, government activities may be more
effective in stimulating woody biomass use if they take into account the
extent to which a logging and milling infrastructure to collect and
process forest materials is in place. And finally, the type of efforts
employed to encourage woody biomass use may need to be tailored to the
scale and nature of individual recipients' use.

It should be noted, however, that drawing long-term conclusions from the
experiences of users in our review must be done with care because our
review represents only a snapshot in time and a small number of woody
biomass users. Changes in market conditions could have substantial effects
on the options available to users and the materials they choose to
consume, and the effects of changes in the market are complex and
difficult to predict. For example, the price of fossil fuels such as
natural gas plays a role in determining the cost-effectiveness of woody
biomass use; if the price of natural gas were to rise, increased energy
cost savings through woody biomass use might persuade more entities to
convert to the material despite the up-front costs of conversion. On the
other hand, if the cost of diesel fuel were to rise along with that of
natural gas, the cost of harvesting and transporting woody biomass would
increase because the machinery used to perform these tasks generally runs
on diesel fuel-diminishing the advantages to be gained by using woody
biomass.

Market Forces May Lead Wood Users to Forgo Small-Diameter Trees in Favor
of Alternatives

One goal of the federal government's efforts to stimulate woody biomass
use is to defray the cost to the government of thinning millions of acres
of land at risk of wildland fire by creating a market for the resulting
materials. Because a substantial component of these materials consists of
small-diameter trees, it is important that government efforts include a
focus on finding uses specifically for these trees. Without such a focus,
efforts to stimulate woody biomass use may simply increase the use of mill
residues or other wood materials-which several users told us were
preferable to woody biomass for a variety of reasons-or slash from
commercial logging operations.

Indeed, an indirect attempt to stimulate woody biomass use by one Montana
user in our review led to the increased use of available mill residues
instead. The Forest Service provided grant funds to finance the Montana
school district's 2003 conversion to a wood heating system in order to
stimulate the use of woody biomass in the area; the agency required as a
condition of the grant that at least 50 percent of the district's fuel
consist of woody biomass during the initial 2 years of the system's
operation. Officials told us that the district complied with the
requirement for those 2 years, but for the 2005-2006 school year, the
district chose to use less expensive wood residues from a nearby log-home
builder rather than woody biomass. The cost of these residues was $24 per
ton, in contrast to the $36 per ton the district paid for woody biomass
the previous year. A district official said that the district was willing
to use woody biomass in the future if it could be obtained more cheaply
than alternative materials.18 The district was not alone among users in
our review in its use of mill residues and other wood materials; eight
users in our review used such materials in addition to, or instead of,
woody biomass. Officials at one of these users-a pulp and paper mill-told
us that they began their operation by using mill residues, switching to
woody biomass only when competition for mill residues began driving up the
price. Emphasizing users' preference for mill residues, a Forest Service
official in Montana told us that his national forest sometimes has
difficulty finding a market for woody biomass resulting from forest
projects because the numerous log-home builders operating in the area
offer a cheaper and more accessible source of wood in the form of mill
residues.

This is not to say that the use of mill residues is entirely to the
detriment of woody biomass. The use of mill residues can play an indirect
role in facilitating woody biomass utilization by providing a market for
the byproducts of industries using woody biomass directly, such as sawdust
or other residues from small-log sawmills. The existence of a market for
these byproducts can enhance the profitability of woody biomass users and,
consequently, improve their ability to continue using woody biomass
cost-effectively. In addition, the availability of both mill residues and
woody biomass provides diversity of supply for users, allowing them to
continue operations even if one source of supply is interrupted or becomes
prohibitively expensive. Nevertheless, these indirect effects, even where
present, may be insufficient to substantially influence the use of woody
biomass.

Mill residues aside, even those users that consumed material we define as
woody biomass, particularly those that used wood for fuel, often used the
tops and limbs from trees harvested for merchantable timber or other uses
rather than the small-diameter trees that contribute to the problem of
overstocked forests. One woody biomass user in our review reported using
only the slash from commercial logging rather than small-diameter trees,
while another user reported that 80 percent of the woody biomass it used
consisted of logging slash and 20 percent consisted of thinned
small-diameter trees. Two users reported using residues from land-clearing
operations conducted as part of commercial land development. Logging slash
can be cheaper to obtain than small-diameter trees when it has been
already removed from the forest by commercial logging projects; such
projects often leave slash piles at roadside "landings," where trees are
delimbed before being loaded onto log trucks. Unless woody biomass users
specifically need small-diameter logs-for use in sawing lumber, for
example-they may find it cheaper to collect slash piled in roadside areas
than to enter the forest to cut and remove small-diameter trees. And while
consuming logging slash may have environmental benefits-by, for example,
decreasing smoke emissions by reducing the amount of slash burned in the
open-it does not necessarily contribute to the government's goal of
stimulating forest thinning or reducing thinning costs. Further, users'
reliance on material whose cost of removal was subsidized by commercial
activities suggests that, even if the government succeeds in stimulating a
market for the woody biomass, it still may need to bear a substantial
portion of thinning costs in order to make the material economically
attractive for users.

The experience of the Montana school district also illustrates the
unintended market consequences that may result from indirect attempts to
stimulate woody biomass use. The school district is located in an area
where several industries, including pulp and paper, plywood, and others,
purchase commercially produced mill residues for their operations. By
purchasing mill residues, the school district began competing for the same
raw materials desired by these other industries. The impact on the market
is likely to be small, as the school district uses only a small fraction
of the wood used by these other industries. Nevertheless, in addition to
spurring woody biomass use from forest-thinning operations, as originally
envisioned by Forest Service officials, these grant funds also introduced
more competition into an existing market for mill residues.

The Effectiveness of Efforts to Encourage Woody Biomass Use May Depend on
the Presence of Other Wood-Related Industries

Government activities may be more effective in stimulating woody biomass
use if they take into account the extent to which a logging and milling
infrastructure is in place in potential users' locations. The availability
of an affordable supply of woody biomass depends to a significant degree
on the presence of a local logging and milling infrastructure to collect
and process forest materials. Without a milling infrastructure, there may
be little demand for forest materials, and without a logging
infrastructure, there may be no way to obtain the materials. Indeed,
officials at one power plant operating at less than full capacity because
of a shortage of wood for the plant told us that the shortage was due to
the lack of a local logging infrastructure-in other words, there simply
weren't enough loggers to carry out the forest projects that nearby
landowners wanted to undertake. The user said it was not cost-effective to
obtain the material from more distant sources because of transportation
costs.

Similarly, an official with the Nebraska state college in our review told
us that the lack of a local logging infrastructure could potentially
jeopardize the college's woody biomass use in the future. The college
relied on logging slash from commercial loggers working nearby, but this
official told us that the loggers were based in another state and the
timber they were harvesting was hauled to sawmills over 100 miles away.
The official said the loggers would prefer to work closer to the sawmills
in order to reduce transportation costs, but could not find closer logging
opportunities. According to the official, if more timber-harvesting
projects were offered closer to the sawmills, these loggers would
immediately move their operations-eliminating the nearby source of woody
biomass available to the college.

In contrast, users located near a milling and logging infrastructure are
likely to have more readily available sources of woody biomass. One
Montana official told us that woody biomass in the form of logging slash
is plentiful in the Missoula area, which is home to numerous milling and
logging activities, and that about 90 percent of this slash is burned
because it has no market. The presence of a logging and processing
infrastructure, however, may increase the availability of mill residues,
potentially complicating efforts to promote woody biomass use by offering
more attractive alternative materials.

Efforts to Encourage Woody Biomass Use May Be More Effective If They Are
Tailored to the Scale and Nature of Recipients' Use

Government activities may be more effective in stimulating woody biomass
use if their efforts are tailored to the scale and nature of the users
being targeted. Most of the large wood users we reviewed, such as pulp and
paper mills or wood-fired power plants, were primarily concerned about
supply, and thus might benefit most from federal efforts to provide a
predictable and stable supply of woody biomass. Such stability might come,
for example, from long-term contracts signed under stewardship contracting
authority, which allows contracts of up to 10 years.19 In fact, one
company currently plans to build a $23 million woody biomass power plant
in eastern Arizona, largely in response to the White Mountain stewardship
project in the area, a thinning project expected to treat 50,000 to
250,000 acres over 10 years. Although the company is relying in part on
$16 million in loan guarantees furnished by the Department of Agriculture,
the assurance of supply offered by this long-term project was a key factor
in the company's decision to build the power plant. Furthermore, a
Department of Agriculture official told us that the assurance of supply
also was critical to the department's decision to provide the loan
guarantee. Similarly, in November 2005, officials of a South Carolina
utility told us that the utility was planning to burn woody biomass
resulting from thinning efforts in a nearby national forest, and was
intending to purchase about 75,000 tons annually to burn along with coal
in a coal-fired power plant. Although the utility did not yet have an
agreement in place to purchase the woody biomass, the officials told us
that the utility anticipated investing $4.4 million in wood-handling
equipment and realizing substantial annual fuel and emissions cost
savings.20 The national forest expects to conduct several long-term
thinning projects, and officials told us that the utility would not have
considered making this investment in woody biomass use without this
likelihood of a stable, long-term supply.

In contrast, small users we reviewed did not express concerns about the
availability of supply, in part because their consumption was relatively
small. However, three of these users relied on external financing for
their up-front costs to convert to woody biomass use. Such
users-particularly small, rural school districts or other public
facilities that may face difficulties raising the capital to pay needed
conversion costs-might benefit most from financial assistance such as
grants or loan guarantees to fund their initial conversion efforts. And as
we noted in our previous report on woody biomass,21 several federal
agencies provide grants for woody biomass use-particularly the Forest
Service, which is, among other efforts, providing grants of between
$50,000 and $250,000 to increase the utilization of woody biomass from or
near national forest lands.

However, federal agencies must take care that their efforts to assist
users are appropriately aligned with the agencies' own interests, and that
their efforts do not create unintended consequences. For example, while
individual grant recipients might reap substantial benefits from their
ability to use woody biomass-through fuel cost savings, for example, as
demonstrated by several users in our review-benefits to the government,
such as reduced thinning costs, are uncertain. Without such benefits,
agency grants may simply increase agency outlays but not produce
comparable savings in thinning costs. The agencies also risk adverse
ecological consequences if their efforts to develop markets for woody
biomass result in these markets inappropriately influencing land
management decisions. As noted in our prior report on woody biomass,
agency and nonagency officials cautioned that efforts to supply woody
biomass in response to market demand rather than ecological necessity
might result in inappropriate or excessive thinning.

Concluding Observations

The variety of factors influencing woody biomass use among users in our
review-including regulatory, geographic, market-based, and other
factors-suggests that the federal government may be able to take many
different approaches as it seeks to stimulate additional use of the
material. However, because these approaches have different costs, and
likely will provide different returns in terms of defraying thinning
expenses, it will be important to identify what kinds of mechanisms and
what types of resource investments are most cost-effective in different
circumstances. This will be a difficult task, given the variation in
different users' needs and available resources, differences in regional
markets and forest types, and the multitude of available alternatives to
woody biomass. Nevertheless, if federal agencies are to maximize the
long-term impact of the millions of dollars being spent to stimulate woody
biomass use, they will need to design approaches that take these elements
into account rather than using boilerplate solutions.

Agency Comments and Our Evaluation

We provided a draft of this report to the Secretaries of Agriculture,
Energy, and the Interior for review and comment. The departments generally
agreed with our findings and provided technical comments that were
incorporated into this report, as appropriate. Comments from the
Departments of Agriculture and the Interior are reprinted in appendixes
III and IV, respectively. The Department of Energy provided comments via
e-mail.

As agreed with your office, unless you publicly announce the contents of
this report earlier, we plan no further distribution until 30 days from
the report date. At that time, we will send copies to the Secretaries of
Agriculture, Energy, and the Interior; Chief of the Forest Service;
Director of BLM; and other interested parties. We also will make copies
available to others upon request. In addition, this report will be
available at no charge on GAO's Web site at http://www.gao.gov .

If you or your staff have any questions about this report, please contact
me at (202) 512-3841 or at [email protected] . Contact points for our
Offices of Congressional Relations and Public Affairs may be found on the
last page of this report. Key contributors to this report are listed in
appendix V.

Sincerely yours,

Robin M. Nazzaro Director, Natural Resources and Environment

Characteristics of Woody Biomass Users Included in Our ReviewAppendix I

Table 1 provides information on the type and amount of wood fuel
consumption reported by each woody biomass user in our review. This
information is based on the amount of wood used in the last full year for
which complete data were available.

Table 1: Characteristics of Woody Biomass Users Included in Our Reviewa

                                        

Woody biomass  Primary use  Wood used       Woody Logging slash Percent of 
       user                     per year  biomass as          as a      woody 
                               (bone dry           a percentage of    biomass 
                                  tons)b  percentage woody biomass   obtained 
                                         of all wood         usedc       from 
                                                used                  federal 
                                                                        lands 
Contractor,   Wood fuel       110,000         100            93          5 
MI                                                              
Contractor,   Wood fuel        75,000          67            80         10 
MT                                                              
Contractor,   Chips for        60,000         100  Not provided         45 
OR            pulp                                              
Power plant,  Electricity     126,000          67  Not provided         49 
CA            generation                                        
Power plant,  Electricity        760d         100             0        100 
CO            generation                                        
Power plant,  Electricity     140,000          74           100          0 
PA            generation                                        
Power plant,  Electricity     180,000          75           100          0 
VT            generation                                        
Pulp and      Pulp and      1,600,000          50  Not provided          0 
paper mill,   paper;                                            
MS            process steam                                     
Pulp and      Pulp and        966,000          30            30  less than 
paper mill,   paper;                                                     5 
MT            process steam                                     
Rural school  Building heat       490          67            40        100 
district, MT                                                    
Rural school  Building heat       850         100           100          0 
district, PA                                                    
State         Building heat     6,000         100           100          0 
college, NE                                                     
State         Building heat     9,000          0e           N/A        N/A 
hospital, GA                                                    
Total                       3,274,100                           

Source: GAO analysis of users' data.

aFigures were derived from information provided by users in our review.

bOne bone-dry ton represents 1 ton of wood at 0 percent moisture content;
green wood generally contains about 50 percent moisture. This column
represents all types of wood used, including alternative materials such as
mill residues, during the most recent year for which complete information
was available.

cFigures presented in this column include residues generated by commercial
land clearing activities as well as logging slash generated by commercial
logging operations.

dThis power plant mixed woody biomass with coal on a trial basis to
determine its feasibility. The amount of woody biomass the plant burned
represents a small fraction of the plant's annual consumption of coal.

eThe state hospital in Georgia has historically used woody biomass, but
had not done so during the most recent year for which complete information
was available.

Objectives, Scope, and MethodologyAppendix II

The objectives of our review were to (1) identify key factors facilitating
the use of woody biomass among selected users, (2) identify challenges
these users have faced in using woody biomass, and (3) discuss the
insights our findings offer for promoting greater use of woody biomass. To
meet these objectives, we reviewed the operations of 13 public and private
organizations throughout the United States that use woody biomass to make
a variety of products.

Because no comprehensive list of woody biomass users exists, we asked
knowledgeable federal and nonfederal officials to identify woody biomass
users. As part of these interviews, we asked for names of additional
officials-regardless of location or agency affiliation-who could provide
additional information about, or insights into, woody biomass users.
Federal officials we met with included various officials from the
Department of Agriculture's Forest Service, Department of Energy, and
Department of the Interior. We also contacted nonfederal officials,
including representatives of the Appalachian Hardwood Center, Biomass
Energy Resource Center, Bitter Root Resource Conservation and Development
Council, Center for Biological Diversity, Montana Community Development
Corporation, National Association of Conservation Districts, Natural
Resources Defense Council, Society of American Foresters, Southern
Alliance for the Utilization of Biomass Resources, USA Biomass Power
Producers Alliance, and Wilderness Society. We asked these federal and
nonfederal officials to identify woody biomass users across the United
States. We continued this expert referral technique until the references
we received for woody biomass users became repetitive. We also reviewed
documents that identified possible woody biomass users and provided
background information about woody biomass use.

From the several hundred entities that were reported to us as using woody
biomass, we selected for further review a nonprobability sample of 14
woody biomass users from different industries and geographic locations.1
These users produced a range of different products from woody biomass,
such as building heat, electricity, pulp, paper, and wood fuel, and were
located in various geographic locations around the country. Of these
users, 13 participated in our review; the remaining user, a sawmill using
small-diameter logs to make lumber, did not respond to our request to
participate. The woody biomass users we reviewed included

o a state college in Nebraska,

o a state hospital in Georgia,

o two rural school districts in Montana and Pennsylvania,

o two pulp and paper mills in Mississippi and Montana,

o three logging and wood products operations in Michigan, Montana, and
Oregon, and

o four electric power producers in California, Colorado, Vermont, and
Pennsylvania.

The general locations of the users we reviewed are shown in figure 5.

Figure 5: Locations of Woody Biomass Users We Reviewed

We then developed a structured interview guide to review the operations of
the 13 woody biomass users and to obtain general information about their
operations. Because the practical difficulties of developing and
administering a structured interview guide may introduce errors-resulting
from how a particular question is interpreted, for example, or from
differences in the sources of information available to respondents in
answering a question-we included steps in the development and
administration of the guide for the purpose of minimizing such errors. We
pretested the guide at one location and conducted a second pretest by
telephone. We also provided a draft version of the guide to federal
officials knowledgeable about woody biomass in order to obtain their
comments on the draft. Based on these steps, we modified the structured
interview guide to reflect questions and comments we received.

Factors Facilitating the Use of Woody Biomass among Selected Users

To collect information about the factors that facilitate woody biomass
use, we used our structured interview guide to obtain information about
the 13 users in our review, including the types and amount of woody
biomass used, when their woody biomass use began, and the type of
materials that woody biomass use replaced. We also asked users about
economic factors that facilitated their use of woody biomass, such as the
cost and availability of their supply. During discussions, we also
gathered users' opinions about factors that might increase their use of
woody biomass. To corroborate the information we gathered through
interviews, we compared interviewees' responses with other information we
reviewed, when available, such as contracts, third-party evaluations of
user activities, financial analyses, and the like. Because the documentary
evidence we reviewed generally agreed with the information provided by
woody biomass users, we believe the data are sufficiently reliable to be
used in providing descriptive information on the factors facilitating
woody biomass use by users in our review.

Challenges Faced by Selected Users of Woody Biomass

We also used our structured interview guide to ask the 13 users about
challenges they faced or other factors that might diminish their use of
woody biomass. For example, we asked users about the affordability of
their supply of woody biomass and the farthest distance from which they
can affordably obtain it, and gathered users' opinions about factors that
might diminish their use of woody biomass. To corroborate the information
we gathered through interviews, we compared interviewees' responses with
other information we obtained, when available-again including
documentation such as contracts, third-party evaluations of user
activities, financial analyses, and the like. Because the documentary
evidence we reviewed generally agreed with the information provided by
woody biomass users, we believe the data are sufficiently reliable to be
used in providing descriptive information on challenges associated with
the use of woody biomass by users in our review.

Insights Offered by Our Findings

To describe the insights offered by our findings, we relied principally on
the information gathered during our discussions with woody biomass users.
In addition, we used information gathered from interviewing potential and
current users as well as agency officials and others knowledgeable about
woody biomass use, including information gathered during our prior review
of woody biomass. Our intent was to highlight issues that we observed in
our review of current woody biomass users and that we believe should be
considered by those seeking to develop a market for woody biomass.

We performed our work from May 2005 through January 2006 in accordance
with generally accepted government auditing standards.

Comments from the Department of AgricultureAppendix III

Comments from the Department of the InteriorAppendix IV

The following are GAO's comments on the Department of the Interior's
letter dated March 1, 2006.

GAO Comments

1.We agree that the multiple benefits listed by the department may indeed
flow from the increased use of woody biomass. However, the objectives of
our review were to evaluate the experiences of individual users, not to
identify the general benefits of using woody biomass. In instances in
which users cited certain benefits facilitating or resulting from their
use of woody biomass, we included such benefits in our report.

2.We have modified our draft to include reference to the department's
contracting clause.

3.We understand that projects focusing on after-treatment stand conditions
may generate a variety of materials, including commercial sawtimber and
lower-value materials, and that the commercial component of these
materials can help offset project costs. However, while it is not possible
to separate the two issues entirely, the focus of our report-embodied in
our definition of woody biomass-is on small-diameter trees and other
traditionally noncommercial material.

4.The focus of our report goes beyond heat and electricity production, and
includes two users manufacturing pulp and paper from woody biomass and
three contractors processing woody biomass for other users. Nevertheless,
we recognize that users in other industries-or even other users in the
same industries we examined-may offer additional insights into expanding
the use of woody biomass.

5.Large-scale operations or widespread penetration of small wood
industries might, as the department suggests, create competition for the
materials and increase the value of small-diameter trees. However, while
such a scenario may come about in the long term, our intent was to provide
insights and information applicable to the current situation. Similarly,
the scope of our report generally is limited to the experiences of
individual users in our review, not to broader efforts such as the
northern California woody biomass thinning program.

6.We do not necessarily look at mill residues as a negative influence on
using woody biomass-in fact, we acknowledge that the use of mill residues
and other sources of wood can benefit woody biomass utilization in several
ways. However, we do believe that it can serve as a complicating factor in
the government's efforts to stimulate the use of small-diameter trees
specifically.

7.We have modified our draft to reflect the current expiration date of
2013 for Forest Service and Bureau of Land Management stewardship
contracting authority, as well as to note the related authorities
available to other Interior agencies.

8.While the department's suggestions regarding stewardship contracting and
market and tax incentives are beyond the scope of our review, the agencies
or the Congress may wish to consider these options as they evaluate the
success of contracting and grant programs.

GAO Contact and Staff AcknowledgmentsAppendix V

Robin M. Nazzaro, (202) 512-3841 or [email protected]

In addition to the contact named above, David P. Bixler, Assistant
Director; Lee Carroll; Steve Gaty; Tim Guinane; Richard Johnson; Amanda
Miller; Alison O'Neill; and Judy Pagano made key contributions to this
report.

(360587)

www.gao.gov/cgi-bin/getrpt? GAO-06-336 .

To view the full product, including the scope

and methodology, click on the link above.

For more information, contact Robin M. Nazzaro at (202) 512-3841 or
[email protected].

Highlights of GAO-06-336 , a report to the Chairman, Committee on
Resources, House of Representatives

March 2006

NATURAL RESOURCES

Woody Biomass Users' Experiences Offer Insights for Government Efforts
Aimed at Promoting Its Use

The federal government is placing greater emphasis on thinning vegetation
on public lands to reduce the risk of wildland fire. To help defray the
cost of thinning efforts, it also is seeking to stimulate a market for the
resulting material, including the smaller trees, limbs, and brush-referred
to as woody biomass-that traditionally have had little or no commercial
value. As GAO has reported in the past, the increased use of woody biomass
faces obstacles, including the high cost of harvesting and transporting it
and an unpredictable supply in some locations. Nevertheless, some
entities, such as schools and businesses, are utilizing the material,
potentially offering insights for broadening its use.

GAO agreed to (1) identify key factors facilitating the use of woody
biomass among selected users, (2) identify challenges these users have
faced in using woody biomass, and (3) discuss any insights that these
findings may offer for promoting greater use of woody biomass.

In responding to a draft of this report, the Departments of Agriculture,
Energy, and the Interior all generally agreed with GAO's findings.

Financial incentives and benefits associated with using woody biomass were
the primary factors facilitating its use among the 13 users GAO reviewed.
Four users received financial assistance (such as state or federal grants)
to begin their use of woody biomass, three received ongoing financial
support related to its use, and several reported energy cost savings over
fossil fuels. Using woody biomass also was attractive to some users
because it was available, affordable, and environmentally beneficial.

Several users GAO reviewed, however, cited challenges in using woody
biomass, such as difficulty obtaining a sufficient supply of the material.
For example, two power plants reported running at about 60 percent of
capacity because they could not obtain enough material. Some users also
reported that they had difficulty obtaining woody biomass from federal
lands, instead relying on woody biomass from private lands or on
alternatives such as sawmill residues. Some users also cited increased
equipment and maintenance costs associated with using the material.

The experiences of the 13 users offer several important insights for the
federal government to consider as it attempts to promote greater use of
woody biomass. First, if not appropriately designed, efforts to encourage
its use may simply stimulate the use of sawmill residues or other
alternative wood materials, which some users stated are cheaper or easier
to use than woody biomass. Second, the lack of a local logging and milling
infrastructure to collect and process forest materials may limit the
availability of woody biomass; thus, government activities may be more
effective in stimulating its use if they take into account the extent of
infrastructure in place. Similarly, government activities such as awarding
grants or supplying woody biomass may stimulate its use more effectively
if they are tailored to the scale and nature of the targeted users.
However, agencies must remain alert to potential unintended ecological
consequences of their efforts.

Examples of Woody Biomass Users GAO Reviewed
*** End of document. ***