The drive to net zero could lead to a fourfold surge in the global demand for timber by 2050, according to the World Bank, triggering a big increase in illegal logging in the developing world due to supply constraints.
Timber is sometimes described as the ‘climate commodity’. Wood could be used to build houses, to power heat and electricity grids, to clothe people, to package deliveries and to replace plastics in the future. The use of wood in the energy, construction and manufacturing sectors is already increasing and it is certain that it will play a significant role in the energy transition. At the same time, forests are being degraded and lost at alarming rates. A big question mark hangs over where all the wood for the energy transition will come from. Already it is estimated that between 15% and 30% of the world’s timber is sourced illegally.
Industrial roundwood (in other words, unprocessed logs) is the raw material for the manufacture of commercial wood products, including sawnwood (construction products, fencing and furniture), pulp (papers, tissue and packaging), and wood-based panels and wood pellets. Industrial roundwood can be broadly split between two categories: hardwood and softwood.
Hardwood is generally from broadleaved trees that are deciduous and shed their leaves in winter. The wood is denser but more aesthetically pleasing and is often used in flooring and furniture. Given the density of hardwoods, they are difficult to work with and impractical for many industries, including most of the construction industry. Softwood is generally from conifer trees, which are evergreen. It is easier to work with and faster to process and represents about 80% of timber consumption.
Timber uses can be split into three broad categories: construction, biomass/energy and the paper and packaging industry. Lumber refers to wood that is prepared for use in building.
In 2020, global roundwood removals amounted to 3.9 billion cubic metres under bark, according to the UN’s Food and Agriculture Organisation. The figure has jumped by almost 60% during the past six decades (from 2.5 billion cubic metres under bark in 1961). About half of the wood removed from forests globally is used for energy (cooking and heating), while the other half is used for industrial purposes (turned, for example, into pulp, sawnwood, wood composites, and chemicals for manufacturing wood-based products and direct use in construction).
Demand for timber could grow fourfold by 2050
The World Bank forecasts that global timber demand will quadruple by 2050, driven by economic and population growth. Gresham House, the London-based specialist alternative asset manager, has a lower estimate but is still forecasting that global timber consumption will surge by 170% over the next 30 years, driven by urbanisation, decarbonisation and housing demand. It forecasts timber consumption will increase by 3.1% a year over the next 30 years up to 2050, up from 1.1% a year during the past 20 years.
The vast majority of global commercial timber supply is sourced from temperate forests in the northern hemisphere (Canada, the US, northern Europe and Russia) and plantations in Oceania (New Zealand and Australia). These climates are conducive to the growing of softwood timber. However, the increase in urban dwellers is concentrated in regions with insufficient resources of mature timber. Consumers from China, India, Indonesia, Asia and Africa are driving increased demand from the traditional sources of supply.
The developing world’s consumption of timber jumped by 30% between 2005 and 2015 and it now consumes more industrial roundwood than the developed world. The growth was largely driven by China, whose consumption surged by 69% between 2005 and 2015. It is now the second-largest timber-consuming country after the US.
The size of the global timber and wood product market was estimated at $591bn in 2021 and $626bn in 2022, according to researchandmarkets.com, a market intelligence company. It is projected to grow at a compound annual growth rate of 6.11% to reach $844bn by 2027.
The reasons people consume timber around the world differ markedly. Europeans, for example, consume almost twice as much as the global average. The vast majority of removals in Africa, Asia and South America are for woodfuel, while almost 90% of removals in North America and 80% in Europe are for industrial purposes, according to the World Wildlife Fund (WWF).
The construction industry accounts for 36% of all carbon dioxide (CO2) emissions worldwide, according to the International Energy Agency. Many developed countries have set targets to reduce emissions from the construction industry. For example, the EU wants to reduce the sector’s emissions by 90% by 2050.
The fastest way to achieve this target is through the use of timber to replace steel, concrete and aluminium. During its production, one metric tonne of concrete releases 159kg of CO2 into the atmosphere, steel 1,240kg and aluminium 9,300kg. Wood, however, absorbs a net 1,700kg from the atmosphere, over and above the energy expended in growing, harvesting and processing it. Already ‘plyscrapers’ – skyscrapers made at least partly of wood – are springing up all over Europe.
Wood also helps reduce energy consumption. Wood’s unique cellular structure, which makes it a poor conductor of heat, makes it ten times more insulating than concrete, 400 times more than steel and 1,700 times more than aluminium. A 2.5cm-thick timber wall panel provides better thermal resistance than an 11.5cm brick wall.
“The additional future demand for timber can be broken down into three core drivers,” says Olly Hughes, managing director of forestry at Gresham House. “Firstly, there is population growth, but it is really the urbanisation of that population. We are seeing a significant increase in the urbanisation of the population globally and there is a direct correlation between urbanisation and timber consumption.
“Secondly, there is a chronic shortage of housing globally and there needs to be a fundamental shift in housing and the transition of housing. Thirdly, the decarbonisation of the economy is under way. A very significant proportion of carbon emissions comes from construction, predominantly in the form of aluminium and steel. Timber is a perfectly good replacement material for construction. For example, in countries including France there is now a mandate that all public buildings must be constructed with at least 50% timber.”
Russia is world’s largest exporter of softwood
In 2022, international sanctions imposed on Russia over its invasion of Ukraine have hampered timber supplies from the country, the world’s largest exporter of softwood timber. Supplies from Belarus have also dropped. Furthermore, the conflict has severely hamstrung production in Ukraine. The three countries accounted for one-quarter of the worldwide timber trade in 2021, according to industry figures. They exported 8.5 million cubic metres of softwood to Europe last year, just under 10% of the region’s demand. Russia – which has 20% of the planet’s forests and is the world’s largest exporter of softwood – alone produces about 40 million cubic metres a year. The country’s exported forest products were valued at more than $12bn in 2021.
Ukraine, Russia and Belarus account for around 35% of the world’s forests certified by the Forest Stewardship Council (FSC) and their exports of sustainable timber and biomass play a crucial role in the global markets for sustainable timber products. FSC certification is supposed to ensure that products come from responsibly managed forests that provide environmental, social and economic benefits.
Timber-producing and exporting countries are taking steps to make up the shortfall, including loosening some environmental protections to increase production. Soon after February’s invasion, for example, Ukraine lifted a regulation that prohibits logging in protected forests during spring and early summer. Furthermore, Estonia announced a relaxation of logging restrictions on state-owned land, which is home to about half of the country’s forests.
The Ukraine crisis has had a big impact on timber prices in 2022. The Global Sawlog Price Index, representing 20 regions worldwide, jumped by 34% from $68 per cubic metre (/m3) in the second half of 2020 to $92/m3 in the second half of 2022. The current index is substantially higher than its ten-year average of $78/m3 and is the highest level on record since it was established in 1995.
"One-third of all Russian timber is exported to China,” says Peter Feilberg, executive director at Preferred by Nature, a non-profit organisation. “A significant share of this will be processed and sold on to the European market. Controlling whether any of these products coming from China includes wood that has been harvested in Russia, will clearly be a challenge to the EU.”
The Covid-19 pandemic drove up timber demand and prices
Timber prices were already high in the wake of the Covid-19 pandemic. A lack of cargo ships for international maritime transport – especially to and from Asia – exacerbated timber shortages during the pandemic. After taking office in January 2021, US President Joe Biden also launched a construction stimulus package, which has helped to shore up global timber prices.
Big concerns exist about how the giant surge in timber demand will be met in the long term. Where will all the wood come from? Unlike fossil fuels, no new reserves of timber can be found. Traditional reserves take from 30 to 100 years to replace. For timber production to be sustainable, new supplies should only really be created through establishing new plantations, but the availability of land suitable for plantations is dwindling. There is also increasing competition from alternative land uses.
The majority of the world’s timber is sourced from natural growth forests – softwoods in the northern hemisphere and tropical hardwoods in the southern hemisphere. Increasing constraints will impact the availability and cost of timber from these natural resources.
“First and foremost, the extra supply of timber must not come from native, natural forests,” says Hughes at Gresham House. “We cannot keep plundering these native forests. About 3% of the world’s forests are under plantation and they produce 50–60% of the world’s timber. Effectively, what we must do is increase the proportion of plantation forestry to be able to deliver outcomes for the provision of sustainable materials.”
Illegal logging – the harvesting of timber in contravention of the laws and regulations of the country of harvest – is already one of the biggest challenges facing the forestry industry worldwide. It accounts for 50–90% of all forestry activities in key producer tropical forests, including the Amazon basin, central Africa and South East Asia. Between 40% and 61% of timber production in Indonesia is believed to come from illegal logging, according to the WWF. One-quarter of Russia's timber exports originate from illegal logging and 70% of harvested timber in Gabon is considered illegal.
A 2021 study by the Forest Trends Association, a non-governmental organisation, estimated that 81% of forest conversion for palm oil in Indonesia was illegal. The country’s Supreme Audit Agency determined that less than 20% of the nation's palm oil operations complied with national laws and regulations.
Illegal logging valued at up to $152bn a year globally
Illegal logging and trade is valued at between $51bn and $152bn a year. However, it can be a vital source of income for poor people living in or near forests. Increased demand for forests products has brought them some financial benefits, but there is also evidence to show that usually poor communities that are completely dependent on forests lose out to powerful interests. Logging companies and migrant workers reap most of the benefits.
The Congo basin is the world’s second-largest tropical rainforest and has 10,000 species of tropical plants (30% are unique to the region). Since 2009, the volume of timber exports from central Africa to China has jumped by 60%, according to Traffic, a non-governmental organisation. China is now the top export destination for Congo basin timber. As well as the huge increase in international demand for its timber, pressures on the forest also stem from strong local demand. For example, artisanal logging to support the local demand for house construction and furniture is not regulated.
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Traffic says that it is possible that – without tackling the already unsustainable level of harvest and trade – the increasing demand for tropical timber could eventually lead to the disappearance of species in the Congo basin.
Gresham House says that future timber supply will be constrained by consumer demand to source timber from sustainable, certifiable supplies. This could restrict illegal logging that makes up a significant proportion of global industrial roundwood production. Furthermore, there is increasing pressure for large tracts of natural forest to be set aside as carbon sinks or for conservation and environmental reasons, restricting the area available for timber harvesting. Until now, the exploitation of forested areas has concentrated on readily accessible resources, but that could change in the future. There is a lot of competition for forested land. A rising population in some poorer parts of the world – in particular in Africa – will result in more land being required for agricultural use.
Increasingly, trees are being recognised for their environmental benefits. They absorb carbon as they grow – known as 'sequestering’ – and in a growing number of countries it is possible to generate carbon credits that can be sold in addition to the timber. Carbon credits are a method used to offset unavoidable greenhouse gas emissions from other sectors. This means that industries such as transport and energy can buy carbon credits generated from growing timber to offset the emissions they cannot eliminate.
“The age-old adage is that the best time to plant a tree was yesterday and the next best time is today,” says Hughes. “We can’t prevaricate; we have got an emergency and we must start planting trees now. Number one, we must accept that plantation forestry is part of the answer. Number two, we must really solidify the value of carbon and create benchmarks so that there is an incentive for people to maintain forests.”
Further forestry plantations could be the answer
Plantations make up around 3% of the global forested area, according to the WWF. Their size has jumped by almost 40% over the past two decades. Plantations fall into two main categories. First, there are those that follow the ‘new generation plantations platform’, which aims to incorporate ecological management and social principles. Second, intensively managed monoculture plantations exist focused on industrialised production. Land constraints are a major issue for the latter type of plantation. There is evidence that it is displacing cropland as well as expanding into biodiversity hotspots. Its negative impacts include increased water scarcity, water pollution and depleted soil fertility.
With correct silvicultural management, around 70% of the value of a tree is in the sawlog – a log large enough to be suitable for sawing or making into lumber – and it is the main driver of timber prices for plantation owners.
Within the past decade, almost 12% of the world’s forest cover has been certified with sustainable standards such as certification from the FSC and the Programme for the Endorsement of Forest Certification (PEFC). The PEFC is an international, non-profit, non-governmental organisation that promotes sustainable forest management through independent third-party certification. Both standards have now suspended all trade of certified wood from Belarus and Russia.
Timber consumption is expected to overtake realistic sustainable supply during the next couple of decades. The move into more inaccessible, harder to reach timber supplies will drive up the cost of timber extraction and support increased global timber prices.
The greatest concern is that the surging demand for timber – partly because of the drive to net zero – will lead to a lot more illegal logging in jurisdictions that do not conserve forests properly or regulate deforestation. The timber value chain is a complicated one and it is hard to ensure wood only comes from forests certified with sustainable standards. Furthermore, there just is not enough of this kind of timber around. The biggest risk is to the forests of the Congo basin. By African standards, the sums of money involved are massive and there is a real danger than huge swathes of the forest will be lost.
One of the priorities must be where and how plantations are established and managed. Excessive and wasteful consumption of wood in the Western world must also be lowered to reduce pressure on the world’s forests. Nonetheless, the future potential for sustainable timber supply appears modest compared with future expectations about timber demand.
At COP27 in Sharm El Sheikh, Egypt, policymakers must start to think hard about the role of timber in national decarbonisation strategies. Currently, humanity is asking too much from the world’s forests. They cannot supply a lot of the materials for the energy transition and undertake carbon sequestering at the same time. The paradox is that – in moving to climate neutrality – mankind may end up destroying a lot of the world’s forests and carbon sinks.
Editor’s note: The original version of article appeared on our sister site Investment Monitor.