Forest Sinks, Floats and probably Flies

The raw facts about how forests work with respect to keeping CO2 out of the atmosphere make for compelling reading. More carbon is stored in global forest ecosystems than is contained in all the world’s remaining oil stocks, or in the atmosphere. Deforestation alone currently accounts for 18% of global carbon dioxide emissions and this is greater than the whole transport sector. In the UK carbon dioxide accounts for about 85% of greenhouse gas emissions but what is perhaps less well appreciated is that woodland soils store about 4 times more carbon than stored in trees growing out of that soil.

Of course, we have been familiar with the beneficial effects of forests for some time. At the beginning of the 20th Century, woodland covered only 5% of the UK’s land surface. By 2009, the area covered had increased to 12%. This doesn’t exactly compensate for the industrial revolution and subsequent burning of fossil fuels and large-scale deforestation which resulted in atmospheric carbon dioxide levels rising by 40% over pre-industrial levels. It does not even compensate for the more recent effects of the internal combustion engine. A half hectare conifer woodland would in one 50-year rotation compensate for a driver’s lifetime fuel consumption. Carbon neutrality for all drivers would require three quarters of the UK to be forested. So forest ecosystems are not the entire solution. But they nevertheless play a very significant role, along with the many other environmental measures taken, to mitigate the effects of global warming.

Looking beyond the headline statistics, how exactly do these forest ecosystems work and how do they supply the UK’s yearly appetite for about nine million cubic metres of timber? The first thing to note is that most of that demand is met by importing timber from Europe and North America. Of that total demand an increasing percentage of wood briquettes and pellets being are now being used in large electricity power stations that were formerly reliant on coal. In the last few years they have also been increasingly used in domestic and industrial heat or combined heat and power.


But for timber uses where the carbon content is retained in the finished product, the good news is that the construction industry regularly consumes 60% or more of all available sawn softwood. The remaining softwood consumption again where the carbon content is embodied in the finished product is accounted for by pallets and packaging, fencing and outdoor fittings, picture frames, pencils and not least furniture. The commonest species of trees that supply this embodied carbon manufacturing are the Spruces and Pines, 80% of which are imported. And with the various forestry management schemes to which timber importers and distributers subscribe provenance is available.

Furthermore, young trees absorb carbon dioxide more quickly in their early years, compared to older mature trees. At a point in a tree’s life the amount of carbon absorbed through photosynthesis is equal to that lost through respiration and decay. In terms of total carbon storage, a commercial conifer plantation grown over 50 years might absorb 100 tonnes of carbon per hectare. In contrast, a 300-year-old forest may only store 250 tonnes carbon per hectare at a 16% less efficient carbon sequestration rate.

With the multiple environmental and economic benefits of sustainable home-grown timber it is surprising the UK is so dependent on imports. Birch for example is the commonest native woodland tree in Britain and at the same time almost entirely imported commercially because its potential for timber production in the UK has been virtually ignored. Birch produces a finely textured timber, white and uniform in colour and it out performs most typical species across a spectrum of performance indicators.

Density (kg/m3)670690560384690
Bending strength (N/mm2)123979967118
Modulus of elasticity (N/mm2)13300101009400810012600
Compressive strength (N/mm2)6052483656
Impact strength (J/m2)1.040.840.840.511.14

Birch can be machined, worked and finished to a high standard and can be used for a variety of purposes in addition to the commonly found furniture applications of birch plywood. Birch however, because of the poor state of existing birch woodlands, has a poor reputation as a timber tree in Britain. By contrast, birch is an important timber species in many parts of northern Europe, for the manufacture of veneer boards, plywood and pulp, although even in Finland unmanaged birch was for a long time considered a weed.

Birch has many valuable properties as a timber and its commercial potential has been well demonstrated in Fennoscandia and North America. It can produce valuable timber in relatively short rotations if grown on good sites. When regularly thinned, diameter growth is fast and rotations as short as 40 years may be possible on the best sites.

The technical properties of British birch timber are equivalent to that from continental forests and it is versatile and capable of being used for many purposes. In comparison with many broadleaved species commonly grown in Britain, birch is relatively easy and cheap to regenerate and, providing that young trees are protected from leaf and shoot eating herbivores, there should be no serious pest and disease problems.

Even though the full potential of UK forestry is yet to be realised, currently from an investment perspective, returns for those who have invested in UK woodland have been good. Once considered a niche investment market, UK forestry has emerged from the shadows into the mainstream investment landscape as commercial forestry’s unique return characteristics have caught the attention of fund managers attempting to generate superior risk adjusted performance. In recent years UK commercial forestry, as measured by the IPD Forestry Index, has been one of the most fruitful asset classes, generating annualised returns of 18.4%, with no years of negative returns.

And while returns achieved from UK commercial forestry over the last decade are unlikely to be
repeated over the next ten years, long term returns of circa 10.0% are expected based
on predictable volume, the value growth of the trees and the anticipated modest appreciation in timber
prices and land values. It is also forecast that timber will outperform international large cap equities by 3.2% per annum in real terms over the next seven years.

In summary, forests play a very significant and necessary but not sufficient role in the measures we take to reduce global warming. The areas of forest in the UK continue to grow but their supply falls far short of the demand met by the current import dependency. Well maintained areas of harvested forestry on a 40 to 50-year cycle are potentially more efficient at carbon sequestration than older established forests. The technical quality of UK grown Birch for example is at least equivalent to that of imported Birch. Furthermore, birch is a robust and hardy species which is relatively easy to regenerate provided it is adequately protected. And the proven technical and robust qualities of Birch apply equally to other UK species. And as if that wasn’t enough, financial returns on UK commercial forestry investments have been strong and likely to outperform equities in the coming years.

What was that saying about money and trees?

The writer is indebted to the Forestry Commission for the UK CO2 statistics, A D Cameron’s paper ‘Managing birch woodlands for the production of quality timber’ for the University of Aberdeen and the Tax Adviser Magazine for the figures on the potential of investing in forestry.

Morfus UK