2009-06-02

Timber Investing

One sector I like as a play on agriculture, emerging market growth and global warming regulations is timber. There are several ways to invest, from buying timberland to investing in REITs and timber companies. Bloomberg has an article today on how global warming is creating a demand for "carbon neutral" wood: Wood Is New Coal as Polluters Use Carbon-Eating Trees
Power companies are burning more trees because the renewable fuel can be cheaper than coal and ignited without needing permits to release carbon dioxide, the main greenhouse gas blamed for global warming.

Vattenfall AB of Sweden, Germany’s RWE AG and American Electric Power Inc. of Ohio, the biggest coal-burner in the U.S., have switched a few plants over to wood and more are planned. So far that hasn’t driven up paper prices or strained forests, which absorb carbon dioxide in photosynthesis.

“Wood is very quickly becoming a very important part of the energy mix and in a few years will be a global commodity much like oil,” said Heinrich Unland, chief executive officer of Novus Energy GmbH. The German company runs a wood-power plant north of Hamburg that supplies heat to a Total SA refinery.
Greenpeace founder Patrick Moore has talked about using wood and makes the common sense economic argument that more wood use leads to higher timber values, which causes people to grow more forests. At the extreme, wood as an energy source could cause forestland to contract, but rising timber prices will spur more supply, not less. And the growth of new trees absorbs carbon more quickly than older trees, while the oldest trees are often carbon emitters.

Better than burning the wood, which results in something approaching a closed loop, we can sequester carbon by using wood as construction materials for homes, furniture, and other durable goods.

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