New Report Seeks Securities and Exchange Commission Investigation of Misleading Climate Claims by Biomass Industry Giant
By Paul Homewood
More on yesterday’s Mail story about Drax and Enviva.
The Partnership for Policy Integrity have now published their report, which has been submitted to the SEC. Some of the detail from their press release below:
Investors With $53 Billion in Assets Call On SEC To Scrutinize Bioenergy Sector Claims That Burning Wood Reduces Greenhouse Gas Emissions and Benefits Forests
Pelham, MA and Asheville, NC. March 14, 2016 – Citing a new report by the Partnership for Policy Integrity and Dogwood Alliance on Enviva Biomass, the largest wood pellet manufacturer in the US, 34 investment groups with over $53 billion in assets under management have requested that the SEC examine claims of climate benefits in the biomass energy sector, and enforce rules requiring companies to disclose material information, including climate-change related risks, to investors.
See the letter and the report here.
Enviva manufactures wood pellets from trees and forest residues at six plants in the Southern United States. The company harvests wood from tens of thousands of acres of forest yearly, with company data showing that over 50 percent is from hardwoods, not pine plantations. The wood is ground and compressed into dried pellets, then shipped overseas to customers in the UK, EU, and Asia, where wood-burning is subsidized as renewable energy.
Renewable energy is not automatically carbon neutral, and power plant emissions data demonstrate that burning wood for fuel emits more carbon dioxide per megawatt-hour of electricity than burning coal. Forest studies and modeling confirm that while trees may ultimately grow back and offset carbon emissions from burning wood, this process takes decades to more than a century, to the extent that it occurs.
Mary S. Booth, director at the Partnership for Policy Integrity and an author of the report, analyzed documents Enviva filed with the SEC when the company went public in 2015, and subsequent SEC filings. “Enviva claims that burning their wood pellets reduces emissions by more than 80 percent, compared to coal. However, data from Drax Power in the UK, one of Enviva’s biggest customers, show the facility emits more CO2 when burning wood and other biomass than when burning coal, a physical reality that contradicts Enviva’s claims. It’s urgent that the bioenergy industry come clean on its real carbon and forest impacts.”
Julie Gorte, Ph.D., Senior Vice President for Sustainable Investing at Pax World Management LLC, signed on to the letter calling on the SEC to monitor company claims about emissions and enforce disclosure rules that protect investors. “Climate risk is increasingly important to investors, as the Securities and Exchange Commission’s 2010 interpretive guidance on reporting climate risks and opportunities attests,” says Dr. Gorte. “It is important that the agency is aware of the loopholes that companies employ to misrepresent their emissions. This letter and report focuses the disinfecting power of sunlight on one such loophole for producers of wood pellets for electricity generation. We urge the SEC and investors to pay attention to this issue.”
The report highlights misleading claims from Enviva’s SEC filings and public statements in three main areas:
1) Company claims that burning wood pellets reduces greenhouse gas emissions compared to coal, without disclosing that emissions from burning the pellets are not included in the tally – just the emissions from pellet manufacturing and transport.
2) Complex and contradictory statements that obscure Enviva’s use of whole trees for pellets, including mature hardwoods and wetland forests that are not replanted.
3) Inaccurate and misleading portrayals of current US and European policy developments, such as incorrect statements about EPA’s regulation of wood-burning power plants, and failure to disclose decreases in bioenergy subsidies for a major Enviva customer in the UK, Drax Power.
The report concludes that Enviva’s statements about the sources of wood it uses for pellet manufacture are also misleading, because they emphasize the role of “residues,” “sawdust,” and other types of waste wood and downplay cutting of whole trees for feedstock. Specifications for the company’s pellet plants indicate that Enviva predominantly uses large-diameter tree trunks and branches for feedstock, including mature hardwood trees from wetland forests. On-the-ground investigations also bear this out.
"There is ample evidence documenting Enviva’s reliance on large volumes of whole trees to make wood pellets; we have seen the wetland forest clearcuts and watched truck after truck loaded with trees enter their facilities," said Danna Smith, Executive Director of Dogwood Alliance. "Enviva and others in the biomass industry present the burning of forests for electricity as a positive but it’s actually harming our environment, rural Southern communities, and the climate."
Steven Heim, Managing Director at Boston Common Asset Management and a signatory on the letter, states "There is no green CO2. In addition to producing more CO2, burning wood for electricity can destroy forest carbon sinks for generations to come. Once regulators catch on, the basis for ‘no carbon’ biomass subsidies falls apart and investors may lose, too.”
Companies are required by the SEC to disclose information where there is a “substantial likelihood that a reasonable investor would consider it important in deciding how to vote or make an investment decision, or, put another way, if the information would alter the total mix of available information.” The SEC’s climate guidance extends this requirement to climate change-related concerns, explaining that companies should disclose impacts of legislation and regulation related to climate change; impact of international accords; indirect consequences of regulation or business trends, such as decreased demand for goods that produce significant greenhouse gas emissions; and physical impacts, such as changes in feedstock availability.
The full report includes this table:
In turn, these numbers come from Drax’s Annual Environmental Performance Review:
It would appear then that the emissions for biomass purely relate to the combustion of fuel and the chemical reaction. They do not include anything to do with the processing/transportation of wood pellets.
The case for biomass hinges on new trees being replacing those cut for pellet feedstock. Even then it can take 50 years or more to sequestrate the CO2 emitted by burning. But, as the report states:
The renewability of using trees as fuel is hypothetically valid, since in theory, new trees can replace those cut for pellet feedstock. However, the theoretical renewability of a fuel should not be conflated with having low emissions, or no emissions. Smokestack emissions from burning biomass are greater per megawatt-hour than from coal, and lifecycle emissions associated with manufacturing and transporting wood pellets overseas increase greenhouse gas emissions further. It may be inconvenient for the Company that its product, “when used as directed,” increases day to day carbon dioxide emissions, but given the importance of environmental concerns in promoting its business it is essential for the Company to avoid distortion of those benefits by omitting necessary context. While Enviva’s customers in the EU and UK may capitalize on a loophole in carbon accounting policy that exempts smokestack emissions from burning wood, Enviva itself has an obligation under US law, including SEC and FTC rules, to include sufficient additional disclosures so that its publications do not materially exaggerate environmental benefits.
Is there any real likelihood that bottomland hardwood forests, such as the one below, will be replanted, particularly when there will probably be no market for biomass by the time it matures? And if not, how long would it take to recover naturally?
It goes on:
Enviva’s disclosures about the sources of wood it uses are also misleading in our opinion, because they downplay the harvesting of whole trees for pellet feedstock and the general impacts of forest harvesting. The Company obtains wood from a variety of sources, including sawmill residues and low-diameter tops and limbs left over after trees are cut for sawlogs (“forestry residues”). Data from Enviva show that 50% or more of the wood processed into pellets is from naturally regenerated hardwood stands (Figure ES-4), many of them located in wetlands.11 Roundwood, rather than low-diameter forestry residues, is a major source of pellet feedstock (see Figure 4, main report)……………..
Enviva’s references to certification and sustainable forestry may be misleading to the Company’s investors when in fact, clearcutting and complete elimination of all standing trees is a common practice by the Company. As shown in Figure 8, while some of the higher value wood may have been sold as sawtimber, the pellet industry can take all of what is left, leaving nothing standing.
Enviva’s November 2015 “Business Overview,” filed with the SEC, claims that the Company’s activities benefit forests. The statement about Enviva sustaining “thriving, healthy forests” (Figure 9) stands in contrast to the practice of clearcutting forests for wood, some of which, if not the majority, is used as pellet feedstock.
It is not clear what action the SEC might take. They may fine Enviva, or ensure that they clarify future documents and declarations. If so, it will prove a huge embarrassment to Drax.
In the meantime, it looks a foregone conclusion that the SBS in this country will give Enviva the necessary certification to carry on supplying Drax. If it did not, the latter would be left with an unviable operation.
And the green juggernaut will simply lumber on.