Reflecting on our Learnings

CSFEP _ Learning Session_Insights Report

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CSFEP was created in 2020 as a collaborative enquiry into a theory that forests were being underutilized as a climate solution. We believed that collective intent by many actors would be required to unlock the opportunity to use forest products to decarbonize industries that interface with forests in their value chains, while driving greater investment into forests and sustainable forest management. At the start of the program, we believed we needed a combination of global solutions (science, dialogues, community building), and local demonstration projects (breakthrough initiatives) to gain greater clarity on forest and forest products contribution to responsible climate change mitigation, as well as a step-change in the market adoption of sustainable forest products.

Over the past 2+ years, we have proven that climate smart forest value chains are a viable climate opportunity, and have developed a portfolio of breakthrough initiatives (BIs) around the world that are demonstrating this potential opportunity.

Through our work, we have validated our ingoing hypotheses, and believe climate smart forest economies (CSFEs) are a viable climate solution that are being underutilized globally. As we reflect on our learnings from the past 2+ years, some common themes have emerged:

1. All “climate smart” interventions need to be proven, measured, and assessed to maximize the opportunity and avoid any environmental and social risks.

2. CSFEs should be considered regionally, given the large geographic differences between regions that impact the viability of a CSFE.

3. Use of sustainably sourced forest products will not scale unless it is a viable economic alternative to existing materials.

4. Many inter-connected value chains need to be developed in parallel for timber-based construction to be an economically viable and climate-smart solution.

5. Negative perceptions surrounding the use of timber for construction continue to be a key barrier for the uptake of CSFEs – albeit for different reasons in the different locations.

6. A key enabler for the success of CSFEs is the public sector, as they can act as a catalyst to create CSFEs, building incentive structures and creating demand to encourage investment.

1. Assessing if it is climate smart

Although many interventions claim to be climate smart or have a beneficial carbon outcome, many only consider one element of the value chain (the building), so only consider a very small piece of the overall story. A building might appear climate smart, but its value chain may have problematic carbon components that negate the benefits of the building itself. It is essential to measure and assess the entirety of the value chain, using a holistic approach, to understand if an intervention is climate smart. Doing this not only avoids any unintended consequences, but also supports in maximizing the climate benefits.

All of our BIs showed a climate positive outcome (actually storing more carbon than was released throughout the entirety of the process), with an average benefit of 22 339 tCO2[1] (equivalent to the annual emissions savings of taking 15 637 cars off the road). However, we estimate that initiatives could further increase their climate outcomes by 24-56% by making different decisions across the value chains, equating to an estimated average increase in climate benefits of 8 936 tCO2 (equivalent to the annual emissions savings of taking a further 6 255 cars off the road).

For our larger scale initiatives (moving beyond a single building or community housing), the carbon benefit is substantially higher, of between 100 000 and 644 000 tCO2, or the equivalent to an annual emissions savings of taking 70 000 – 235 000 cars off the road.

Opportunities to maximize the climate outcomes occur across the entirety of the forest-to-frame value chain, with notable opportunities including:

• Increasing the volume of biobased materials used in construction to maximize the substitution benefit

• Increasing the efficiency of the manufacturing process, including using latest technologies to ensure the highest value timber product can be created from relatively lower value inputs (such as smaller diameter logs)

• Increasing the amount of timber that goes into long-life wood products in the manufacturing process, particularly in related value chains

• Decreasing the transportation needs between the forest, manufacturing, and construction sites, ensuring sourcing occurs as close as possible to the demand

• Optimizing the forest management regime and tree planting to ensure the potential of the carbon sink is always balanced and maximized, and the right tree species are planted for the right purposes

In addition, it is essential to assess the value chain for any unintended negative environmental, ecological, and social consequences. For example, an intervention may be great for carbon, but the forest may be contributing to biodiversity loss, or negatively impacting local water sources, or be illegally using community land. Using a risk-based safeguards approach, we can understand where the greatest risks are in the value chain, and how these can be mitigated. Forests have far more benefits than just carbon, and maximizing for this one outcome could have serious repercussions for both people and overall climate outcomes, if not properly managed.

2. Thinking regionally and maximizing the opportunity

When considering a CSFE, many of our partners were unsure about the optimal geographic scale. Often areas of demand are not located near areas of supply, and different regulations and policies can drive vast differences in the growth potential. Given the vast contextual differences, a global or even continental CSFE is unrealistic, as even any recommendation that can be made across vast geographic regions would lack the contextualization to be readily applied.

Knowing we need to build from local contexts and understand what’s happening on-the-ground, we then pivoted to consider local solutions (such as within a city/urban environment). Although this scale allowed for the required local nuances, it limits the potential for scale (which is essential for economic viability, as well as to meet the climate potential).

We recognized it would be critical to connect actors across the value chain to maximize the efficiency and encourage scale. As we started to create these value chain alliances, we learnt that a regional scale is most appropriate to consider a CSFE, particularly when the bounds of the regional system can be aligned to the remit of a suitable decision-making authority (e.g., sub-national in Glasgow City Region, but national in Bhutan). Regional value chain alliances can connect actors across the value chain (from forest to frame), helping to drive alignment, coordination, and innovative solutions to fill gaps. Structuring this regionally, rather than globally or locally, is optimal to connect actors.

However, there are substantial differences in the potential of CSFEs across these different regions. We initially expected the highest potential regions to be those at the intersection of high housing demand and available forest resources, but even within this subset of regions there is substantial variation. For example, even if the housing demand is increasing, if the construction market is not growing, then developing a CSFE could result in job losses or displacement (as opposed to the net new jobs it can create if the construction market is growing).

It has also become clear through our work that regions with the greatest geographic opportunities – areas where there is substantial climate, environmental, and social benefits that could be obtained – are also the regions that face the greatest challenges.

Through our BIs, we’ve seen that the Global South will have substantially more growth in the housing market, which, if left without alternative solutions or low carbon building materials, will result in catastrophic damage to the climate. Simultaneously, these regions tend to be lower income, with governments eager to create new jobs and economic opportunities. When these locations also have available managed forest resources and working woodlands, it creates a potential opportunity for a CSFE.

However, these regions tend to have the most challenges, as this is typically entirely new industries that need to be created, so the enabling environment is limited. These forests often have logging bans (to curb problematic historical practices), limited incentives for sustainability certification, and insufficient supplies from nurseries for the tree species needed for afforestation or reforestation. Further, as these are new industries, public perception is often poor, and there is limited anchor demand that can be leveraged to drive investments into sustainable supply. Safeguards are critical here, to avoid any unintended environmental, ecological, or social consequences of these interventions, and to maximize potential holistic benefits, such as biodiversity.

3. Ensuring Economic viability

Even when the climate benefits are clear and well-understood, if using forest products is not economically viable, there is no potential for the industry to scale. We have validated the importance of this business case across a range of geographies and consumers and have observed that scale is entirely dependent on economic viability.

In some markets, timber is an economically sound option. Although it may be more expensive per square meter, it can reduce the build time and labour needs on the construction site, so equates to a less expensive overall cost for the build.

However, in many markets, timber is still too expensive to be a viable option, and is therefore only used in flagship buildings. Here, decision making is not driven by price, so developers are able to accept an increased bottom line. Although building flagship buildings can be catalytic to unlock the demand for timber buildings in a location, it does require additional activities to build this market and ensure the required investments in the supply-side, not least of which investments into improved forest management. Merely building a flagship timber building, although laudable from a climate perspective, is insufficient to scale the use of timber within that region. If investments are not made to ensure economic viability, the industry will never scale.

There are innovative financial tools, such as carbon credits or green subsidies, that can be used to make timber-based housing a viable financial option. These are critical to fill initial gaps in the market, while the market develops to a scale where it is cost competitive. If structured carefully, these tools can help as a bridging solution, ensuring sufficient demand at scale to unlock the required investment to ensure the supply-side is cost competitive.

4. Developing Connected Value Chains

Although we often try to restrict our interventions to a single value chain (such as timber-based construction), societies and economies do not operate in such siloes. Investing in a single value chain is often insufficient to realize the required climate and economic benefits.

For example, within the timber-based construction value chain, we have observed that many inter-connected value chains need to work together for both climate and economic efficiency. In geographies where this value chain needs to be developed from the ground up, there is actually a need to develop multiple value chains concurrently.

Without the packaging, insulation, furniture, and biofuel industries, timber-based construction is often not a viable climate solution. As not all of the felled tree is used for a timber-construction product, waste wood can be created if it is not properly channelled into other value chains. This waste wood significantly compromises the climate benefits of using timber for construction, as, depending on the manufacturing process, you may be losing 46%[2] of the carbon storage potential of the felled wood.

Additionally, optimizing the entirety of the supply chain for a single product is unlikely to drive positive climate outcomes. Optimization for timber-based construction, only, would lead to low-value planting, extractive logging practices, and high amounts of waste wood. A more diverse market will demand more diverse forest products, which can encourage more diverse forest landscapes.

The solution also becomes more economically viable as more value chains are developed, as more products start to demand similar supplies, which can drive investment across the value chain (for example, in tree nurseries, forest management expertise and equipment, primary processing, etc.). This improves local skills, ensures some available machinery, and can create a competitive industry, driving down prices.

5. Combatting Negative Perceptions

Negative public perceptions of timber-based construction continues to be a challenge.

The most pressing such perception is that any form of timber harvesting or logging contributes towards deforestation. While there may have historically and geographically been a reason for this association, it is not always the case, particularly for a CSFE where the basic premise starts with sound forest management practices. For our BIs, we have conducted sourcing studies, to understand the effects of the increased timber demand on the forests. Partnering with certification organisations and watchdog institutions have also supported in ensuring this is not the case for our initiatives. However, as CSFEs scale within regions, we need to ensure policies are put in place to ensure sustainable scale, while also engaging with the public in a dialogue to begin to understand and shift perceptions. We are often lacking the global data on how an increased demand for timber products will impact forests, which will be key to inform this narrative.

Given this strong and often emotive perception, many stakeholders are hesitant to even engage in this topic, particularly in the built environment community. Strong public backlash, whether deserved or not, has created such a fear of “getting it wrong”, that many avoid timber-based construction entirely. Without the forest expertise or guarantees, they would rather use commonly accepted materials, despite their substantially higher carbon emissions and negative climate impact. This becomes far easier to discuss, manage, and solve at a local level. Too often, insights and questions are extrapolated to a global level, the debate becomes far more challenging to deal with. Issues are far more manageable at the project level, as risks can be mitigated to produce good climate outcomes and strong safeguards.

In regions without a recent history of timber-based construction, wood is often seen as a less desirable or aspirational material, as its high availability and low cost has meant it is often used for very low-income housing (often create poor quality solutions). In regions with a recent history of timber-based construction, many fear fires or other durability risks, given a historic inclusion of poor-quality timber-products that has led to unfortunate outcomes.

In addition to grappling with negative perceptions, we often do not do enough to speak about the positive attributes of building with wood. Beyond the climate benefits, there are many co-benefits, including improved speed and quality of construction and safety of workers (when using offsite, industrialized practises), wellbeing, ease of adaption/alteration, etc. These are often excluded from the narrative, and therefore do not typically enter into public perceptions.

6. Catalyzing the Market through the Public Sector

The public sector can be a critical enabler for the creation of a CSFE. Although private sector also has a clear and crucial role to play, the public sector is uniquely positioned to be a catalyst in unlocking large-scale development of CSFEs.

In new markets, the public sector can become an anchor buyer, effectively creating the industry by ensuring the demand required to warrant the required investments in the supply. This is critical to de-risk supply-side investments, as otherwise investors are often caught in a challenging catch-22, where they need demand secured to be able to develop the supply, but they need the right supply to be able to serve the demand. An initial investment from the government in the demand-side can unlock private-sector innovation and investment in the supply-side, which can then create further private-sector investment in demand, as now the supply has been ensured.

The public sector can also create incentive structures to mitigate key challenges in the value chain. For example, one of the key challenges in developing the right supply is the long time-frame for returns. This tends to remove smaller actors from the market, as it is only financially viable for large corporate players to assume that level of financial uncertainty and risk. Public sector involvement can create incentive structures (such as taxation regimes, engaging the financial sector, etc.) that can make this a more favourable investment.

Further, when the enabling environment is still very early in its establishment, supporting codes and standards need to be developed. This sector is often very conservative and risk-averse, so an engaged public sector is key to ensure policies and standards are relevant, timely and appropriate.

Lastly, the incentive structures for public sector engagement, particularly in the global south, are clear. The substantial local employment and value addition opportunities are well aligned with many government’s objectives, and the contribution of this solution to National Development Priorities (such as housing or manufacturing), as well as climate change contributions, are substantial. Land use change from destructive practices to sustainable forest management is a question of incentives – here too government can be instrumental in sending the right signals to responsible actors maintaining the many values of forests.

Conclusion

CSFEP will continue its work in 2023, and we will continue to share our tools, learnings, and insights as they emerge. We are hopeful that by ensuring transparent communication, we can support other actors in realizing the full benefit of this climate solution.

We invite you to reach out to share any questions, comments, or reflections you may have, or to join our community and mailing list. Please reach out to csfep@dalberg.com, or follow us on LinkedIn at the Climate Smart Forest Economy Program. To learn more about our work, look at our website and resources page.

[1] This is calculated only for the planned or current construction projects. This does not include the larger-scale strategy recommendations, such as in Glasgow City Region [2] Current State of Mass Timber and Wood Product Value Chains in Europe background paper for The Forest Dialogue event in Finland, September 2022