In a somewhat ironic twist to Europe's Sustainability story, countries there faced with mandates to increase the percent of the continent's energy produced from renewable sources are leading to a thriving market of imported wood pellets made from trees in US forests.

In 2007, the European Commission set a goal that by 2020 greenhouse gas emissions would be reduced to 20% below their 1990 level. It also set a goal of moving Europe to use of 20% renewable energy by 2020.

Both were daunting and perhaps unrealistic goals, but government regulators are putting pressure on energy companies and manufacturers to make more progress. As it became clear that fuel sources such as solar and wind weren't going to be enough to hit the renewable energy goals, European electric companies are being asked to switch from coal to - it seems strange to say in the 21st century - wood pellets.

Those pellets can be considered renewables if they come from managed timberlands - and in some views even clear cut forests if they are replanted.

The problem? Europe can't come close to producing enough pellets to meet its own needs, due in part to tight regulations around forests lands there.

So enter the US, especially the heavily forested Southern region of the country. There you can find more than 214 million acres of forest land, according to the Southern Group of State Foresters. And about 89% of those forest are privately owned.

And in the European market, many of those land owners have hit a home run. The numbers are staggering: Together, six Southern states - Georgia, Florida, North Carolina, Louisiana, Virginia and Alabama - shipped 1.72 million tons of pellets in 2012, up from zero in 2007 and more than twice the volumes in 2011.

This scenario not only is helping Euro politicians meet energy goals, but bringing economic activity and jobs back to mill towns in the South that had been decimated like most everything else in recent years, in this case as the market for paper pulp has declined significantly.

"The logging industry around here was dead a few years ago," Paul Burby, owner of Carolina East Forest Products told the Wall Street Journal. "Now that Europe is using all these pellets, we can barely keep up."
The cut timber is sent to special mills which grind up the wood and then compress the wood material into the pellets that are shipped by ocean to Euro markets.

The logging on private lands is perfectly legal in most of the US and especially the South, whereas it often would not be permitted in the Euro countries where the finished pellets are headed. Clear cutting is almost never allowed there, and even in a managed forest environment the permitting process to take down a large number of trees is very onerous.

The Euro commission has promulgated some rules relative to the practice, such as that wood for the pellets should not come from clear cut forests, but often these are more in the form of guidelines than hard rules, and are up to each individual country to enforce - and the practices are hard to monitor across the ocean on US land.

The approach naturally has some environmentalists upset - and also has some Euro energy companies and their pellet supply chain partners doing some mental gymnastics to justify the strategy.

For example, John Keppler, CEO of the US's biggest wood-pellet exporter, Enviva LP, said at a recent conference in London that "Young trees absorb more carbon than older trees... What's the best way to get more carbon absorbed? Cut it down. Replant."

Not so, say many environmental groups, which argue all the carbon that older trees have absorbed has been "sequestered" and is instantly released when that wood is eventually burned as pellets, throwing much more carbon into the atmosphere than the new saplings can absorb.

For sure, however, the money train has many landowners and pellet operations working to make this supply chain sustainable over the long term.

The Euro pellet market has not led to then "inappropriate over-harvesting of US forests that some fear. The demand has created a viable use for woody material from forestry operations that typically goes to waste," says Chuck Leavell, who surprisingly is the keyboardist for the Rolling Stones and co-founder of the environmental website, the Mother Nature Network.

Leavell continues: "Twigs and limb, plus woody material from thinning operations in which unsalable trees are removed to allow other trees to grow stronger and healthier - that would otherwise rot are used for biomass. Using this resource for energy puts it to good use and is a wise thing to do."

There are other issues with the practice. Some Euro energy companies are generating a financial windfall from converting plants to run on wood. With Europe's cap and trade scheme, this can enable companies to sell credits created from the switch to renewables in the open market, sometimes for huge gains.

How huge? Drax PLC, a U.K. power company, says that after it converts two more electricity plants next year to run on pellets, it should be able to sell its excess emissions credits for some $600 million annually.

As the scope of this approach grows and more news outlets report on the practice, clamor from environmentalists grows, and now the European commission says it doing analysis to see whether there are in fact environmental risks to the widespread use of the pellets.

And while the pellets can arguably be said to in most or many cases a truly renewable source, what the impact on CO2 emissions is from the use of pellets instead of coal does not seem to be clear. One study found wood released more than 33% more CO2 than did coal, but some subsequent studies have challenged that finding.

A 2012 analysis by FutureMetrics, for example, found little difference between the CO2 outputs between coal and wood for the same level of energy produced, noting that "Coal started its life a longtime ago as biomass."

Other studies have found wood pellets substantially reduce CO2 emissions versus burning coal.

Cost will be another factor. The economics may be strongly in favor of wood pellets now because of the cap and trade credits. How coal versus pellets stack up on a straight production basis also seems unclear, and of course will depend on the marker pricing dynamics of each fuel source over time.

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