ForestryBrief Professional #19 🌳💰🦋

Butterfly Effect — Issue #2: Energy

The Butterfly Effect series maps the web European forestry sits inside. Part 0 explained how the sector actually works. Issue #1 (Expectations Gap) explained why society wants forests to do everything at once. This issue traces the first cascade: how the energy system reaches into your forest from three directions at the same time.

Forestry sells itself as renewable. Wood heats homes. Pellets replace coal. Engineered timber displaces concrete. The story is everywhere.

I personally stand with this thesis. However the story is also incomplete in a way that matters for your margin.

This issue makes three claims. Each is backed by 2025 or 2026 primary data.

One. The "renewable" sector runs on diesel. Every cubic metre that leaves your forest is, in effect, a crude oil derivative. When Brent moves, your margin moves with it. You have almost no control over either.

Two. The wood-for-energy buyer that everyone assumes is growing is shrinking at the source. Finland — the most wood-energy-dependent economy in the EU — burned 5% less solid wood fuel in 2025. Primary roundwood chips fell 17%. That is not a forecast. It is a 2025 outturn.

Three. At the same time, industrial biomass is fighting to lock itself in. District heating conversions, corporate decarbonisation contracts, the substitution argument now claiming up to 670 million tonnes of avoided emissions by 2050. That entire side of the buyer story depends on one unsettled fight: is burning wood actually carbon neutral?

If the answer holds, the industrial side survives. If it breaks, the entrenching demand collapses with it.

Three forces. One direction. All against the forest owner.

That is the Butterfly Effect view of energy.

Start with the part everyone in the sector knows and almost no one says in public.

Modern European forestry runs on diesel. Not metaphorically. Literally.

The cleanest measurement comes from a 2022 peer-reviewed study of Stora Enso's Finnish operations. Harvesters and forwarders together burn about 1.6 litres of diesel per cubic metre of roundwood. Harvesters use 0.91 litres. Forwarders use 0.68 litres. Moving the machines between sites adds another 0.13 litres per cubic metre. The sample was 8.9 million cubic metres. The data was real, not modelled.

The number swings by silviculture. First thinnings — small stems, low volume, lots of moving around — push fuel use to 2.8 litres per cubic metre. Final fellings, with big trees and short forwarding distances, drop it to 1.2. A 2023 Swedish study put the broader range at 1.4 litres per cubic metre for large machines and 3.4 for small machines on long extraction runs.

Now add haulage. A loaded timber rig burns about 50 litres per 100 kilometres. Empty, about 29. Over the run to the mill, that adds a few litres per cubic metre.

Add the two together. Getting one cubic metre of roundwood from a Nordic stand to the mill gate costs somewhere between 3 and 6 litres of diesel.

That is the fossil footprint of the renewable sector.

Diesel is also a big share of operating cost. A 2025 study of Swedish logging contractors put fuel at roughly 25% of total operating expenses, after labour. Older Finnish industry figures put the share at 12% to 20% of harvesting cost. For road haulage, the share rises further — historical Swedish data put fuel at 35% of timber rig operating cost.

Round those numbers down. Fuel is one in every four to five euros a Nordic logging contractor spends. It is more for the haulier. It is the single biggest cost a forestry contractor cannot control.

And in 2026 it has moved sharply.

The EU average pump diesel price was €1.55 per litre on 23 February 2026. By early April it peaked near €2.08 per litre. By 18 May it had eased back to €1.86. That is a swing of about a third in six weeks, then a partial reversal. Finland sits at the top of the EU table at €2.337 per litre as of late April.

The trigger was the spring 2026 oil shock. Brent moved sharply higher between late February and early April, then eased again after the ceasefire. We are not here to write the geopolitics. We are here to point out that a forestry contractor in Finland watched a fifth of his cost base move by roughly a third on news from somewhere he has never been.

That is the first squeeze.

A Swedish contractor without an indexed fuel clause in his contract — and many still do not have one — absorbed the move. A Swedish contractor with one passed it through to the buyer. The buyer, a sawmill, passed at least some of it back to the forest owner through softer stumpage. Eventually, somewhere along the chain, the cost lands on someone who cannot pass it further. Most of the time, that someone is the smallest player in the chain.

That is the second-order squeeze.

If your wood supply contract does not have a published-index fuel clause, the next geopolitical event will land on your margin without warning. The Swedish industry moved to standardised fuel clauses in the 2010s for exactly this reason. The 2026 spike was the validation. If you are still operating on fixed-fuel-baseline contracts, fix that before the next one.

The squeeze does not stop at the stand. It continues into the mill.

European industrial energy prices are still well above pre-2021 levels even after two years of gradual easing.

The latest Eurostat figures, published 8 May 2026, put EU-27 non-household electricity for medium consumers at €0.1837 per kilowatt-hour in the second half of 2025. That is down 3.5% on the first half of the year. It is also nearly double the pre-crisis level. The 2023 peak was €0.2151.

The national range is brutal. Ireland sat at €0.2552 per kilowatt-hour. Finland sat at €0.0748. The same product. The same EU. A 3.4x cost difference at the meter.

Industrial gas for medium consumers averaged €0.0605 per kilowatt-hour in the same period, down 8.3% year on year. The national range here runs from €0.1065 in Sweden to €0.0414 in Bulgaria.

CEPI, the European pulp and paper industry association, put it plainly in early 2025: energy prices for European pulp and paper are "two times higher than before the Covid crisis." The industry continues to operate roughly 10% below 2021 production levels. Graphic paper production fell 7.2% in 2025 alone.

This is the second front in the energy squeeze. The mill that buys your roundwood is paying twice what it paid in 2019 to turn that roundwood into pulp, board, or sawn timber.

How much of that lands on you depends on the mill type.

Integrated kraft pulp mills are mostly insulated. They burn black liquor — the chemical residue from cooking pulp — to produce both their own heat and electricity. A typical 1,000-tonne-per-day kraft mill generates 25 to 35 megawatts of electricity from black liquor alone. Industry analyses suggest up to 95% energy self-sufficiency for the most integrated facilities. When grid power costs double, the integrated mill barely notices.

Standalone paper mills face the opposite reality. They buy pulp on the market. They buy grid electricity. They buy gas. They make up the majority of Europe's paper manufacturing assets. When industrial electricity prices double, the standalone mill takes the full hit.

Sawmills sit in between. Log cost is dominant — historically 65 to 70% of total production cost. Energy is smaller, but the kiln-drying step alone has been measured at 40% of a sawmill's non-feedstock operating cost in older studies. A sawmill with on-site residue-fired boilers is roughly half-insulated from grid moves. A sawmill that buys grid power for everything is not.

Why does this matter for the forest owner?

Because every cost the mill cannot pass forward, it tries to push back. Mills under structural energy pressure are mills that pay less for logs when they can. We have seen the visible consequences in 2026: the Vida sawmill closures in southern Sweden in May. The Stora Enso Skutskär softwood pulp line closure announced the same week. The Weinig Malterdingen site closing by year-end. Valmet's 2,400 layoffs. Raute's 140. Closures and layoffs are the loudest signal. The quieter signal is everywhere — in stumpage offers that came in a euro or two below expectation.

The squeeze on the mill is the squeeze on you. Just one step removed.

Now turn to demand for wood as energy. This is where the consensus story diverges most sharply from the data.

Conventional wisdom: wood energy is one of forestry's reliable growth markets. Bioenergy targets keep rising. RED III is binding. Pellets are everywhere. Demand for wood fuel will keep pulling material out of the forest.

The 2025 data says otherwise. At least where it matters most.

Finland is the most wood-energy-dependent economy in the European Union. About 28% of Finnish primary energy comes from wood. If wood for energy is a growth story anywhere in Europe, it should be growing in Finland.

It is not.

The Natural Resources Institute Finland (Luke) published provisional 2025 wood energy statistics on 20 March 2026. The headline numbers tell the story without ambiguity.

Total solid wood fuel consumption at Finnish heat-only and combined heat and power plants in 2025: 20.8 million cubic metres, equivalent to 40.8 terawatt-hours. Down 5% on 2024.

Inside that headline, the breakdown is sharper.

The two-year trend at plant level is direction without noise: 22.6 million cubic metres in 2023, 22.0 in 2024, 20.8 in 2025. Steady decline.

On the other side of the ledger, by-products and residues are holding or growing.

Read those two lists together. They are not saying the same thing.

The primary-wood buyer — the chips that come from whole trees harvested for energy — is shrinking. The residue and pellet buyer — material that arrives at the boiler as a by-product of something else — is steady or growing.

The shift is structural. Finnish plants are moving from burning trees to burning leftovers. Some of that is economics: by-products are cheaper. Some is policy: RED III tightens the rules on primary wood. Some is logistics: pellets ship and store better than wet chips.

For a forest owner, the meaning is direct. If your business plan included "energy demand will pull more roundwood out of the forest each year," that plan is now wrong in the country where it should have been most right.

A peer-reviewed paper from April 2025 projected Finnish forest chip use would rise to 11.4 million cubic metres by 2026. The 2025 outturn came in at 9.1. The peer-reviewed projection is already overtaken by reality, twelve months ahead of schedule.

When primary wood for energy is contracting in the most wood-energy-dependent EU economy, the European story is not "growth with regional variation." The European story is a divergence inside the same headline word, bioenergy.

That is one side of the wood energy story. But not the whole side.

While forest chips drop, industrial biomass is fighting to entrench itself permanently. The action is in two places: pellets and district heating.

The European pellet market is large and stable, with a recent wobble.

According to Bioenergy Europe and USDA Foreign Agricultural Service data:

Read those numbers carefully. The pellet market is not collapsing. It is also not the runaway growth story sometimes pitched to investors. EU pellet consumption fell in 2023 and 2024 for the first time in nearly a decade. The 2025 projected recovery is real but mild.

Then look at the projects. This is where the divergence is sharpest.

Some big planned coal-to-biomass conversions have been abandoned in favour of heat pumps and waste heat:

Other projects are still pushing toward biomass:

The picture is not collapse. It is composition shift. Large dedicated combustion in Northern Europe is losing ground to heat pumps and waste heat. Compliance-grade pellet conversions, industrial process heat, and BECCS-prep projects are still being built — in Finland, the UK, Poland, Spain, and Austria.

The legal scaffolding underneath all of this is RED III — the revised Renewable Energy Directive 2023/2413, in force since November 2023, with national transposition due by 21 May 2025.

RED III did three things that matter for biomass.

First, it set the EU-wide renewable target at 42.5% by 2030, aiming for 45%.

Second, it lowered the threshold at which biomass installations must meet sustainability and greenhouse gas criteria. Under RED II, the threshold was 20 megawatts thermal for solid biomass. RED III brings it down to 7.5 megawatts thermal. For gaseous biomass, the threshold is 2 megawatts.

Third, it raised the greenhouse gas savings requirement. Biomass installations starting operation from 1 January 2026 must demonstrate at least 80% emissions savings versus the fossil baseline (70% for installations starting between 2021 and 2025).

It also added new no-go zones: primary forests, old-growth, highly biodiverse grasslands, peatlands. And it banned direct subsidies for energy from industrial-grade roundwood and stumps and roots.

The net effect: industrial biomass is officially in the renewable mix and given a tightened, more selective legal mandate. The 7.5 megawatt threshold pulls many more plants into the compliance net. The 80% savings requirement raises the bar for new investment. The no-go zones close off the riskiest sourcing.

Surviving industrial biomass demand is becoming more demanding, more compliance-grade, more residue-and-by-product-weighted. That is the buyer that will not leave: not the old "burn anything that grows" model, but a smaller, harder, more permanent industrial-and-policy backbone.

It is real. It is being built right now. It is your second major buyer for the next 20 years.

But its survival depends on one fight you can already see in the data.

Two weeks ago, in EFP #88, we noted that roughly 40% of European pulp mills are now excluded from the EU Emissions Trading System because their biogenic emissions exceed 95% of total verified emissions. Stora Enso's guidance for 2026 emission allowance income dropped to €10–20 million, down from €72 million in 2025. The €52 million swing in one company is the visible cost of the rule change.

That rule change rests on a foundation called the biogenic-zero assumption: the idea that the CO₂ released when wood burns counts as zero in the energy sector, because forest regrowth elsewhere is assumed to absorb it again over time. The accounting is moved to the land use sector (LULUCF), where it nets out against the forest carbon sink.

If that assumption holds, biomass stays renewable, the substitution argument works, and the entrenching demand we just described survives the next policy cycle.

If it breaks, the whole structure breaks with it.

The fight over whether it holds is now the most consequential argument in European forestry that almost no forester is having in public.

The strongest version of the pro-biomass argument comes from AFRY Management Consulting's 2024 study "Substitution potential and climate impact in the EU forest value chain," commissioned by FAM AB — the Wallenberg holding company.

The headline numbers: 390 million tonnes of CO₂-equivalent avoided today through EU wood products substituting for fossil-intensive alternatives, with a 2050 range of roughly 493 to 672 million tonnes, median around 561 million tonnes.

These numbers are then quoted at three different levels depending on the audience. AFRY's own press release uses 561. Future of Forestry's November 2025 precursor report cited 650. Future of Forestry's March 2026 LULUCF report cites 670 — the top of the range. Same study. Same funder. Three different numbers, presented to three different audiences as a single fact.

That is not necessarily dishonest. It is selective. A reader who saw only the 670 figure has no way of knowing that the same study's median is 109 million tonnes lower.

AFRY's own breakdown of the 390 million tonne current figure attributes about 64% to true material substitution. The rest is packaging recycling (~9%) and end-of-life incineration (~27%). That is worth knowing too.

The peer-reviewed literature on substitution and biomass carbon neutrality is much sharper than the industry trade press lets on.

Five findings deserve attention.

One. A 2020 Scientific Reports paper by Leturcq directly challenged the math behind displacement factors. Title: "GHG displacement factors of harvested wood products: the myth of substitution."

Two. A 2019 Environmental Research Letters paper by Harmon found wood-product substitution benefits may be overestimated by 2 to 100% depending on assumptions.

Three. A 2023 iForest scoping review by Selivanov and colleagues found there is no generally accepted definition of carbon neutrality for forest biomass. The review counted eight different active definitions in current literature. Two studies arguing about whether biomass is neutral may not be talking about the same thing.

Four. A 2024 Journal of Industrial Ecology paper by Boiger and colleagues modelled Austria specifically. The displacement factor came in at 0.41 tonnes of carbon per tonne of carbon in the wood. That compares with the widely-cited 1.2 from Leskinen 2018. Same approach. Different boundary. Three-times-smaller answer.

Five. More recent peer-reviewed work makes a further point. Most industry substitution models use static displacement factors. They assume the steel mill, the cement kiln, and the gas-fired power plant being replaced will be just as carbon-intensive in 2050 as in 2024. They will not. As steel decarbonises, as cement decarbonises, as the grid decarbonises, the saving from substituting wood for them shrinks. The static-baseline assumption can overestimate the substitution effect by a wide margin in modelled scenarios.

The European Academies' Science Advisory Council (EASAC) has been blunter still. Its position, restated multiple times since 2017, is that "labelling forest biomass as renewable has a perverse impact on the climate." The argument is that regrowth horizons are too slow to align with a 1.5°C trajectory.

The EU Joint Research Centre's 2021 study (JRC122719) reached a narrower but related conclusion: only fine woody debris from coniferous forests delivers short-term carbon benefit with neutral or positive biodiversity impact. The rest of the biomass portfolio is much harder to defend on climate grounds.

The EU LULUCF Regulation sets binding member-state targets out to 2030. Bioenergy is treated as zero at the smokestack within the broader EU climate framework. The management changes that affect the forest carbon sink are counted under LULUCF. RED III tightens sourcing rules but does not revisit the zero assumption at the point of combustion.

That assumption is the keystone of the entire entrenching-demand story.

Two 2026 decisions will probe it.

The first is the European Commission's formal RED III implementation assessment, due 31 December 2026. The headline question is compliance and sourcing. The deeper question is whether the assessment opens the door to revisiting biogenic accounting.

The second is the 2040 LULUCF legislative proposal, expected during 2026. If that proposal recommends moving biomass emissions onto the energy sector inventory rather than netting them out under LULUCF, the substitution case has a much harder time.

Neither outcome is settled. Both are being lobbied hard right now. The Wallenberg-funded substitution case (390 → 561 → 670 megatonnes) is the industry's strongest argument. The peer-reviewed critique is the opposing case.

For the forest owner thinking ten years out, neither argument is decoration. They decide whether industrial biomass remains your second major buyer or whether it shrinks back into a residue-only niche.

Put the three squeezes side by side.

Diesel volatility makes operations more expensive and more uncertain. Mill energy costs make downstream buyers weaker, which transmits back into stumpage. Primary wood demand for energy is shrinking in the most wood-energy-dependent EU economy. Industrial biomass demand is entrenching but only if the carbon-accounting assumption underneath it survives the next two years of EU review.

Three forces. One direction.

Nate Hagens, an American researcher who runs The Great Simplification, frames the broader context this way: every dollar of GDP is a physical transformation driven by some form of energy. Apparent decoupling in Europe has been achieved largely by exporting energy-intensive industry, not by genuinely substituting energy out of value chains. Because finance compounds on debt and growth is biophysically tethered to a depleting fossil base, Hagens expects a forced "Great Simplification" rather than a smooth renewable substitution.

We are not here to take that whole argument on board. But the narrow forestry version of it is hard to argue with. A sector whose operations run on diesel, and whose primary downstream buyer is being asked to be both an energy substitute and a carbon sink, is operating inside the constraint Hagens describes, not outside it.

This is the forester's seesaw applied to energy.

On one side, the living forest holds carbon, supplies ecosystem services, and is asked to grow faster as a climate solution. On the other side, the dead forest is sold for timber, pulp, panels, pellets, and chips — and increasingly, has to defend itself against the question of whether burning it is acceptable at all.

The seesaw does not tip itself. It is tipped by a thousand decisions. Diesel prices. Pellet contracts. LULUCF reviews. Heat pump installations. Carbon-accounting methodologies. Member State transposition of RED III. Court cases. Voluntary market governance. Industry lobbying. Peer review.

Your job, as a forest owner, is to read the direction of the seesaw and place your assets accordingly.

The good news in this issue is that the cost-side squeeze (diesel) and the buyer-side divergence (primary down, industrial up but contested) are both visible right now, in 2025 and 2026 data. You do not have to forecast them. You can read them off the chart.

The harder news is that the third squeeze — the carbon-accounting fight — is the one that has not resolved yet. It will resolve, in some direction, in 2026 and 2027. Your industrial biomass buyer's whole future depends on which way.

If you are a forest owner with active wood supply contracts: Check your fuel clause. If your contract still uses a fixed-fuel baseline rather than a published-index pass-through, the next geopolitical shock will land on your margin without warning. The 2026 spring oil shock was a free lesson. Renegotiate before the next one.

If you are a forester sourcing harvesting and haulage services: Map your fuel exposure per cubic metre. At roughly 3 to 6 litres of diesel per cubic metre delivered to the mill gate, a €0.50 move in pump diesel changes the delivered cost by €1.50 to €3.00. That is not noise. It is the entire margin on a marginal sale.

If you are an institutional investor in European forest assets: Distinguish ruthlessly between residue-and-by-product feedstock (still growing in Finland — bark up 7%, sawdust up 2%) and primary-wood-for-energy feedstock (chips down 13%, roundwood chips down 17%). The former is broadly compatible with RED III sustainability tightening. The latter is structurally exposed. Plant-by-plant feedstock disclosure is now a credit-quality issue, not an ESG issue.

If your portfolio includes industrial biomass exposure: The 2026 European Commission RED III implementation assessment (due 31 December 2026) and the 2040 LULUCF legislative proposal (expected during 2026) are the two events to track. If either re-opens the biogenic-zero assumption, the substitution-argument case underpinning long-dated biomass contracts becomes a different conversation. Build that scenario into your underwriting now.

If you communicate forestry to public audiences or policymakers: The peer-reviewed critique of static-baseline substitution math is published, current, and stronger than the industry trade press lets on. If your communication strategy leads with carbon-substitution headlines, it is sitting on contested ground. Lead instead with the durable case: rural livelihoods, material substitution where displacement is genuine, energy security through residues, climate adaptation through diverse forest structures, biodiversity through close-to-nature silviculture. Those arguments do not depend on the biogenic-zero assumption holding.

If you write to your national authority before September 2026: The draft National Restoration Plans being prepared right now (ForestryBrief Professional #18, May 15, 2026) and the RED III national implementation reports being submitted to the Commission are not separate documents. They sit in the same political moment. The forest owner voice in those plans is, right now, much smaller than the environmental NGO voice and the renewable energy industry voice. If you are a member of a forestry association, push them to engage.

The consensus story in 2026 is "wood energy is renewable demand growth." That story is partly right and partly wrong, in ways that matter for where you place capital and what you negotiate into your contracts.

The right part: industrial biomass is entrenching itself in places, with policy backing. It is real demand. It is not going to zero.

The wrong part: primary wood for energy is shrinking at the source in the most wood-energy-dependent EU economy. The growth, where it exists, is in residues, by-products, and compliance-grade pellets. The bulk roundwood-for-energy story that some investor decks still tell is no longer a thing.

The unsettled part: the whole industrial biomass case rests on a carbon-accounting assumption that is being seriously contested in peer-reviewed literature and at the European institutional level. That fight, not RED III itself, decides whether the entrenching demand survives the next policy cycle.

Three forces. One direction. The forest owner is the smallest player in the chain and absorbs whatever the bigger players cannot pass on.

The general picture is the Butterfly Effect. The specific picture, for your forest, your country, your buyers, and your contracts — that is a ForestryBriefing.

Issue #3: Finance & Capital Markets

Who buys forests, and what they expect from them. Why pension funds enter forestry — and what happens when their return expectations collide with biological growth rates. The processor bloodbath pattern, the IKEA / Ingka consolidation, the gradient framework applied to capital allocation.

Coming in a few weeks.

Diesel and fuel in forestry operations

Mill-side energy costs

Wood-for-energy demand

Industrial biomass demand and RED III

The carbon-accounting fight

Context framing

ForestryBrief cross-references

The next time someone calls your wood energy "not really green," you'll have thirty seconds.

Right now — what do you say?

If the answer isn't ready, the Playbook is. Everything I know about forestry communication.

The brief is free. The briefing is not.

Your exposure to the energy squeeze depends on the fuel mix in your operations, the buyer mix at your mill gate, and the geography of your assets. A Finnish forest owner with a Stora Enso pellet contract, a Bavarian family estate selling to a coal-converting district heating plant, and a Polish institutional fund with a portfolio across four countries — same forces, very different exposures.

ForestryBrief publishes verified intelligence three times a week, in 25+ countries, free. When you need that intelligence applied to your specific situation, that is a ForestryBriefing.

Intelligence — Investment due diligence, energy and biomass exposure mapping, EUDR compliance, cross-sector risk analysis, background verification in three languages.

Communication — Strategy for the carbon-accounting conversation, stakeholder messaging, trade publication articles, newsletters that people actually open. EN | DE | HU.

Live — Conference presentations, panel moderation, keynotes. Next: WAN-IFRA World Printers Summit, Rotterdam, October 2026.

First briefing guarantee: if it doesn't deliver intelligence you can act on, you don't pay.

→ See what a ForestryBriefing looks like | [email protected]

Until Tuesday!

Wish you all the best: Peter

🤝 Need help with forestry communication, intelligence, or due diligence? See what we offer → ForestryBrief Services

📩 Got this email forwarded to you? Subscribe to ForestryBrief here.

📚 Missed an issue? Browse the ForestryBrief archive

P.S. What’s the biggest challenge you’re facing in forestry right now?
Hit reply and let me know — I read every message personally.

P. P. S. Know a forest professional who’s drowning in EUDR complexity or missing out on timber market shifts? Forward this email to them!

Shauna Matkovich's Forest Invest Podcast is one of the best resources for understanding where forest finance is heading. If you are interested in Forest Investments, start there.

If you like FB be sure to subscribe to Boreal Tech Brief, a newsletter of my friend Axel covering tech in forestry with a Nordic angle: