It’s time to sharpen the carbon pencils
The bells of carbon markets are ringing in Vietnam, and forest planners will need to use sophisticated tools if they want to maximise returns and avoid costly mistakes. In Simosol, we offer the precision forestry solutions and carbon services required to correctly balance carbon, wood-sales and sustainability objectives. In this article, we tackle these issues by first underlining the potential role of carbon in supporting the Vietnamese wood processing industry.
Supply-chain is written with “supply"
Wood processing exports in Vietnam are averaging 15% growth in recent years. In brief, while wood chips push volume (11.6 million tons), furniture drives value (over 75% of the 11.2 billion USD in export revenues). And for all we know, the industry is getting hungrier, aiming to reach 14 billion USD in 2021 and 20 billion USD by 2025.
Most of this machinery feeds from the 3.5 million hectares of commercial plantation forests where Acacia reigns. The total supply is close to 28 million cubic meters - a sizable yet insufficient amount when considering the 35 million demanded by the country’s industry. As the expansion of plantation areas is geographically limited, the supply gap can only deteriorate at the current pace. Also, Vietnamese plantations are typically harvested in short rotations (between 4-6 years), resulting in wood diameters which are unable to satisfy the “big timber” demand of furniture manufacturers. Of the 2.6 billion USD of imported wood products, 55% are logs and sawn wood.
Mindsets are stubborn when cash restrained
In an attempt to increase both the volume and size of the harvested timber, key stakeholders have called for a delay in harvests. However, established mindsets are not easily changed. Take for example certifications which encourage the lengthening of rotations. Across Vietnam, only 250,000 ha have been FSC-certified amid promises of premium prices guaranteed by global recognition. Clearly, for the hundreds of thousands of small forest owners, each owning but a handful of hectares, premiums are not enough to accommodate new practices. And, despite having the luxury of economies of scale and annual harvests, many forestry companies also seem unconvinced.
While mechanisms like EVFTA (The EU–Vietnam Free Trade Agreement) are expected to increase certification, encouragement alone would stop short in delaying enough harvests. Extant incentives must be reinforced with additional revenue streams that need to be trustworthy, appealing and forestry-compatible; a job description which seems perfectly tailored for a carbon credit.
Bigger trees capture more dollars
Regardless if you understand what a “metric ton of carbon dioxide equivalent (tCO2e)” means, only two things matter in this context. First, not only are trees full of tCO2e (half of a tree’s biomass is carbon), but the longer you wait before harvesting a tree, the more biomass it will offer. Second, there is no end in sight for the trust which deep-pocket investors have on the frameworks converting each tCO2e into a more liquid carbon credit (according to VERRA, the issuance of AFOLU (Agriculture, Forestry and Other Land Use) Verified Carbon Units has increased more than 7-fold since 2016). Simply put, a longer delay in harvests increases the quantity of carbon credits that can be traded in well established markets.
Vietnamese forests reduce more than 21 mtCO2e, and our own analyses in central Vietnam suggest annual carbon gains of approximately 46 tCO2e/ha (increasing to 55 tCO2e/ha once rotations are lengthened). At an average price around 5 USD/tCO2e, carbon credits by themselves won't do wonders at a per hectare level. But they can surely contribute to make the incentive package much more attractive. And, when dealing with larger pools like last year’s 51 million USD agreement between the Vietnamese Government and the World Bank, carbon is sufficiently convincing.
Carbon doesn't like your spreadsheets
Exciting times, yes. But a stroll in the voluntary markets will require planners to sharpen their pencils if they want to avoid costly mistakes. Calculating carbon from roundwood is easy. What is not so easy is knowing how to maximise profitability when carbon revenues are added into the mix.
Unfortunately for spreadsheets, an optimised forestry plan will require you to first extend your planning formulas to accomodate a new variable (carbon). Then, you will need to simulate a vast amount of scenarios, each considering multiple input variables - growth models, management regimes, assortments, market prices, operational restrictions, and carbon credit inflows. The latter will add even more restrictions, including credit-buffers limiting the carbon that can be sold. Once the simulations are completed, you need to identify the scenario delivering the highest returns before building management plans to follow in the future. Finally, any deviation from the selected plan will require you to update the input variables and do everything again and again.
In this context, the good old spreadsheets will only increase in number, demanding ever more time to convert them into well-acknowledged reports. They will also increase calculation errors, and the time needed to find them. Even if you manage to correct all mistakes, spreadsheets will fall short at optimising your carbon/wood balance, leading you straight to suboptimal (and profit-losing) decisions.
Sharpened pencils available here
Luckily, it is possible to optimise forest management - even in these times of carbon. A top forestry software can allow managers to create “digital forests” which closely simulate the real ones in the fields. Every key variable is taken into account, including carbon capture. The lengthening of rotations, and other management options, can then be tested before putting them into action. Importantly, carbon investors are ensured when foresters operate with sophisticated tools, as they themselves use them to evaluate their target assets.
In Simosol we offer carbon services and precision forestry solutions, the latter including forestry software, individual-tree inventories, and IoT machinery sensors. All products have been designed with integration in mind, allowing our carbon solutions to use the full power of our optimisation tools. With this unique offer, we have supported international investors and forest owners in high-value carbon transactions across the world.
And, with respect to Vietnam, our belief in the country’s future has led us to incorporate Vietnamese Acacia growth models into our solutions, and deliver carbon-related technologies for hundreds of forest owners. From our office in Đà Nẵng, we will continue to support this thriving industry - sharpening carbon pencils along the way.
Let's start a discussion about your needs in forest management optimisation, carbon analysis or forest valuation. Contact us!