Biomass is widely considered a renewable energy and supply and demand for woody biomass is expected to increase over 250% in the next decade. However, woody biomass is anything but carbon neutral and ecologically sustainable. In fact, biomass combustion burns more CO2 per unit of energy than fossil fuels, further fueling climate change. In order to stop this harmful practice, banks must recognise that woody biomass is not a sustainable energy source and exclude the financing of biomass projects.

As it is considered relatively cheap, wood -particularly wood pellets - are now the dominant form of biomass used in energy generation which is devastating irreplaceable forest ecosystems. In addition to deforestation to produce wood for burning, large forested areas are also being burned or cleared to grow crops as biomass. When natural forests are converted to managed forests or plantations, carbon is assumed to be reabsorbed by forest regrowth at the rate needed to offset emissions from burning. However, studies have shown that carbon stored in the forest floor, which is generally twice that stored in vegetation, is greatly reduced when natural forests are converted to plantation forests. Intensified logging regimes for biomass supply often mean shortened rotation periods meaning, so that the forest never goes back to its regains to the former level of carbon stock. And increase in demand for wood pellets is like to be supplied from tropical, temperate, and boreal forests, posing an increasing global threat to natural forest ecosystems, including those that are highly biodiverse or rich in carbon.

The biomass industry is associated with far-reaching social and health impacts, both where forest biomass is harvested and where it is burned, including conflicts over land rights and forest resources. In addition, demand for woody biomass contributes to land grabbing, which threatens the rights, interests, and livelihoods of Indigenous Peoples and local communities. Forests play an important role in protecting local communities from the impacts of climate change and provide numerous ecosystem services, but deforestation causes air pollution and an increased risk of respiratory and other diseases. Biomass production and burning facilities are often located in socioeconomically disadvantaged areas where local communities are particularly vulnerable to the impacts of climate change.

Biomass energy is not carbon neutral. Large amounts of greenhouse gases are released into the atmosphere when forest biomass is burned. It also has negative impacts on the biosequestration of CO2, as deforested areas can no longer store CO2 thus having the same effect as additional CO2 emissions. Measured at the point of combustion in power plants, carbon emissions from burning wood are 3%% higher than from coal. The claim that biomass is a sustainable energy source is based on two false assumptions. First, it assumes that forest biomass will grow back and that the carbon emitted during combustion can be recaptured by regrowing forests. However, this does not consider the time dimension of how long it takes for forests to regrow. Secondly, the EU Renewable Energy Directive's methodology does not include emissions from biomass combustion when calculating full life cycle emissions, which is a fatal flaw. When all carbon emissions are included, studies show that the GHG intensity of biomass from natural timberland can be as much as 4 times that of coal over a 40-year period. Studies show that even bioenergy sourced from burning forest residues results in such a high carbon debt that it cannot contribute to the goal of the Paris Agreement to limit warming to 1.5 or even 2 degrees.

Biomass production is associated with high rates of deforestation as well as monocultures of various crops. There is a growing body of evidence that shows the connection between deforestation and an increasing risk for disease outbreaks and pandemics. For example,monocultures like eucalyptus plantations reduce biodiversity leaving species like rats and mosquitoes, which are more likely to spread dangerous pathogens, to thrive. This biodiversity decline results in a loss of natural disease regulation and poses a risk for human, animal and environmental health. Studies have also shown that viruses are more likely to transfer to humans when they live in disturbed ecosystems like cleared forests. Finally deforestation is also an important driver of climate change which itself increases the risk for future pandemics.

Role of banks

Banks play a role in propping up the forest biomass sector through their finance and investments in companies operating forest biomass power plants, in particular companies looking to convert power plants from coal to biomass. Many banks finance biomass companies or projects as a renewable energy source without differentiating between practices within biomass supply chains and fail to consider the climate impacts that woody biomass has. Large-scale forest biomass causes harm to the climate, environment, people and cannot be considered as a clean energy source and financial institutions investing in the sector could be open to a range of reputational and financial risks. Banks' policies often cite compliance with international sustainability standards to protect and monitor forest carbon stocks in supply chains, such as the Forestry Stewardship Council certification. However, these standards need to be strengthened and banks could play a role in ensuring these standards are improved.

What banks must do

1. Exclude direct finance for all new wood biomass facilities, including
   • Wood biomass facilities involving energy generation from forest wood, including forest residues and wood from tree plantations and forests
   • Wood biomass facilities reliant on bioenergy with carbon capture and storage technologies (BECCS)
   • Coal power plants that are being converted to wood biomass power plants or co-firing power plants, where coal and wood are burned together
2. Exclude direct finance for new feedstock supply chains for wood biomass facilities, including
   • Projects harvesting wood for wood pellets or log wood
   • Pellet mills
3. Engage with existing clients to call on them to put in place an adequate phase-out plan for their existing wood biomass heat and power infrastructure, and feedstock for wood biomass. The bank should publicly report on the results of this engagement and should cease financing companies that do not show progress towards developing such a phase-out plan. 
4. Identify wood biomass as a high-risk sector and conduct enhanced due diligence on all existing clients operating within the sector that ensures the social, environmental and health impacts of both wood biomass facilities and feedstock supply chains will be halted and remedied. 

Read more in our briefing paper: Burning wood in the name of clean energy? How banks are failing to exclude the harmful wood biomass industry from finance