With the growing urgency to reduce greenhouse gas emissions, utilities around the world have increased their commitments to transition away from coal power plants. However, these efforts often mean converting existing coal facilities either to natural gas or to biomass. Solid biomass can emit between 3% and 50% more CO2 per unit of energy produced than generating it from coal. In addition to greenhouse gas emissions, the negative impacts on land and ecosystems from producing the required wood, combined with the health consequences due to air pollution resulting from incineration, make biomass a bad choice for investing in a healthy planet. Supporting companies to switch from coal to biomass might consequently impede, rather than reinforce, financial institutions’ transition towards a +1.5°C target.

Questionable GHG emissions savings

Despite supporters arguing that biomass for energy generation is carbon neutral, growing evidence shows that biomass emissions are greater per unit of energy generated than burning coal. Among others, scientists , think tanks and NGOs, agree that replacing coal with biomass is not a solution to face the current climate emergency. A 2018 letter by a group of 772 scientist addressed to the Members of the European Parliament concluded that “Overall, replacing fossil fuels with wood will likely result in 2-3x more carbon in the atmosphere in 2050 per gigajoule of final energy.” In addition, the European Academies’ Science Advisory Council warns of the mismatch between science and policy in relation to forest bioenergy. They argue that since atmospheric CO2 levels are raised before regrowth of trees can reabsorb the excess emissions, replacing coal with biomass is incompatible with the urgent need to decrease our absolute carbon emissions.

A driver of forest destruction

The negative impacts of biomass go beyond GHG emissions; it causes deforestation and ecosystems loss. While the industry claims biomass for energy production comes from wood residues, residues alone would not be sufficient to meet demand for energy generation. The removal of whole logs, limbs, and stumps to comply with current demand is already happening with wood pellet production having more than quadrupled in the last ten years. Solid biomass and charcoal already account for around 36% of primary energy supply in OECD countries. Production and consumption of wood pellets is the highest in Europe (49% of global production), with North America being one of its main suppliers, and demand likely to increase. Proposed EU coal-to-biomass projects could increase biomass consumption by 607 petajoules (PJ) p/a, meaning that biomass burnt in current and former coal power plants could triple in comparison with current levels. Major growth in demand is also expected in Asia, encouraged in some cases by government subsidies (for instance in South Korea and Japan). If these trends continue as expected, it would entail the destruction of biodiversity and ecosystems, resulting simultaneously in the elimination of natural emission sinks .

A threat to air quality and human health

In addition to CO2 emissions, the combustion of biomass to generate electricity releases damaging emissions that cause air pollution, like any other fossil fuel. Biomass is specially recognized for emitting pollutants such as particulate matter, polycyclic aromatic hydrocarbons, nitrogen oxides and carbon monoxide. All of them are associated with severe respiratory, skin and eye issues, among others health issues, for the population living nearby.

Implications for FIs

Financial actors are not immune to biomass negative consequences. Supporting biomass entails reputational, financial and regulatory risks:

  • Widespread evidence-based opposition from a variety of actors, including NGOs, communities, scientists and political parties, poses reputational risk to financial institutions.
  • From a financial risk perspective, biomass is also highly questionable . Compared to wind and solar power projects in terms of costs, biomass is more expensive. Moreover, biomass is highly dependent on subsidies which are likely to be removed eventually due to the increasing public opposition. Several large biomass power projects have resulted in financial losses and are often associated with technical failures and a high risk of fires and explosions.
  • Even if current EU legislation considers biomass as a renewable energy source this has been challenged during recent years and will probably change in the years to come as pressure mounts. We are currently experiencing increasing decarbonization efforts such as the EU action plan on sustainable finance, including the EU Taxonomy for Sustainable activities.

Biomass contributes to forest destruction, ecosystem degradation and air pollution, all getting us far away from achieving the +1.5°C Paris Agreement target. The most compatible scenario between the climate and the biodiversity agenda is one in which massive decarbonization of the energy sector is achieved as fast as possible, while minimizing recourse to biomass resources. When assessing the net effects of switching from coal to biomass with an integrated approach of carbon flows along the complete life cycle, biomass proves to be an inefficient solution. Financial actors must think twice before supporting coal to biomass conversion. Investing in biomass undermines investment that could be more effectively used in cleaner, more efficient and less financially risky energy sources.

More resources

Visit the websites of Biofuelwatch, Ember, Environmental Paper Network and Fern. Additionally, consult a compilation of key research on the subject in the website of Economy, Land & Climate Insight and briefing for investors by Shareaction.