ASSESSING MARKET REACH AND COMPETITIVENESS OF DIFFERENT FOREST COMMODITIES AND EVALUATING POTENTIAL LOCATION, FEEDSTOCK AVAILABILITY, AND ECONOMIC IMPACTS OF MASS TIMBER PRODUCTION IN MICHIGAN By Naresh Khanal A THESIS Submitted to Michigan State University in partial fulfillment of the requirements for the degree of Forestry – Master of Science 2023 ABSTRACT Michigan has 20.17 million acres of forestland which is about 54% of total land area in the state. The private sector owns 61.47% of the forests whereas the state and the federal government own 23.08% and 15.45% respectively. Sawlogs (hardwood and softwood), pulpwood, and biomass are major forest products used by primary milling facilities in Michigan. Steel and concrete structures are used in building constructions because of their easy use, trained workforce, and established supply chain and they are responsible for emitting Green House Gases (GHG). In this study, we estimated how the market coverage of different forest products has changed from 1985 to 2018 and evaluated feedstock availability and economic impacts of producing mass timber in Michigan. Mass timber a proposed construction material to replace steel and concrete. We use ArcGIS to create ‘procurement areas’ for primary milling facilities (hardwood and softwood sawlog processors, wood biomass processors, and pulpwood processors) for 1985, 1994, 2002, and 2018. We used the road network of the US and transportation costs for the different wood products to map out procurement zone and these procurement zones were then overlapped to create competition hotspots. The availability of feedstock for different wood products was estimated using Forest Inventory and Analysis (FIA) data. Economic impacts were analyzed using Impact Analysis for Planning (IMPLAN). The results show that the number of primary milling facilities has decreased since 1985 except for wood biomass processors and the capacity of individual processors has increased. The market coverage of all forest products has increased. In 2018, market coverage of hardwood sawlogs contained 62.80 million MBF of merchantable hardwood, softwood sawlogs contained 34.05 million MBF, pulpwood contained 9.78 billion cubic feet, and biomass contained 8.57 million tons of merchantable biomass. We identified two potential locations in Harrison, Clare County in Lower Peninsula (LP) and Gwinn in Marquette County in Upper Peninsula (UP) to produce mass timber in Michigan. There is softwood availability to meet the current mass timber demand in the state without disturbing the existing lumber supply chain. Producing mass timber to meet the state demand results in $12.52 million as total output generating a total of 93 additional jobs. Sawmills, commercial loggings, and truck transportation are the major sectors that benefit from mass timber manufacturing in Michigan. Keywords: market coverage, mass timber, network analysis, IMPLAN, procurement zones ACKNOWLEDGMENTS I would like to express my sincere thanks to the Michigan State University, Department of Forestry for this wonderful journey as a graduate student. I am thankful to my major advisor Dr. Raju Pokharel for his continuous guidance and motivation. I want to thank the Michigan Department of Natural Resources (MDNR) for funding my research. I am grateful to all my graduate committee members; Dr. Andrew Finley, Dr. Emily Huff, and Dr. Jagdish Poudel for their continuous supervision, guidance, suggestions, and support. I am grateful to Katie James who helped not only after my arrival to the US but also guided me in my admission to the MSU. I am indebted to my lab mate Nafisa Ahmed who motivated me throughout my study. I am thankful to Dr. Shivan GC for her kind support during my research. I want to specially thank Elliot Shannon and Grayson White for their help throughout my research. My lab mates Ichchha Thapa and Tara Allohverdi deserve special thanks. I feel blessed to my mummy, daddy, and brothers for their love, affection, and continuous encouragement for my studies. My special thanks to my room mates Santosh Chhetri, Prakash KC, and Anish Poudel. Last but not the least, I want to expand my acknowledgments to the Nepalese Student Association at Michigan State University. iii TABLE OF CONTENTS CHAPTER 1: INTRODUCTION …….…………………………………………….……...…..1 REFERENCES ………………………………………………………………….………….4 CHAPTER 2: LITERATURE REVIEW …….………………………………………………..6 REFERENCES ……………………………………………...………………………….....13 CHAPTER 3: HISTORICAL TREND OF MARKET COVERAGE AND COMPETITION OF VARIOUS WOOD PRODUCTS IN MICHIGAN ..……………...….17 REFERENCES ……………………………………………………………........................43 CHAPTER 4: ANALYSIS OF LOCATION, FEEDSTOCK AVAILABILITY, AND ECONOMIC CONTRIBUTIONS OF A MASS TIMBER PROCESSING FACILITY IN MICHIGAN ….……………………………….......…………….……………………….….47 REFERENCES …………………….……………………………………………………...88 CHAPTER 5: CONCLUSION ………..………………….…………………………………...94 iv CHAPTER 1: INTRODUCTION Michigan lies in the Great Lakes region of the upper midwestern US. During the early 1600s to mid-1800s, 95% of its land area was covered by forest resources (Smith et al., 2002). Michigan ascended to US statehood in 1837, and after the declaration, new cities started to grow and experienced agricultural expansion. From 1840 to 1900, intensive harvesting of forest resources happened in Michigan, mainly to construct houses, ships, and mines. It was the top lumber-producing state in the US between 1869 and 1900 (MSU Extension, 2000). Different conservation initiatives, such as plantation campaigns, started in early 1900. The establishment of national forests occurred during this time. About 54% of the land area is forested in Michigan, which is approximately 20.17 million acres, and most of the woods lie in the Northern two third of the state (USDA, 2019a). The private sector owns 61.47%, the state owns 23.08% and the federal government owns 15.45% of the Michigan forest (USDA, 2019a). There are two distinct vegetation types in Michigan: the deciduous forests (hickories, oaks, beech, and maple) in the South and mixed forests (spruces, pines, beech, firs, maple, aspen, oaks) in the north. About two- thirds of the forest land in Michigan is covered with hardwood forests (Leatherberry, 2002). Maple-beech-birch forest type dominates Michigan’s forest with an estimated 36% of total forest area. As of 2019, the annual gross growth of wood in Michigan is 1,151 million cubic feet, whereas annual removals and annual mortality were 396 million cubic feet and 462 million cubic feet, respectively (USDA, 2019a). The primary forest products in Michigan can be broadly classified as sawlogs (hardwood and softwood), wood biomass, and pulpwood. Forest-Product Industries (FPIs) process these forest products to manufacture useable forest products. The US sawlogs market experienced a decline during the recession. However, it started growing gradually after 2009, and we experienced a 300% increase in lumber prices during the COVID pandemic, mainly due to increased demand (Kooten and Schmitz, 2022). As of 2017, the total production of lumber in the US was 42.2 billion board feet, where the volume of softwood lumber was 33.9 billion board feet, and the hardwood lumber was 8.3 billion board feet (Howard and Liang, 2019). The pulp industry used to be one of the dominant FPIs until the early 2000s; however, its production and consumption have declined since then. Since 2004, paper and paper board production has reduced by 36%. Since the recession, it continues to fall, where the offshoring of US manufacturers and an increase in the use of electronic media are among significant contributors 1 (Wear et al., 2016). The use of woody biomass for producing energy got expanded after the implementation of the Public Utilities Regulatory Policy Act (PURPA) in 1978, which provided a platform for selling energy produced using woody biomass (Martinot et al., 2005). In 2021, almost one-fifth of renewable energy produced in Michigan was from biomass, and the capacity of existing power producers is about 550 Megawatts (EIA, 2021). The forestry sector in Michigan is one of the primary job creators in the state. Michigan's forestry sector generates $22 billion with 90,022 jobs (Poudel, 2022). Steel and concrete are widely used materials in construction due to easy use, trained workforce, and established supply chain. About 39% of global CO2 emissions are attributed to the construction sector (UNEP, 2019). The emissions from construction industries are degrading the environment and adversely affecting human health and economic progress. Different efforts are being put forward to decrease the negative environmental impacts related to building construction and ensure less Green House Gases (GHG) emissions. Mass timber is a proposed construction material to replace traditional steel and concrete. Mass timber is an umbrella term for engineered wood products manufactured using laminates. Different forms of mass timber include Cross Laminated Timber (CLT) and Laminated Veneer Lumber (LVL). Glue Laminated Timber (GLT or glulam), and Nail Laminated Timber (NLT). CLT are the most popular among all (Brandner et al., 2016). It has been estimated that 14% - 31% of global CO2 emissions can be avoided if mass timber is used for all buildings instead of concrete and steel in construction sectors (Oliver et al., 2014). In 2015, the International Building Code (IBC) added provisions for using CLT for high-rise buildings. It was amended in 2021 and rearranged the heavy timber provisions related to mass timber in types IV-A, IV-B, and IV-C. The amendments have allowed the construction of high-rise mass timber building up to 18 stories tall, where the constructor should follow fire and other safety precautions (Kerr, 2021). The IBC has not explicitly listed the species that can be used in mass timber construction, but commonly used softwood species in the US are black spruce, Douglas fir, and southern pine. To maintain forest health and optimum utilization of forest resources, forest landowners and decision-makers need to understand the market coverage and competitiveness of the harvested wood products. There hasn’t been any systematic study to understand how Michigan's market coverage and competition of different wood products have changed. Also, it has been projected that the number of mass timber building construction can double every year till 2034 2 (Atkins et al., 2022). An increase in the number of timber projects increases mass timber demand and causes a positive economic impact on associated products. An economic impact assessment for a 12-story mass timber design building in Oregon demonstrated more significant economic effects than traditional concrete buildings and generated added revenues for all income-level households (Scouse et al., 2020). Economic impacts are maximized if mass timber is produced locally (Scouse et al., 2020). However, we are unaware of any research investigating the potential to produce mass timber in Michigan. This thesis assesses the current market coverage of sawlogs, pulpwood, and wood biomass and how it has changed in the last four decades in Michigan in the third chapter. In the fourth chapter, the study estimated feedstock availability, identified potential locations for mass timber production, and evaluated the economic impacts of mass timber production in Michigan. 3 REFERENCES Atkins, D., Anderson, R., Dawson, E., Muszynski, L., 2022. International Mass Timber Report. Available online at https://www.masstimberreport.com/ last accessed 8.4.23. Brandner, R., Flatscher, G., Ringhofer, A., Schickhofer, G., Thiel, A., 2016. Cross laminated timber (CLT): overview and development. European Journal of Wood and Wood Products 74, 331–351. EIA, 2021. Inventory of Operating Generators as of April 2022, Plant State: Michigan, Technology: Landfill Gas, Municipal Solid Waste, Other Waste Biomass, Wood/Wood Waste Biomass. US Energy Information Information Administration. Available online at https://www.eia.gov/state/print.php?sid=MI. Last accessed 8.4.23. Howard, J.L., Liang, S., 2019. U.S. Timber Production, Trade, Consumption, and Price Statistics, 1965-2017. Available online at https://www.fs.usda.gov/research/treesearch/58506. Last accessed 8.4.23. Kerr, A.F., 2021. Mass timber buildings and the IBC. Virginia: American Wood Council and International Code Council. Available online at https://www.accessengineeringlibrary.com/content/book/9781265164348. Last accessed 8.4.23. Kooten, G.C. van, Schmitz, A., 2022. COVID-19 impacts on U.S. lumber markets. For Policy Econ. Leatherberry, E.C., 2002. Michigan’s Forest Resources in 2000. United States Department of Agriculture. Available online at https://www.fs.usda.gov/research/treesearch/11785. Last accessed 8.4.23. Martinot, E., Wiser, R., Hamrin, J., 2005. Renewable energy policies and markets in the United States. Available online at https://www.efchina.org/Attachments/Report/reports-efchina- 20050627-1-en/RE_Policies-Markets_US.pdf. Last accessed 8.4.23. MSU Extension, 2000. Forest Basics, Michigan Forest History. East Lansing. Available online at https://mff.forest.mtu.edu/PDF/1-TreeBasics/3-History.pdf. Last accessed 8.4.23. Oliver, C.D., Nassar, N.T., Lippke, B.R., McCarter, J.B., 2014. Carbon, Fossil Fuel, and Biodiversity Mitigation With Wood and Forests. Journal of Sustainable Forestry 33, 248– 275. Poudel, J., 2022. Forest Products Industries’ Economic Contributions: Michigan. Lansing. Available online at https://www.michigan.gov/dnr/- /media/Project/Websites/dnr/Documents/FRD/industry/economics/MI-Forest- ProductsIndustry-Report_2019.pdf?rev=b96f1f91f5b944f886f69f2670e016b2. Last accessed 8.4.23. Scouse, A., Kelley, S.S., Liang, S., Bergman, R., 2020. Regional and net economic impacts of high-rise mass timber construction in Oregon. Sustainable Cities and Society Vol 61. 4 Smith, W.B., Miles, P.D., Vissage, J.S., Pugh, S.A., 2002. Forest Resources of the United States, 2002. United States Department of Agriculture. Available online at https://www.fs.usda.gov/research/treesearch/11987. Last accessed 8.4.23. United Nations Environment Programme, 2019. 2019 global status report for buildings and construction. International Energy Agency. Available online at https://www.iea.org/reports/global-status-report-for-buildings-and-construction-2019. Last accessed 8.4.23. USDA, 2019a. Forests of Michigan, 2019. Resource Update FS-235. Madison. Available online at https://www.fs.usda.gov/research/treesearch/60959. Last accessed 8.4.23. Wear, D.N., Prestemon, J.P., Foster, M.O., 2016. US forest products in the global economy. J For. 5 CHAPTER 2: LITERATURE REVIEW The history of forests in Michigan can be classified into 4-time scales: the pre-settlement era, the logging era, the conservation era, and the present-day Michigan forest (MSU Extension, 2000). Pre-settlement era ran from the early 1600s to the mid-1800s. During this era, almost 95% of Michigan's land area (33.1 million acres) was forested (Smith et al., 2002). Even in the southern part of Michigan, which has primarily urban settlements at present, it was covered with forest. The Native Americans lived along the shores of the Great Lakes and different rivers. Then gradually, immigrants from Europe and other Eastern states started settling here. However, there was not yet large-scale forest exploitation at that time. Michigan was declared a state in 1837, and then new cities grew with agricultural expansion. The logging era started in 1840 and lasted till 1900. It was when most of the forests in Michigan were cleared to be replaced with farms and to produce lumber for houses, ships, and mines. Michigan was the top lumber-producing state in the US between 1869 and 1900. There were few roads and railroads, so most of the transport work used humans, horses, and water. With settlers and loggers across the state, Michigan experienced terrible wildfires during this period. One of the famous wildfires was “Peshtigo” in 1871 which affected millions of acres of forest in Wisconsin and Michigan. By 1900, people started showing concern for the conservation of forests in Michigan, as the shortage of wood and other forest resources was forecasted. The conservation era spans from 1900 to 1940, when most conservation initiations were conducted, including plantation programs. Between 1933 and 1939, the Civilian Conservation Corps (CCC) planted more than 500 million trees in Michigan. Many landowners left the land abandoned and didn’t have sufficient money to pay taxes, so much of such land was returned to the government. The establishment of national parks also started during this period. Michigan has three national forests: Huron Manistee in Lower Peninsula (LP) and Hiawatha and Ottawa in Upper Peninsula (UP). Despite this, the forest cover in Michigan between 1966 and 1980 decreased to a historical low of 17.5 million acres. The conservation initiatives led to the rebound of Michigan forest coverage to 18.6 million acres by the 1990s and 19.1 million acres by 2000 (Leatherberry, 2002). Currently. more than half of the state is forested, most of which is in the UP. The growth of sawlog volume has been steady since the logging era. Hardwood forest covers about two-thirds of the woods in Michigan (Leatherberry, 2002). Maple-beech-birch forest type dominates Michigan’s forest with an estimated 36% of the total forest area. 6 Humans rely on forests to satisfy their needs, such as food, shelter, clothing, or security, such as avoiding threats and danger. As the world progresses in terms of physical and economic development, people’s needs from the forest have expanded to higher needs such as self-esteem, social needs, and self-realization, as described by Maslow (Maslow, 1954). Forests provide different services to everyone, yet the need may vary between rich and poor. The poor population depends on supporting their livelihood, whereas rich people enjoy amenities and social and spiritual value. The requirements people fulfill from forests range from cultural, spiritual, and religious values, including timber, fuelwood, medicines, and agricultural inputs such as watershed protection and biological fertilizers derived from fodder (Cubbage et al., 2007). There are numerous ways of classifying forest products depending upon the extent of further processing they need, such as wood construction, furniture, printing, and carpentry (Hetemaki & Hurmekoski, 2016). They can be broadly categorized into three main categories: sawlogs, pulpwood, and biomass. The market of these different wood products keeps changing from time and place due to the extent of construction activities and consumer demand. The FPIs in Michigan are broadly categorized as the primary forest products manufacturers and the secondary forest product manufacturers. Primary forest product manufacturers include milling facilities such as lumber, pulp, paper, and bioenergy producers. The secondary forest product manufacturers are those FPIs that use the products from primary manufacturers as input. FPIs significantly contribute to the US economy in terms of job creation, wages, value added, and the total output (Dahal et al., 2015). Manufacturing traditional and contemporary solid wood products contributes significantly to the national economy. About 95% of Michigan’s forest is timberland, providing substantial value to the state, including raw materials for wood-based industries and environmental benefits (USDA, 2019a). The common species harvested in Michigan are red pine, red oak, sugar maple, red maple, white pine, aspen, spruce, fir, and white pine. The impacts of FPIs are expanded beyond the allied industries from where they buy necessary goods to maintain production, payment to the loggers and forest owners, and even beyond neighboring communities and counties. Yet, most of them may get unnoticed (Mcconnell, 2013). Moreover, the ripple effects produced by an increase in the purchasing capacity of goods and services by employed people can expand the economic impacts beyond a 7 state and regions. Understanding the contribution of FPIs to the local and regional economies is needed for understanding the current market trends, projecting future conditions, and formulating policies. The direct contribution of FPIs in Michigan as of 2016 was $11.7 billion in output, 39,367 jobs, and $2.6 billion in labor income (Poudel, 2018). When indirect and induced impacts due to the direct effects were added, the total impact was $20.9 billion, with 99,238 jobs and $5.7 billion as labor income. Commercial logging, sawmills, paper mills, and wood office furniture manufacturing were the major sectors producing economic impacts in Michigan. As of 2014, the FAOSTAT trade and production data, the value of forest products production at the global level was above $800 billion (Lebedyas & Li, 2014). The total employment generated from these forest products was estimated to be above 13.2 million (Lebedyas & Li, 2014). Another study has reported that the forestry sector has employed more than 18.21 million people directly and supported above 45.15 million jobs (Li et al., 2019). The same study has estimated that the forestry sector directly contributed $539 billion globally in 2011. Sawlogs are one of the primary forest products with a high market share globally. In Michigan, the total softwood growing stock volume was 9 billion cubic feet, whereas the hardwood growing stock volume was about 18 billion cubic feet as of 2002 (Dickmann & Leefers, 2003). The inventory conducted in 2012 shows that the live trees in the forestland of Michigan account for approximately 35,300 million cubic feet of volume and about 792 million tons of oven-dry above-ground biomass (Pough, 2018). As of 2019, Michigan has 1,151 million cubic feet of annual gross growth, of which about 70% is hardwood (USDA, 2019a). In the US, the lumber market experienced a decline during the recession of 2007, but it started growing gradually after 2009. Also, we experienced a 300% increase in lumber prices during the COVID pandemic due to increased demand (Kooten & Schmitz, 2022). As of 2019, the US consumed approximately 47 billion broad feet of softwood lumber, of which 30.08% was imported from 48 countries (Logan, 2021). For hardwood and softwood lumber, Canada is the largest exporter to the US. A study has estimated that there is a chance of a lumber shortage soon in the US as Canada is experiencing more than 400 wildfires and more than eight million acres of forestland are already burnt (Trading Economics, 2023). It is reported that the market extent of sawlogs is growing globally, yet primarily due to growth in Asia. The global market share of Asia for sawlogs grew from 25% to 60% from the 1990s to 2014 (Hetemaki & Hurmekoski, 2016). The rapid increase 8 in construction-related activities in China is regarded as one of the primary reasons for the growing market extent of sawlogs. China has become the world’s largest producer, consumer, and exporter of value-added wood products (Wan et al., 2015). However, the market for the Organization for Economic Cooperation and Development (OECD) countries has been negatively affected after the Economic Recession of 2007. The European Union sawlog market has experienced eight consecutive years of negative or slow growth since 2007 (Hetemaki & Hurmekoski, 2016; Taylor et al., 2016). The pulp industry used to be one of the dominant FPIs; however, both production and consumption of pulpwood have declined. Paper and paper allied products’ market share is the largest among the FPIs in the Southern US, with 60.3% ($80 billion) of total output (Dahal et al., 2015). Paper and paper board production in the US has declined 36% since 2004. It has continued to fall since the recession in the US, where offshoring of US manufacturers and an increase in the use of electronic media are responsible for the decline (Wear et al., 2016). The consequences of using electronic media are high in comparison to OECD countries other than the US, Asian countries which are not in OECD, and developing countries in Latin America and Africa. It has been estimated that the newsprint consumption would have been at least four times higher than the current consumption, given that there was no internet and electronic devices (Latta et al., 2016). However, the demand for pulpwood in packaging materials has increased steadily from the 1960s to 1999 and has stagnated since then (Wear et al., 2016). It is further expected to decline due to the increased use of digital media. The use of wood biomass to produce energy in the US can be divided into three distinct phases. The first phase started in 1978 with the introduction of the Public Utilities Regulatory Policy Act (PURPA). Before the implementation of this act, electricity-producing companies were interested in something other than investing in renewable energy sources such as biomass. The PURPA made it mandatory for the utilities to purchase the power from qualifying energy producers at the utility’s ‘avoided cost’ (Martinot et al., 2005). The next phase ran from 1990 to 1997, which was unfavorable for progressing US biomass energy. The primary reasons for stagnating the biomass energy market during that time were repealing governmental incentives and sharply reducing coal and gas prices (Martinot et al., 2005). By 1997, 7,000 MW of electricity was produced in the US using wood biomass (Martinot et al., 2005). The third phase started in 1997, and during this era, different policies were introduced which favored the 9 development of the renewable energy market in the US. Policies such as Renewable Portfolio Standards (RPS) and Public Benefit Funds (PBF) emphasized generating biomass energy. A study has shown that forests in Michigan can supply substantial and reliable amounts of wood that can aid regional and national bio-based economies (MacFarlane, 2009). Compared to petroleum fuel production, energy production using woody biomass in Michigan can have 62% lower greenhouse gas emissions (Zhang et al., 2015). By 2022, 159 wood biomass power plants were in operation in the US, with a total capacity of 5,584 MW (Biomass Magazine, 2022). In modern times, about 15% of energy in developing nations comes from wood biomass, whereas, for developed countries, it is only 2% (Mead, 2005). The same study has reported that about 7% of the fuel source is wood globally. The transportation of biomass to the factory site accounts for the most significant proportion of the total cost of energy production (Alam et al., 2012). The United States of America has pledged to reduce its emissions by 50-52% by 2030 compared to 2005 to meet the 2015 Paris Agreement and limit global temperature rise below 1.5 degrees Celsius (NCTF, 2021). Michigan has also committed to reducing GHG emissions by 26- 28% by 2025 below 2005 levels in compliance with the national commitment (MI Healthy Climate Plan 2022 Report, 2022). The building construction sector currently accounts for about 39% of all energy-related carbon emissions globally: 28% come from their operating emissions, including the energy required to heat, calm, and power them. The remaining 11% comes from their materials and construction (Ramboll et al., 2019). For the growing population, we need to construct houses and apartments, and using traditional materials to build new homes will increase GHG emissions. The governments have committed to sustainability through emission reduction, which seems impossible with the continuous use of conventional building materials like cement and steel (Gharbi & Sikora, 2022). As a response to these global emission reduction strategies, the concept of "Green building" has emerged. Green buildings are those buildings which are constructed in resource-efficient manners, minimizing negative environmental impacts and following sustainability principles (Robichaud & Anantatmula, 2010; Zuo & Zhao, 2014). The benefits of mass timber over traditional construction material include better structural performance, the potential for prefabrication, cleaner and rapid on-site construction times, significant carbon storage, avoidance of components that require many fossil fuels, and the ability for enhanced building envelope thermophysical properties (Wang et al., 2018). Mass 10 timber contributes to sustainable urban development due to reduced construction waste, dead carbon pool, relative durability, and low carbon dioxide emissions (Lehmann, 2012). Timber has been used as a construction material for centuries, but it was never considered reliable for high-rise buildings. Later, in the 1990s, engineered wood became popular in Europe, and the concept slowly transformed into an application and developed into a product called mass timber (Karacabeyli & Douglas, 2013). Mass timber is an engineered wood product envisioned to upgrade traditional timber constraints such as small dimensions, dimensional instability, and unpredictability (Harte, 2017). Due to using all residual materials in mass timber products, the consumption of efficiently manufactured solid wood products like mass timber can reduce carbon dioxide emissions when substituted for steel and concretes (Oliver et al., 2014). The feasibility of using wood for high-rises and recognition of the benefits of Mass timber as a construction material for low carbon emissions compared to cement and concrete in high-story buildings and urban development is growing. This is further supported by the construction of the 18-story timber building at the University of British Columbia in Vancouver, Canada, and the 280-foot mass timber tower in Brumunddal, Norway (Kremer & Symmons, 2015). Mass timber building contributes 18%, 1%, and 47% less to global warming, ozone depletion, and eutrophication, respectively, according to an LCA of a 12-story mass timber structure compared to a functionally identical concrete building (Liang et al., 2020). Using wood derivatives as construction materials in high-rise, multi-story non-residential buildings worldwide has encouraged attention to residential construction (Gosselin et al., 2017). Compared to traditional light-framed wood houses, mass timber in single-family homes could be more cost-effective in areas with hazardous climates. The higher price for mass timber can be compensated by adding strength to the buildings to reduce the loss from disasters (Burback & Pei, 2017). Cost comparison studies based on hypothetical construction have indicated a higher cost for CLT than concrete. However, the price is minimized as the building story increases (Fanella, 2018). Also, mass timber has a positive economic impact compared to concrete and steel, considering the part of the building and the source of the material (Wood Solutions, 2015). Green (2017) concluded that there will be a decrease in the price of mass timber panels (MTP) if there is an adequate supply of mass timber made from local resources. Global mass timber production in the future needs specific design, manufacture, and qualification standardization for harmonized valuation (Kurzinski et al., 2022). Traditional 11 building codes, inadequate wood flow data, and lack of awareness about mass timber superiority to ground levels with fewer manufacturing industries are some limiting barriers to mass timber market growth (The Beck Group, 2018). The growth-to-drain ratio in Michigan for 2019 was 1.74, meaning the annual growth of wood is greater than the natural mortality and removals (USDA, 2019a). Interest in expanding the market to other forest-based industries is getting popular as, on the one hand, the available forest resources could be utilized. On the other hand, it can create additional job opportunities (Abbas et al., 2013). Construction activities using mass timber are getting popular, and the demand has tripled between 2018 and 2021 in the US, which invites opportunities to broaden the scope of using wood for mass timber production (Cass, 2022). Leefers (Leefers, 2013) concluded that the economic contribution of the FPI in Michigan can be increased by expanding the emphasis on using wood-based products. In this case, mass timber can be an excellent fit to improve the economic contribution of FPIs in Michigan. A study conducted in Minnesota showed that establishing a mass timber manufacturing facility will result in 0.9 additional jobs created for every direct employee in the state (Haynes et al., 2019). 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In Renewable and Sustainable Energy Reviews (Vol. 30, pp. 271–281). 16 CHAPTER 3: HISTORICAL TREND OF MARKET COVERAGE AND COMPETITION OF VARIOUS WOOD PRODUCTS IN MICHIGAN Abstract Forests in Michigan are valuable to the state because of their economic (jobs) and resource (forest products) contributions and environmental benefits. Sawlogs (hardwood and softwood), wood biomass, and pulpwood are major forest products utilized by primary milling facilities in Michigan. This study aims to generate the market coverage and competition of these wood products in Michigan and assess how the market coverage has changed from 1985 to 2018. Competition hotspots and market coverage of forest products were mapped using detailed road network and transportation costs in ArcGIS. The result shows that the number of primary milling facilities processing these products has decreased since 1985 except for wood biomass processors, whereas market coverage of all the products has increased. There was 47.83 million MBF of merchantable hardwood in 2003 and 62.80 million MBF in 2018. For softwood, the merchantable volume in 2003 was 28.15 million MBF and 34.05 million MBF in 2018. For pulpwood, there were 9,378 million cubic feet of merchantable pulpwood in 2003 and 9,779 million cubic feet in 2018. The net annual woody biomass increase in 2005 was 4.94 million short tons, and in 2018 it was 8.57 million short tons. The findings of this research could be helpful for forest landowners, mill owners, and forest managers to study the dynamics of market coverage of different wood products in Michigan. Keywords: forest product merchantability, procurement zones, forest market coverage 17 3.1 Background Of the total land area of the US, about 33% is covered with forests. The forest in the US accounts for 10 percent of global forests (FAO, 2020). FPIs are one of the major job creators in the rural US (Alvarez, 2007). About 54% (20.17 million acres) of Michigan is forested, providing substantial value to the state, including jobs, raw materials, and environmental benefits (MDNR, 2021). The forest land in Michigan is comprised of privately owned forestland (61.47%), state-owned forests (23.08%), and federal forests (15.45%) (USDA, 2019a). The National Forest Management Act (NFMA) of 1976 made a provision that public forest land should be managed based on the principles of sustained yield and multiple uses in coordination with the public. Although this act had provision for harvesting and logging in the federal forests, it specified that the harvesting and logging activities be allowed only when it does not adversely impact the environment (USFS, 2012). As a result, the national forests in the US now have predetermined levels of permitted harvest for a certain period, as mentioned in their management plan, also known as allowable harvest. The forests in Michigan have multiple uses, including timber, watershed, fish, wildlife, range, and recreation, where most of the harvests are carried out in state and privately owned forests (USFS, 1996). The NFMA led to the policy change from managing the forest resources primarily for timber products to managing it, providing multiple benefits from forests (Emery, 1998). The unmanaged stands are more susceptible to various diseases and pest attacks. Wildfire is more common in unmanaged stands, and every year, thousands of acres of forest are damaged by forest fire in the United States (Binkley et al., 2007). Removal of the various forest materials is essential mainly for two purposes; to obtain usable and vital wood products and to maintain healthy and resilient forests (Evans & Finkral, 2009; Hurteau & North, 2009; Taylor, Rollins, Kobayashi, & Tausch, 2013). The revenue generated from selling forest products can further be used in sustainable forest management activities (Kueper et al., 2014). The forest landowners (private, state, and federal) make profits by selling the forest products grown in their forests, and the primary wood processing facility (sawmills or mills) owners process these raw wood materials and sell them with profit. Forest landowners may not always be aware of what types of markets exist for their wood products based on the species and growing stock they possess. The mill owners may need adequate information on the competitiveness of the forest products market and supply chain information. Policymakers who 18 work with the forest and mills also need information on the market coverage and demand to support the policy formulation. To accomplish forest management goals, maintain forest health, and optimum utilization of available resources, managers, landowners, and decision-makers need to understand the market coverage and competitiveness of the harvested wood products. Similarly, to ensure strong supply chains, the mills need raw materials, feedstocks, and community acceptance (Martinkus et al., 2017). FPIs have a significant impact on the US economy. In Southern US, FPIs contribute about 2% of gross regional products and support over one million jobs (Joseph & Conrad, 2021). The total output from FPIs is smaller in the Northeast and Midwest than in the US South. FPIs in the Northeast and Midwest produced a total output of $167 billion, supporting about 540,000 jobs (Leefers et al., 2020). Forests of the Lake States, including Michigan, provide direct economic benefits by creating jobs and many indirect benefits through supporting sectors in the supply chain. The FPIs in Michigan, Minnesota, and Wisconsin generate more than $48 billion as direct output employing more than 148,000 people (Leefers et al., 2020). In 1982, the Lake State’s share of total regional manufacturing sales was 7.85%, whereas the forestry sector generated over $15 billion with 150,000 jobs (Pedersen & Chappelle, 1990). More recent data shows that Michigan alone produced a total of $13.4 billion as direct output generating 42,011 employments through FPIs (Poudel, 2022). If indirect and induced impacts are added, the FPIs contribute to a total of $22 billion output in Michigan’s economy and support over 90,022 jobs within the state (Poudel, 2022). As of 2019, the annual gross growth of wood in Michigan is 1,151 million cubic feet (USDA, 2019a). The forest currently supports the various ecosystems, flora, and fauna, as well as recreation opportunities for the people. Limited studies have been conducted on designing a procurement zoning of mills to identify economically feasible forest product supply regions. A study carried out by Pokharel and Latta (2020) has found that the lake states have lower limitations to merchandise forest products. Pokharel et al., (2023) looked into the availability of biomass for biopower in the Lake States region. However, this has not specifically identified the market coverage of different forest products across time in Michigan. There has yet to be any systematic study on the merchantable volume of forest products available at various competition levels for mills. So, we designed this study to estimate the market coverage of different forest products and how it has changed in the last four decades. 19 3.2 Methodology 3.2.1 Study Area Michigan lies in the Great Lake region of the upper midwestern US. It is the 10th largest state by population (9.99 million) and has an area of 96,716 square miles (United States Census Bureau, 2021). It is divided into two distinct geographical regions, the UP and LP, separated by the Straits of Mackinac. It has two distinct vegetation types: the deciduous forests (oaks, hickories, maple, and beech) to the south and mixed forests (pines, spruces, firs, beech, maple, oaks, and aspen) in the north (Barnes & Wagner, 2004). Figure 3.1 shows the map of Michigan with forests of different ownerships. Figure 3.1: Map of Michigan showing counties in UP and LP along with forests of different ownerships (Sass et al., 2017). 20 3.2.2 Data The data needed for this study includes the location of mills in Michigan, the price of different wood products, and the available road network of Michigan. The information on the location of primary milling facilities in Michigan was obtained from the Michigan Department of Natural Resources (MDNR). The MDNR maintains a periodic record of the contract price from advertised state forest timber sales, and we retrieved price information for forest products from this record (MDNR, 2018). The North American road network data was obtained from the ESRI database (ESRI, 2017). Railways might be used to transport final wood commodities; however, they are not popular for transporting forest products to mills. National Landcover Database (NLCD) 2001 Land Cover data developed by the United States Geological Survey and the NLCD 2019 Tree Canopy Cover maps were used to estimate the market extent of different forests for different years (Homer et al., 2004; USDA, 2019b). The forest inventory data maintained by the United States Department of Agriculture (USDA) Forest Service Inventory and Analysis (FIA) DataMart was used to estimate the volume of different forest products (USDA, 2021). More than 150 thousand inventory plots set by FIA across the US are measured periodically. In Michigan, there are 6,667 such plots, of which 4,367 are forested lands (USDA, 2019a). 3.2.3 Data Analysis The mills in Michigan were first categorized into sawlog processors (sawmills), pulpwood processors (pulp mills), and wood biomass processors (biomass mills). Sawmills were further sub-categorized into hardwood sawmills and softwood sawmills. The average sold price per unit of different wood products in 1985, 1994, 2002, and 2018 were used for further analysis. This stumpage price was then used to calculate the delivered wood price at mill gates for different wood products to estimate the amount available to transport forest products to the respective mills. Delivered wood prices at the mill gates are composed of three components: the stumpage price, the harvesting and logging price, and the transportation cost. The proportion of these costs for different wood products varies. For sawlogs, about one-third of the total wood price is used for each stumpage, harvesting & logging, and transporting in the Lake States region (Steigerwaldt Land Services, 2015). For pulpwood, 28% of the total wood price is used for stumpage, 32% for harvesting and logging, and 40% for transportation (Steigerwaldt Land Services, 2015). For biomass, stumpage is available at no cost, where the major cost components 21 are harvesting, logging, and transporting them to the processing facilities. About 35% of the total cost is used for harvesting, and the remaining 65% is used for transporting biomass from harvesting sites to processing facilities, as shown in Equation 3.1. 𝑃 = 𝑃! + 𝑃" + 𝑃# 3.1 where, 𝑃! = 𝛼𝑃, 𝑃" = θP, and 𝑃# = 𝜆𝑃 where P is the mill delivered price of wood products, Ps is the stumpage price of wood products, Ph is the costs of harvesting and logging, Pt is the cost of transporting the wood products, α is the coefficient for stumpage cost (0.33 for sawlogs and 0.28 for pulpwood, 0 for biomass), θ is the coefficient for harvesting cost (0.33 for sawlogs, 0.32 for pulpwood, and 0.35 for biomass), and λ is the coefficient for transportation cost (0.33 for sawlogs, 0.40 for pulpwood, and 0.65 for biomass) Market coverage and competition hotspots The cost of transporting the forest products was converted to the possible hauling time for each forest product using Equation 3.2, developed by (Pokharel et al., 2023). 𝑡 = .0.5 ∗ (𝑃(∆𝑝 ∗ 𝑃) − 𝑃" − 𝑃) ∗ 𝑊 𝑟 ∗ 60; − 𝑡$ 3.2 where t is the possible hauling time, P is the average mill delivered wood price, ΔP is the percentage change in P, Ph is the cost of harvesting wood products, Ps is the stumpage price, W is the weight limit of the truck trailer, tl is loading and unloading time, and r is the trucking cost per hour. The possible haul time estimated from the delivered wood price at the mill gates was used as a surrogate for the available cost of transporting the wood from the logging sites to the mills. The load of logs that a standard log truck can haul depends on several factors, such as road conditions and the number of axles. For this study, we assumed that a typical truck could carry 4.5 MBF of logs and approximately 33 tons of pulpwood and biomass in Michigan (Lowry, 2023). The average trucking rate was estimated using various costs associated with log hauling and information from Conrad (2018). Since this is a cost optimization problem, all the wood is expected to be procured to the nearest mill. Thus, the identified procurement zone represents the economically feasible region to procure logs. We estimated a trucking rate of $85/hour using equation 3.3. 22 c = Y (𝑊# ∗ 𝑇%) 3.3 where c is per hour cost of operating a log truck, Y= $153,297 (as of 2017) is the annual trucking cost from Conrad (2018), Wt is the total hours a truck is operated in a week, and Tw is the total weeks a truck is operated in a year. To estimate the average trucking rate per hour for 1985, 1994, and 2002, we deflated the per-hour trucking cost for 2017 using the Producers Price Index (PPI). We used the decade average of PPI for 1885 and 1994, whereas for 2002, we used the PPI average from 1997 to 2005. We used the ‘Create Service Area Layer’ solver tool (ESRI, 2019) of Network Analysis in ArcGIS to map out procurement zones around mills to minimize transportation costs for different wood products. The identified procurement zone represents the economically feasible region to procure wood. Once the procurement zones were identified, they were overlapped to create hotspots. The hotspots represent the level of competition for milling facilities. To compare the level of competition, we used the outcomes for the more recent year (2018) as the base year. We classified the competition hotspot into five equal classes (1 to 5) for the year 2018. Here, 1 represents the least competition or coldspots whereas 5 represents the maximum competition or hotspots. We used the same default as in the year 2018 for all other years for classification. The competition classes could be less than five if there are insufficient mills such as for biomass. The competition hotspots for each wood product were mapped for different decades and compared to observe and estimate the changes over time. Then we dissolved the procurement zone of each milling facility for a particular forest product to estimate the total market coverage. We then separated the overlaid forest area cover map to estimate the acreages of forest products’ coverage area. For the year 2018, we used the NLCD 2019 Tree Canopy Cover data whereas, for 1985, 1994, and 2002, we used the NLCD 2001 Land Cover data as the FIA and land cover data for 1994 and 1985 were not available. Merchantable volume of forest products We wanted to see how the volume of different forest products has changed in Michigan for different levels of competition. We used the rFIA package in R (Stanke et al., 2020) to summarize the volume of these forest products in Michigan for two different years; 2018 and 2003. For this, we clipped the boundary of polygons representing the different levels of 23 competition for different forest products and estimated the volume inside these polygons. For hardwood and softwood, we used the merchantable volume represented by total MBF. We estimated the merchantable volume of softwood specifying only softwood species and for hardwood, we specified hardwood species. For pulpwood, we estimated the total pulp wood volume in that area as shown in equation 3.4. 𝑃% = 𝐵& − 𝑆& 3.4 where Pw is the total merchantable volume of pulpwood, Bc is the volume of trees with a length between a 1-foot stump and a 4-inch top diameter, and Sc is the volume of trees recorded to a 7-inch top and from which at least an 8-foot-long log can be extracted. We also calculated the ratio of Sc and Bc, and the resulting ratio represents the percentage of the wood volume used by sawmills and the remaining goes to pulp markets. For biomass, the Net Annual Woody Biomass Increase (NAWI) was estimated using Equation 3.5, following the method developed by (Goerndt et al., 2013). NAWI assesses the net availability of biomass in a year after accounting for growth, mortality, and removals. 𝑁𝐴𝑊𝐼 = 𝑉’ − 𝑉( 𝑉# ∗ 𝐵 3.5 where NAWI represents the net annual woody biomass increase, Vg is the estimated average annual growth within a competition hotspot level, Vr represents the estimated average annual removal of trees above 5-inch in diameter, Vt represents an estimated volume of live trees above 1-inch in diameter within a competition level, and Bm represents the total above-ground biomass within a competition level. 3.3 Results 3.3.1 Descriptive Statistics Our study found that of the total milling facilities in Michigan, the majority were the mills processing sawlogs for all the years. There were 428 mills in Michigan as of 1985, out of which 2 were biomass processors, 7 were pulp mills and the remaining 419 were sawmills (Figure 3.2). The total number of milling facilities decreased by 14% in 1994 and became 368. The greatest decrease was observed in softwood sawmills which decreased by 25.74% followed by hardwood sawmills which decreased by 6.34%. The number of pulp mills in 1994 was the same as in 1985 whereas a biomass processor was added in 1994. The mills decreased by 24.5% in 2002 as compared to 1985 and became 323. Hardwood mills decreased by 21.61% by 2002, 24 and more decrease was observed in 2018 where they decreased by 24.78% as compared to 1985. For softwood sawmills, their number decreased by 27.2% in 2002 and 54.79% in 2018 compared to 1985. The decrease in the number of lumber producers after 2000 is attributed to three major factors; the economic recession of 2007-2009, the decrease in housing starts, and increased competition from foreign industries in secondary wood products manufacturing (Brandeis & Hodges, 2015; Woodall et al., 2011). If we compare the change in hardwood milling facilities since 1985, the most change was observed from the 1990s to the 2000s when it decreased by 16.31%. For softwood mills, the most decrease in their number was from 2002 to 2018 when the number of mills decreased by 37.44%. The number of pulp mills decreased to 4 in 2002 and 3 in 2018. Reduction in global competitiveness because of high wages in the US and the increase in electronic media supports the longer-term industrial decline of pulpwood industries since 2000 (Woodall et al., 2011). Of the four different milling facilities, only the number of biomass processors was increasing. The number rose to 3 in 1994, 4 in 2002, and 8 in 2018. During the late 1990s and early 2000s, different financial incentives, tax credits, low-interest loans, and rebates were started at the local and state level to promote renewable energy sources (Martinot et al., 2005). Similarly, at an international level, the commitment to keep the global temperature rise below 2 Degrees Celsius has emphasized producing renewable energy sources (Rogelj et al., 2016) and this could be a possible reason for the increased number of biomass processors in Michigan. Number of milling facilities over time 400 350 300 250 200 150 100 50 0 347 303 325 225 272 219 261 137 2 7 3 7 4 4 8 3 1985 1994 2002 2018 Hardwood sawmills Softwood sawmills Biomass mills Pulp mills Figure 3.2: Number of primary milling facilities in Michigan from 1985 to 2018. 25 3.3.2 Wood products market coverage Hardwood sawlogs The market for hardwood sawlogs is extended to almost all of Michigan for all the years accounted for in this study however the competition hotspot has changed (Figure 3.3). The market coverage has remained almost constant for 1985 (11.73 million acres), 1994 (11.76 million acres), and 2002 (11.76 million acres) but compared to 1985, it increased by 50% in 2018 (17.65 million acres) (Table 3.1). For the base year (2018), 7.33 million acres were in the highest competition level (level 5 or hotspot). The hotspot in 2002 and 1994 was like the base year with 7.27 million acres in 2002 and 7.73 million acres in 1994 as shown in Figure 3.3. We didn’t observe any hotspot areas in 1985. For the lowest competition (level 1 or coldspot), the market coverage was 6.23 million acres for the base year; it is 16.38% less than the coldspot area of 1985 (7.45 million acres). The coldspot for hardwood sawlogs in 1994 and 2002 was 0.01 million acres and 0.10 million acres respectively. Coldspot covered the maximum hardwood market coverage in 1985 whereas in 1994, 2002, and 2018, hotspot level had the maximum market coverage. We observed that the competition among hardwood sawmills has increased in 2018 in comparison to 1985 although the number of mills has decreased. The competition hotspot of the hardwood sawlogs shows that most of the competition for the base year (2018) was observed in LP. In 2002, the maximum competition among the hardwood sawmills was observed in almost the entire LP with some of the portion of UP (Chippewa, Mackinac, Luce, and Schoolcraft). However, in 1994, the maximum competition among the hardwood sawmills for procuring hardwood was expanded to half of the UP (Eastern half) including the entire LP. The smallest competition in all these years was observed in the Western part of the UP. While comparing the competition hotspot with the geographical locations of the hardwood sawmills, our findings aligned with it as most of the hardwood processors were housed around the Eastern part of UP and upper LP. 26 Figure 3.3: Market coverage change for hardwood sawlogs from 1985 to 2018. 27 Table 3.1: Market coverage for hardwood sawlogs for different years. Competition level (# of competing facilities) 1 (1-48) (coldspot) 2 (49-96) 3 (97-144) 4 (145 -192) 5 (193 and above) (hotspot) Total Area of forests (million acres) 1994 1985 0.01 7.45 3.03 4.14 0.52 0.14 0.48 0 7.73 0 11.76 11.73 2002 0.10 3.29 0.38 0.73 7.27 11.76 2018 6.23 1.26 0.97 1.86 7.33 17.65 Figure 3.4: Change in market competition of hardwood sawlogs from 1985 to 2018. 28 Softwood sawlogs The market for softwood sawlogs is extended to almost all of Michigan for all the years accounted for in this study however the competition hotspot has changed (Figure 3.5). The market coverage steadily increased from 1985 but the highest surge was observed in 2018. The total market coverage for softwood sawlogs in 1985 was 10.90 million acres, in 1994 it was 11.75 million acres, in 2002 it was 11.76 million acres, and in 2018 it was 17.10 million acres (Table 3.2). In comparison to 1985, the market coverage increased by 56.88% in 2018. The highest competition hotspot for base year had market coverage of 0.52 million acres whereas for 2002, it was 10.41 million acres, and for 1994 it was 4.99 million acres. We didn’t observe the highest competition level (5) or hotspot in 1985. The coldspot for softwood sawlogs had a market coverage of 8.76 million acres in 2018 whereas for 2002, 1994, and 1985 it was 0.01 million acres, 0.97 million acres, and 0.57 million acres respectively. In 1985, competition hotspot level 2 had the maximum coverage (7.37 million acres) whereas competition hotspot level 5 had the maximum coverage in 1994 (4.99 million acres) and 2002 (10.41 million acres). Interestingly for the base year, the lowest competition level (coldspot) had the maximum coverage (8.76 million acres). The highest competition among the softwood sawlog processors for procuring softwood sawlogs in Michigan in 2018 was observed in central LP. The lowest competition was observed in most of the UP. However, in 2002, the competition hotspot for softwood sawlogs was observed in almost the entire of Michigan. It means most of the softwood sawlogs available in Michigan had the market spread all over entire Michigan. In 1994, the hotspot was seen in the central part of LP. During the same year, a small portion of the hotspot area was scattered in some parts of UP (in Menominee, Dickinson, Delta, and Marquette). Most competition among the softwood processors was observed around the upper part of LP and middle UP. 29 Figure 3.5: Market coverage change for softwood sawlogs from 1985 to 2018. 30 Table 3.2: Market coverage for softwood sawlogs for different years in million acres. Competition level (# of competing facilities) 1 (1-12) (coldspot) 2 (13-22) 3 (23-32) 4 (33-42) 5 (43 and above) (hotspot) Area of forests (million acres) 1985 0.57 7.37 2.58 0.38 0.003 2002 0.01 0.58 0.30 0.47 10.41 2018 8.76 3.87 2.23 1.72 0.52 1994 0.97 2.44 1.26 2.09 4.99 Total 10.90 11.75 11.76 17.10 Figure 3.6: Change in market competition of softwood sawlogs from 1985 to 2018. 31 Pulpwood Pulpwood’s market coverage experienced ups and downs throughout our study period (Figure 3.7). The total market coverage of pulpwood in 1985 had 9.90 million acres of forest area which decreased to 5.88 million acres in 1994 (Table 3.3). However, the market coverage again increased to 8.62 million acres in 2002 and it peaked in 2018 with a total area of 13.53 million acres. As of the base year (2018), only two competition levels were observed for pulpwood market competition in Michigan. coldspot (level 1) had a total market coverage of 8.83 million acres and hotspot (level 2) has a market coverage of 4.72 million acres. In 2002, the hotspot level had a total coverage of 5.80 million acres whereas, for coldspot, the total coverage was 2.83 million acres. In 1994, the total coverage of pulpwood in hotspot was 1.39 million acres whereas for coldspot, it was 4.49 million acres. In the year 1985, the hotspot level had a total coverage of 4.44 million acres whereas the coldspot had 5.47 million acres. The competition hotspot for pulpwood was observed in both UP and LP for all the years (Figure 3.8). However, the result shows that, in 2018, the competition hotspot from LP has lost and it is centered only in UP. During the 1980s, 1990s, and 2000s, there were more pulpwood processors than in 2018, and scattered all around Michigan. However, in 2018, there were only 3 pulpwood processors and two of them were in UP. So, UP experienced a hotspot area for pulpwood. Figure 3.7: Market coverage change for pulpwood sawlogs from 1985 to 2018. 32 Table 3.3: Market extent in million acres for pulpwood for different years. Area of forests (million acres) Competition level (# of competing facilities) 1 (1) (coldspot) 1985 1994 5.47 4.49 2 (2 and above) (hotspot) 4.44 1.39 Total 9.90 5.88 2002 2.83 5.80 8.62 2018 8.83 4.72 13.54 Figure 3.8: Change in market competition of pulpwood from 1985 to 2018. 33 Biomass Biomass experienced the maximum growth in market coverage among all the forest products in this study (Figure 3.9). The total market coverage for biomass was 2.32 million acres in 1985 which increased to 5.12 million acres in 1994 (Table 3.4). In comparison to 1994, the market coverage for biomass decreased by 5.47% in 2002 and became 4.84 million acres. The maximum surge in market coverage of biomass was experienced from 2002 to 2018 when it increased from 4.84 million acres to 14.43 million acres. For the base year (2018), four different competition levels were estimated where level 1 represents the coldspot whereas level 4 represents the hotspot. For the year 2018, the maximum coverage was observed for the coldspot with a total market coverage of 6.74 million acres followed by competition level 2 (3.65 million acres), level 3 (2.80 million acres), and level 4 (1.24 million acres). Comparing the competition level in 2002, only coldspots and competition level 2 existed in 2002 because there were a smaller number of facilities at that time. The coverage for coldspots increased from 0.82 million acres in 2002 to 6.74 million acres in 2018. However, the coldspot when compared with 1985, there is a consecutive decrease in the coverage till 2002. In 1985, we found the coverage existed for only coldspots (2.32 million acres) which decreased by 46.37% and became 1.24 million acres in 1994. In 1994, 3.87 million acres of coverage were added for competition level 2. The coverage for competition level 2 further increased by 3.6% and became 4.01 million acres in 2002 however, it decreased by 9% in 2018 in comparison to 2002 and became 3.65 million acres. Though the coverage for competition level 2 decreased in 2018, we estimated the addition of coverage for competition level 3 by 2.80 million acres and competition level 4 (hotspot) by 1.24 million acres for biomass. 34 Figure 3.9: Market coverage change for wood biomass sawlogs from 1985 to 2018. In terms of change in competition hotspots, the condition for biomass was just the opposite of pulpwood. In 1985, there were only two biomass processors: one in UP and another in LP and there was no overlapping between their procurement areas. As the number of biomass processors increased in later years, competition between these milling facilities started. The competition hotspot for biomass was observed entirely in LP. As of 2018, there were 8 biomass mills in Michigan, out of which 6 were in LP and 2 in UP. Since there were greater biomass mills in LP, it is obvious that they compete for the same feedstock and there is more competition between them, and biomass feedstock had better market coverage. The map showing competition hotspots for pulpwood and biomass processors for different years is shown in Figure 3.10. 35 Table 3.4: Market extent in million acres for biomass for different years. Competition level (# of competing facilities) 1 (1) (coldspot) 2 (2-3) 3 (4-5) 4 (6 and above) (hotspot) Total Area of forests (million acres) 1985 2.31 NA NA 1994 1.24 3.87 2002 0.82 4.01 NA NA NA 10.90 NA 11.75 NA 11.76 2018 6.74 3.65 2.80 1.24 17.10 Figure 3.10: Change in market competition of wood biomass from 1985 to 2018. 36 3.3.3 Merchantable volume comparison between 2003 and 2018 Hardwood The total volume of hardwood within the market extent in 2003 was 47.83 million MBF which increased by 31.30% and became 62.80 million MBF in 2018 (Table 3.5). The merchantable volume of hardwood has increased for all the competition levels in 2018 in comparison to 2003 where the highest increase was reported for level 5. For hotspots (level 5), there was 24 million MBF of hardwood in 2003 which increased by 41.12% and became 33.87 million MBF in 2018. For coldspot, there was a net increase of hardwood volume by 1.82 million MBF (14.35 million MBF in 2003 and 16.17 million MBF in 2018). For competition level 2, there was 1.87 million MBF hardwood in 2003 which increased by 5.64% and became 1.97 million MBF in 2018. There was 1.41 million MBF of merchantable hardwood volume inside competition level 3 in 2003 which increased by 25.07% and became 1.77 million MBF in 2018. In 2003, the coverage had 6.20 million MBF of merchantable wood inside the forest area represented by competition level 4 which increased by 45.52% and became 9.02 million MBF in 2018. Softwood For softwood, we estimated the total merchantable volume in 2003 to be 28.15 million MBF. In 2018, the total merchantable volume increased by 20.93 % and is estimated to be 34.05 million MBF. The maximum growth in the volume of softwood was observed for the coldspot level (level 1). The softwood logs volume inside the coverage of coldspots in 2003 was 0.02 million MBF and in 2018 it was 17.45 million MBF. The analysis shows that there is a decrease in the volume of softwood logs inside the hotspot area (competition level 5) from 2003 onwards. In 2003, the volume of softwood inside the forest area covered by hotspots was 24.45 million MBF which decreased to 0.61 MBF in 2018. The coverage for competition level 2 in 2003 consists of 1.41 million MBF which increased to 7.89 million MBF in 2018. For competition level 3, the coverage had 0.59 million MBF softwood in 2003 and increased to 4.61 million MBF in 2018. The coverage of softwood for competition level 4 had 1.69 million MBF of merchantable volume in 2003 which increased by 106.65% and became 3.49 million MBF in 2018. 37 Pulpwood For pulpwood, the market extent had a total of 9.38 billion cubic feet of merchantable wood in the forest area in 2003 and it increased by 4.29 % and became 9.78 billion cubic feet. For the coldspot, there were 2.91 billion cubic feet of pulpwood availability in the market coverage in 2003 which decreased by 124% and became 6.50 billion cubic feet in 2018. For competition level 2, there was a decrease in available pulpwood in the market extent from 2003 (6.47 billion cubic feet) to 2018 (3.27 billion cubic feet). As the number of pulpwood processors decreased from 2003 to 2018, our estimation of available pulpwood supports the fact that competition between these mills decreased over time. The ratio of sawtimber volume and bole volume in 2003 of pulpwood was 0.51 meaning that about 51% of the wood volume was available to be used by pulp mills and 49% was available to be used by sawmills. In 2018, the proportion of pulpwood was lower than in 2003. In 2018, the ratio of sawtimber volume and bole volume was 0.55 which means 55% of the wood in the area was suitable for pulpwood whereas only 45% was available to be used in sawmills. Biomass For biomass, the data for 2003 was not available and hence we estimated the NAWI for 2005 and compared it with the base year. The NAWI in market coverage of biomass in 2005 was estimated to be 4.94 million dry short tons and it increased by 73.48% and became 8.57 million tons in 2018. The coldspot had 0.63 million tons NAWI in 2005 which increased to 3.57 million tons in 2018. However, NAWI in competition level 2 decreased from 4.33 million tons in 2005 to 2.83 million tons in 2018. There were 0.31 million tons of NAWI in the highest competition region in 2018 whereas in 2005 we didn’t observe a similar competition level for biomass in 2005. Our findings of the maximum availability of NAWI in the lowest competition level suggest that most biomass processors do not have overlapping supply regions for their feedstock. 38 Table 3.5: Merchantable volume of different wood products in different competition levels between 2003 and 2018. Hardwood (Million MBF) Softwood (Million MBF) Pulpwood (Million Cubic Feet) Biomass (Million dry short tons) Competition level 1 (coldspot) 2 3 4 5 (hotspot) Total 3.4 Discussion 2003 2018 2003 2018 2003 2018 2005 2018 14.35 1.87 1.41 6.20 16.17 1.97 1.77 9.02 0.02 1.41 0.59 1.69 17.45 7.89 4.61 3.49 24.00 33.87 47.83 62.80 24.45 0.61 28.15 34.05 2,908 6,470 NA NA NA 9,378 6,505 3,275 NA NA NA 9,779 0.63 4.33 NA NA NA 4.94 3.57 2.83 1.85 0.31 NA 8.57 The hardwood forest in Michigan comprises approximately two-thirds of the total forest. Our study estimated that the market coverage of hardwood sawlogs was almost constant from 1985 to 2002 but it increased in 2018. Most of the forests experienced the highest competition level (level 5) at all periods. Though there was the highest number of hardwood sawlog processors in 1985 compared to other years, competition levels 4 and 5 did not exist indicating lower competition for resources. Most of the harvested sawlogs were mostly utilized within the state, and there was an increase in imports since the 2000s (Stevens & Gregson, 1998) and Wisconsin is the largest out-of-state supplier of wood (Piva & Weatherspoon, 2010). Mills spent less on transporting sawlogs during the 1980s which made the sawmills less dependent on imports. This might be a probable reason behind less competition among hardwood sawlog processors in Michigan during the 1980s. The sawlog production in Michigan in 2004 was 688.2 million board feet and it increased by 8% in 2006 (741.3 million board feet) (Piva & Weatherspoon, 2010). As the market coverage increased, there is an increase in the volume of harvested sawlogs in Michigan. Although the number of primary sawlog processors declined, the volume of harvested woods increased with an increase in the capacity of existing sawmills (MDNR, 2020). Softwood milling facilities in the US are also investing in expanding the current production capacity (LBM Journal, 2021). The decrease in the number of sawlog processors also happens when a transition occurs in production technology (Cubbage et al., 2007). The transition here can be as placing value on some other type of forest use such as use for biodiversity and recreation. Bhattarai & Hammig (2001) claims that as the wealth of landowners increase, they 39 might be no longer interested in selling the log or timber, rather they will preserve the forest for aesthetic purposes. Also, about half of private forest landowners in Michigan manage their forest areas for beauty and amenity purposes rather than timber production (Huff et al., 2019). These could be potential reasons for a decrease in the number of sawmills in Michigan. The total market extent of pulpwood decreased in 1994 compared to 1985 but again increased in 2002 and 2018. We observed a decline in the number of pulpwood processors after 2002. During the 2000s, the global production of paper and paperboard increased by 40%, primarily due to packaging and sanitary papers (FAO, 2012). At that time, the production of global newsprint decreased by 17%. In the US, the pulpwood processing capacity decreased by 14% in comparison to earlier decades and the main reason behind this is due to the shrinkage of the market for print media. There are multiple reasons for the decline in pulpwood processing in the US including the decrease in demand due to the economic recession (Hodges et al., 2012), the shift in the preferences of consumers toward digital communications, and increasing competition from larger Asian producers (Brandeis & Guo, 2016; FAO, 2012). Research has found that for 1% increase in internet use reduced newspaper consumption by about 0.38% in the US, whereas consumption of printing and writing paper declines by about 0.11% for a 1% rise in internet use (Latta et al., 2016). Not only in the Lake States region, pulp mills in Southern US were also closed resulting in a 6% net drop in the annual production capacity in Southern US by 2011 (Brandeis & Guo, 2016). Since pulp mills are one of the major markets for logging industries and forest owners and a generator of economic activities in rural areas in the US, this has negatively impacted the local economy including a decline in job opportunities (Tuck et al., 2013). However, Woodall et al., (2011) have reported a small decline in the job market was observed due to a decline in the pulp industry. For 2018, approximately 55% of the total wood available can be utilized as pulp while the remaining 45% goes to sawmills. In 2003, only 51% of the available wood was available for the pulp and paper industry in the same region. The market coverage for biomass has increased the most in comparison to all the other forest products in recent decades. The implementation of policies such as RPS and PBF and incentives from different agencies favored the establishment of wood biomass processors after 2000. Michigan harvested 10.1 million cubic feet of Industrial fuelwood in 2004 and within two years, the annual harvest increased to 27.7 million cubic feet (Piva & Weatherspoon, 2010). 40 Energy production from wood biomass depends on the competition of wood biomass with other forest products (sawlogs and pulpwood) as well as the competition between other energy sources (Berndes et al., 2003). As the demand for renewable energy is increasing globally, countries are promoting the use of wood biomass instead of coal burning to reduce the environmental impacts. One of the possible reasons for increasing the market coverage of wood biomass in the US in recent years can be related to the export of wood pellets to European countries, mainly from the Southern states (Parish et al., 2017). A study has shown that forests in Michigan can supply substantial and reliable amounts of wood that can aid regional and national bio-based economies (MacFarlane, 2009). Our results also found that there is 8.57 million dry short tons of NAWI in the market extent in Michigan in 2018, hence more biomass is available. Some of the notable limitations of this study are as follows. We used the stumpage price information for successful bids from MDNR which may differ from the prices of different wood products from private forests. We used only the available road transportation, however, the logs from neighboring states could be transported and imported to be processed in Michigan using rail and waterways. Since this is a cost optimization problem, all the wood is expected to be procured at the nearest mill. We can expect that the forest cover could have changed a lot during 1980- 2000, but due to data unavailability, we used the data from 2001 for all previous periods. We compare the volume of available wood in different competition levels for different wood products for 2003 and 2018 only. The merchantable volume of sawlogs, pulpwood, and biomass in the market coverage may not always be available for harvesting as the landowners may have other management objectives. 3.5 Conclusion The number of milling facilities in Michigan is in decreasing trend where most of the hardwood and softwood sawlogs processers are closed since 1985. The number of pulpwood processors has decreased from seven to three in the last 40 years. However, the number of wood biomass processors has increased from two to eight in the same period. In 2018, the competition hotspot for hardwood sawlogs, softwood sawlogs, and biomass was observed in LP whereas for pulpwood, it was observed in UP. Compared to the earliest period considered in this study, the market coverage of all products increased in 2018. The market coverage of hardwood and softwood sawlogs spread almost all over the state in 2018. The merchantable volume has increased for all the products from 2003 to 2018. The merchantable volume of hardwood 41 sawlogs in hotspot areas has increased in 2018 whereas for softwood sawlogs, it has decreased in comparison to 2003. For pulpwood and wood biomass, their merchantable volume in hotspots has decreased and coldspots have increased in 2018. The findings of this study help us understand on coverage and competition hotspot of different wood products in Michigan for the last 40 years and this could be used in predicting the future. 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USFS. (1996). Summary of Multiple Use and Sustained Yield Act 1960. United States Forest Services. Available online at https://www.fs.usda.gov/emc/nfma/includes/musya60.pdf. Last accessed 8.4.23. USFS. (2012). National Forest Management Act of 1976. United States Forest Service. Available online at https://www.fs.usda.gov/emc/nfma/includes/NFMA1976.pdf. Last accessed 8.4.23. Woodall, C. W., Piva, R. J., Luppold, W. G., Skog, K. E., & Ince, P. J. (2011). An assessment of the downturn in the forest products sector in the northern region of the United States. Forest Products Journal, 61(8), 604-613. 46 CHAPTER 4: ANALYSIS OF LOCATION, FEEDSTOCK AVAILABILITY, AND ECONOMIC CONTRIBUTIONS OF A MASS TIMBER PROCESSING FACILITY IN MICHIGAN Abstract Mass timber has been promoted as a viable alternative for concrete and steel structures as it has demonstrated potential GHG emissions reduction and aesthetic appeal. This study aims to identify potential locations for mass timber production, estimate available feedstock, and evaluate the economic impacts in Michigan. Procurement zones for all softwood lumber producers were identified and overlaid to create competition hotspots for the softwood sawtimber industry. Then, two potential locations for mass timber production facilities were identified. Again, procurement zones at different delivered wood prices were generated for these facilities and overlaid with Forest Inventory and Analysis (FIA) data to estimate the annual sustainable availability of softwood (ASAW). Finally, IMPLAN was used to assess the economic impacts associated with mass timber production in Michigan. Findings suggest that there is 169,913 m3 and 84,597 m3 softwood sawtimber (feedstock) available in LP and UP, respectively around the proposed locations at the current mill-delivered wood prices of $104/m3. IMPLAN analysis suggests that mass timber production in Michigan to meet current state demand generates a total output of $12.52 million supporting 93 additional jobs if produced in UP and a total output of $17.05 million with 101 jobs if produced in LP. Sawmills, commercial loggings, and truck transportation are the major sectors that are benefited from mass timber manufacturing in Michigan. The output of this study will be helpful for those industries which are interested in mass timber production in Michigan. Keywords: mass timber, procurement zone, network analysis, IMPLAN 47 4.1 Background The construction sector is attributed to 39% of global CO2 emissions, (United Nations Environment Programme, 2019). Concrete and steel are traditionally used in building construction and these are mainly responsible for CO2 and other greenhouse gas (GHG) emissions in the atmosphere. The construction sector accounts for almost 40% of the annual global energy consumption where most energy is consumed for the extraction and transportation of construction materials (Asif et al., 2007; IPCC, 2018). Various efforts are being introduced to reduce the environmental impacts associated with building construction and ensure sustainable materials in building construction. Among these, mass timber - an umbrella term used for engineered wood products manufactured using laminates - is an alternative. It has been estimated that 14% - 31% of global CO2 emissions can be avoided if mass timber is used for all buildings instead of concrete and steel in construction sectors (Oliver et al., 2014). A complete transition to mass timber in construction could reduce the global warming potential by 13%-22% (Durlinger et al. 2013). Mass timber includes Cross Laminated Timber (CLT), Glue Laminated Timber (GLT/glulam), Laminated Veneer Lumber (LVL), and Nail Laminated Timber (NLT), among which CLT is the most popular (Brandner et al., 2016). CLT is produced by gluing the surfaces of at least three layers of wooden boards or dimensional lumbers with an adhesive under pressure, with alternate perpendicular layers (Harte, 2017). The thickness (width) of produced mass timber ranges from 3 inches to 24 inches (Atkins et al., 2022). Compared with traditional wood construction, mass timber is generally more durable and has more consistent strength (Ahmed & Arocho, 2020). Mass timber can be assembled on construction sites with less labor, materials, and environmental impact as it is lighter in weight than steel or concrete (Comnick et al., 2021). The use of CLT for high-rise buildings was added to the International Building Code (IBC) in 2015 and amendments in 2021 rearranged the heavy timber provisions related to mass timber in types IV-A, IV-B, and IV-C. The rearrangement has allowed the construction of high- rise mass timber building up to 18 stories tall where the constructor should follow fire and other safety precautions (Kerr, 2021). The IBC has not specifically listed the species that can be used in mass timber construction, but commonly used softwood species are black spruce, Douglas fir, and southern pine. 48 Mass timber emerged in Europe in the early 1990s as an alternative to traditional building materials for commercial and high-rise buildings. Since then, it has spread across the globe with robust research enabling the formulation of product standards and design guidelines (Karacabeyli & Douglas, 2013). CLT is the most popular form of mass timber and its global market size as of 2022 is $1.17 billion (Grand View Research, 2023). Environmental benefits, aesthetic superiority, and a shorter time to complete the installation process compared to other building materials are likely to increase the market even more soon. About 8 million m3 of mass timber was produced globally in 2020, of which Europe produced 48%, North America produced 43%, Oceania produced 6%, and Asia produced 3% (Forest2Market, 2021). The environmental and engineering benefits have expedited the adaptation of mass timber in the construction sector in the United States. Its market size in North America was $347 million in 2021 and is projected to grow at a rate of 29.1% till 2027 and reach a value of about $1,658 million (Expert Market Research, 2022). WoodWorks (2023) has reported that the number of mass timber projects has been increasing significantly for the last couple of years. By the end of 2022, there were 1,677 mass timber projects either completed or in the design phase in the US (WoodWorks, 2023). While compared to 2021 (1300 projects), it is a 29% increase in the mass timber projects in the USA in just one year. It is projected that the number of mass timber building construction will be doubled every year till 2034 (Atkins Dave et al., 2022). As mass timber projects are increasing, it is not only an increase in mass timber demand, but also causing a positive economic impact for associated products. To produce mass timber, we need raw materials such as lumber and glue and the industries producing these raw materials also expand. Further, the people employed in mass timber manufacturing will have increased spending capacity and it eventually increase the economic activities in that area. As of 2021, there were 15 mass timber manufacturing companies operating in North America with an annual capacity of about 1.6 million m3 (Atkins Dave et al., 2022). Out of 15 mass facilities, nine are in the United States, and six are in Canada. Most of these production facilities are owned or housed alongside a sawmill (Atkins Dave et al., 2022). If mass timber is produced locally, economic impacts are maximized (Scouse et al., 2020). An economic impact assessment by (Scouse et al., (2020) for a 12-story mass timber design building in Oregon demonstrated greater economic impacts than traditional concrete buildings and generated added 49 revenues for all income-level households. Due to its versatility (mainly in length, width, and thickness and further possibility of extending with glued connections or mechanical joints), mass timber building construction can be effective for building a multi-story building up to 10 stories (van de Kuilen et al., 2011). An assessment conducted in an eight-story building in the United Kingdom built using CLT resulted in 30% higher material costs compared to concrete and steel. However, the increased cost was offset by a reduction in labor costs resulting in lower total costs (Bruno, 2008). This project was completed 17 weeks (about 4 months) earlier than it would have taken if built using concrete and steel structures. The United Nations Department of Economics and Social Affairs (2018) has predicted that about 68% of the global population will live in urban areas by 2050. This will result in a substantial rise in the demand for multifamily residential and non-residential buildings. Although global mass timber production has increased in recent years, the proportion of softwood lumber for mass timber production is only about 1% (FAO, 2022). The number of mass timber projects increased by over 50% in the last 15 months and is expected to increase in the future (WoodWorks, 2018). This will increase the lumber demand. A study has forecasted that the global demand for softwood sawtimber for mass timber production may reach up to eight, 25, and 58 million m3 under conservative, optimistic, and extreme demand scenarios respectively by 2060 (Nepal et al., 2021). The United States alone will need three million m3 under conservative, 6.54 million m3 under optimistic, and 9.25 million m3 of mass timber under extreme demand scenarios by 2060. The US imported 15,000 m3 of mass timber in 2019, 24,700 m3 in 2020, and 19,300 m3 in 2021 (Atkins et al., 2022).In the Lake States region, mass timber projects are increasing and as of 2023, a total of 87 mass timber projects have been identified which are either completed or in the construction phase (WoodWorks, 2023). It demonstrates the upward- trending demand for mass timber. A study carried out in Tennessee identified three optimal locations based on available transportation networks and the existing capacity of sawmills to produce CLT (Adhikari et al., 2023). However, there are very few studies done to assess the potential to produce mass timber locally to meet this demand in the Lake States region. Therefore, this study is designed to estimate feedstock availability, identify potential locations for mass timber production, and evaluate economic impacts. The specific objectives of this research are: 1. To identify potential locations to establish a mass timber production facility in Michigan. 50 2. To estimate the potential softwood sawtimber availability for proposed mass timber processing facilities. 3. To evaluate the economic impacts associated with producing mass timber in Michigan. 4.2 Materials and Methods 4.2.1 Data The data on milling facilities, such as location, capacity, and major species used, were obtained from the MDNR. These mills were then differentiated into different categories based on the woods they use for processing. The categories are hardwood sawlog processors, softwood sawlog processors, pulpwood processors, and biomass processors. Since only softwood species are used for mass timber production, only those mills that consume or use one or more softwood sawlogs to produce lumber were considered in this study. The stumpage price information was obtained from the MDNR Stumpage Price Reports (MDNR, 2018). The data on the transportation network was obtained from the Esri database (ESRI, 2017). The forest inventory data for Michigan was obtained from the United States Department of Agriculture (USDA) Forest Services Forest Inventory and Analysis (FIA) DataMart (USDA, 2021). The US has more than 150 thousand FIA plots across the nation that are measured periodically. Michigan has 6,667 of these plots, out of which 4,367 are currently forested land (USDA, 2019a). Figures 4.1(a) and 4.1(b) show forest types (Ruefenacht et al., 2008) (figure 4.1 a), and forest ownership type was obtained from (Sass et al., 2017) (figure 4.1 b). Figure 4.1: a) Forest cover and softwood milling facilities in Michigan; b) Forest ownership map of Michigan. 51 4.2.2 Procurement zones and hotspots of softwood milling facilities The ‘Create Service Area Layer’ solver tool (ESRI, 2019) of Network Analysis in ArcGIS was used to map out procurement zones using the national transportation network (roads) to optimize cost-based procurement zones for softwood lumber producers. We used haul time derived from mill-delivered wood prices using Equation 4.1 as a surrogate for the cost of transporting softwood logs (Pokharel et al., 2023). 𝑡 = .0.5 ∗ (𝑝(∆𝑝 ∗ 𝑝) − 𝑝" − 𝑝!) ∗ 𝑤 𝑟 ∗ 60; − 𝑡$ 4.1 where 𝑡 is the hauling time, p is the average mill delivered wood price, Δp is the percentage change in p, ph is the cost of harvesting wood products, ps is the stumpage price, w is the weight limit of the truck trailer, tl is loading and unloading time, and r is the trucking cost per hour. The delivered wood price at a mill gate includes three major expenditures- stumpage, harvesting and logging, and hauling. Based on the literature, we assumed each cost category contributes one-third of the delivered wood price in the Lake States region (Steigerwaldt Land Services, 2015). The load of logs that a standard log truck can haul depends on numerous factors such as road conditions and the number of axles. A typical log trailer truck can carry 7.08-11.8 m3 (Lowry, 2023). For this study, we used 10.62 m3 as the volume of logs that a standard truck could carry. The average trucking rate was estimated using various costs associated with log hauling using information from Conrad (2018) as shown in Equation 4.2. Then we expressed the trucking rate in 2018 adjusting for inflation. 𝐶 = 𝑌 (𝑊# ∗ 𝑇%) 4.2 where C is per hour cost of operating a log truck, Y is the annual cost of the truck and its value is $153,297 adopted from (Conrad, 2018), Wt is the total hours the truck is operated in a week, and Tw is the total weeks the truck is operated in a year. We estimated a trucking rate of $85/hour. Since this is a cost optimization problem, all the wood is expected to be procured at the nearest mill. Once the procurement zones were identified for the delivered wood price, they were overlapped to create hotspots where many facilities would compete for softwood sawlogs and the lumber market. The hotspots represent the level of competition for softwood sawmills. We also wanted to estimate how the procurement zone changes when the delivered wood price at the mill 52 gates is increased by 10%, 20%, and 30%. For this analysis, we assumed that the stumpage and harvesting, and logging cost remains constant whereas the increased cost will result in more money available for the transportation of logs. To estimate the final cost of mass timber at construction sites, we need the average transportation cost of mass timber from the production site to the construction site. So, we also estimated the price of delivering mass timber from the proposed facility to major cities using the “Closest Facility” tool in ArcGIS (ESRI, 2019). The average was used for delivering mass timber to major cities in Michigan. 4.2.3 Identify potential locations for mass timber and its procurement zone The idle and well-observed phenomenon in North America in placing a mass timber facility next to a large softwood processing facility to secure lumber supply and minimize the cost of transporting lumber. We select a potential or candidate sawmill for this study in each Lower and Upper Peninsula of Michigan. To identify a location for candidate facilities and estimate softwood sawtimber availability and economic impacts, we observed the hotspots of mill distribution of softwood processing facilities, road infrastructures, and their processing capacities. The same approach was repeated as explained in section 4.2.2 to generate procurement zones around potential mass timber facilities using the same delivered wood prices for softwood sawlogs. These procurement zones represent the regions from where the new mass timber facility would get its feedstock as softwood sawlogs from the forest or softwood lumber from other sawmills. 4.2.4 Softwood sawtimber availability analysis for mass timber facility Using the rFIA package in R (Stanke et al., 2020), we summarized the forest growth, removals, and standing volume of growing stock from FIA data inside the procurement zone of the proposed mass timber facility. The annual sustainable availability of softwood (ASAW) was then estimated using Equation 4.3, following a similar approach developed by Goerndt et al. (2013) for biomass. ASAW assesses the net availability of softwood sawlogs in a year after accounting for growth, mortality, and removals. 𝑉’ − 𝑉( 𝑉# Where Vg is the estimated average annual growth volume of softwood sawlogs within a 𝐴𝑆𝐴𝑊 = ∗ 𝑉!% 4.3 procurement zone, Vr represents the estimated average annual removal of softwood sawlogs, Vt 53 represents an estimated total volume of all trees on timberland within the procurement zone and Vsw represents the total volume of the softwood sawlogs within the procurement zone. Since FIA data for sawtimber/logs are reported in MBF, the estimated volume was converted to m3 for further analysis using a conversion factor of 2.36 m3 for one MBF of softwood lumber. Then, we followed the same process to estimate the available volume of a sub-section of softwood species of spruce and fir within the procurement zone. 4.2.5 Economic impacts analysis Impact analysis for planning (IMPLAN) based on the I-O model (Minnesota IMPLAN Group Inc., 2004) represents the flow of money in an economy among industries, government, and households within a region and imports into and exports out of the region. IMPLAN enables us to assess the regional economic impact on income, household spending, or employment due to new industrial establishments or the contribution of existing industries (IMPLAN, 2022a). IMPLAN expresses how income or expenses in one part of the economy affect other parts based on purchasing and selling relationships. Economic contributions are reported as three components, depending on how they occur: direct, indirect, and induced (Cook et al., 2018). Direct effects result from the initial spending by the mass timber industry in the study region. Indirect effects result from supply chain transactions indirectly as an increase in businesses of the suppliers supplying goods needed by the mass timber industry. Induced effects result from increased personal income generated by the direct and indirect effects as businesses increase payroll or hire more employees and households, increasing spending at local businesses. Induced effects measure the increase in household-to-business activity (Cook et al., 2018). The economic measures based on IMPLAN that are used for the study include employment, labor income, value-added, and industry output. Employment includes full-time and part-time employees and self-employed individuals associated with an industry. Labor income is the dollar total of employee compensation and proprietor income. Output refers to the total value of production or service by industry within an area for a specified period. Value added is the sum of labor income, other property income (e.g., rents and profits), and indirect business taxes (Clouse, 2021a). The economic impact analysis is also reported in terms of Social Accounting Matrix (SAM) multipliers such as output multipliers, employment multipliers, and value-added multipliers (IMPLAN, 2022b). It represents how many additional jobs or output is generated in the economy for each unit of direct employment or direct investment in an area. For 54 the total output multiplier, it is calculated by dividing the total output by direct output whereas for employment multiplier, it is calculated by dividing the total employment by direct employment. This study uses 2017 IMPLAN data and values are reported in 2022 dollars for the analysis. To analyze the economic impact associated with a mass timber production facility, we assumed that the new mass timber facility would be located within an already existing sawmill and will not incur significant new construction expenditures. Therefore, we included costs for new equipment such as pressing machines, Computer Numerical Control (CNC) machines, glue and related products, and trucks to deliver mass timber. Since there is no separate sector for the mass timber industry in IMPLAN, we used the Analysis by Parts (ABP) technique to estimate the economic impacts of this industry. The ABP technique allows the user to create a customized industry sector by using the information about that sector’s budgetary spending pattern and labor income. In other words, it allows the user to split the ripple impacts of an industry change into its individual impact components- budgetary spending pattern and income (IMPLAN, 2022c). When using the ABP technique, primary data serves as direct effects. Ideally, the user is required to have information about direct employment, direct labor income, and either the total budgetary (goods and services) value or direct output (Clouse, 2021b). Section 3.5.2 and 3.5.3 shows the estimation of direct impacts, including total outputs, spending patterns, and labor income. For indirect and induced impacts, we imported the industry spending pattern of ‘Engineered Wood Member and Truss Manufacturing Sector (Sector 137)’ of the 2017 IMPLAN model and modified it based on the production function information for the mass timber industry. Finally, IMPLAN activities were created for modified industry spending and labor income and analyzed to estimate the indirect and induced impacts of the mass timber facility in Michigan. The total impacts were then reported by adding direct, indirect, and induced impacts. Estimating the total output of the mass timber facility in Michigan There were 27 mass timber projects in 2021 in Michigan identified by the Masstimber@MSU program at the Department of Forestry at Michigan State University. On average, the floor area of a commercial building is about 16,441 square feet in the United States (Center for Sustainable Systems, 2018). In general, a 1,000-square-meter floor plan requires 28 m3 of mass timber (Berghorn, 2022). Hence, the total mass timber demand in Michigan from these 27 ongoing projects was estimated to be 12,429 m3 (27 * 16,441* 0.028). The selling price 55 of mass timber was calculated using Beck’s mass timber report (The Beck Group, 2017), and transportation cost was estimated using ArcGIS as explained in 3.2. Our analysis estimated the average cost of delivering mass timber to local cities from the LP facility is $16.54 per m3. The average price of delivered spruce-fir-pine lumber in the Lake States region was $233.077 per m3 (Random Lengths, 2019). The average lumber price varies according to the size of the lumber being sold. We used the average price for spruce-fir-pine lumber with lengths greater than 8 inches. Beck’s report estimated that about 52% of mass timber production costs go toward purchasing lumber (The Beck Group, 2017). Therefore, the average selling price of mass timber (CLT in particular) is $448.22 per m3 at the manufacturing facility and $ 464.75 per m3 at the construction site. We used this total mass timber cost for the analysis related to the proposed mass timber manufacturing facilities in both UP and LP. The total industry output is then calculated by multiplying the unit price of mass timber with the mass timber demand for 27 ongoing and completed projects in the state. The total industry output was estimated to be $5.78 million for producing mass timber in Michigan for 27 facilities. Spending pattern for mass timber facility Based on the Beck Group report on mass timber (The Beck Group, 2017), we split the unit price of mass timber into different commodities inputs that go into mass timber production (Table 4.1). Table 4.1: Distribution of costs associated with mass timber production. Proportions of total cost per unit of mass timber production price 0.52 Commodities Dimension lumber Management of companies and enterprises Fabricated structural metal products Architectural, engineering, and related services Electricity transmission and distribution Other fabricated metals Hardware Compounded resins (Adhesives) Total 8.96 13.45 8.96 49.30 448.22 In addition to the commodities listed in Table 4.1, the new mass timber production 0.02 0.03 0.02 0.11 1.00 facility also needs investments in equipment and trucks to deliver mass timber. Assuming the facility will use a CNC machine to prefabricate the mass timber, we obtained the CNC machine price based on the price listed on the website of Machinery Marketing International in Chicago is 56 Total costs ($) 233.07 71.72 17.93 44.82 0.16 0.04 0.1 $595,000. The loan payment would then be 126,936/year (paid monthly) at a discount rate of 9% (Machinery Marketing International, 2022). A log truck costs $138,956 on average (Conrad, 2018). The loan payment would then be $27,609/year (paid monthly) with an annual interest rate of 9%. Table 4.2 presents the modified spending pattern in IMPLAN after adding machine and delivery truck costs. The same industry spending pattern was used for both the LP and UP models. Table 4.2: Industry spending pattern input for IMPLAN analysis. IMPLAN sector Commodities 3134 Dimension lumber 3461 Management of companies and enterprises 3238 Fabricated structural metal products 3449 Architectural, engineering, and related services 3049 Electricity transmission and distribution 3261 Other fabricated metals 3247 Hardware 3185 Compounded resins (Adhesives) 3411 Truck transportation services 3249 Machined products Industrial trucks, trailers, and stackers 3293 Total Labor income information Proportion of total cost 0.4671 0.1437 0.0359 0.0898 0.0216 0.0269 0.0144 0.0988 0.0782 0.0191 0.0045 1.00 A study report on mass timber from California has reported that at least 20 people are needed to operate a mass timber production facility (Redmore et al., 2021). The existing facilities that produce mass timber in the US, such as Vaagen Timber in Washington, currently employ 32, and Mercer International employs 50 people (Nellis, 2020). The number of workers in any mass timber production site varies with the capacity, type of mass timber, and other factors. Masstimber@MSU in consultation with potential investors and stakeholders estimated that at least 35 direct employments will be needed to operate a new mass timber facility with the estimated production capacity in this study. We used the coefficients of the Industry Balance Sheet for the Engineered Wood Member and Truss Manufacturing sector (137) from IMPLAN, and the total output assessed in this study to estimate total value added, employee compensation, proprietor income, other property tax income, and taxes on production (Table 4.3). Economic impacts analysis for UP and LP For this analysis, we proposed two locations where the potential mass timber manufacturing facilities can be established, and we carried out IMPLAN analysis separately for both the proposed locations. To estimate the economic impacts of the mass timber manufacturing 57 in LP, we constructed a regional model in IMPLAN consisting of all the 68 counties south of Mackinac Bridge located in LP and we specified that all the wood materials will be procured from the sawmills or forest in the LP. For UP, then we created an IMPLAN model that included all 15 counties of UP, and procurement of wood happens in UP only. For a mass timber facility if placed in LP, the IMPLAN regional model showed that the total value added is equal to 29.41% of the total industry output for mass timber facilities (Table 4.3). Employee compensation, proprietor income, other property tax, and production taxes are 24.01%, 3.77%, 032%, and 1.31% of total industry output, respectively. For the mass timber facility in UP, the total value added was estimated to be 25.71% of the total industry spending pattern. The employee compensation, proprietary income, other property tax income, and taxes on production were estimated to be 22.16%, 1.87%, 0.30%, and 1.38% respectively of the total industry output. Table 4.3: Labor income inputs to inform the IMPLAN analysis for the UP and LP model. Outputs Coefficients (in %) Total Outputs ($) UP LP Total value added Employ compensation Proprietor income Other property tax income Taxes on production The direct impacts of a mass timber production facility, assuming it would have supplied the 25.71 22.16 1.87 0.30 1.38 29.89 24.25 4.02 0.33 1.30 UP 1,485,070 1,280,229 108,140 17,272 79,487 LP 1,727,114 1,401,020 232,165 18,890 75,039 mass timber required by ongoing and completed projects in Michigan (Table 4.4). Table 4.4: Direct impacts of new mass timber facility for UP and LP. Facility location Total value Added ($) Employment (#) Labor income ($) Output ($) Marquette (UP) Clare (LP) 35 35 1,388,369 1,633,185 1,485,070 5,776,686 1,727,114 5,776,686 Scenarios for Impact Analysis We created 15 scenarios to evaluate the economic impacts of changes in demand, price, and supply situations for mass timber production in the state. The economic theory advocates that the price of any goods or service increases if its demand is increased with constant supply. However, in the case of softwood lumber, the literature suggests that the relationship between demand increase and price is inelastic in the long run (Kooten & Schmitz, 2022). For this study, we carried out the analysis for an increase in mass timber demand for a constant softwood 58 lumber price. Uri and Boyd (Uri & Boyd, 1990) have estimated that per 1% increase in the price of softwood sawlogs, the demand decreases by 0.34% in the US. Similarly, another study has estimated that keeping other factors constant, a 1% increase in the price of softwood lumber decreases the demand for lumber for housing by 0.141% (Song et al., 2011). Since mass timber is closely related to the purpose of housing, we used the price elasticity of -0.141% for estimating the mass timber demand in Michigan when the lumber price increases (equation 4.4). 𝐷∆* = −0.141 𝑃+ 4.4 where 𝐷∆* is mass timber demand and PL is the price of softwood lumber. The basecase scenario represents the scenario with a facility producing 12,429 m3 of mass timber in Michigan. We looked at four demand-change scenarios. The D50 represents the economic impact when the mass timber demand in Michigan is increased by 50% from the basecase. Similarly, the D100 scenario represents the mass timber demand in Michigan is doubled from the basecase and D200 represents the current mass timber demand in Michigan is increased by 200% from the basecase. The total mass timber demand in the US as of 2021 was 323,800 m3 (Atkins et al., 2022). DU10 scenario represents the economic impacts of producing 10% of the total mass timber demand of the US in Michigan. There are four price-change scenarios. Scenarios PD5 and PD10 represent a decrease in lumber prices by 5% and 10%. Similarly, scenarios PI5 and PI10 represent an increase in the lumber price by 5% and 10%. Lumber prices have been very volatile with larger changes in recent years with a significant rise and fall in the lumber price during the Covid pandemic (Kooten & Schmitz, 2022). However, long- run changes in prices have not been this extreme. The average price of lumber in the US in December 2012 was $159.32 per m3 and it increased by 1.86% and became $169.29 in December 2022 (Macrotrends, 2023). For this analysis, we chose a range of 10% change in price. There are six supply-based scenarios with a constant mill-delivered wood price of $125/m3, of which three are softwood species-specific. Scenario SS10, SS30, and SS50 represent an increase in the utilization of softwood by 10%, 30%, and 50%, respectively in the proposed location. Scenario SB10, SB30, and SB50 represent an increase in the utilization of spruce and fir species by 10%, 30%, and 50%, respectively from ASAW in the procurement area of the proposed location. Table 5 presents the description of scenarios, the quantity of mass timber produced, direct output, and employment. 59 As we are using ABP, we estimate the direct impacts of employment, labor income, value-added, and output before using IMPLAN. The direct outputs for different scenarios were estimated as specified in Equations 4.5-4.8 For basecase scenario 𝑂! = 𝑃, ∗ 𝐷- 4.5 where Os is the total direct output, Pu is the unit price of mass timber at the construction site, and Dm is the mass timber demand by current ongoing projects in Michigan. For demand scenarios 𝑂! = 𝑃, ∗ (𝐷- + ∆𝐷-) where ΔDm is the percentage increase in Dm. For lumber price change scenarios 𝑂! = 𝐷∆* ∗ (𝑂& + 𝑃+ ± ∆𝑃+) 4.6 4.7 where DΔp is the change in volume of mass timber with respect to change in lumber price as shown in equation 4.4, Oc is all the price of mass timber excluding lumber price, LP is the baseline lumber price, and ΔPL is the change in lumber price; ± indicates both increase and decrease in the lumber price. For supply scenarios 𝑂! = α ∗ 𝑉./.0 ∗ 𝑃, 4.8 where α is the log-to-mass timber conversion ratio (0.85) and VASAW is the volume of availability of softwood in the procurement area after deducting removal and mortality. Bebard et al (2010) have estimated that 15% of wood material is lost while manufacturing mass timber (Bebard et al., 2010). We assumed that only 85% of the available softwood is converted into final mass timber for this research. Hence, we used log to lumber conversion of 85% i.e., 𝛼 = 0.85. For estimating the direct employment generated by producing mass timber for different scenarios, we used the total Social Accounting Matrix (SAM) for employment. Total SAM for employment represents the ratio of total employment (direct, indirect, and induced) due to mass timber production in Michigan and the number of direct employments. It can be interpreted as the number of additional jobs created in Michigan due to employing a person in mass timber production. We used the total SAM for the basecase for estimating the direct employment for 60 different scenarios assuming that the SAM will be constant for the model in IMPLAN as shown in equation 4.9. 𝐸12 = (𝐸23 + 𝐸21) 𝑀! − 1 4.9 where Edi is direct employment, Ein is indirect employment, Eid is induced employment, and Ms is the total SAM for the model. The total SAM for UP has a value of 2.66 and for LP it is 2.88. The direct value added for both models was estimated from the balance sheet of the IMPLAN model that we created for the Engineered Wood Member and Truss Manufacturing Sector (Sector 137). The labor income represents the sum of employee compensation and proprietor income. The employee compensation, proprietor income, and the total value added have a fixed percentage of the total direct output for a model and we obtained the percentage from the balance sheet of the model we created. 𝐴4 = λ ∗ 𝑂! 𝐿2 = θ ∗ 𝑂! + 𝜏 ∗ 𝑂! 4.10 4.11 where Av is the total value added and λ is the coefficient for the value added. The value of λ for UP is 0.26 and LP is 0.30 (Table 4.3); Li is the labor income, θ and τ are the coefficients for employee compensation and proprietor income respectively. The value of θ is 0.22 for UP and 0.24 for LP. The value of τ for UP is 0.01 and 0.04 for LP. 61 D200 DU10 2. Price changes Table 4.5: Total mass timber production volume for different scenarios. Scenarios Description Basecase Current Michigan demand 1. Demand change Demand is increased by Quantity of mass timber (1000 m3) UP 12.43 LP 12.43 Direct output (million $) UP 5.78 LP 5.78 Employment (#) UP 35 LP 35 50% 18.64 18.64 8.67 8.67 D50 D100 PD5 PI5 PD10 SS10 SS30 SB10 SB30 SB50 Demand is increased by 100% Demand is increased by 200% 10% of total US demand Decrease in lumber price by 5% Increase in lumber price by 5% Decrease in lumber price by 10% Increase in lumber price by 10% 10% of ASAW in the procurement area 30% of ASAW in the procurement area 50% of ASAW in the procurement area 10% of spruce and fir in the procurement area 30% of spruce and fir in the procurement area 50% of spruce and fir in the procurement area 24.86 24.86 11.55 11.55 37.29 32.38 37.29 17.33 32.38 15.05 17.33 15.05 12.52 12.52 7.28 7.28 12.34 12.34 6.6 6.6 12.61 12.61 7.33 7.33 39 52 77 67 33 30 33 27 52 69 104 90 44 40 44 36 19.97 40.05 9.28 18.62 42 111 59.92 120.16 27.85 55.85 123 333 1.54 3.34 0.71 1.55 4 4.61 10.00 2.14 4.65 10 11 29 SS50 99.86 4. Additional usage (increased supply of fir and spruce only from private and state forests) 200.27 46.41 93.08 203 553 PI10 5.98 3. Additional usages (increased supply from private and state forests) 12.25 12.25 5.98 47 One of the important steps in mass timber manufacturing is to produce lumber. We 16.67 3.57 7.69 7.75 17 evaluated the economic contribution of lumber production in Michigan for different quantities needed for different scenarios of mass timber production. As IMPLAN analysis is designed for economic impacts, while estimating economic contribution, some adjustments are to be made to avoid over-estimation. To accurately analyze the economic contribution of added softwood lumber production in the state, we followed the method developed by Parajuli et al. (Parajuli et al., 2018). First, we estimated the economic contribution of the existing sawmill sector (sector 134) of Michigan by using adjusted values and then estimated the same by adding the added lumber production sales. The values were adjusted using the total SAM (Social Accounting 62 Matrix) of the sawmill sector (sector 134). Subtracting the first from the second gives the economic contribution of added lumber production in Michigan. As Bebard et al. (2010) have estimated 15% of softwood lumber is wasted while producing mass timber, we calculated the total lumber needed accounting for 15% loss of lumber during manufacturing. It means only 85% of the softwood lumber is converted into mass timber as in equation 4.12. We assumed that the lumber needed will be produced by existing sawmills in Michigan and hence the economic contribution of the existing industry was analyzed using IMPLAN. The analysis was carried out for IMPLAN sector 137 (Sawmill Industry). 𝑂$ = 𝑃+𝐷- 𝜓 4.12 Where Ol is the total direct output for upgrading the capacity of lumber production in Michigan, PL is the unit price of lumber, Dm is the volume of mass timber, and ψ is the coefficient (0.85) from Bebard et al.. (2010). 4.3 Results 4.3.1 Procurement zone and competition hotspots of softwood milling facilities There were 305 active primary wood processing facilities in the state, of which 137 mills use one or more softwood species to produce lumber or related products in 2018 (MDNR, 2022). The average softwood sawtimber stumpage price was $104/m3 (MDNR, 2018). The hotspot or region with the highest number of softwood sawlog processing facilities was observed in central Michigan in the Lower Peninsula (LP) (Figure 4.2). In the hotspot region, as many as 53 softwood processing facilities' service areas overlapped, indicating that at least 53 facilities competed for softwood sawlogs. 63 Figure 4.2: Hotspots of the service area representing market extent and competition of primary softwood processing facilities at the current market price for softwood sawtimber. 4.3.2 Identification of location for a mass timber production facility We identify locating a new facility in Harrison, Clare County in LP, in or near Billsby Lumber and Gwinn, Marquette County in UP, in or near PotlatchDeltic Land and Lumber LLC. We proposed Billsby Lumber in Clare County to be a potential candidate for establishing a mass timber plant in LP Michigan. It is in the hotspot area where it can source lumber from up to 48 softwood sawmills. It has an average production capacity of at least 17,700 m3 per year and is the highest capacity category for sawmills in the area reported by MDNR. The produced mass timber can be transported to both north and south conveniently. For UP, only ten softwood 64 facilities operate in the procurement zone of the proposed facility UP which can potentially supply lumber compared to 48 facilities in LP. Though a lower number of mills in the competition hotspots in UP may imply that there are only a few mills to supply additional lumber if needed, this may not be an issue for the proposed location. PotlatchDeltic Land and Lumber LLC is one of the largest softwood sawtimber milling facilities with an average production capacity of 436,551 m3 (PotlatchDeltic, 2019) per annum. These facts support our proposition of placing a mass timber facility in Gwinn in UP. The availability of the softwood itself could be a limiting factor for UP location, with very intense softwood milling practices and larger land cover with hardwood species. Assuming it costs the same amount of money to transport logs into a facility and to send lumber to a mass timber facility, these procurement zones can be interpreted and used in two ways (Figure 4.3). First, these procurement zones identify softwood lumber producers within the region that can supply lumber for mass timber production. Second, the procurement zone would also show the service area for adjoining sawmills to procure logs to support mass timber production. For the baseline wood price at mill gates ($104/m3), LP has more potential lumber suppliers. With a 10% rise in wood prices, the procurement area gets expanded as an additional amount is available for the procurement of sawlogs or lumber. For LP, a 10% rise in wood price results in 71 softwood sawmills lying inside the procurement zone for proposed locations which is 48% greater than the number of mills represented by the baseline prices. For UP, 10% rise in wood price, the number of softwood sawmills inside the procurement area increases by 30% and reached 13 from 10. For a 20% rise in the wood price, the potential lumber suppliers for the proposed location in LP are 93 whereas for UP, there are 20 potential suppliers. The result shows that as the wood price increased, the number of potential lumber suppliers also increased. This might be an opportunity to get involved more softwood lumber producers in mass timber production. Similarly, on the hind side, as the wood price increased, the sawmills have more money available for procuring sawlogs and hence can procure those logs from larger areas as indicated by the procurement zone. 65 Figure 4.3: Procurement zones for the proposed mass timber processing facility in UP and LP for a different delivered price of the wood at mill gates. Note: ($104/m3 (current price), $114/m3 (10% rise in wood price), and $125/m3(20% rise in wood price)). 4.3.3 Feedstock availability Assuming the sawmill housing mass timber facility will procure softwood sawlogs, and produce lumber needed for mass timber production, we estimated ASAW for facilities in UP and LP, independently. However, there are already large softwood facilities that can absorb the demand for lumber without the need to procure a significant volume of additional softwood from 66 the forest. Around the proposed location in UP, the ASAW is 85 thousand m3 at a delivered wood price of $104/m3, 193 thousand m3 at a delivered wood price of $114/m3, and 235 thousand m3 at a delivered wood price of $125/m3 (Table 4.6). The procurement zones expand south into Wisconsin with increasing prices indicating out-of-state logs will be procured and used if higher wood prices are paid. The state forest has a significant volume of softwood available for the proposed facility. About 54 thousand m3 at a delivered wood price of $104/m3, 84 thousand m3 delivered wood price of $114/m3, and 119 thousand m3 at a delivered wood price of $125/m3 of ASAW are available from the state lands. For the wood price of $104/m3, state forest contains 78.5% more ASAW softwood volume than private forests. However, for the wood price of $114/m3, the private forest contains 33.5% more softwood ASAW volume than the state forests. The presence of corporate forests and other privately owned forests in this area is the reason for this. However, the total ASAW in the procurement area for the wood price of $125/m3, the state forest has 2.38% more volume than the private forests. This study estimates 170 thousand m3, 327 thousand m3, and 471 thousand m3 of ASAW for the delivered wood price of $104/ m3, $114/ m3, and $125/ m3, respectively, in the LP. Private forests have the maximum ASAW volume available, followed by state forests. Private forests have 101 thousand m3, 222 thousand m3, and 349 thousand m3 of potential softwood at delivered wood prices of $104/ m3, $114/ m3, and $125/ m3, respectively, that could be used for mass timber production. State forests can provide 69 thousand m3, 105 thousand m3, and 122 thousand m3 delivered wood prices of $104/m3, $114/m3, and $125/m3, respectively, to this mass timber facility. The private forests have 45.34% more ASAW softwoods in the procurement area for a wood price of $104/m3. Similarly, for the wood price of $114/m3, and $125/m3, the private forests contain 110% and 185% more softwood ASAW than state forests, respectively. 67 Table 4.6: Annual sustainable availability of softwood (ASAW) for mass timber production in the proposed mass timber facility in UP. Delivered wood price at mill gates ($/m3) Volume (in thousand m3) Total State a. All Softwoods 104 114 125 b. Spruce and Fir only 104 114 125 UP 54 84 119 8 10 13 LP 69 105 122 2 7 12 Private UP 30 109 116 0 4 5 LP 101 222 349 6 11 27 UP 85 193 235 8 14 18 LP 170 327 471 8 18 39 The ASAW for spruce and fir indicates that there is no availability of these species in privately owned forests in UP for a wood price of $104/m3 however state forest has 8 thousand m3. However, as the procurement zone expands, these species can be harvested from both the state and private forests sustainably for mass timber manufacturing. This indicates that, if mass timber is to be produced in a proposed location in UP using ASAW for spruce and fir species from both state and private forests, the baseline wood price should be increased by at least 10%. There are 14 thousand m3 of spruce and fir available for delivered wood price of $114/m3 and 18 thousand m3 for $125/m3 in UP. The state forest has the maximum availability of spruce and fir followed by private forests after accounting for natural death and removals in UP. However, for LP, private forests host more ASAW for spruce and fir than state forests. For the delivered wood price of $104/m3, the private forests have 6 thousand m3 of spruce and fir which is 281% more than the state forests (2 thousand m3). For delivered wood price of $114/m3, private forests have 52% more spruce and fir than state forests. For the delivered wood price of $125/m3, the state forest has 12 thousand m3 of ASAW for spruce and fir whereas the private forest has 27 thousand m3 for the same wood price. The total estimation of ASAW for spruce and fir inside the procurement zone of $104/m3, $114/m3, and $125/m3 for the proposed location in LP are 8 thousand m3, 18 thousand m3, and 40 thousand m3, respectively. 4.3.4 Economic impact of mass timber production in Upper Peninsula We estimated 35 direct, 29 indirect, and 29 induced employment opportunities in the state, with a mass timber production facility in UP (Table 4.8). About $1.39 million is estimated as the direct contribution to labor income, which further produces $1.44 million as indirect and $0.46 million as induced labor income in the economy. The total value added from the mass 68 timber industry in the economy is $4.08 million. The industry generates a direct output of $5.78 million in the state which further generates $5.15 million as indirect and $1.59 million as induced output. The total output resulting from the operation of the proposed mass timber facility in UP Michigan is $12.52 million. If the demand for mass timber increases by 50% above the basecase scenario, the total output becomes $18.77 million with a total value added of $6.12 million, and a total labor income of $4.93 million, generating 103 employment. If the demand for mass timber is doubled (increased by 100%) above the basecase scenario, the total output becomes $25.03 million, with a total value added of $8.15 million generating 137employments. This is 100% more than the basecase for both total output and value-added. If the demand for mass timber increases by 200% above the basecase scenario, the total output becomes $37.55 million with a total value added of $12.23 million generating 204 employments. Producing mass timber in UP to satisfy 10% of the US demand results in a total output of $32.61 million with a total value added of $10.62 million generating 177 employments. The total output for increasing the lumber price by 5% is $14.30 million with a total value added of $4.66 million generating 79 employments. For increasing the lumber price by 10% the total output is $12.96 million with a total value added of $4.22 million generating 71 employments. The total output for a 5% increase in lumber price is 14% more than the basecase whereas, for a 10% rise, the total output is 3.5% more than the basecase scenario. The total output for decreasing the lumber price by 5% is $15.77 million with a total value added of $5.14 million generating 87 jobs. For decreasing the lumber price by 10% the total output is $15.88 million with a total value added of $5.17 million generating 87 employments. The total output for producing mass timber using 10% of the ASAW for softwood in the procurement zone of the proposed location in UP is $20.11 million with a total value added of $6.55 million generating 111 employments. For using 30% of the ASAW, the total output becomes $60.34 million with a total value added of $19.65 million generating 326 employments. For using 50% of ASAW total output becomes $100.56 million with a total value added of $19.65 million generating 540 employments. The employment number increased by 19% for using 10% of ASAW softwood, 250% for using 30% of ASAW softwood, and 480% for using 50% of ASAW softwood in comparison to the basecase scenario. The total output for producing mass timber using 10% of the ASAW for spruce and fir in the procurement zone of the proposed location in UP is $1.55 million with a total value added of $0.50 million generating 10 69 employment. For using 30% of the spruce and fir ASAW, the total output becomes $4.65 million with a total value added of $1.51 million generating 26 employments. For using 50% of spruce and fir ASAW, the total output becomes $7.74 million with a total value added of $2.52 million generating 44 employments. The total SAM multiplier for current mass timber demand in terms of employment is 2.66 which indicates that for each direct employment in UP, there is 1.66 additional jobs creation. In terms of total output, the total SAM multiplier is 2.17 meaning that for each dollar invested in mass timber production, an additional $1.17 is circulated in the economy through indirect and induced effects. Table 4.7 represents the total SAM multipliers for UP and LP. Table 4.7: SAM value for different activities for mass timber production in Michigan. UP Activity LP Employment Labor Income Total Value Added 2.66 2.37 2.75 2.88 3.38 4.15 Total Output 2.95 4.3.5 Economic impact of mass timber production in Lower Peninsula 2.17 We estimated 35 direct, 39 indirect, and 27 induced employment opportunities in the state, with a mass timber production facility in LP (Table 4.8). About $1.63 million is estimated as the direct contribution to labor income, which further produces $2.63 million as indirect and $1.26 million as induced labor income in the economy. The total value added from the mass timber industry in the economy is $7.18 million. The industry generates a direct output of $5.78 million in the state which further generates $7.50 million as indirect and $3.77 million as induced output. The total output resulting from the operation of the proposed mass timber facility in LP Michigan is $17.05 million. If the demand for mass timber increases by 50% above the basecase scenario, the total output becomes $ 25.57 million with a total value added of $10.76 million and a total labor income of $8.28 million, generating 150 employment. If the demand for mass timber is doubled (increased by 100%) above the basecase scenario, the total output becomes $34.06 million, with a total value added of $14.34 million generating 199 employments. This is 99.8% more than the basecase for both total output and value-added. If the demand for mass timber increases by 200% above the basecase scenario, the total output becomes $51.14 million with a total value added of $21.53 million generating 300 employments. 70 Producing mass timber in LP to satisfy 10% of the US demand, the total output is $44.41 million with a total value added of $18.69 million generating 259 employment. The total output for increasing the lumber price by 5% is $19.47 million with a total value added of $8.20 million generating 115 employments. For increasing the lumber price by 10% the total output is $17.65 million with a total value added of $7.43 million generating 104 employments. The total output for a 5% increase in lumber price is 14.23% more than the basecase whereas, for a 10% rise, the total output is 3.5% more than the basecase scenario. The total output for decreasing the lumber price by 5% is $21.47 million with a total value added of $9.04 million generating 127 employments. For decreasing the lumber price by 10% the total output is $21.62 million with a total value added of $9.10 million generating 127 employments. The total output for producing mass timber using 10% of the ASAW for softwood in the procurement zone of the proposed location in LP is $54.93 million with a total value added of $23.12 million generating 961 employments. For using 30% of the softwood ASAW, the total output becomes $164.80 million with a total value added of $69.37 million generating 961 employments. For using 50% of softwood ASAW total output becomes $274.67 million with a total value added of $115.62 million generating 1,598 employments. The employment number increases by 216% for using 10% of ASAW softwood, 851% for using 30% of ASAW softwood, and 1498% for using 50% of ASAW softwood in comparison to the basecase scenario. The total output for producing mass timber using 10% of the ASAW for spruce and fir in the procurement zone of the proposed location in LP is $4.57 million with a total value added of $1.93 million generating 30 employment. For using 30% of the spruce and fir ASAW, the total output becomes $13.72 million with a total value added of $5.78 million generating 82 employments. For using 50% of spruce and fir ASAW, the total output becomes $22.87 million with a total value added of $9.63 million generating 135 employments. The total SAM multiplier for current mass timber demand in employment is 2.88, indicating that for each direct employment in LP, there are 1.88 additional jobs creation (Table 4.8). In terms of total output, the total SAM multiplier is 2.95 meaning that for each dollar invested in mass timber production, an additional $1.95 is circulated in the economy through indirect and induced effects. 71 Table 4.8: Economic impacts of establishing mass timber manufacturing in Michigan. Employment is represented in numbers whereas labor income, the total value added, and total output are in million USD. Combination Activity Basecase D50 D100 D200 DU10 PD5 PI5 PD10 Employment Labor Income Total Value Added Total Output Employment Labor Income Total Value Added Total Output Employment Labor Income Total Value Added Total Output Employment Labor Income Total Value Added Total Output Employment Labor Income Total Value Added Total Output Employment Labor Income Total Value Added Total Output Employment Labor Income Total Value Added Total Output Employment Labor Income Total Value Added Direct UP 35 1.39 1.49 5.78 39 2.08 2.23 8.67 52 2.78 2.97 11.55 77 4.17 4.46 17.33 67 3.62 3.87 15.05 33 1.75 1.87 7.28 30 1.59 1.70 6.60 33 1.76 1.88 LP 35 1.63 1.73 5.78 52 2.45 2.59 8.67 69 3.27 3.45 11.55 104 4.90 5.18 17.33 90 4.25 4.50 15.05 44 2.06 2.18 7.28 40 1.87 1.97 6.60 44 2.07 2.19 Indirect UP 29 1.44 1.75 5.15 44 2.16 2.63 7.73 58 2.88 3.50 10.31 87 4.32 5.26 15.46 75 3.75 4.57 13.43 37 1.81 2.21 6.49 33 1.65 2.00 5.89 37 1.83 2.22 LP 39 2.63 3.26 7.50 58 3.94 4.89 11.24 77 5.24 6.51 14.97 116 7.88 9.78 22.49 100 6.84 8.49 19.53 49 3.31 4.11 9.44 44 3.00 3.72 8.56 49 3.33 4.13 72 Induced UP 29 0.46 0.84 1.59 20 0.69 1.26 2.38 27 0.92 1.68 3.17 40 1.38 2.52 4.76 35 1.20 2.19 4.13 17 0.58 1.06 2.00 16 0.53 0.96 1.81 17 0.58 1.07 LP 27 1.26 2.19 3.77 40 1.89 3.28 5.66 53 2.52 4.37 7.54 80 3.78 6.57 11.32 69 3.28 5.70 9.83 34 1.59 2.76 4.75 31 1.44 2.50 4.31 34 1.60 2.78 Total Impacts UP total 93 3.29 4.08 12.52 103 4.93 6.12 18.77 137 6.58 8.15 25.03 204 9.87 12.23 37.55 177 8.57 10.62 32.61 87 4.14 5.14 15.77 79 3.76 4.66 14.30 87 4.17 5.17 LP total 101 5.52 7.18 17.05 150 8.28 10.76 25.57 199 11.02 14.34 34.06 300 16.55 21.53 51.14 259 14.37 18.69 44.41 127 6.95 9.04 21.47 115 6.30 8.20 19.47 127 7.00 9.10 Table 4.8 (cont’d) PI10 SS10 SS30 SS50 SB10 SB30 SB50 Total Output Employment Labor Income Total Value Added Total Output Employment Labor Income Total Value Added Total Output Employment Labor Income Total Value Added Total Output Employment Labor Income Total Value Added Total Output Employment Labor Income Total Value Added Total Output Employment Labor Income Total Value Added Total Output Employment Labor Income Total Value Added Total Output 7.33 27 1.44 1.54 5.98 42 2.23 2.39 9.28 123 6.69 7.16 27.85 203 11.15 11.93 46.41 4 0.17 0.18 0.71 10 0.52 0.55 2.14 17 0.86 0.92 3.57 7.33 36 1.69 1.79 5.98 111 5.26 5.57 18.62 333 15.79 16.70 55.85 553 26.31 27.83 93.08 11 0.44 0.46 1.55 29 1.31 1.39 4.65 47 2.19 2.32 7.75 6.54 30 1.49 1.81 5.34 47 2.31 2.82 8.28 139 6.94 8.45 24.85 231 11.57 14.08 41.41 4 0.18 0.22 0.64 11 0.53 0.65 1.91 18 0.89 1.08 3.19 9.51 40 2.72 3.37 7.76 124 8.46 10.50 24.15 372 25.38 31.51 72.46 619 42.30 52.52 120.77 11 0.70 0.87 2.01 31 2.11 2.62 6.03 52 3.52 4.37 10.06 2.01 14 0.48 0.87 1.64 22 0.74 1.35 2.55 64 2.22 4.05 7.64 106 3.70 6.75 12.74 2 0.06 0.10 0.20 5 0.17 0.31 0.59 9 0.28 0.52 0.98 4.79 28 1.30 2.27 3.91 85 4.06 7.05 12.16 256 12.18 21.16 36.49 426 20.30 35.27 60.82 8 0.34 0.59 1.01 22 1.01 1.76 3.04 36 1.69 2.94 5.06 15.88 71 3.41 4.22 12.96 111 5.29 6.55 20.11 326 15.86 19.65 60.34 540 26.43 32.76 100.56 10 0.41 0.50 1.55 26 1.22 1.51 4.65 44 2.03 2.52 7.74 21.62 104 5.71 7.43 17.65 320 17.78 23.12 54.93 961 53.34 69.37 164.80 1,598 88.91 115.62 274.67 30 1.48 1.93 4.57 82 4.44 5.78 13.72 135 7.40 9.63 22.87 73 4.3.6 Economic contribution from the capacity upgrade of the sawmill For UP We estimated 12 direct, 15 indirect, and 7 induced employment opportunities in the state, for upgrading a softwood lumber production capacity in UP to supply lumber for the current mass timber demand (Table 4.9). $0.63 million is estimated as the direct contribution to labor income, which further produces $0.68 million as indirect and $0.21 million as induced labor income in the economy. The total value added from lumber production capacity upgrade in the economy is $1.96 million. The industry generates a direct output of $3.21 million in the state which further generates $1.68 million as indirect and $0.73 million as induced output. The total output resulting from the lumber production capacity upgrade in UP Michigan is $5.63 million. If the demand for mass timber is increased by 50% above the basecase scenario, the total output becomes $8.44 million with a total value added of $2.94 million and a total labor income of $2.28 million, generating 50 employments. If the demand for mass timber is doubled (increased by 100%) above the basecase scenario, the total output becomes $11.25 million with a total value added of $3.92 million generating 66 employments. This is 99.9% more than the basecase for both total output and value-added. If the demand for mass timber is increased by 200% above the basecase scenario, the total output from a capacity upgrade of lumber production becomes $16.88 million with a total value added of $5.88 million generating 98 employments. Lumber produced in UP to meet the 10% of total mass timber demand in the US results in the output of $14.66 million with a total value added of $5.11 million generating 84 employments. The total output for increasing the lumber price by 5% is $5.59 million with a total value added of $1.95 million generating 34 jobs. For increasing the lumber price by 10% the total output is $5.55 million with a total value added of $1.93 million generating 33 employments. The total output for a 5% increase in lumber price is 0.71% less than the basecase whereas, for a 10% rise, the total output is 1.41% less than the basecase scenario. The total output for decreasing the lumber price by 5% is $ 5.67 million with a total value added of $1.98 million generating 34 employments. For decreasing the lumber price by 10% the total output is $5.71 million with a total value added of $1.99 million generating 34 jobs. The total output for producing mass timber using 10% of the ASAW for softwood in the procurement zone of the proposed location in UP is $9.04 million with a total value added of $3.15 million generating 53 employments. For using 30% of the ASAW, the total output 74 becomes $27.13 million with a total value added of $9.46 million generating 157 employments. For using 50% of ASAW total output becomes $45.21 million with a total value added of $15.76 million generating 261 employments. The employment number increases by 55.88% for using 10% of ASAW softwood, 361.76% for using 30% of ASAW softwood, and 668% for using 50% of ASAW softwood in comparison to the basecase scenario. The total output for producing mass timber using 10% of the ASAW for spruce and fir in the procurement zone of the proposed location in UP is $0.70 million with a total value added of $0.24 million generating 11 employment. For using 30% of the spruce and fir ASAW, the total output becomes $2.09 million with a total value added of $0.73 million generating 14 employments. For using 50% of spruce and fir ASAW, the total output becomes $3.48 million with a total value added of $1.21 million generating 21 employments. The total SAM multiplier capacity upgrade to supply lumber for current mass timber demand in terms of employment is 2.83 which indicates that for each direct employment in UP, there is 1.83 additional jobs creation. In terms of total output, the total SAM multiplier is 1.75 meaning that for each dollar invested in mass timber production, an additional $0.75 is circulated in the economy through indirect and induced effects. For LP We estimated 12 direct, 19 indirect, and 11 induced employment opportunities in the state, for upgrading a softwood lumber production capacity in LP to supply lumber for the current mass timber demand (Table 4.9). $0.72 million is estimated as the direct contribution to labor income, which further produces $0.94 million as indirect and $0.49 million as induced labor income in the economy. The total value added from lumber production capacity upgrade in the economy is $2.93 million. The industry generates a direct output of $3.22 million in the state which further generates $2.31 million as indirect and $1.47 million as induced output. The total output resulting from the lumber production capacity upgrade in LP Michigan is $7.00 million. If the demand for mass timber is increased by 50% above the basecase scenario, the total output becomes $10.50 million with a total value added of $4.39 million and a total labor income of $3.23 million, generating 62 employments. If the demand for mass timber is doubled (increased by 100%) above the basecase scenario, the total output becomes $13.99 million with a total value added of $5.86 million generating 82 employments. This is 99.9% more than the basecase for both total output and value-added. If the demand for mass timber is increased by 200% above 75 the basecase scenario, the total output from the capacity upgrade of lumber production becomes $20.99 million with a total value added of $8.79 million generating 122 employments. Lumber produced in LP to meet the 10% of total mass timber demand in the US results in the output of $18.23 million with a total value added of $7.63 million generating 105 employments. The total output for increasing the lumber price by 5% is $6.95 million with a total value added of $2.91 million generating 41 employments. For increasing the lumber price by 10% the total output is $6.90 million with a total value added of $2.89 million generating 41 employments. The total output for a 5% increase in lumber price is 0.71% less than the basecase whereas, for a 10% rise, the total output is 1.41% less than the basecase scenario. The total output for decreasing the lumber price by 5% is $7.05 million with a total value added of $2.95 million generating 42 employments. For decreasing the lumber price by 10% the total output is $7.10 million with a total value added of $2.97 million generating 42 employments. The total output for a capacity upgrade for producing mass timber using 10% of the ASAW for softwood in the procurement zone of the proposed location in UP is $22.55 million with a total value added of $9.44 million generating 131 employments. For using 30% of the ASAW, the total output becomes $67.64 million with a total value added of $28.32 million generating 390 employments. For using 50% of ASAW total output becomes $112.73 million with a total value added of $47.20 million generating 648 employments. The total output increases by 222% for using 10% of ASAW softwood in comparison to the basecase scenario. The total output from a capacity upgrade for producing mass timber using 10% of the ASAW for spruce and fir in the procurement zone of the proposed location in LP is $1.88 million with a total value added of $0.79 million generating 11 employments. For using 30% of the spruce and fir ASAW, the total output becomes $5.63 million with a total value added of $2.36 million generating 34 employments. For using 50% of spruce and fir ASAW, the total output becomes $9.39 million with a total value added of $3.93 million generating 55 employments. The total SAM multiplier for a capacity upgrade to supply lumber for current mass timber demand in terms of employment is 3.50 which indicates that for each direct employment in LP, there are 2.50 additional jobs created. In terms of total output, the total SAM multiplier is 2.17 meaning that for each dollar invested in mass timber production, an additional $1.17 is circulated in the economy through indirect and induced effects. 76 Table 4.9: Economic impacts for a capacity upgrade for softwood lumber need for mass timber manufacturing facility in Michigan. Employment is represented in numbers whereas the labor income, total value added, and the total output are in million USD. SAM is unitless. Combination Activity Direct UP LP Indirect LP UP Induced LP UP Total Impacts LP UP Basecase D50 D100 D200 DU10 PD5 PI5 Employment Labor Income Total Value Added Total Output Employment Labor Income Total Value Added Total Output Employment Labor Income Total Value Added Total Output Employment Labor Income Total Value Added Total Output Employment Labor Income Total Value Added Total Output Employment Labor Income Total Value Added Total Output Employment Labor Income Total Value Added Total Output 12 0.63 0.68 3.21 18 0.94 1.01 4.82 23 1.26 1.35 6.42 35 1.89 2.03 9.64 30 1.64 1.76 8.37 12 0.63 0.68 3.23 12 0.62 0.67 3.19 12 0.72 0.77 3.22 17 1.08 1.15 4.83 23 1.44 1.54 6.44 34 2.16 2.30 9.65 29 1.88 2.00 8.38 12 0.72 0.77 3.24 11 0.71 0.76 3.19 15 0.68 0.90 1.68 22 1.02 1.35 2.52 30 1.36 1.79 3.36 44 2.04 2.69 5.04 38 1.77 2.34 4.38 15 0.68 0.90 1.69 15 0.67 0.89 1.67 7 0.21 0.39 0.73 10 0.32 0.58 1.10 13 0.43 0.78 1.47 19 0.64 1.17 2.20 16 0.56 1.01 1.91 7 0.21 0.39 0.74 7 0.21 0.39 0.73 11 0.49 0.85 1.47 16 0.74 1.28 2.21 21 0.98 1.71 2.94 31 1.47 2.56 4.41 27 1.28 2.22 3.83 11 0.49 0.86 1.48 11 0.49 0.85 1.46 34 1.52 1.96 5.63 50 2.28 2.94 8.44 66 3.04 3.92 11.25 98 4.56 5.88 16.88 84 3.96 5.11 14.66 34 1.53 1.98 5.67 34 1.51 1.95 5.59 19 0.94 1.31 2.31 29 1.42 1.96 3.46 38 1.89 2.62 4.62 57 2.83 3.92 6.92 49 2.46 3.41 6.01 19 0.95 1.32 2.32 19 0.94 1.30 2.29 77 LP Total SAM UP 42 2.83 2.15 2.42 2.93 2.90 7.00 1.75 62 2.78 3.23 2.42 4.39 2.90 10.50 1.75 82 2.87 4.31 2.42 5.86 2.90 13.99 1.75 122 2.80 6.46 2.42 8.79 2.90 20.99 1.75 105 2.80 5.61 2.42 7.63 2.90 18.23 1.75 42 2.83 2.17 2.42 2.95 2.90 7.05 1.75 41 2.83 2.14 2.42 2.91 2.90 6.95 1.75 3.50 2.99 3.82 2.17 3.65 2.99 3.82 2.17 3.57 2.99 3.82 2.17 3.59 2.99 3.82 2.17 3.62 2.99 3.82 2.17 3.50 2.99 3.82 2.17 3.73 2.99 3.82 2.17 Table 4.9 (cont’d) PD10 PI10 SS10 SS30 SS50 SB10 SB30 SB50 Employment Labor Income Total Value Added Total Output Employment Labor Income Total Value Added Total Output Employment Labor Income Total Value Added Total Output Employment Labor Income Total Value Added Total Output Employment Labor Income Total Value Added Total Output Employment Labor Income Total Value Added Total Output Employment Labor Income Total Value Added Total Output Employment Labor Income Total Value Added Total Output 12 12 0.73 0.64 0.78 0.68 3.26 3.26 11 12 0.71 0.62 0.76 0.67 3.17 3.17 36 19 2.32 1.01 1.09 2.47 5.16 10.37 108 56 6.96 3.03 3.26 7.42 15.49 31.11 179 5.05 11.60 5.43 12.37 25.81 51.84 3 0.19 0.21 0.86 9 0.58 0.62 2.59 15 0.97 1.03 4.32 2 0.08 0.08 0.40 5 0.23 0.25 1.19 8 0.39 0.42 1.99 93 11 0.50 0.87 1.49 11 0.48 0.84 1.45 34 1.58 2.75 4.74 100 4.75 8.25 14.23 166 7.91 13.75 23.71 3 0.13 0.23 0.39 9 0.40 0.69 1.18 14 0.66 1.15 1.97 34 1.54 1.99 5.71 33 1.50 1.93 5.55 53 2.44 3.15 9.04 157 7.33 9.46 27.13 261 12.22 15.76 45.21 5 0.19 0.24 0.70 14 0.56 0.73 2.09 21 0.94 1.21 3.48 42 2.18 2.97 7.10 41 2.12 2.89 6.90 131 6.94 9.44 22.55 390 20.83 28.32 67.64 648 34.71 47.20 112.73 11 0.58 0.79 1.88 34 1.73 2.36 5.63 55 2.89 3.93 9.39 2.83 2.42 2.90 1.75 2.75 2.42 2.90 1.75 2.79 2.42 2.90 1.75 2.80 2.42 2.90 1.75 2.81 2.42 2.90 1.75 2.50 2.42 2.90 1.75 2.80 2.42 2.90 1.75 2.63 2.42 2.90 1.75 3.50 2.99 3.82 2.17 3.73 2.99 3.82 2.17 3.64 2.99 3.82 2.17 3.61 2.99 3.82 2.17 3.62 2.99 3.82 2.17 3.67 2.99 3.82 2.17 3.78 2.99 3.82 2.17 3.67 2.99 3.82 2.17 19 15 0.96 0.69 1.33 0.91 2.34 1.70 19 15 0.93 0.67 1.29 0.88 2.28 1.66 61 24 3.04 1.09 4.21 1.44 7.44 2.70 182 71 3.27 9.12 4.32 12.64 8.10 22.31 118 303 5.46 15.20 7.21 21.07 13.50 37.18 5 0.25 0.35 0.62 16 0.76 1.05 1.86 26 1.27 1.75 3.10 2 0.08 0.11 0.21 6 0.25 0.33 0.62 9 0.42 0.55 1.04 7 0.22 0.39 0.74 6 0.21 0.38 0.72 10 0.34 0.63 1.18 30 1.03 1.88 3.54 50 1.71 3.13 5.90 1 0.03 0.05 0.09 3 0.08 0.14 0.27 4 0.13 0.24 0.45 78 4.3.7 Tax contributions The IMPLAN analysis shows that the tax impacts for both the mass timber production and capacity upgrade for establishing the facility in LP are higher than UP (Table 4.10). Producing mass timber to meet current demand in UP has a tax impact of $225,931 for mass timber production and $136,340 for capacity upgrades from taxes on production and imports. For LP, the taxes on production and import for mass timber production to meet current demand is $302,962 while for capacity upgrade, it is $179,479. Table 4.10: Tax impacts if mass timber current demand is produced in Michigan. a. UP Employee compensation ($) Proprietor income ($) Tax on production and imports ($) Households ($) Corporations ($) b. LP Employee compensation ($) Proprietor income ($) Tax on production and imports ($) Households ($) Corporations ($) 4.3.8 Industry impacted State and local MT Sawmill Federal MT Sawmill 171 88 225,931 56,209 3,381 136,340 30,569 2,428 259 117 302,962 106,374 7,559 179,479 52,577 4,719 309,990 12,209 22,125 192,466 18,308 449,618 25,081 33,572 335,625 41,700 157,958 9,753 13,352 104,670 13,144 203,020 18,302 19,891 165,891 26,031 The top 10 sectors impacted by the mass timber industry in Michigan include sawmills, commercial logging, management of companies and enterprises, architectural, engineering, and related services, wholesale trade, truck transportation, full-service restaurants, hospitals, machine shops, and limited-service restaurants (table 4.11). The Sawmill sector has a major impact in producing mass timber in Michigan with 10 additional job opportunities for UP with a total output of $2.58 million whereas LP supports only nine with a total output of $2.54 million. For commercial loggings, LP supports seven additional jobs whereas UP has only six. Mass timber facility if placed in UP has three additional jobs in truck transportation, three jobs in architectural, engineering, and related services, two jobs in each of wholesale trade, management of companies and enterprises, and full-service restaurants. For establishing a mass timber facility in LP, truck transportation produces four jobs, architectural, engineering, and related services, and wholesale trade both creates three jobs, and full-service restaurants, limited-service restaurants, hospitals, and real estate each create two jobs. 79 For lumber capacity upgrades, the sawmill generates the maximum number of jobs in the state. If mass timber is produced in UP, it creates 13 additional jobs in the sawmill sector (with a total output of $3,408 thousand) and if produced in LP, it generates 12 additional employments (with a total output of $3,408 thousand). The Sawmill sector is followed by commercial logging and wholesale trade for both UP and LP. For UP, the commercial logging and wholesale trade generate seven and two jobs respectively whereas for LP, it is nine and two, respectively. Other major sectors with economic impacts of the capacity upgrade of lumber production to meet mass timber demand in Michigan are truck transportation, full-service restaurants, limited-service restaurants, hospitals, real state, Support activities for agriculture and forestry, Accounting, tax preparation, bookkeeping, and payroll service, Management of companies and enterprises, and services to building 80 Table 4.11: Top 10 sectors impacted by mass timber production in Michigan. Description Employment (#) UP LP Labor income ($ in 1000) UP LP UP Value added ($ in 1000) Sawmills Commercial logging Truck transportation Architectural, engineering, and related services Wholesale trade Management of companies and enterprises Full-service restaurants Limited-service restaurants Hospitals Cut stock, resawing lumber, and planning Real estate Sawmills Commercial logging Wholesale trade Truck transportation Full-service restaurants Limited-service restaurants Hospitals Real estate Support activities for Ag. and forestry Accounting, tax preparation, bookkeeping, and payroll services Management of companies and enterprises Services to buildings Mass timber production 10 6 3 3 2 2 2 1 1 1 0 9 7 4 3 3 3 2 2 2 0 2 Capacity upgrade 13 7 2 1 1 1 1 1 1 12 9 2 1 1 1 1 1 0 1 0 0 0 1 1 505 285 155 120 64 62 20 17 54 46 0 667 361 67 39 11 11 25 4 13 11 0 0 569 212 209 350 195 463 37 31 123 0 55 763 274 178 52 17 15 48 22 0 0 80 13 543 320 188 117 148 71 22 42 59 57 0 717 406 154 47 12 26 27 23 13 14 0 0 81 Total output ($ in 1000) UP LP 2,582 428 430 277 281 209 49 79 123 217 0 3,408 543 293 108 28 49 57 42 15 22 0 0 2,543 384 577 570 519 812 81 134 256 0 355 3,408 497 474 144 37 66 99 144 0 0 141 23 LP 607 245 258 336 363 514 40 73 133 0 251 813 317 332 64 18 36 52 102 0 0 89 15 4.4 Discussion The number of mass timber projects are increasing in the US and to address the growing concern of mass timber demand, this study identified two potential locations to establish mass timber manufacturing facilities in Michigan. A similar study has identified three optimal locations for CLT production in Tennessee (Adhikari et al., 2023). The LP region of MI has hotspots of softwood lumber producers, hence there is a higher probability of lumber supply and competitive advantage for a new mass timber producer. On the hind side, additional demand for lumber would increase competition for softwood in the region and potentially drive the wood prices higher. At the wood price of $104/m3, there are about 170 thousand m3 of softwood sawlogs available in LP within the procurement zone of the proposed mass timber facility. The current demand is only about 7.32% of available sawlogs, indicating resource availability will not be a constraint in mass timber production in Michigan if all softwood species are used. Furthermore, the literature suggests that the relationship between demand increase and the price is inelastic in the long run for softwood saw timbers (Kooten & Schmitz, 2022). The increased demand for softwood sawtimber may not have significant impacts on wood prices. On the other hand, if the wood price increases by 10%, the available softwood sawlogs in the procurement zone are 327 thousand m3, an increase of 92.70% compared to baseline wood prices. When the wood price is increased by 20%, the total ASAW in the procurement area increases by 177% (471 thousand m3) as compared to the baseline wood price. A study by Springer et al., (2017) has found that Michigan has sustainable availability of wood biomass for sustainable products like biomass. The higher volume of softwood availability in privately owned forests in LP suggests that it can be an opportunity to include the private sector in mass timber production. A detailed supply-demand study is recommended to better pin down a location and capacity for mass timber production in the state. To account for the regional variation, we also identified a facility in UP as a candidate facility to produce mass timber. There is less competition and a large lumber producer in UP to support mass timber production, however, the available softwood sawtimber is limited from private forests (30 thousand m3). For the baseline wood price of $104/m3, there is 85 thousand m3 of sustainable softwood sawtimber which increases by 127% for a 10% rise in price. It further increases by 177% when the wood price is increased by 20% as compared to the baseline wood price. The findings of this study can be used to spur discussion among policymakers, investors, 82 and other stakeholders. However, the comparatively high price for lumber in the Northeast and Lake State region (Luppold & Bumgardner, 2021) in comparison to the South and West could be a challenge for housing a mass timber facility in Michigan. The investor could go with an option to manufacture mass timber in the area where the lumber is relatively cheaper. Another challenge is related to the wood species. The forest of Michigan contains more hardwood than softwood. Although there is a concern about softwood availability for mass timber production in the state, our study found that there is softwood available for mass timber production within the economically feasible regions in both peninsulas. The real concern is the landowner’s willingness to sell it. About half of the forest owners in Michigan manage forests for reasons other than timber, such as recreation, aesthetics, or real estate (Huff et al., 2019). So, not all the ASAW in the region may be available for harvesting. Further analysis of social sciences and landowners’ willingness in the procurement regions would help estimate more accurate softwood availability. It can be taken as an opportunity for private landowners to get involved in promoting sustainable building materials like mass timber. The economic impact analysis showed that a mass timber industry in Michigan produces a two-fold impact on the economy - impacts from mass timber production and impacts from capacity upgrades in the sawmills. The new mass timber facility will create at least 93 additional jobs and $12.52 million in total output to the state’s economy if housed in UP, and 101 additional jobs and $17.05 million if established in LP. Second, the capacity upgrade in the sawmills to produce additional lumber for mass timber supports at least 34 additional jobs producing a total output of $5.63 million if located in UP or 42 jobs and $7.00 million as total output if located in LP. The output of this research is comparable with the economic impacts of establishing a medium-sized CLT manufacturing industry in Minnesota where a total impact of $16.8 million creating 82 employments was reported (Haynes et al., 2019). The mass timber facility in Michigan generates 1.66 additional jobs for each person employed in the facility in UP and 1.88 in LP. For each dollar invested directly, there is a circulation of $1.17 in the economy if established in UP and $1.95 in LP. A study has found that electricity generation using biomass on average can generate an additional $0.60 for each dollar invested in Mississippi (Grebner et al., 2009). A similar study by Dahal et al., (2020) has found the total multiplier for economic contributions of renewable wood-based power generation to be 2.80 which is smaller than housing a mass timber facility in LP (2.95). The economic impacts of establishing a new pellet 83 mill with an annual production capacity of about 9,800 tons of pellet mill in North Carolina had a total direct output of $9 million generating 38 direct jobs (Scouse et al., 2017). The multiplier for the total output for this pellet mill was estimated to be 1.603. Comparing the findings from this study with our research, we can claim that the economic impacts from mass timber production are higher than those from pellet production. However, the economic impacts may vary according to the location, demand, and supply of particular forest-based products. A study in Tennessee estimated that per dollar invested in secondary solid wood products manufacturing, an additional $0.76 is generated in the economy (Honey, 2019). The secondary solid wood products manufacturing stated in this study includes engineered wood products such as mass timber. The total SAM multiplier for primary solid wood manufacturing (sawmills and veneer and plywood production) in Tennessee was estimated to be 1.95 (Honey, 2019). We estimated that the total SAM multiplier for upgrading the capacity of a sawmill to supply lumber for mass timber production in LP Michigan (2.17) is higher than that of producing veneer and plywood in Tennessee (1.95). Our findings suggest that investing in mass timber production can generate economic impacts in Michigan. Increasing the production of mass timber by volume has an even greater impact on the economy. For instance, doubling current demand doubles the total output and increases the employment number by 47% in UP and 97% in LP. Producing mass timber in Michigan can help to achieve the five-year goal set by the Timber and Forest Products Advisory Council (TFPAC) to increase the total economic impact of the forestry sector to $23 billion with at least 46,000 jobs in the state (Poudel, 2022). Our study has found that sawmills, commercial loggings, and truck transportation services are the major sectors to be benefited from the mass timber production in the state. The logging sector in Michigan in 2019 directly contributes about $271 million (Poudel, 2022) and our study estimated that at least $384 thousand can be added to this sector by producing mass timber to meet the state’s demand. The sawmill sector has the potential of generating an additional $2.54 million when mass timber is produced in LP and $2.58 million if produced in UP. We estimated that at least 12 additional jobs are created in sawmills to produce lumber needed by the mass timber industry and at least 7 additional jobs are created in the logging sector. More positive impacts can be generated in the sawmill and logging sector in Michigan by producing a higher volume of mass timber than the current demand. As sectors such as logging are mostly rural-based, and hence manufacturing mass timber can help 84 boost the rural economy in Michigan by generating additional jobs for rural workers. Our results indicate that except for sawmills and the commercial logging sector establishing a mass timber facility in LP has higher economic impacts compared to UP. However, locating new facilities in relatively less urbanized areas of the state such as in UP could have better impacts on the rural economy even though the direct monetary impacts are lower. We estimated that there is sufficient availability of softwood in both potential locations to meet the current mass timber demand in the state. Assuming 15% of the softwood is lost during the production of mass timber (Bebard et al., 2010), about 72 thousand m3 of mass timber can be produced in UP, and LP can produce 145 thousand m3. However, not all the softwood species are used in mass production and not all the forest owners in Michigan manage the forest land for commercial timber production (Huff et al., 2019). Accounting only the state-owned forest land for the baseline mill-delivered wood price, there is a potential of producing 46 thousand m3 in UP and 59 thousand m3 in LP which is more than the current demand in the state. Similarly, if only private-owned forests are accounted for within the baseline mill-delivered wood price, there is the potential of producing 26 thousand m3 of mass timber in UP and 86 thousand m3 in LP. The situation is not favorable if only spruce and fir are only considered because, for the baseline delivered wood price, there is not a sufficient volume of these species in the proposed potential locations. If we increase the baseline delivered wood price by 10%, the potential volume of mass timber that can be produced using spruce and fir available around the proposed location is 12 thousand m3 for UP and 15 thousand m3 for LP. Our analysis shows that utilizing 10% of the available softwood in the proposed location generates a total output of $54.93 million when mass timber is produced in LP and $20.11 million if produced in UP. The economic impact increases as we utilize more proportion of the available softwood around the proposed area. As this is the volume of softwood after deducting the current harvesting and natural mortality, a minimal effect can be expected in the existing supply chain of softwood in Michigan. The economic impacts are less when only spruce and fir are used in mass timber production as they are less in volume around the proposed locations. The total impact of using only 10% of spruce and fir available around the proposed location in mass timber production in UP is $1.55 million whereas for LP it is $4.57 million. The impact increase to $7.74 million if 50% of the spruce and fir around the proposed location in UP is used and for LP, it becomes $22.87 million. 85 There are some limitations of this study. Our estimates for mass timber demand were based on existing and ongoing mass timber construction identified by Masstimber@MSU and it is believed that the real demand is larger than our estimates. For identifying the procurement zones, we used existing road networks, however, lumber and mass timber transportation may be done using multi-model transport (including railways and waterways) if they are cost-effective. We used the average transportation cost of produced mass timber from the proposed facility in LP (as most of the ongoing projects are situated in LP) and accounted for the average transportation cost for housing the facility anywhere in the state which may not be accurate in real. 4.5 Conclusion Economic impacts for mass timber production in LP are higher compared to UP. However, UP has a larger rural population dependent on the forest product industry and hence may have social and other impacts transcending beyond monetary values. The private forest has the highest availability of softwood sawtimber in LP but with higher competition between the softwood consumers. On the other hand, there is less competition between the softwood consumers in UP, but there is less softwood available for procurement. In both cases, the findings of this study suggest that there is enough softwood to procure for mass timber production in Michigan, and the facility can be housed in LP or UP. We estimated that only about 10% of softwood in the procurement zone for the current delivered wood price in UP and about 7% in LP is needed to fulfill the current demand for wood to produce mass timber. Economic impact analysis informed that establishing a mass timber facility in Michigan to generates and supports additional jobs and taxes and contributes more than $12.52 million in total output if produced in UP and more than $17.05 million if produced in LP. The economic impact increases to at least $25.03 million in UP and $34.06 million for LP when the current demand is doubled. If 10% of the total US demand for mass timber is produced in UP, the total economic impact is $32.61 million, and for LP it is $44.41 million. If 10% of ASAW is used to produce mass timber in UP, it generates a total impact of $20.11 million and for LP it is $54.93 million. 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The use of modern, sophisticated machinery and an increase in the production capacity of these sawmills also have balanced the supply chain of lumber in the market despite a decrease in their numbers. Though the number of sawlog processors has decreased, the market coverage of sawlogs has increased in 2018 compared to 1985. A similar decline was observed in the number of pulpwood processors and market coverage. Reduction in global competitiveness because of high wages in the US and the increase in electronic media supports the longer-term industrial decline of pulpwood industries since 2000. The market coverage and the number of processors for wood biomass have been increasing over the decades. Different financial incentives, tax credits, low-interest loans, and rebates initiated during the early 2000s at the local and state level to promote renewable energy sources are boosting the biomass market coverage. The analysis for merchantable volume shows that the volume has increased for all the products from 2003 to 2018, and it can be justified because of the increase in market coverage of all the forest products. A detailed study is recommended to forecast the future of market coverage of different wood products in Michigan and how it contributes to Michigan's economy. We identified two potential locations to produce mass timber in Michigan and carried out the economic impacts of producing mass timber in these locations. If mass timber is produced in UP, with a larger rural population dependent on the FPIs, social and other impacts may transcend beyond monetary values. We found that the private forest has the highest availability of softwood sawtimber in LP, but in the meantime, there is higher competition between the softwood consumers. There is less competition between the softwood consumers in UP, but less softwood is available for procurement. We estimated that sufficient softwood is available in both the identified potential locations to meet the mass timber demand in Michigan. Mass timber production in LP showed higher economic impacts compared to UP. If produced in UP to meet the current demand, mass timber generates more than $12.52 million in total output with 93 jobs and more than $17.05 million with 101 jobs if produced in LP. The employment number increases when the volume of mass timber production is increased. We recommend a detailed 94 further study to analyze the state's mass timber demand and the owners' willingness to use their forest resources for mass timber. 95