At Flakeboard's Albany and Eugene plants, 188 workers make particleboard from the same sawdust and scrap that could one day be a major part of the nation's energy supply.

Over the coming years, billions of dollars in federal subsidies aim to turn the leftovers of forests, including those in Oregon, into rich sources of renewable power.

But they could also put companies such as Flakeboard, the nation's largest particleboard manufacturer based in South Carolina, out of business if their suppliers opt to sell into more lucrative energy markets.

"There's already a lot of competition," said David Leding, a Flakeboard plant manager in Albany. "And now all of a sudden, we have to compete with our federal government."

As Congress moves to kickstart the biomass market -- the burning of waste wood to generate electricity -- its incentives and subsidies stand to make winners and losers out of players within the same industry. So far, its attempts have not been entirely successful, leading to unintended consequences.

A now-expired tax credit for paper mills to use black liquor, a waste product of the pulping process, helped to send at least one Oregon manufacturer that didn't qualify for the tax break into bankruptcy, claiming it could no longer compete on price. Another tax credit, reinstated last week, to boost the production of biodiesel caused an uproar among soap and cosmetic makers because it threatened their supply of animal fat.

Particleboard and wood products manufacturers fear the same, as the federal government seeks to open new fiber supplies to feed boilers with woody waste, considered carbon-neutral because the carbon emitted in burning the fiber will be offset by the carbon pulled from the atmosphere by growing trees. But it raises a fundamental question asked by many in the wood products industry.

"What is the future of wood?'" said Tom Julia, president of the Composite Panel Association, which represent 40 makers of particleboard, medium-density fiberboard and hardboard. "Do we use it to build things or burn it? We are on the cusp of a major public policy direction on the future use of wood, and we've got to get it right."

Unintended consequences
At Flakeboard, sawdust and wood chips -- the leftovers of sawmills -- are the primary ingredients in making dense boards held together by glue or pressure that compose most cabinets and furniture today. With the closure of sawmills across Oregon, and others going idle, the resource has grown increasingly scarce.

Last year, Congress passed a five-year Farm Bill, which for the first time included large provisions for biomass, carrying sweeping implications for the timber industry nationwide and in Oregon.

Under the United States Department of Agriculture's Biomass Crop Assistance program, sawdust, wood chips and other eligible materials would be paid a subsidy -- up to $45 a ton -- to be transported to an approved biomass conversion plant.

The program's intention was to find an energy use for the vast slash piles deep in the nation's forests or trimmings left from agricultural farming. With little market value and a high transportation cost, slash and other forest waste products have typically been burned on the forest floor.

The subsidy would create jobs for people willing to haul the material out of the woods, encouraging a more efficient network of biomass plants with a steady supply of material that would also promote healthy forests.

Few people, from environmentalists to timber executives, disagree with the program's goals, although not everyone agrees with its high cost. The USDA has said it intends to cap the program at $2.6 billion, including $2.1 billion for matching payments for biomass materials, over the next four years.

"We certainly see the challenge of reducing the woody material on public lands," said Nils Christoffersen, executive director of Wallowa Resources, a nonprofit in rural Wallowa County. "I can see that providing an additional revenue stream for people would be helpful to getting work done in the woods."

Torsten Kjellstrand/The Associated PressKevin Walker, an operator at Flakeboard’s Albany plant, keeps an eye on operations. The company, with 188 Oregon employees, is one of 40 manufacturers nationwide that are advocating for a change in a federal subsidy that would have sweeping implications for the forest products industry.
But as its currently written, the program pits the traditional wood products industry against the emerging renewable energy industry. And with federal backing, energy is sure to win, particleboard makers say.

Already, one of Flakeboard's suppliers in Louisiana has decided to sell to a biomass plant to collect the subsidy, and more could follow if the rules aren't changed. Leding said the company has not lost any suppliers in Oregon.

"We can't pay those prices," Leding said. "It would put the entire industry in a non-competitive situation and drive offshore imports. That's clean waste generated at sawmills that we buy at market rates. That's our feedstock."

Last month, due to industry outcry, the USDA froze the program to propose new rules that would exclude materials that are manufactured into products with higher value. A 60-day comment period ends April 9.

But the changes may not go far enough, said Julia, with the Composite Panel Association. It doesn't list specific items to make them ineligible, which would leave too much flexibility as market prices swing, he said.

"They're going to leave the door open for large sawmills to determine what's competitive and higher value," Julia said. "Expanding America's fiber supply will help the private sector too, but don't raid existing raw materials."

Benefits of biomass
Nationwide, the particleboard and engineered wood products industries employ 20,000 people, with hundreds of thousands more in the furniture and cabinet industries. In Oregon, the industry represents a smaller segment of the wood products industry, which has borne the full brunt of the housing market's implosion.

"Biomass is an important part of Oregon's economic future, drawing from our strengths in timber, agriculture and alternative energy," said Sen. Ron Wyden, D-Ore., whose staff has worked with program administrators on finding a fix. "The USDA decision to allow the program to pay for mill waste is contrary to the intent of the law."

But some sawmills and wood pellet manufacturers say the program is working. At Malheur Lumber in John Day, president John Shelk said the program has freed up more sawdust and chips for sale to paper mills and particleboard plants. With more wood waste coming off of nearby national forests, the company's sawmill has had to use less of its own waste to power its operations. Last winter, about half of the mill's biomass usage came from material that was subsidized by the federal government.

The program has created work for contractors thinning forests, truck drivers and workers at grinding plants.

"That's more than a guy who lights a match in the forest," Shelk said. "The program for us, in the John Day Valley, is working very positively. It's fueling our boilers and saving residuals that we would have been burning for paper mills and particle plants."

Rolf Anderson, chief executive of Portland-based Bear Mountain Forest Products, a major wood pellet manufacturer, says the program would help pave the way to access woody material in the forest that would otherwise go unused.

As sawmills have declined, wood pellet makers have also had trouble getting enough sawdust and wood chips. And with more hospitals and schools beginning to install commercial scale wood-burning stoves, Anderson projects greater demand.

"The biggest thing we're looking for is help in building a whole supply chain that can go to the forest," Anderson said. "It's hard to do that before the demand is there, but we need to do it to grow demand. You need to grow together."

The recession's pummeling forces mean Flakeboard, a privately-held company with annual sales of between $600 to $700 million a year, has laid workers off and cut work days. But the company continues to pour money into its Oregon facilities. In Eugene, the company installed $11 million in new equipment last year. In Albany, it cut the ribbon on a new $10 million melamine laminating line just last month.

Company executives say they support the program's intentions and recognize that finding new sources of woody material will ultimately benefit the entire wood products industry. But they worry that the federal government's attempt distorts existing markets.

"That's the challenge for all of us in the forest products industry,"said T.J. Rosengarth,  Flakeboard's chief operating officer, "that we get the right consequences, not the wrong ones."