Thank you, Raechelle.
Chris and I learned from our favorite Whitman professor that it is always a good idea to begin a lecture with a story from the New York Times, so that is how I would like to begin my remarks tonight.
The April 6 Sunday Times featured a story headlined "A Newfangled Way to Count the Trees in the Park." It reads: "On a frigid morning in January on the east side of the Central Park Reservoir, Eric George, 28, was mystifying joggers and dog walkers alike. He wore a backpack with a G.P.S, receiver and carried, in one hand, a data collection unit resembling a portable credit card machine, and in the other, a strip of wood known as a Biltmore stick.
Mr. George was collecting information for a comprehensive inventory of Central Park's trees, the first of its kind to use GPS technology to pinpoint the exact location of each one.
Some of his other equipment had older origins. The Biltmore stick, for example, was developed around the middle of the 18th century to determine a tree trunk's diameter."
The article goes on to report that the survey counted 24,132 mature trees and 2,000 saplings in Central Park, up slightly from the last survey in 1982. With new technology, however, this year's survey only took a few days rather than months.
The new high-tech survey creates a computer file storing the long-term history of each tree, which allows park workers to track threats like Dutch elm disease and helped establish that the park's efforts to reduce invasive trees had been successful. And finally, in the future, he would like to be able to distribute hand-held GPS units so that park visitors could take self-guided tours of the park's vast collection of beautiful and historic trees.
So, as Dr. Ball always said, "you can read it all in the New York Times." And this story in particular touches on much of what I want to talk to you about tonight.
First, that we as human beings have a very special relationship with trees. Our sense of connection to the trees and the forest is profound. We are inspired by the forest, and it is natural and appropriate that we want to preserve its beauty and "save the trees."
Second, the article points out that man's interaction with the forest can be a very productive relationship if it is done with thought and care.
Finally, the story touches on the power of new technologies that are changing and improving our ability to manage forests for important values.
And that's what I'd like to talk about today. I want to ask you to think about our relationship with the forest. I want to ask you to think about a paradigm where we preserve and grow the world's forests while employing our working forests in new and more productive ways. In those working forests the goal is not to "save a tree." but to use the unique potential of trees to solve many of the challenges facing people and our planet. Finally, I want to talk about some of the economic challenges facing us as we seek to unlock the potential of trees.
So let me start by discussing the state of the world's forests and their role in our environment.
There are very real concerns about the world's forests. Global deforestation is a problem, mostly in tropical regions. This chart is based on data from the United Nations Food and Agriculture Organization. It shows largely stable forest in the temperate zones of the Northern Hemisphere, but decreasing forests near the equator around the globe. Unfortunately, those tropical forests also tend to have the most bio-diversity. Most of the loss of forest cover in tropical regions does not come from forestry. It is largely due to clearing for farming and cattle grazing. Much of the clearing is done by burning the forest, which of course releases the sequestered carbon into the environment.
Weyerhaeuser has no forests or forestry activity in the tropical zones. The forestland we own is primarily in the United States -- in the South and the Pacific Northwest. We harvest 1-3 percent of our forest each year, so at least 97% of the forest continues to grow and in the harvested areas we replant more than 170 million trees each year. We are not running out of trees in North America. By replanting more trees than we harvest, our industry has helped America's forestlands increase by 12 million acres since 1987.
We also own licenses for forests in Canada, primarily now in Alberta and to a lesser degree in Ontario. In Canada the forests are own by the Crown -- by the people -- and forestry is regulated and controlled by the Provincial governments.
Weyerhaeuser also has relatively small but growing forests in the temperate zones of the Southern Hemisphere, primarily in Uruguay. Those forests are being produced through a process known as afforestation -- converting in this case cattle range land in areas designated by the government - to highly productive forests with fast-growing pine and hardwood species appropriate for the area. Afforestation has been used to produce valuable forests in countries like New Zealand and South Africa for many decades.
Lets talk for a minute about how we make sure that the world's forests used to produce wood products are managed sustainably. The best way to do that is through third-party certification of the practices on those forests -- based on standards relating to harvesting, replanting, and other aspects of forest management. This slide shows that we have a very long way to go to establish third-party certification for the world's forests. There are multiple systems of certification, but I would submit that any of the recognized certification schemes result in far better practices, particularly in areas where forestry is not subject to effective government regulation.
In addition to extensive government regulation in the states and provinces where we operate, 100% of Weyerhaeuser's forests are certified.
We invest our shareholder's dollars in sustainable forestry every day. We know that it works because we have been doing it for a very long time. As I said earlier, we are planting over 100 million seedlings each year, most of them on the same land that has been planted once or twice before in our 108 year history. Ninety seven percent of our forestlands remain growing each year, 1-3% are harvested and quickly replanted. We are constantly evaluating our practices and working to improve them with respect to water quality, fish habitat and soils. Our scientists are involved in assessing and managing wildlife habitat, particularly for threatened or endangered species. We are also involved in the life of the communities where we operate and the issues of aboriginal peoples -- something that was an emphasis for me in the three years we lived and worked in Canada.
The next big issue -- and one where forests are an important part of the solution -- is climate change. Here is the famous J curve showing what people are worried about - the data on temperatures over the last 1000 years.
There is little debate that carbon dioxide has increased in the atmosphere and that temperatures have risen.
So first, Weyerhaeuser has responded by voluntarily targeting to reduce GHG emissions by 40% from our mills. In addition, we are able to capture the GHG benefit of powering our mills by using renewable biomass from the forest to create energy -- 72% of the energy we need for our mills - rather than relying exclusively on petrochemicals. In a number of cases we have turbines at our mills that generate power in excess of our needs which goes onto the power grid.
There is another more interesting and important aspect to the role of forestry in the carbon cycle and carbon sequestration. If you only remember one thing from hearing me talk tonight I hope you will remember this and reflect on it as you think about climate change issues. It is well understood and accepted that, through the process of photosynthesis, trees store carbon. Last Sunday's NY Times magazine featured a story on "The Low Carbon Catalog" which reported that "three trees will sequester one ton of carbon dioxide over a lifetime of 55 years." What is less often discussed is the fact that wood products manufactured from the forest also continue to sequester carbon.
The carbon performance of a managed forest is, however, beginning to get more attention. This slide was produced by the IPCC, which won the Nobel prize along with Al Gore. It shows the carbon balance from a managed forest. The vertical axis shows tons per hectare cumulative carbon sequestration and the horizontal axis is 100 years in the life of a managed forest (a hectare is a little over 2 acres.)
Starting on the left, we see the forest growing and sequestering carbon over its first 40 years. That's the point where the controversy starts. Because at that point the chart shows that you start cutting down the forest to make lumber and other forest products. If you didn't start cutting the forest, it would continue to sequester carbon on more of a straight line basis until it stabilizes around 80 years. As the harvest begins on the managed forest, the carbon continues to be sequestered in long-lived forest products, like lumber, and short-lived products like paper and containerboard. Some of the fiber is used to produce energy and some of the products displace those made from fossil fuels (like plastic bags) and some of the carbon returns to the soils and is sequestered there.
It looks fairly complicated and I don't pretend to understand it entirely, but the basic elements are straight-forward. Products from the managed forest continue to sequester carbon. The 2 by 4 in your house will sequester fiber for decades. In the meantime a new forest is growing on the same land and that forest sequesters additional fiber, so although trees continue to be cut over time, the total amount of sequestered fiber increases -- the bar goes up as we move to the right over time.
Just about everyone agrees that we should preserve endangered,and old-growth forests and other wild lands (and there are many important projects underway to continue to protect sensitive areas beyond those already set aside), But the question remains, why should we also manage some forests to produce products from trees? Why not just let all forests continue to grow? Well, there are a number of answers. An important answer is that building products made from the forest are much better in terms of energy consumption and the carbon balance than other options.
This chart shows that building with wood results in less carbon emissions than building with steel and concrete. The carbon story in the Sunday Times said "Steel and concrete have immense carbon footprints." That might overstate a bit, and it is true that concrete and steel are the right solution in some applications -- such as high rise buildings. But this slide shows that you can build about 5 houses with wood for every 4 houses you build with steel or concrete.
The ability to sequester carbon in building products is important, but today we are asking ourselves how we can maximize the carbon benefits from our trees. We are asking ourselves, "What can a tree be?"
It can be many things.
After more than a century of such a close relationship with trees, you might think that they no longer surprise us or capture our imagination. But they do.
Like the trees in Central Park, we are increasingly applying technology to unlock their potential. And, so today, we find ourselves asking again, "What can a tree be?"
It's a challenge that requires us to open our minds to the countless possibilities in wood, fiber and land. It's a challenge to invent new uses and products from the renewable resources on our land -- to use each tree ever more efficiently and imaginatively.
"What can a tree be?"
Yes, a tree can be a house, a book, a box or a newspaper. But we believe a tree can be much more. It can be medicine, clothing -- even energy.
In late February, we signed an agreement with Chevron creating a new joint venture called "Catchlight Energy." It was formed to develop the next generation of renewable cellulose-based transportation fuels.
The use of food products such as corn to make ethanol is already raising concerns about the impact on global food prices and availability. Catchlight is focused on non-food fiber to provide a sustainable energy solution. Initially, Catchlight plans to use switchgrass grown between trees in our Southern timberlands as feedstock for the project. In the future, it could use other forms of cellulosic fiber to create fuel.
This joint venture combines the ingenuity, research and technology of Weyerhaeuser and Chevron -- to help meet the world's needs for energy. We bring the capability to grow large quantities of feedstock and our research knowledge of cellulose fibers. Chevron adds refining, distribution and marketing capabilities.
The name Catchlight, refers to photosynthesis, the process by which a plant takes carbon dioxide from the air and transformes it into energy through a chemical reaction fueled by sunlight.
To us, it's a solar-powered manufacturing process so important that we featured it on the cover of our annual report this year. To us, it's a formula for success that opens infinite new possibilities.
What if we developed new uses for wood fiber that could make cars more fuel-efficient? We can and we did. Today, it's possible to use a bumper made from wood fiber to make a car lighter.
But that's just the start. Anything that is made from petroleum today could conceivably be made from wood-based cellulose fiber. This would lessen our dependence on oil and is better for the environment.
For example, many disposable wipes sold today are made from petroleum and don't break down easily in landfills. Our scientists have created a biodegradable material that lets you chose a product to soak up spills that is stronger, softer than the petroleum-based option. This product comes from a renewable resource -- wood.
"What can a tree be?"
In our minds, there is no limit to the answers to that question.
I'd like to finish today by discussing one more challenge facing all of us as we seek environmental solutions and it is an economic and financial challenge. All of us understand that environmental problems are long-term. We didn't do something yesterday that all of a sudden caused issues today. Likewise, their solution require long-term approaches and I'm not sure industry has the luxury of time any more.
In our industry the act of planting a tree is necessarily a long term belief. We won't harvest that tree for 20, 30 or 40 years. That means a forester has to wait nearly all of his or her career to see that seedling become part of the solutions we envision. That means an investor has to wait at least 20 years before seeing any return on the cost of planting and sustaining a tree,
How many of you would wait 40 years to see if an investment you made today contributed to the growth of your 401(k) plan? Or for students who probably don't yet have such investments, how many of you would be willing to spend a year on a college curriculum you are absolutely sure will have no value to you until you are over 60? Chances are, few of us would be willing to wait for such long-term investments,
But we are no different than the capital markets in general. Today's investor expects a better return in an increasingly shorter period of time. And that affects how businesses make decisions.
Before I go any further, let me emphasize that I believe shareholders deserve a good return on their investment. I believe they can, and should, play a role in a company's direction. But we now live in a world that places ever greater emphasis on "what did you do for me today?" There is little tolerance for the variances caused by market cycles.
Just look at the reaction today to the slowdown in the real estate market. I don't want to diminish the effect this has on people's lives or that it isn't serious, but anyone who's been around the market knows that such fluctuations are common. Weyerhaeuser right now is facing some tough financial quarters, but we also believe in the long term potential of the housing market.
The question becomes whether investors will have the patience to ride out this short-term situation on the belief in the long-term potential?
I mention this because I see too many companies being forced to chase the short-term payoff at the expense of the longer-term solution.
Toyota didn't develop the hybrid engine based on short-term approach. In case you're not familiar with how the hybrid came about, let me briefly describe its history. It began with Toyota's board of directors issuing a challenge to its scientists to come up with the world's more fuel-efficient car. A couple of years and several million dollars in research later, the engineers presented an engine that boasted a 50 percent improvement in efficiency. The Toyota board said "not good enough" and sent the engineers back to work. More research and more money went into the work and the engineers came back years later with a practical hybrid car.
The world owes the Toyota board a huge thank you for its patience because achieving a revolutionary solution took time. Yes, the board could have taken the first solution and began to see returns on its investment. But such an approach wouldn't have provided the solution of the hybrid nor would it have positioned Toyota as a leader in this technology.
Patience, backed by science and a belief in something greater, can produce groundbreaking solutions.
I also owe you thanks for your patience and I'd like to close by asking you once again: "What can a tree be?"
In response, I'd say it could be anything our minds imagine. But it will take a society willing to see that using trees is the answer and a country that looks at the long-term rather than the immediate.
Thank you.
