Finland’s experience and the discussions of decision-makers in Brussels are directly relevant to Latvia as well; both countries share a similar forest sector structure and challenges regarding the regulations and officials introduced by Brussels.
For the Latvian forest sector, just as in Finland, it is important to extract greater profit from each cubic metre of wood harvested, rather than increasing logging volumes. A large proportion of timber is still exported as logs or low-processed sawn timber. CLT (Cross-Laminated Timber), LVL (Laminated Veneer Lumber), and higher-grade chemical timber processing are the directions in which Latvia must invest to remain competitive.
Latvian timber producers and forest owners often face unpredictable changes in nature conservation requirements, such as the designation of micro-reserves. As pointed out by Finnish experts, the development of new products requires years and investments that are impossible without stable and predictable national and European policies.
The proposal by Swedish Member of the European Parliament Beatrice Timgren (an active member of the Committee on the Environment, Public Health and Food Safety (ENVI)) to apply lower requirements to countries with low risk levels, where forest sustainability has historically been high, is fully in line with Latvia's interests. In the European Union, Latvia must support the approach that countries with strong forestry traditions should not be subject to the same restrictions and bureaucratic burden as regions where forests have historically been decimated.
Parity between nature conservation and the economy
For Latvian forest owners—both public and private—the European Union’s planned carbon certification for forest management could become a new source of income. This means that forest owners could receive remuneration for both the timber sold and the carbon sequestered in the forest or in long-lived wood construction products. We have already written many times and urged the Latvian construction sector to actively transition to the use of wood structures in public buildings.
The Nature Restoration Law also affects Latvia. The Finnish approach—demonstrating the real situation in the forest to Brussels officials—is good practice. Latvia must engage more actively in discussions with Brussels, arguing that rational forestry ensures both strategic security—local resources, independence from fossil fuels and plastics—and funding for nature conservation.
Operating principles of carbon quota and credit systems in private forestry
“Repetition is the mother of learning,” so we will explain the carbon quota and credit system once again—carbon markets are basically divided into two separate directions, where forestry has a different place: the mandatory quota system and the voluntary carbon credit market.
The mandatory quota system—the European Union Emissions Trading System or EU ETS—operates on a “cap and trade” principle. Countries set the maximum permissible volume of pollution for large industrial producers and energy companies by issuing them a specific number of free or paid emission allowances. If a company exceeds its limit, it must buy the missing allowances on the exchange from those who have polluted less and saved their allowances. Private forest owners cannot directly participate in this mandatory exchange system with their growing trees. In contrast, the voluntary carbon credit market and the new European Union Carbon Removal Certification Framework (CRCF) cover private forestry directly. The basic unit of these systems is the carbon credit, where one credit is equal to one tonne of CO₂ equivalent that has been securely sequestered and stored in forest biomass or soil, or whose release into the atmosphere has been prevented.
Three additional ways to earn income
Private forest owners can earn additional income by registering their forest in one of the specialised carbon projects. Practically, this is done in three ways. First—afforestation, where land that is unsuitable or unproductive for agriculture is planted with forest, creating a new carbon-sequestering stand. Second—improved management and changing forestry practices, such as extending the rotation period or logging age, using selected, faster-growing planting material, or selective thinning, which allows for more timber stock to be accumulated in a specific area than would happen under normal management. Third—preservation and protection, which is realised as a commitment not to harvest a mature forest stand that would otherwise be scheduled for felling, guaranteeing that the carbon stored in it remains intact.
To be able to sell these credits to large corporations that voluntarily wish to offset their ecological footprint, the project must meet strict international criteria. Additionality (whether the carbon sequestration occurs specifically because of the project, rather than naturally) and permanence are assessed—this is a guarantee that the forest will not be felled or destroyed in the coming decades. Once independent auditors, for example according to Verra standards, have measured and verified the carbon sequestered in the forest, the owner is issued digital certificates that can then be sold on the market, turning the forest ecosystem service into money. The European Commission’s goal is to ensure that this carbon funding eventually merges with the overall timber supply chain, providing support specifically for climate-resilient management.
Export structure of the Latvian forest sector and comparison with Finland
The forest sector export structures of Latvia and Finland reflect two different levels of forest economy development. Latvia is still in the transition phase from primary processing to higher value-added products, while Finland is a global leader in deep wood processing and bioeconomy innovation.
The Latvian forest sector's export is one of the most important pillars of the country's economy, historically accounting for about half of the total export value and ensuring a positive foreign trade balance. The backbone of Latvian exports is comprised of mechanical wood processing products. The largest share of export volume and value is made up of sawn timber, usually softwood, which is actively purchased by the construction and manufacturing sectors of Europe, particularly the United Kingdom. Another significant part consists of further processed products, such as plywood, where Latvia is regionally very strong, as well as joinery and carpentry products, pallets, and wooden packaging. A significant place in Latvia's export structure is held by energy wood—wood pellets, briquettes, and wood chips, where demand and prices are largely influenced by Europe's transition to renewable resources and seasonal weather patterns. Although Latvia also exports higher-value products, such as prefabricated wooden houses and CLT (cross-laminated timber panels), the share of modern niches in the total volume is not yet dominant. A small but stable part is also made up of pulpwood exports and seedlings grown in nurseries, which our neighbouring countries, such as Sweden, are very keen to buy.
Export structure of the Finnish forest sector
...is radically different because it is based on chemical and high-tech wood processing. Historically, more than half of Finland's exports were paper, cardboard, cellulose, and wood pulp; even today, Finland’s forest giants (Stora Enso or UPM-Kymmene) are world leaders in the packaging materials and paper industry. Unlike Latvia, Finland exports almost no unprocessed pulpwood; it is processed on-site into cellulose and high-quality cardboard packaging for pharmaceuticals, food, and logistics.
Today, Finland’s export structure is rapidly transforming into a modern bioeconomy. Finns export not only wood as a material but also wood chemical products—bioplastics, biodiesel, wood textile fibres that replace cotton and synthetics, as well as smart packaging with embedded sensors. At the same time, Finland’s mechanical wood processing is oriented towards solid wood engineering products. Finns are the pioneers and largest exporters of timber skyscraper construction technologies (CLT and LVL structures), which allow wood to be used as a full-fledged substitute for concrete and steel.
While Latvia still derives its export value largely from the number of cubic metres of wood and primary processing, i.e., sawn timber, Finland derives much greater profit from the same amount of wood, thanks to deep processing into cellulose and biochemistry. For the Latvian forest sector, Finland's export structure serves as a direct goal: to develop local cellulose or wood chemical biorefining capacity and purposefully increase the production of engineered wood (CLT/LVL) in order to export finished construction solutions, not just raw materials for European construction sites.
What is hindering investment in cellulose and biochemistry plants?
Although ideas about the necessity of a cellulose or biorefining plant are regularly voiced in Latvia, this has not been realised to date due to several serious obstacles.
Building a modern cellulose or biorefining plant requires investments of one to two billion euros. Local capital does not have such funds, while foreign investors, due to the geopolitical situation, have rated Latvia as a higher-risk zone in recent years, which drives up loan interest rates and the cost of attracting financing.
Such plants require huge, continuous, and predictable supplies of low-quality wood—pulpwood, wood chips—for decades. In Latvia, a large part of the forests is still owned by private individuals whose management is not predictable. There are about 100,000 owners of small and very small forest areas. The manager of state forests is bound by strict logging limits and public procurement rules, which do not allow for the guaranteeing of exclusive long-term supplies to one large market player.
Investors need a guarantee that the rules of the game will not change in the next 20-30 years. In Latvia and Europe as a whole, nature conservation requirements—micro-reserves, habitat mapping, nature restoration laws—are changing and, it must be admitted, continuously tightening. The anxiety that total timber harvesting volumes could drop sharply in the future due to nature conservation makes investors wait or plan their investments elsewhere.
Traditional cellulose production requires large amounts of freshwater and generates a lot of wastewater. For ecological reasons, Latvia's inland rivers, even the Daugava, have strict limits on absorbing such industrial capacity. In turn, in coastal areas near ports, there is a lack of the necessary capacity for freshwater supply lines.
Stereotypes still exist in Latvian society that a cellulose plant means stench and environmental pollution, due to negative memories of the former Sloka cellulose plant. As soon as a large industrial project is proposed, local communities actively oppose it with the “not in my backyard” principle.
What is hindering the development of the carbon credit system in private forests?
Although carbon credits sound like an attractive source of profit, Latvian forest owners are quite hesitant to enter this market. The reasons are various. To prove that a forest is actually sequestering additional carbon, complex measurements must be performed, international auditors must be hired, and registration in global registries is required. This process can cost tens of thousands of euros. For a small forest owner (in Latvia, the average private forest area is about 5-10 hectares), this is not economically viable unless they join a large cooperative.
Carbon projects require signing commitments for 30-100 years. This means that during this time, the owner or their heirs will not be allowed to fell the forest, even if timber prices on the market are at record highs or the family's financial situation changes. There are also concerns that the state may introduce new taxes or restrictions on the sale of carbon rights. Another significant factor must be emphasised—if a forest for which carbon money is received perishes in a fire, storm, or is destroyed by bark beetles, which is becoming an increasing problem in Latvia, the stored carbon enters the atmosphere. Contracts usually provide for strict penalties or a requirement to pay back the money received if there is no insurance or the project does not have a sufficient “protection fund” established. The voluntary carbon market has long operated without uniform rules, which has raised concerns about “greenwashing,” where carbon credits are sold for a forest that would not have been felled anyway. Although Brussels is currently implementing its CRCF (Carbon Removal Certification Framework), Latvia still lacks clear national guidelines and mechanisms for how private owners can safely practice this alongside traditional forestry.
From science to industry
In Latvia, wood chemistry and biorefining are developing at a high scientific level, although projects are mostly concentrated in laboratories and pilot projects or tests, rather than large factories. A key driving force is the Latvian State Institute of Wood Chemistry (LVKĶI) in cooperation with the LSFRI “Silava” and the Latvia University of Life Sciences and Technologies.
One of the most significant initiatives of the last few years is the Forest4LV programme. Its goal is to create new technologies and products in the wood value-added chain. Within the framework of the programme, researchers have developed innovative methods to improve the compatibility of wood fibres and synthetic polymers, which allows for the production of new-generation wood-polymer composite materials with excellent mechanical properties and significantly lower climatic impact, solving the problem of the negative impact of softwood resins.
The LVKĶI has become involved in the international initiative FIBRIX to develop new approaches specifically for converting low-value forest biomass into high-value materials and bio-based chemicals.
The Bioeconomy Excellence Centre WoodChemPlus has been created, and with the support of ERDF funds, the institute is modernising laboratories and purchasing equipment so that scientists can create real prototypes and “green chemistry” solutions—bioplastics, polyurethane foam from rapeseed oil and wood by-products, and ecological thermal insulation materials.
The SugarPot project study focuses on the optimisation of lignocellulose pre-treatment and pyrolysis processes. The goal is to effectively extract high-value chemical compounds for subsequent use in pharmaceuticals or the production of high-value biomaterials.
Latvian scientists have the technologies, knowledge, and ready prototypes ranging from smart packaging to bio-foams. However, the main challenge is the so-called commercialisation bridge—the ability to find investors who would be willing to turn pilot projects into actual production plants, which requires large investments and stable market demand.
Forest insurance possibilities in Latvia and climate risks
Forest insurance in Latvia is becoming an increasingly urgent and complex issue. Climate change poses two main threats: unpredictable and powerful storms and the mass proliferation of pests—especially the European spruce bark beetle.
In Latvia, forest insurance policies offered by the largest insurance companies traditionally cover losses caused by fires, storms, and snow breakage. Regarding biological risks—insects and diseases—the situation is different. Insurers generally do not cover losses caused by bark beetles if they have attacked a naturally weakened stand.
The “vicious cycle” of bark beetles and storms
Bark beetles are secondary pests—they first attack trees broken by storms or weakened by drought or excessive moisture. If there has been a storm in a forest (which is an insurance event) and the owner does not remove the damaged trees in time, bark beetles will rapidly multiply there, which in the next season will start to destroy even perfectly healthy adjacent spruce stands. Insurers usually do not compensate for such bark beetle damage (following storms), considering it to be insufficient forest management or a natural biological process. Insurance mathematics is based on unpredictability. Since the spread of spruce bark beetles in Europe and Latvia has been catastrophic and chronic in recent years, the risk is too high and predictable. If insurers were to include full bark beetle risk coverage for old spruce stands (over 50 years old), the price of the policy would rise so high that no forest owner could afford it.
To protect investments and forest value, the emphasis is placed on preventive protection rather than reliance on insurance, which means regular forest inspection, timely sanitary logging, and the installation of traps in the spring. Forest science data, however, indicate that the flight activity of the first generation of bark beetles in Latvia has recently shown a slight decrease in the most massive threat wave, thanks to natural conditions and more active action by owners.
Since carbon credit projects require a guarantee of the forest's existence for even 30-100 years, the unwillingness of insurers to cover insect and disease risks is one of the biggest stumbling blocks in the development of the carbon market.
Insurance conditions
The price of a forest insurance policy in Latvia is usually not fixed; it is calculated individually, based on a percentage rate of the total value of the forest stand. On average, forest insurance costs in Latvia range from 1 to 3 euros per hectare per year for young stands or less valuable forests; for mature and high-value softwood stands, they can reach 5-15 euros (and more) per hectare per year.
The amount of the insurance premium is directly influenced by several factors. Insurance companies, such as BTA and other major companies, evaluate the real market price of the forest. Insuring young stands is cheaper because their value is low and only restoration costs are calculated. Conversely, a maturing or mature forest with a large number of cubic metres of wood is more expensive, because the potential losses in the event of a storm or fire are many times greater.
Softwood stands are more expensive to insure than deciduous stands. This is related both to the fire risk of softwoods and the fact that they are more exposed to windthrow and snow breakage. A standard policy covering only the risk of fire will be cheaper. If an owner wants to add the risk of natural disasters (storms, floods, snow) or third-party malicious acts (theft, arson), the price of the policy increases. The price is also significantly affected by the deductible—the larger the portion of the loss the owner undertakes to cover from their own pocket, for example the first 500 or 1000 euros, the cheaper the policy will be.
If a forest is located in a region where there have historically been large fires in peat bogs or more frequent windthrow, for example in the coastal districts of Kurzeme, the insurance company will apply an increased risk coefficient. The price is also affected by the accessibility of the forest area to firefighting equipment and road infrastructure.
Due to administrative costs, it is not profitable for insurers to draw up very small contracts. Even if, calculating by hectare, a policy should cost, for example, 15 euros per year, companies usually set a minimum policy premium—about 30-50 euros per one contract/property. Therefore, for owners of small forest areas, the relative costs per hectare will always be slightly higher than for large forest owners who insure forest tracts measuring hundreds of hectares.
Sources: Information websites of European Union, Latvian and Finnish forestry, forest science, wood processing, and insurance companies