Does Money Grow on Trees?

If you're looking for an eco-friendly investment and you have enough time on your hands, you can Google away for hours. In the process, you may find that trees and timber emerge as quite a popular option. Just think of all the uses people have found for timber and wood pulp over the years!

But how profitable is it to invest in forests? What sort of returns can you expect?

Very good, according to some. The world's forests are shrinking awfully fast as its population expands. If you own a forest or three, the law of supply and demand could work well in your favour. And there are some great tax breaks too, apparently. Writing in Money Week this February, Tanner Callais described timber as "the opportunity of a decade". Here's why, in his opinion: "From 1972 to the present day, investing in lumber has produced annual returns of 11%.... Like gold, timber tends to do better during periods when stocks and bonds go down. In fact, during three of the four largest bear markets of the 20th century, the value of timber actually rose."

By way of contrast, here's a more cautious note from David Fessler, writing for JutiaGroup.com in August. In his view, the 1990s were "an ideal period to have timber as an investment", but demand for wood and its products has dropped sharply because "housing is in the dumper", business "has gone digital" and the media, by and large, have gone online. Now that prices for paper and lumber have sunk to "multi-year lows" and seem unlikely to recover any time soon, Fessler advises his readers to consider reducing or off-loading any timber investments they may have.

A newer kid on the eco-block is jatropha, a hardy perennial shrub whose oily seeds have been praised as miracle beans, almost ideal for biofuel. Sometimes described as a tree, jatropha is native to Central America but also grows well in Africa and Asia. Its potential for biodiesel has caused great excitement. For instance, in 2007, Scientific American said it was "green gold in a shrub" because it seemed to offer "all the benefits of biofuels without the pitfalls".

Two years on, the hype is less compelling and the picture looks rather more complex. Still, there appears to be solid interest in jatropha in several parts of the world. A conference and expo in California six months ago attracted over 60 participants and inspired the organisers to schedule a follow-up conference to be held this month. The list of guest speakers in May included specialists from Colombia who presented data on jatropha genetics and discussed a new post-production process for extracting oil from the seed curd.

Jatropha plantations, large and small, have been established in a number of countries. Researchers have found that although the plant can grow in arid wasteland, it does better in more fertile soil - so contrary to early claims, the conflicts between land for food and land for biofuel look set to continue for a while.

India and China both have ambitious plans for jatropha cultivation and biofuel production. The Eco-Energy China group expects to establish one of the world's largest commercial plantations of jatropha over the next two years by adding 30,400 hectares to its current plantation of nearly 10,000 hectares.

New initiatives are bound to stir up some controversy - and the jatropha story is still in its infancy. Jon R Luoma, writing for Yale Environment 360 (part of The Guardian's Environment Network), says: "Whether jatropha will turn out to be the wonder plant it was originally touted to be will depend a great deal on how and where it is grown - an issue that must be resolved by scientists, businesses, and governments.... The best outcome might be to slow down the jatropha steamroller and let science sort out whether it can be grown on a mass scale in ways that make it preferable to food-based biofuels. If not, it may turn out that the world will still have to wait for a second generation of truly viable biofuels."

Does it make sense to invest in trees? That's a question for individuals to ponder for themselves. Either way, we're encouraged by the jatropha tale so far because it illustrates the world's growing appetite for alternative, sustainable solutions.