Green Business October 9, 2009, 7:23PM EST

Kill a Newspaper, Save a Tree? Not Quite

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North American mills are operating at 65% capacity, compared with 97% a year ago, according to CreditSights analyst Rahul Gandhi. Current newsprint prices of $435 a ton are down from their most recent peak in November 2008 of around $775 a ton. At these historically low levels, "even the most cost-efficient mills are likely operating below cash cost levels," he says, forecasting that most producers will face mounting operating losses through the third quarter. Gandhi predicts that Catalyst, another large Canadian paper company, is in for an "extremely gloomy" year as well. "The newsprint industry has never been this weak," he says.

Despite the doom and gloom, Gandhi expects newsprint prices to rise as production capacity continues to fall and inventories need replenishing. A strengthening Canadian dollar and rising pulp prices, stimulated in part by strong demand from China, are good bargaining tactics for newsprint producers to start charging higher prices, he says. A majority of them, representing 89% of North American capacity, have announced a price hike of $70 a ton over the next two months. Since most are already posting negative margins, Gandhi says, they have little to lose by further chopping capacity. Of course, if prices rise, that might push publishers to cut back even more, simply exacerbating the downward spiral.

What's the Environmental Tally for Digital?

If demand for paper products has decreased so much, couldn't this be a good thing for the environment, a silver lining to the anguish over print media's demise? Factor in the environmental costs of production, printing, and delivery to your local newsstand, and it may seem that consuming news online is the "greener" choice.

But it's not that simple. To measure the carbon footprint of digital news delivery, one must take into account the metals and minerals mined to build computers and networks, as well as the consumption of electricity, much of which is produced by burning coal. And those are just a few of the factors in the equation. "Neither print nor digital media as currently structured is better" for the environment, says Don Carli, an analyst and senior research fellow at the Institute for Sustainable Communication. The institute says advertisers and media companies don't face enough public pressure to determine how much energy print and digital each consumes, so people can't make informed decisions about which is better.

Meanwhile, private landowners—who own the majority (57%) of the country's 755 million acres of forest, according to the U.S. Forest Service—contend that actively managed and certified sustainable forests are the best conservation option. "Basic economics dictates that markets sustain the viability of forests, just as they would a farm," says Dan Whiting, a spokesman for the National Alliance of Forest Owners, a Washington (D.C.) trade group. "If a farmer can't grow crops, that land is going to go elsewhere." Replantable forests will be replaced with parking lots, strip malls, and condominiums, the group warns.

According to the Paper Industry Association Council, about 57% of the paper consumed in the U.S. was recovered for recycling in 2008. Two-thirds of that is used domestically, 6% of which goes toward newsprint production. But environmentalists aren't hailing the death of newspapers as a planet-greening development. "Less newsprint means fewer trees harvested, and that's certainly a good thing for the environment," says Shannon Binns, program manager at the Green Press Initiative, a San Francisco-based environmental nonprofit that tries to minimize the impacts of publishing and advocates for greater forest conservation and sustainability. Still, he says, "we don't advocate that newspapers going away would be a good thing."

Deprez is a reporter for BusinessWeek.