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Increased biofuel targets will, in general, have limited price effects on woody feedstocks

Publicerad: 18 juni 2018

Prices for forest feedstocks in Sweden will tend to increase in the face of increased demand, where the highest price impact is observed for harvesting residues. However, feedstocks markets, on average, will not experience large price spikes in the medium term. Woody biomass markets can handle the additional demand pressure from biofuel production. Even when considering a tightening of competition.

Biofuel targets and scenarios

Scenarios were constructed with biofuel targets ranging from 5 to 30 TWh, under different assumptions on the competitive situation and use of by-products. The price effects of the scenarios is analysed using the spatial price determination model SpPDM.

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Aggregate price effects

The results suggest marginal impacts on the prices of forest biomass. The average across spatial-explicit prices varies from 0 to 2.8% across feedstocks and scenario types. However, the distribution of the spatial-explicit price impacts display large variation, with price impacts reaching as high as 8.5%.

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We find that the pattern of spatial distribution of price impacts follows relatively well the spatial distribution of demand pressure. However, locations with the highest price impacts show a tendency of mismatch with the locations of the highest demand pressure (e.g. sawlogs). This is an important conclusion that stems from the spatial-explicit structure of the framework developed, and which is missing in other methods that do not use and/or use coarse spatial scales. Hence, from a policy-making perspective, careful analysis should be devoted to the locational linkages for forestry markets of increased biofuel production in Sweden.

Spatial price effects

The results indicate a relatively good match between the spatial location of price impacts and changing demand. Reflecting the dynamics of demand changes, the spatial distribution of the price effect is increasing with the biofuel target. This effect is more pronounced for pulpwood and harvesting residues.

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Under high competition, the price effect on sawlogs and stumps are showing a wider spatial distribution. By-products inclusion does not affect the matching of the spatial distribution of price impacts and demand changes.

Price effect on specific wood assortments

For pulpwood and harvesting residues, the price impact is higher under the low competition scenario. For sawlogs and stumps, the price impacts are negligible at low biofuel targets. Under high competition scenario, the price effect on sawlogs and stumps are more spatially distributed, especially for stumps. Non-inclusion of by-products puts more pressure on prices for stumps. The results do not differ substantially when industrial by-products are allowed in the biomass mix.

Key insights

Prices for forest feedstocks in Sweden will tend to increase in the face of increased demand, where the highest price impact is observed for harvesting residues.  However, feedstocks markets, on average, will not experience large price spikes in the medium term. Woody biomass markets can handle the additional demand pressure from biofuel production. Even when considering a tightening of competition.

From a policy-making perspective, intervention in the woody biomass markets is not necessary, at least not in the medium term. However, special attention must be given to the locational linkages with respect to forestry markets in Sweden.

Generally, the results highlight that increased bioenergy demand leads to a stronger pressure on the forests, i.e. higher harvest levels and more intensive use of forests. In addition, the results show that high future bioenergy demand levels are likely to lead to increased biomass imports. High bioenergy demand levels are also seen to counteract cascading use of wood, and even lead to increased combustion of roundwood to energy.