A supply-demand modeling of the Swiss roundwood market: Actors responsiveness and CO2 implications

Given the importance of wood products in CO2 sequestration, an increase in the use of local wood in construction may help reduce the sector's net emissions. However, given the low prices of wood, the Swiss forest industry is unwilling to produce more, despite the important potential of wood mobilization. Financial incentives may help meet the goals of both environmental and economic sustainability, if actors respond to price changes. To estimate demand and supply price- and cross-elasticities on the market for roundwood in Switzerland, we use a rich yearly time series data set covering the period 1949–2013. We consider both short term and long term relationships, thanks to a lagged adjustment model and correct for the price endogeneity using a supply-demand equations system estimated with the 3 Stage Least Squares approach. We find that the demand for roundwood is elastic in the long and short run, while the supply is not. However, supply still responds positively to a price increase. In this context, a 10% increase in the price paid to suppliers would lead to a 5% increase in Swiss roundwood production and a 10% decrease in price paid by consumers to an 18% increase in roundwood consumption. Such an increase in the use of wood would lead to sequester 1% of Swiss CO2 emissions in wood products each year.