IDEAS home Printed from https://ideas.repec.org/a/eee/eneeco/v57y2016icp184-191.html
   My bibliography  Save this article

Price trends and volatility scenarios for designing forest sector transformation

Author

Listed:
  • Lochhead, Kyle
  • Ghafghazi, Saeed
  • Havlik, Petr
  • Forsell, Nicklas
  • Obersteiner, Michael
  • Bull, Gary
  • Mabee, Warren

Abstract

Potential scenarios for the forest bioeconomy are heavily reliant on price assumptions; in particular, any abrupt changes in prices have a profound impact on the relevancy of any sector analysis. The objective of this paper was to demonstrate a new forest sector approach for incorporating price uncertainties in order to improve our assessment of investment decision making alternatives. Methodologically, we linked a multivariate generalized autoregressive conditional heteroscedasticity model (mGARCH (1,1)) with three global land use scenarios that are of strategic importance to the forest bioeconomy. The three scenarios were formulated as i) a business as usual scenario, ii) a high biomass usage scenario and iii) a no-growth scenario. Our results indicate an upward trend in prices over time for all three scenarios and for most woody biomass commodities. Under all scenarios, price volatility in the forest sector would be smaller than that for the fossil fuel energy (i.e. oil and natural gas). Price volatilities from fossil fuel markets are positively influencing woody biomass price volatility and positively influencing pulp volatility. These results are discussed in the context of a case study describing investment alternatives for a district heating facility with options for: woody biomass, natural gas, or heating oil.

Suggested Citation

  • Lochhead, Kyle & Ghafghazi, Saeed & Havlik, Petr & Forsell, Nicklas & Obersteiner, Michael & Bull, Gary & Mabee, Warren, 2016. "Price trends and volatility scenarios for designing forest sector transformation," Energy Economics, Elsevier, vol. 57(C), pages 184-191.
    • Handle: RePEc:eee:eneeco:v:57:y:2016:i:c:p:184-191
    DOI: 10.1016/j.eneco.2016.05.001
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0140988316300986
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.eneco.2016.05.001?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Saghaian, Sayed H., 2010. "The Impact of the Oil Sector on Commodity Prices: Correlation or Causation?," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 42(3), pages 477-485, August.
    2. Teresa Serra & David Zilberman & José Gil, 2011. "Price volatility in ethanol markets," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 38(2), pages 259-280, June.
    3. Engle, Robert F. & Kroner, Kenneth F., 1995. "Multivariate Simultaneous Generalized ARCH," Econometric Theory, Cambridge University Press, vol. 11(1), pages 122-150, February.
    4. Onour, Ibrahim & Sergi, Bruno, 2011. "Global food and energy markets: volatility transmission and impulse response effects," MPRA Paper 34079, University Library of Munich, Germany.
    5. Chong, W.T. & Naghavi, M.S. & Poh, S.C. & Mahlia, T.M.I. & Pan, K.C., 2011. "Techno-economic analysis of a wind–solar hybrid renewable energy system with rainwater collection feature for urban high-rise application," Applied Energy, Elsevier, vol. 88(11), pages 4067-4077.
    6. Serra, Teresa, 2011. "Volatility spillovers between food and energy markets: A semiparametric approach," Energy Economics, Elsevier, vol. 33(6), pages 1155-1164.
    7. Chau, J. & Sowlati, T. & Sokhansanj, S. & Preto, F. & Melin, S. & Bi, X., 2009. "Economic sensitivity of wood biomass utilization for greenhouse heating application," Applied Energy, Elsevier, vol. 86(5), pages 616-621, May.
    8. Kangas, Hanna-Liisa & Lintunen, Jussi & Pohjola, Johanna & Hetemäki, Lauri & Uusivuori, Jussi, 2011. "Investments into forest biorefineries under different price and policy structures," Energy Economics, Elsevier, vol. 33(6), pages 1165-1176.
    9. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
    10. Ince, Peter J. & Kramp, Andrew D. & Skog, Kenneth E. & Yoo, Do-il & Sample, V. Alaric, 2011. "Modeling future U.S. forest sector market and trade impacts of expansion in wood energy consumption," Journal of Forest Economics, Elsevier, vol. 17(2), pages 142-156, April.
    11. Henriques, Irene & Sadorsky, Perry, 2011. "The effect of oil price volatility on strategic investment," Energy Economics, Elsevier, vol. 33(1), pages 79-87, January.
    12. Laura E. Kodres & Matthew Pritsker, 2002. "A Rational Expectations Model of Financial Contagion," Journal of Finance, American Finance Association, vol. 57(2), pages 769-799, April.
    13. Robert S. Pindyck, 1999. "The Long-Run Evolutions of Energy Prices," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 1-27.
    14. Havlík, Petr & Schneider, Uwe A. & Schmid, Erwin & Böttcher, Hannes & Fritz, Steffen & Skalský, Rastislav & Aoki, Kentaro & Cara, Stéphane De & Kindermann, Georg & Kraxner, Florian & Leduc, Sylvain & , 2011. "Global land-use implications of first and second generation biofuel targets," Energy Policy, Elsevier, vol. 39(10), pages 5690-5702, October.
    15. Nebojša Nakićenović & Nadejda Victor & Tsuneyuki Morita, 1998. "Emissions Scenarios Database and Review of Scenarios," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 3(2), pages 95-131, December.
    16. Hurmekoski, Elias & Hetemäki, Lauri, 2013. "Studying the future of the forest sector: Review and implications for long-term outlook studies," Forest Policy and Economics, Elsevier, vol. 34(C), pages 17-29.
    17. Latta, Gregory S. & Baker, Justin S. & Beach, Robert H. & Rose, Steven K. & McCarl, Bruce A., 2013. "A multi-sector intertemporal optimization approach to assess the GHG implications of U.S. forest and agricultural biomass electricity expansion," Journal of Forest Economics, Elsevier, vol. 19(4), pages 361-383.
    18. Hugo Valin & Ronald D. Sands & Dominique van der Mensbrugghe & Gerald C. Nelson & Helal Ahammad & Elodie Blanc & Benjamin Bodirsky & Shinichiro Fujimori & Tomoko Hasegawa & Petr Havlik & Edwina Heyhoe, 2014. "The future of food demand: understanding differences in global economic models," Agricultural Economics, International Association of Agricultural Economists, vol. 45(1), pages 51-67, January.
    19. Stephen, James D. & Mabee, Warren E. & Pribowo, Amadeus & Pledger, Sean & Hart, Randy & Tallio, Sheldon & Bull, Gary Q., 2016. "Biomass for residential and commercial heating in a remote Canadian aboriginal community," Renewable Energy, Elsevier, vol. 86(C), pages 563-575.
    20. Bael, David & Sedjo, Roger A., 2006. "Toward Globalization of the Forest Products Industry: Some Trends," RFF Working Paper Series dp-06-35, Resources for the Future.
    21. Serra, Teresa & Zilberman, David, 2013. "Biofuel-related price transmission literature: A review," Energy Economics, Elsevier, vol. 37(C), pages 141-151.
    22. Moiseyev, Alexander & Solberg, Birger & Kallio, A. Maarit I. & Lindner, Marcus, 2011. "An economic analysis of the potential contribution of forest biomass to the EU RES target and its implications for the EU forest industries," Journal of Forest Economics, Elsevier, vol. 17(2), pages 197-213, April.
    23. Näyhä, Annukka & Pesonen, Hanna-Leena, 2014. "Strategic change in the forest industry towards the biorefining business," Technological Forecasting and Social Change, Elsevier, vol. 81(C), pages 259-271.
    24. Feng Wu & Zhengfei Guan & Robert J. Myers, 2011. "Volatility spillover effects and cross hedging in corn and crude oil futures," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 31(11), pages 1052-1075, November.
    25. Lauri, Pekka & Havlík, Petr & Kindermann, Georg & Forsell, Nicklas & Böttcher, Hannes & Obersteiner, Michael, 2014. "Woody biomass energy potential in 2050," Energy Policy, Elsevier, vol. 66(C), pages 19-31.
    26. Martin Lampe & Dirk Willenbockel & Helal Ahammad & Elodie Blanc & Yongxia Cai & Katherine Calvin & Shinichiro Fujimori & Tomoko Hasegawa & Petr Havlik & Edwina Heyhoe & Page Kyle & Hermann Lotze-Campe, 2014. "Why do global long-term scenarios for agriculture differ? An overview of the AgMIP Global Economic Model Intercomparison," Agricultural Economics, International Association of Agricultural Economists, vol. 45(1), pages 3-20, January.
    27. repec:bla:jfinan:v:44:y:1989:i:1:p:1-17 is not listed on IDEAS
    28. Lauri, Pekka & Kallio, A. Maarit I. & Schneider, Uwe A., 2012. "Price of CO2 emissions and use of wood in Europe," Forest Policy and Economics, Elsevier, vol. 15(C), pages 123-131.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Saghaei, Mahsa & Ghaderi, Hadi & Soleimani, Hamed, 2020. "Design and optimization of biomass electricity supply chain with uncertainty in material quality, availability and market demand," Energy, Elsevier, vol. 197(C).
    2. Viaggi, Davide, 2018. "Towards an economics of the bioeconomy: four years later," Bio-based and Applied Economics Journal, Italian Association of Agricultural and Applied Economics (AIEAA), vol. 5(2), September.
    3. M. Jean Blair & Bruno Gagnon & Andrew Klain & Biljana Kulišić, 2021. "Contribution of Biomass Supply Chains for Bioenergy to Sustainable Development Goals," Land, MDPI, vol. 10(2), pages 1-28, February.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Serra, Teresa & Zilberman, David, 2013. "Biofuel-related price transmission literature: A review," Energy Economics, Elsevier, vol. 37(C), pages 141-151.
    2. Chia-Lin Chang & Yiying Li & Michael McAleer, 2018. "Volatility Spillovers between Energy and Agricultural Markets: A Critical Appraisal of Theory and Practice," Energies, MDPI, vol. 11(6), pages 1-19, June.
    3. Al-Maadid, Alanoud & Caporale, Guglielmo Maria & Spagnolo, Fabio & Spagnolo, Nicola, 2017. "Spillovers between food and energy prices and structural breaks," International Economics, Elsevier, vol. 150(C), pages 1-18.
    4. Saghaian, Sayed H. & Nemati, Mehdi & Walters, Cory G. & Chen, Bo, 2017. "Asymmetric Price Volatility Interaction between U.S. Food and Energy Markets," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 258240, Agricultural and Applied Economics Association.
    5. Abdelradi, Fadi & Serra, Teresa, 2015. "Food–energy nexus in Europe: Price volatility approach," Energy Economics, Elsevier, vol. 48(C), pages 157-167.
    6. Xian, Hui & Colson, Gregory & Karali, Berna & Wetzstein, Michael, 2017. "Do nonrenewable-energy prices affect renewable-energy volatility? The case of wood pellets," Journal of Forest Economics, Elsevier, vol. 28(C), pages 42-48.
    7. Alice Favero & Robert Mendelsohn, 2013. "Evaluating the Global Role of Woody Biomass as a Mitigation Strategy," Working Papers 2013.37, Fondazione Eni Enrico Mattei.
    8. Saghaian, Sayed & Nemati, Mehdi & Walters, Cory & Chen, Bo, 2018. "Asymmetric Price Volatility Transmission between U.S. Biofuel, Corn, and Oil Markets," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 43(01), January.
    9. Chang, Chia-Lin & McAleer, Michael & Wang, Yu-Ann, 2018. "Modelling volatility spillovers for bio-ethanol, sugarcane and corn spot and futures prices," Renewable and Sustainable Energy Reviews, Elsevier, vol. 81(P1), pages 1002-1018.
    10. Helmut Herwartz & Alberto Saucedo, 2020. "Food–oil volatility spillovers and the impact of distinct biofuel policies on price uncertainties on feedstock markets," Agricultural Economics, International Association of Agricultural Economists, vol. 51(3), pages 387-402, May.
    11. Hasanov, Akram Shavkatovich & Do, Hung Xuan & Shaiban, Mohammed Sharaf, 2016. "Fossil fuel price uncertainty and feedstock edible oil prices: Evidence from MGARCH-M and VIRF analysis," Energy Economics, Elsevier, vol. 57(C), pages 16-27.
    12. Bentivoglio, Deborah & Finco, Adele & Bacchi, Mirian, 2015. "Examining Price Transmission between Fuels and Food Prices: the Brazilian Sugar-Ethanol Market," 2015 Conference, August 9-14, 2015, Milan, Italy 211327, International Association of Agricultural Economists.
    13. Chia-Lin Chang & Michael McAleer & Yu-Ann Wang, 2016. "Modelling volatility spillovers for bio-ethanol, sugarcane and corn," Documentos de Trabajo del ICAE 2016-03, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.
    14. Miguel RIVIERE & Sylvain CAURLA, 2018. "Integrating non-timber objectives into bio-economic models of the forest sector: a review of recent innovations and current shortcomings," Working Papers of BETA 2018-26, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    15. M. Thenmozhi & Shipra Maurya, 2020. "Crude Oil Volatility Transmission Across Food Commodity Markets: A Multivariate BEKK-GARCH Approach," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 20(2), pages 131-164, August.
    16. Seulki Chung, 2024. "Modelling and Forecasting Energy Market Volatility Using GARCH and Machine Learning Approach," Papers 2405.19849, arXiv.org.
    17. Daigneault, Adam & Johnston, Craig & Korosuo, Anu & Baker, Justin S. & Forsell, Nicklas & Prestemon, Jeffrey P. & Abt, Robert C., 2019. "Developing Detailed Shared Socioeconomic Pathway (SSP) Narratives for the Global Forest Sector," Journal of Forest Economics, now publishers, vol. 34(1-2), pages 7-45, August.
    18. Galik, Christopher S. & Abt, Robert C. & Latta, Gregory & Vegh, Tibor, 2015. "The environmental and economic effects of regional bioenergy policy in the southeastern U.S," Energy Policy, Elsevier, vol. 85(C), pages 335-346.
    19. Latta, Gregory S. & Sjølie, Hanne K. & Solberg, Birger, 2013. "A review of recent developments and applications of partial equilibrium models of the forest sector," Journal of Forest Economics, Elsevier, vol. 19(4), pages 350-360.
    20. Fengming Qin & Junru Zhang & Zhaoyong Zhang, 2018. "RMB Exchange Rates and Volatility Spillover across Financial Markets in China and Japan," Risks, MDPI, vol. 6(4), pages 1-26, October.

    More about this item

    Keywords

    Forest sector scenario analysis; GLOBIOM; Price trends; mGARCH model; Biomass price volatility; Investment decision making;
    All these keywords.

    JEL classification:

    • Q23 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Forestry
    • Q47 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy Forecasting

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:eneeco:v:57:y:2016:i:c:p:184-191. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eneco .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.