Bioenergy from the Swedish Forest Sector - A Partial Equilibrium Analysis of Supply Costs and Implications for the Forest Product Markets

As a response to policy requirements to improve energy security, and to reduce greenhouse gas emissions, the use of bioenergy in Sweden has more than doubled since 1980. In 2008 bioenergy use in Sweden amounted to 108 TWh, or 18% of the total supply of primary energy. Nearly all of this bioenergy supply originates from the domestic forest sector. There is still a desire from policy makers to continuously increase the use of renewable energy. Further increases in demand for forest based bioenergy – either as an effect of direct subsidies, renewable energy supply targets, rising fossil fuel prices, or increasing costs for carbon emissions – could, however, lead to implications for the availability of raw materials and costs, for the wood processing industries. A static partial equilibrium model of the Swedish forest sector – based on the EFI-GTM model structure – is developed to derive supply cost curves for further increases in the use of bioenergy from the forest sector in Sweden. In addition, the implications of increased use of forest based bioenergy on the traditional wood processing industries are analyzed. Model simulations indicate that the cost – in terms of losses in producer and consumer surplus – of an increase in the use of forest based bioenergy by 5 TWh/year in Sweden is 30 million SEK/year, while a 30 TWh/year increase would cost 620 million SEK/year. The marginal cost of increased use is estimated to be 0.011 SEK/kWh at 5 TWh/year, rising to 0.044 SEK/kWh at 30 TWh/year. The costs of reaching a target for increased forest based bioenergy use are highly dependent on the availability of pulpwood imports. An import restriction – requiring the target to be reached through domestic resources only – would increase the costs by up to five times above the unrestricted case. Policy driven increases in the demand for forest based bioenergy will have considerable effects on wood board producers, while the implications for pulp and paper producers, and sawn goods producers, are relatively small; at least as long as the increase in forest based wood fuels is less than 20 TWh/year.