Impacts of policy means for increased use of forest-based bioenergy in Norway—A spatial partial equilibrium analysis

Abstract

Like the European Union (EU), Norway has defined quite ambitious targets regarding increased use of bioenergy. However, the bioenergy market develops relatively slowly, and stronger policies seem necessary to reach the targets. This study analyses how different policy means, high on the agenda in the Norwegian energy debate, may affect the use of forest-based bioenergy in Norway. The means studied are (i) subsidies reducing investment costs of district heating installations, (ii) deposit grant for replacement of oil burners with burners based on bioenergy (iii) feed-in supporting energy production in district heating based on bioenergy. The study is based on a regionalised partial equilibrium model covering forestry, forest industries and the bioenergy sector. The advantage of this methodology is that it allows for assessments of the economic potential of bioenergy under different policy alternatives, taking into account the competition for raw materials from the forest industries, regional differences regarding heat demand and wood fibre supply, as well as important spatial aspects connected to inter-regional transport and trade of wood. The results of the study give medium-term projections for bioenergy use in Norway under different bioenergy policy regimes. Some investments in bioburners in central heating systems and new district heating based on bioenergy are profitable at the current energy prices, but policy incentives in terms of grants, subsidies or feed-in systems make it possible to overcome inertia in investments decisions and provide substantial increase in the supply of bioenergy. The results show that the analysed policy means are effective at the current energy price levels and have a significant impact on bioenergy production. While some results are specific to Norway, other results and the methodology used are of more general value also to other European countries.