Large-scale forest-based biofuel production in the Nordic forest sector: Effects on the economics of forestry and forest industries

Abstract

Forest-based biofuel is a promising solution to increase the share of renewable and sustainable energy in the transportation sector. Large-scale implementation of biofuel, however, not only affects the energy and transportation sectors, but also the forest sector value chains. This study uses a partial equilibrium forest sector model to quantify how large-scale production of forest-based biofuel would affect forest owners and forest industries in the Nordic countries. In a scenario assuming that forest-based biofuels cover a 0–40% share of the current Nordic road transportation and domestic aviation fuel consumption, the model results show that the sawmill industry increases their profit slightly due to increasing prices for their sawmilling residues. The traditional pulp and paper industries, on the other hand, see a reduced profit by up to 3.0 billion €, corresponding to 8% of their annual turnover, due to the increase in the price of pulpwood. Due to the increasing wood prices, the forest owners benefit significantly from biofuel investments. According to the model, their gross revenue from harvesting increases up to 31% without the need to increase the harvest more than 15%. The overall profit in the traditional forest sector is reduced by 400–600 million €. The decrease in profit is largest when the biofuel production volume covers 20%–30% of the liquid fuels in the Nordic countries. The reduction in overall profit is lower at 40% biofuel implementation, owing to the significant increase in revenue for the forest owner and the fact that the main reduction in pulp and paper industries happens at between 0% and 30% biofuel implementation. The study shows substantial economic spill-over effects from large-scale biofuel implementations to other parts of the forest sector.