Renewable energy and wood fuel productions in the Nordic region: Can it be changed?

Abstract

Along the last decades, carbon-free energy production has been a priority in the Nordic countries. The present study analyses the interactions between renewable energy (RE, entailing solar, wind, wave, hydro and municipal waste), and wood fuel (WF) production in Denmark, Finland, Norway and Sweden during the period 1960–2017. The method is based on a 2-lag vector error correction model, VECM (2), which is also used to simulate future developments. The main hypothesis assumes that a shock in RE will translate into direct and measurable effects on the WF production, and that both can be modelled co-integrated. The results of the study represent the four responses between renewable and wood fuel energy productions owing to exogenous impulses or shocks. In response to its own (renewable to renewable and wood fuel to wood fuel) positive shocks (i.e., unexpected increases), RE production decreases about 40% and stabilises. In contrast, WF production reduces by nearly 133%. In a mutual analysis of a positive shock on both RE and WF productions, the WF production decreases about 75% whereas RE production increases by about 83%. The results indicate that any unexpected shock in the WF market will result in an increase in RE production and possibly a decrease in WF production. The findings of this study expand current econometric analyses and help policymakers plan for future renewable energy requirements.