Significant use of forest biomass in the iron and steel industry (ISI) to mitigate fossil CO2 emissions will affect the biomass availability for other users of the same resource. This paper explores the market effects of increased forest biomass competition when promoting the use of forest-based bio-products in the ISI, as well as the interactions between the ISI and the forest industries. We employ a soft-linking approach that combines a geographically explicit techno-economic energy system model and an economic partial equilibrium model of the forest industries and forestry sectors. This allows for iterative endogenous modelling of new equilibrium price developments for different biomass assortments, determining locational choice of bio-products and assessing optimal bio-products technology choices. The results indicate an upward pressure on biomass prices when bio-products are introduced in the ISI (up to 62%), which affects both forest industries and the ISI itself. Prudence is thus warranted not to render bio-production investments uneconomical ex-post by neglecting to include potential price effects in investment decisions. The estimated price effects can be mitigated by increased domestic biomass supply, adjustments of international trade or by revising relevant policies. Even though the results suggest that the price effects will affect the geographical preferences for individual bio-production plants, proximity to the ISI production facility and integration benefits are more important than the proximity to cheaper biomass feedstocks. Product gas production integrated at ISI sites emerges as particularly attractive, while charcoal production exhibits sensitivity to fluctuating markets, both regarding resulting cost for the ISI, and preferred production locations.

Improving the efficiency of the forestry sector will have an important impact on our possibility to attain long-term sustainability and mitigate climate change. In this study, attainable, and sustainable, efficiency improvements in the harvesting of forest products are analyzed using Data Envelopment Analysis (DEA). The price impacts of the efficient harvesting volumes are evaluated in a second step using a spatial forest sector model. The results indicate that the harvested volumes of forest products, both for the industry and energy sectors, can be significantly increased if a more efficient forest management is adopted. This supply-side effect will also result in general price decreases for sawlogs, pulpwood, fuelwood and harvesting residues. However, in certain counties, and for specific forest products, the estimated decreasing price effect from a more efficient forest management cannot fully offset the increasing price effect of the energy sector expanding its use of forest products. More forest biomass enters the market, which is needed in the transition towards a bioeconomy, and the increased availability of forest biomass will restrict the price effect making investments in the bioeconomy more likely to be profitable.

This thesis explores the Swedish forestry and forest industry sectors, together with their adjoining markets, and examines how these sectors are currently positioned to meet future developments and demands. For this purpose, four specific research questions are formulated, focusing on: (1) the structural composition of forest industry sector and how it will be affected by an increasing feedstock competition; (2) the production flexibility of the forest industry; (3) the resource allocation and price effects from increased feedstock competition; and (4) the potential implications from improved harvesting efficiency. These issues are evaluated on a regional level, i.e., the Swedish county level and examined in four papers. Paper I outlines a regional forest partial equilibrium (PE) model, the Norrbotten County Forest Sector Model (NCFSM), covering three northern regions in Sweden and Finland, and is intended to function as a source of reference for the application studies (i.e., Papers II and III). The NCFSM follows the Global Trade Model’s (GTM) modelling structure and produces endogenous estimates of demand and supply volumes as well as price levels for woody feedstocks. The novelty of the NCFSM, compared to other Swedish forest PE models is that it utilizes a more detailed spatial resolution with its trans-national multi-regional scope. The spatial delineation allows for differences in local market conditions, e.g., reservation price and elasticities. In Paper II, the NCFSM is applied to analyse the economic implications from increased utilization of refined woody biomass (charcoal) in the production process of the iron- and steel industry (ISI) sector. Specifically, changes in woody biomass prices and the regional welfare are analysed. The results suggest that total welfare is relatively unaffected by increased woody feedstock competition, though some regional redistribution effects are observed. The price of roundwood will only be moderately affected while the price effect on secondary woody feedstocks, i.e., by-products and harvesting residues, are larger. The three regions are also shown to be highly interconnected, and the introduction of a large new wood consumer in one county will have spill-over effects on neighbouring regions. Consequently, inter-regional trade is important for optimal allocation of the woody feedstock and for the economic well-being of the regions. Paper III explores market implications from efficiency improvements in the harvesting of forest products. This is achieved through a two-step integration process, were a spatial forest sector model (FSM) is combined with efficient harvesting volumes from a network Data Envelopment Analysis (DEA) model. The FSM is an expanded version of the model outlined in Paper I. It includes the forest industry sectors in Sweden´s 21 counties and one aggregated region for the rest of the world (ROW). The forest sector’s efficient harvesting potential is estimated by the DEA model, which captures the multi-production structure of the forestry sector. These estimates are then used as input values in the FSM. Results from the DEA model indicate that the efficiency improvements in the forestry sector can, on average over counties and over the studied time-period, increase total harvesting volumes by 9.2% for sawlogs, 8.5% for pulpwood, 7.8% for fuelwood, and 9.7% for harvesting residues. In turn, the increased supply can reduce price levels by 20.3% for sawlogs, 25.8% for pulpwood, 4.3% for fuelwood, and 4.1% for harvesting residues. Furthermore, the results highlight large regional differences in efficiency potential, where some counties (e.g., Kalmar and Östergötland) have the potential to make large efficiency improvements, while the forestry sector in other counties are operating more efficiently (e.g., Blekinge and Västmanland). The price developments for woody biomass also exhibit regional differences. Finally, Paper IV analyses the production structure and input choice of the Swedish forest industry, on a county level. For this purpose, single-output regional translog cost models, using panel data with fixed effects, are developed for sawmill, pulp mill and district heating sectors. Own-, cross- and Morishima substitution elasticities are estimated for each sector. In addition, scale effects and technical change measures are also estimated. Results indicate that the district heating industry has the highest feedstock flexibility of the included sectors, while sawmill- and pulp sectors exhibit lesser flexibilities to substitute between different woody feedstocks. The results indicate that the rate of technical change is negative for all three sectors, thus indicating a technological deterioration. However, this can partly be explained by the short time-period used (six years) and by investments being uncharacteristically low during this period. Estimates of scale effects varies both within a given industry sector and between sectors. For the district heating and pulp sectors there are large regional differences in scale effects, while they are relatively consistent across counties for the sawmill sector. Overall, the results of this thesis indicate that the Swedish forest sector is governed by complex driving mechanisms, were feedstock sellers and buyers are connected across a wide arrange of forest product markets and linked together in a greater system. Regional differences in the structural composition of markets or in expansion possibilities occur, but these are ultimately subject to the wider economic forces. Consequently, the forest sector has the prerequisites to adapt and meet future developments and demands without damaging societal welfare, but individual industry sectors or specific production means will experience difficulties going forward. 

A spatially analyse of the production structure and input choices for the heating, sawmill, and pulp sectors in Sweden is conducted using a panel data set includes quarterly data for period 2011 to 2016 across 21 counties. Focus is on price and input substitution elasticities, scale effects and technical change measures. A single-output regional translog cost models is developed and estimated. The translog specification is chosen for its flexibility and for the range of alternative hypotheses that can be tested. The results indicate relative elastic price elasticities, limited possibilities to exploit scale effects to future reduce the variable production costs, technical restriction in input substitution options, and mature production technologies that still need to be invested in to reduce technical deterioration over time. The results are usable for practitioners, policy and decision-makers as well as inputs in future academic modelling, especially when assessing the paths towards a biobased economy.

Improving the efficiency of the forestry sector will have an important impact on our possibility to attain long-term sustainability and mitigate climate change. In this study, attainable, and sustainable, efficiency improvements in the harvesting of forest products are analysed using data envelopment analysis (DEA). The price impacts of the efficient harvesting volumes are evaluated in a second step using a spatial forest sector model. The results indicate that the harvested volumes of forest products, both for the industry and energy sectors, can be significantly increased if a more efficient forest management is adopted. This supply-side effect will also result in general price decreases for sawlogs, pulpwood, fuelwood and harvesting residues. However, in certain counties, and for specific forest products, the estimated decreasing price effect from a more efficient forest management cannot fully offset the increasing price effect of the energy sector expanding its use of forest products. More forest biomass enters the market, which is need in the transition towards a bioeconomy, and the increased availability of forest biomass will restrict the price effect making investments in the bioeconomy more likely to be profitable.

Forestry and forest industry sectors have vital roles for many regional economies. Consequently, it is important to understand how the introduction of the iron and steel industry (ISI) as a new large consumer of woody materials may affect existing feedstock markets. The use of metallurgical coal can partially or fully be substituted by refined biomass. To analyze the potential consequences of a new woody consumer on regional markets, three regions in northern Sweden and Finland are used as a case. A regional partial equilibrium model is developed, the Norrbotten County Forest Sector Model (NCFSM), and applied on three different scenarios. The purpose of the study is to analyze the intra- and inter-regional effects increased competition for woody materials may have on regional markets and on the economic well-being of the regions. The result suggest that the total welfare effect is relatively small, however, some regional welfare distributional effects are observed. Additionally, the price of roundwood will only be moderately affected if the ISI sector switch from fossil fuels to refined woody biomass. However, secondary woody materials, i.e. by-products and harvesting residues, will experience larger price shifts.

Forestry and forest industry sectors have vital roles in the economy, both on a national and regional level. Due to the significant role of these sectors on the economic system, it is important to understand how competition issues impact market outcomes. In this licentiate thesis, competition problems affecting woody feedstock markets have been examined from two different perspectives: (a) imperfect competition, and (b) increased competition. The overall purpose of the thesis is to analyze how these two different competition issues will influence woody feedstock markets; and hopefully the results can help to increase the general knowledge of the subject of competition.

To undertake this objective, three articles were written: (i) one review, (ii) one modeling, and (iii) one policy application; where the former examines imperfect competition, and the two latter, the implications of increased competition due to changing market conditions. The review article analyzed the competitive situation on forest product markets (i.e., roundwood markets). This was done by asking the general research question “What conclusions can be made from the research literature regarding the market characteristics for competitive forest product markets?” The study was motivated by the realization that the market condition may entail that forest product are subject to imperfect competition. A comprehensive article search was conducted using a number of different keywords on three different web-based search engines. The search was then expanded upon based on initial search results. The purpose of the first article was to review and assess the current state of knowledge relating to the competitive situation on forest product markets; and to increase the general understanding of how competition issues affect efficiency and allocation on forest product markets. In the second article, a regional partial equilibrium (PE) model was outlined and developed. The model, defined as the Norrbotten County Forest Sector Model (NCFSM), is comprised of three geographical regions in northern Sweden and Finland, and includes all the major forest industries in these regions and the iron- and steel industry (ISI) sector, a prospective wood user. The addition of the ISI sector represents a novelty in terms of modeling the value-chain of woody material in a Swedish context. Data for the NCFSM was collected from a combination of open sources, official national statistics, and personal correspondence with industry representatives. In the final article, the NCFSM was applied to assess how woody feedstock markets are affected by the introduction of the ISI sector to the marketplace. Three different market scenarios were formulated, and model output for each scenario was then compared to a business-as-usual baseline without the ISI sector.

The overall result of the thesis indicates that there are quite clear implications from either imperfect or increased competition on the market outcome. This result is not unexpected. However, to what degree these competition aspect currently or potentially influence feedstock markets are more ambiguous. The result of the review article is inconclusive. In the review it is suggested that this result may be due to regional rather than sectoral differences, and that the degree of market imperfection varies over time. It has been suggested that the exertion of market power will follow the general conjectures of the economy, meaning that imperfect competition outcomes are more prevalent during economic downturns. In the review it is also suggested that the size of the individual forest industry will influence market delineation, where an increased business activity will decrease the probability of an imperfect market outcome. That is, as the industrial operation becomes larger, the procurement of woody materials will become more important since the economic implications (i.e., losses) of running out of materials increase with production. Thus, larger forest industries come to be more occupied with acquiring woody materials, thereby maintain production and securing long-term profitability, then engaging in short-term profit maximization schemes. The results from the third article suggests that increased feedstock competition, caused by the introduction of the ISI sector, will raise feedstock prices. The welfare variable remained relatively unchanged over the three scenarios when compared to the baseline, though some regional welfare redistribution effects are observed. Prices for primary woody materials, i.e., sawlogs and pulpwood, will mainly experience small changes from increased competition. Secondary woody materials, i.e., harvesting residues and industrial woody by-products, will experience greater price shifts, up to 650%. This outcome leads to secondary woody materials being priced above pulpwood. Such a market outcome is highly improbable, since there are incentives for market actors to substitute the expensive commodities with a cheaper woody feedstock. The overall results can be interpreted as ii indicating the intrinsic conflict of increased demand for a finite resource that is already used; the improbability of the ISI sector substituting fossil fuels with biofuels; and the importance of inter-regional trade for optimal allocation of woody materials.

In this article, an extensive litrary review is conducted to examine the competitive state of the woody feedstock market. The aim is to review and assess the current state of knowledge relating to the competitive situation on feedstock markets, and how this knowledge has been implemented in forest sector models. The results suggests that woody markets may be too complex to be adequately described by economic theory. That is, even though the theoretical description of the feedstock market suggest that it may be at risk for noncompetitive behavior, the simultaneous and continuous decisions made by the market actors may reduce the probability of this outcome. However, studies that have found noncompetitive feedstock markets indicate that the degree of market power exerted will vary over time. This may signal unstable collusive carell or that forest industries are only able to exert market power over feedstock markets during economic recessions. The review also indicates that a majority of forest sector models examined do not reflect upon the competitive situation on feedstock markets. However, some exceptions are noted. Finally, an alternative description of how to view the competitive situation on forest markets is presented, together with some general findings and policies implications.

3 PhD projects: Markets and price formulation (LTU, economics); Technologies and value chains (Chalmers) and; Location and industrial change (LTU, energy engineering). The general system perspective has its starting point in the importance of biomass and bioenergy in the transition to a long-run sustainable energy system and to an efficient spatial resource utilization and production with increased value chains. Focus is on biorefineries. A spatial approach will be applied in combination with national energy system modelling in connection with technological development potentials and industrial applications is linked to the feed-stock supply as well as market and policy issues.

Utvecklingen av kommersiella bioraffinaderikoncept är av strategisk betydelse för Sveriges utveckling till en biobaserad ekonomi. Bioraffinaderier bidrar till att ersätta fossila med biobaserade råvaror. Dessutom bidrar de till en smartare användning av biomassa, ökat förädlingsvärde samt utvecklingspotentialen av nya bioprodukter. Tekniska potentialer och industriella tillämpningar sammanlänkas med råvaruförsörjning samt marknads-, innovations- och policyaspekter. Projektet är tvärvetenskapligt och omfattar integration av modeller som kan redogöra för samspelet mellan olika sektorer, som inkluderar geografiska variationer av utbud och efterfrågan av skoglig biomassa, och som kan fånga effekterna av förändrade marknadsvillkor och styrmedel. För modellintegrationen kommer verktyg tas fram för att underlätta kommunikation och återkoppling mellan de ingående modellerna. Projektet syftar till att generera ny kunskap och ett modellramverk för avancerade systemanalyser relaterade till (i) den svenska biomassa och dess roll i ett hållbart energisystem och (ii) industriell omvandling av processindustrin i riktning mot ett framtida bioraffinaderi branschen. Genomförandefasen bygger på tre uppgiftsområden.