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A Geographically Explicit Approach for Price Determination of Forest Feedstock under Different Next-Generation Biofuel Production Scenarios: The Case of Sweden
Luleå University of Technology, Department of Business Administration, Technology and Social Sciences, Social Sciences.ORCID iD: 0000-0002-0111-9981
Luleå University of Technology, Department of Business Administration, Technology and Social Sciences, Social Sciences.ORCID iD: 0000-0002-5194-4197
Number of Authors: 2
2016 (English)Manuscript (preprint) (Other academic)
Abstract [en]

OverviewIn recent decades, the paradigm of transitioning from a fossil fuel-based economic system to a sustainable bio-based one has gained much traction in policy circles, which was motivated by a number of interlinked issues such as reduction of greenhouse gas emissions, energy security and independence, climate change, etc. A number of countries have devoted substantial resources for developing alternative biofuels, based on biomass feedstocks from a number of sources which are broadly categorized as first generation biofuels or second generation biofuels. First generation biofuels were based on agricultural crop biomass (e.g. sugar cane- and cornbased ethanol, vegetable oil-based biodiesel). However, owing to growing concerns over negative spillover effects on e.g., food security, sustainability and environmental degradation, development of second generation biofuels became a necessity, especially with new conversion technologies development. As such, forest-based biomass represents one of the major sources of feedstock for the production of second generation biofuels, which has garnered increased attention in countries with significant forest endowment.Forest-based biomass will play an important role in reaching the EU energy targets, be it at the continental scale and/or at the country level. The EU forestry sector and related industries will be directly impacted through the expected increase in demand for forest-biomass for bioenergy production, which will affect market prices, profitability, rural employment, recreation and forest ecology. Demand pressure presents also opportunities for the existing forestry sector for new investments, production and employment, such as in forest biorefineries and energy companies producing heat and power (Solberg, Hetemäki, Kallio, Moiseyev, & Sjølie, 2014). The Nordic European countries have been historically among the pioneers in terms of early adoption of renewable energy, especially from biomass and renewable waste. For example, Sweden and Finland exhibit the highest shares of renewable energy consumption in gross inland energy consumption within the EU-28 at 55.1% and 30% respectively in 2013 (Routa, Asikainen, Björheden, Laitila, & Röser, 2013).The mainstreaming of forest biomass into the energy mix of Sweden took shape around the concept of forest energy supply chains, in which integrated biorefineries into existing industries plays a major role. A number of studies have investigated the problem of forest energy supply chain optimization (Leduc et al., 2010; Leduc, 2009; Pettersson et al., 2015; Wetterlund, 2013). Models have been developed out of these efforts. One such model is BeWhere-Sweden, which is a techno-economic, geographically explicit optimization model to determine optimal localization of integrated biorefineries. The strength of the model consists in its explicit treatment of spatial aspects of supply and demand of forest biomass from different sectors. MethodsOne of the main limitations of models like BeWhere-Sweden is their lack of feedback loop or integration with models of market simulation. For example, BeWhere-Sweden takes as a starting point estimated harvesting costs at gridcell level in Sweden for different forest biomass feedstocks. However, it ignores the potential impact of demand pressure from increased biofuel production on the market conditions for forest biomass. In other words, it assumes that the cost of procurement of forest biomass will not change as a result. Hence, it does not take into consideration the potential impact of the price mechanism on the optimal localization of potential biorefineries.Therefore, the objective of this paper is to develop a model of price determination of forest biomass that accounts for the potential impacts of increased demand pressure on the procurement costs and soft-link it to BeWhere-Sweden. The model is based on a demand-supply framework. Data on forest biomass supply and harvest cost at the gridcell level is available for Sweden for 334 0.5x0.5 degree gridcells (Lundmark et al., 2015). We use the data to construct supply curves, both at the national level and sub-national level. The supply and harvest cost data is available for four forest commodities: branch & tops, pulpwood, sawlogs and stumps. The latter are further distinguished depending on the type of harvest operation: thinning or final felling.On the demand side, the model is calibrated using data on current demand at gridcell level. By taking data from BeWhere-Sweden simulation runs under different biofuel production targets, we generate adjusted demand scenarios at the gridcell level, which allow us to investigate the potential impacts on market price as approximated by the harvest cost data (under the assumption that market price equals the estimated harvest cost). Hence, we are able to generate a updated matrix for harvest cost that can be fed back into BeWhere-Sweden to investigate how robust model simulations are in terms of optimal localization of biorefineries. Also, our model will help shed light on the spatial pattern of demand pressures on forest biomass resources and its impact on the spatial distribution of impacts on market conditions for the forest markets. ResultsWe run simulation scenarios for increased biofuel production from forest biomass for Sweden: 10 TWh and 20 TWh by 2030. The Table presents summary results for the scenarios. The percent change figures represent changes with respect to a business-as-usual (BAU) scenario that characterizes current production conditions. First, and as expected, increased demand pressure on the forest biomass will tend to push prices up. This is so given that biofuel production from forest biomass represents a direct competition for the traditional forest industries of Sweden. The magnitudes of change are highest for pulpwood and branches & tops from final felling, where they reach 0.93% on average (0.004% - 18.95%) and 0.45% on average (0.001% - 7.2%) respectively. Second, the spatial distribution of price change matches expectations as they map out with the spatial distribution of supply and demand. Most of the change occurs in the middle and northern parts of Sweden. Third, the results do not exhibit significant change across biofuel scenarios.ConclusionsThe simulation results are summarized as follows: Spatial distribution of price changes does not track spatial distribution of demand pressure, which holds for the 10 TWh and 20 TWh scenarios. The largest impacts are observed in the southern and middle parts of Sweden, despite large endowments of forest, and this is due to high demand clustering owing to population density, industrial cluster, etc. However, relatively large impacts can be observed in the northern regions as well, especially for biomass obtained via the thinning operation. Spatial distribution of price changes differ based on the type of harvest operation, final felling vs. thinning. Biofuel production targets (or scenarios) might affect the spatial distribution, but relatively minor.ReferencesLeduc, S. (2009). Development of an optimization model for the location of biofuel production plants, PhD Thesis. Technology. http://doi.org/ISBN 978-91-86233-48-8, ISSN 1402-1544Leduc, S., Starfelt, F., Dotzauer, E., Kindermann, G., McCallum, I., Obersteiner, M., & Lundgren, J. (2010). Optimal location of lignocellulosic ethanol refineries with polygeneration in Sweden. Energy, 35(6), 2709–2716. http://doi.org/10.1016/j.energy.2009.07.018Lundmark, R., Athanassiadis, D., & Wetterlund, E. (2015). Supply assessment of forest biomass - A bottom-up approach for Sweden. Biomass and Bioenergy, 75, 213–226. http://doi.org/10.1016/j.biombioe.2015.02.022Pettersson, K., Wetterlund, E., Athanassiadis, D., Lundmark, R., Ehn, C., Lundgren, J., & Berglin, N. (2015). Integration of next-generation biofuel production in the Swedish forest industry – A geographically explicit approach. Applied Energy, 154, 317–332. http://doi.org/10.1016/j.apenergy.2015.04.041Routa, J., Asikainen, A., Björheden, R., Laitila, J., & Röser, D. (2013). Forest energy procurement: State of the art in Finland and Sweden. Wiley Interdisciplinary Reviews: Energy and Environment, 2(6), 602–613. http://doi.org/10.1002/wene.24Wetterlund, E. (2013). Optimal Localisation of Next Generation Biofuel Production in Sweden – Part II.

Place, publisher, year, edition, pages
2016.
Keyword [en]
Biomass, Forestry, Demand, spatiality, Forestry, agricultural sciences and landscape planning - Wood fibre and forest products, Business / Economics - Economics
Keyword [sv]
Skogs- och jordbruksvetenskap samt landskapsplanering - Träfiber- och virkeslära, Ekonomi - Nationalekonomi
National Category
Economics
Research subject
Economics; Renewable energy (AERI)
Identifiers
URN: urn:nbn:se:ltu:diva-30005Local ID: 3aa33e5b-5f8a-4945-b9b0-fde884114fa7OAI: oai:DiVA.org:ltu-30005DiVA, id: diva2:1003232
Conference
The Swedish Association for Energy Economics (SAEE) conference 2016 : Meeting Sweden's current and future energy challenges 23/08/2016 - 24/08/2016
Projects
Storskalig utbyggnad av bioraffinaderier: Nya värdekedjor, produkter och effektivt utnyttjande av skoglig biomassa, En hållbar omställning av energisystemet mot en ökad andel bioenergi
Available from: 2016-09-30 Created: 2016-09-30 Last updated: 2018-02-15Bibliographically approved

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