Modelling effects of policies for increased production of forest-based liquid biofuel in the Nordic countries

The Nordic countries have ambitious plans to reduce the use of fossil fuels. One possible solution is to blend biofuel into the liquid fuel mix. A large share of this biofuel could potentially be produced from forest biomass, which is an easily available resource in the Nordic countries. However, technologies for producing liquid biofuel from forest-based biomass are immature, implying high risk for biofuel investors. This study assesses six different support schemes that may increase the attractiveness of investing in forest-based liquid biofuel production facilities. Furthermore, the study simulates the likely effects of policy schemes on the future production of forestbased liquid biofuels using a partial equilibrium forest sector model. The study applies an nth plant estimate for the costs of various biofuel technologies and analyses investment support, feed-in premiums, quota obligations, increase in fossil fuel taxes, biofuel tax exemptions, and support for using harvest residues. According to the model results, a feed-in premium gives the lowest needed subsidy cost for production levels below 6 billion L (25% market share) of forest-based biofuel, while quota obligation is the cheapest option for production levels above 6 billion L. The necessary subsidy level is in the range of 0.60–0.85 €/L (82–116% of the fossil fuel cost in 2030) for realistic amounts of biofuel production. The pulpwood prices increase up to 24% from the base scenario due to increasing biomass demand.publishedVersio

The role of woody biomass for reduction of fossil GHG emissions in the future North European energy sector

In this study, we analyse the use of woody biomass in the heat and power sector in Northern Europe towards 2040 and quantify the fossil GHG-emission reductions from biomass use at different carbon price levels. The applied partial equilibrium energy system model has endogenous capacity investments in relevant heat and power technologies. The results show that use of woody biomass can reduce the direct emissions from the Northern European power and heat sector by 4–27% for carbon prices in the range of 5–103 €/tonne CO2eq in 2030 compared to a scenario where woody biomass is not available for power and heat generation. The cost of delivering heat and electricity increases with 0.2–0.7% when wood chips are excluded, depending on the carbon price. At a low carbon price, the use of natural gas, wind, and coal power generation increases when biomass is not available for power and heat generation. At higher carbon prices, solar power, wind power, power-to-heat, and natural gas become increasingly competitive, and therefore the use of biomass has a lower impact on emission reductions. Using the same biomass volumes for liquid transport fuel, we find a higher impact on fossil carbon emission reductions but substantially higher costs. The main conclusion from this study is that woody biomass contribution to lowering the fossil emission from heat and power generation in the Northern Europe, and the transition to low carbon energy system will likely be more costly if biomass is excluded from heat and power generation.publishedVersio

Integration of forest and energy sector models – New insights in the bioenergy markets

The forest and energy sectors are heavily affected by the urgent need for global climate gas emission reductions. To fully understand the implications of a transition to a low carbon society, it is important to analyse the interactions between these sectors. We herein present a coupled/integrated modelling approach that integrates a Nordic Forest Sector Model (NFSM) and a North European energy sector model (Balmorel). Both models include endogenous investment in new production capacity and market prices obtained by market equilibrium in competitive markets. The new integrated model is used to investigate forest and energy sector impacts of a low carbon scenario in the Nordic countries. The results from the integrated model approach show a steady increase in use of forest resources for heat and power generation from 47 TWh in 2020 to 117 TWh in 2050, and a corresponding increase in biomass prices. Comparing these results with results from the two individual models suggests that the integration procedure provides more realistic biomass price and volume projections compared with standalone models.publishedVersio

The location and capacity-dependent price impacts of biofuel production and its effect on the forest industry

Forest-based biofuel stands out as a promising solution to avoid fossil emissions in parts of the transport sector. Biofuel production will need large amounts of forest biomass, collected from a large area. Roundwood is costly to transport compared with other goods. Therefore, the location of forest-based biofuel production is a crucial part of an investment decision. This study analyses the optimal location of biofuel plants in Norway and the implications for the traditional forest sector in the Nordic countries. We test different numbers of production units, different sizes of the units, and various raw materials. The study applies a partial equilibrium model that covers the Norwegian and Nordic forest sectors, with 356 regions in Norway. The results indicate that small biofuel plants have the potential to turn exporting regions into importing regions. Larger biofuel plants are suitable for areas with large harvest activity today or regions with access to harbour or timber terminals along railways. We find that forest owners close to a biofuel plant will profit the most from biofuel production. Policymakers and investors should take into account that different locations and production capacities have different impacts on the forest sectors

EFO-LCI: A New Life Cycle Inventory Database of Forestry Operations in Europe

Life cycle assessment (LCA) has become a common methodology to analyze environmental impacts of forestry systems. Although LCA has been widely applied to forestry since the 90s, the LCAs are still often based on generic Life Cycle Inventory (LCI). With the purpose of improving LCA practices in the forestry sector, we developed a European Life Cycle Inventory of Forestry Operations (EFO-LCI) and analyzed the available information to check if within the European forestry sector national differences really exist. We classified the European forests on the basis of "Forest Units" (combinations of tree species and silvicultural practices). For each Forest Unit, we constructed the LCI of their forest management practices on the basis of a questionnaire filled out by national silvicultural experts. We analyzed the data reported to evaluate how they vary over Europe and how they affect LCA results and made freely available the inventory data collected for future use. The study shows important variability in rotation length, type of regeneration, amount and assortments of wood products harvested, and machinery used due to the differences in management practices. The existing variability on these activities sensibly affect LCA results of forestry practices and raw wood production. Although it is practically unfeasible to collect site-specific data for all the LCAs involving forest-based products, the use of less generic LCI data of forestry practice is desirable to improve the reliability of the studies. With the release of EFO-LCI we made a step toward the construction of regionalized LCI for the European forestry sector

Essays on the multifunctionality of agruculture and policy options

Jordbruket produserer mer enn bare varer som kan omsettes i markeder. I tillegg produseres en lang rekke goder, onder og tjenester som ikke kan omsettes i markeder. Jordbruket kan på grunn av dette gi bidra til ulike samfunnsmessige mål samtidig. Dette er essensen i det multifunksjonelle landbruket. Mengdene av de ”produktene” som ikke kan omsettes i markedet vil ikke være samfunnsmessig optimale siden produsentene, dvs. bøndene, ikke får de rette signalene gjennom markende. En måte å korrigere for disse eksternalitetene på, som er hovedtema i avhandlingen, er å betale/skattlegge bøndene direkte basert på hvor mye de produserer av de ulike godene, ondene og tjenestene. Imidlertid, dette er ikke den eneste muligheten, og i en del tilfeller er dette ikke den optimale løsningen. Mange av ”produktene” fra jordbruket er koblet i den forstand at dersom en endrer mengden av ett endres også mengden av ett eller flere andre. Dette, som kalles koblet produksjon eller jointness på engelsk, skyldes enten tekniske og biologiske prosesser eller økonomiske faktorer som faste allokerbare innsatsfaktorer. Dersom vi kjenner disse sammenhengen, vil ulike kombinasjoner av skatlegging/subsidiering av innsatsfaktorer, ”produkter” og praksiser føre til de ønskede mengdene sett fra samfunnets side. I en slik situasjon vil den optimale politikken være den som fører til de laveste administrasjonskostnadene. To av artiklene i denne avhandlingen omhandler virkemidler for å redusere nitrogenforurensingen fra jordbruket. Siden forurensingen fra hver gård eller hvert skifte ikke kan måles eller er veldig kostbar å måle, vil ikke direkte skattlegging av forurensingen være mulig/fornuftig. Den første artikkelen analyserer effekten av private transaksjonskostnader i et marked for omsettelige gjødselkvoter. Det blir vist at transaksjonskostnadene i liten grad påvirker handelen i kvotemarkedet, og at omsettelige kvoter har den forventede miljøeffekten. Den andre artikkelen analyserer en mulighet for å fjerne noe av usikkerheten knyttet til hva som er optimal gjødsling det enkelte år. Det foreslåtte virkemidlet er et system med delte kvoter. Den første delen av kvoten blir tildelt om våren og er lik hvert år, mens den andre delen blir tildelt senere basert på hva som anses som optimal gjødsling hvert enkelt år. Resultatene indikerer at virkemidlet gir reduksjoner i forurensingen til en lavere kostnad (både for samfunnet og for bonden) enn en avgift på gjødsel. De to andre artiklene er knyttet til transaksjonskostnader og optimal politikk når produksjonen er koblet. Transaksjonskostnadene er mye lavere når virkemidlene er knyttet til varer enn når de er knyttet til andre objekter. Dersom koblingen er slikt at bonden ikke kan påvirke den, er virkemidler knyttet til varer helt klart det optimale for å korrigere for eksternaliteter. Dersom koblingen er mer fleksibel, er det ikke mulig å trekke generelle konklusjoner. Forskjellene i transaksjonskostnader mellom ulike mulige virkemidler vil imidlertid fortsatt være avgjørende. Analysene viser også at transaksjonskostnadene kan reduseres betydelig gjennom å redusere antallet virkemidler. Dette er ikke overraskende, men det er overraskende hvor fort transaksjonskostnadene øker når en øker antallet virkemidler (og holder den totale overføringen konstant). For et land som ikke er konkurransedyktig på verdensmarkedene, som Norge, indikerer analysene at den optimale politikken er å bruke prisstøtte (direkte og indirekte) for å sikre produksjon på et vist nivå, og å supplere dette med andre virkemidler som for eksempel direkte støtte for å produsere miljøgoder. Det første vil føre til et vist nivå av de kollektive godene, mens det siste kan brukes for å finjustere produksjonen av dem.Agriculture produces more than just commodities that can be and are traded in markets. In addition, agriculture provides a large range of non-market outputs in the form of goods, bads and services. These multiple outputs may contribute to different societal objectives at once, which is the essence of the concept of multifunctional agriculture. The quantities of the non-market goods, bads and services may not be socially optimal since the producers do not receive the right signals through the markets. One option for correcting for these externalities is to use direct payments/taxes based on level of the non-market outputs. However, this is not the only options, and in some cases this is definitely not the optimal option. Many of the outputs in agriculture are linked in such a way that a change in the level of one will affect the levels of the others. This, termed jointness, is due to technical and biological processes and economic factors like fixed allocable inputs. If these relationships are known, different combinations of taxes/subsidies on inputs, outputs and practices may be used to induce the socially desirable levels of the agricultural outputs. In this setting the optimal policy mix is the mix that results in lowest administrative costs. Two of the papers in this thesis discuss policy measures to reduce nitrogen pollution from agriculture. Since pollution at farm or field level is not observable or very costly to monitor, taxing emissions directly is not a viable option. The first paper analyzes the effect of private transaction costs in a market for fertilizer quotas. It is shown that transaction costs do not influence trade much, and that tradable fertilizer quotas have the expected environmental effects. The second paper analyzes one option for resolving some of the uncertainty about the growing conditions a given year. The proposed instrument is a two-round quota system: a year independent amount is awarded in the spring while the quota in the second (later) round is awarded based on the expected optimal fertilization level the given year. Results indicate that abatement costs (both private and social) are lower for the proposed instrument than for a nitrogen tax. More research is needed in order to investigate the possibility and costs of estimating the yearly optimal fertilization levels ex ante. The two other papers concern transaction costs and optimal policies under jointness. Transaction costs are much lower for polices targeting commodities than for polices targeting other objects. If jointness is such that it is not possible for the farmer to influence the proportions of the different outputs it is clearly optimal to target the commodity. For more flexible forms of jointness it is not possible to draw a general conclusion. Still, the differences in transaction costs between policy options are of great importance. The analysis also shows that transaction costs can be reduced substantially by reducing the number of schemes. It is not surprising that merging schemes would result in lower administrative costs, but it is surprising how fast the total transaction costs increase as the number of schemes increases (given a total transfer to farmers). For a country that is not competitive on the world market, like Norway, the analysis suggests that the optimal policy is to use commodity based support to induce production up to a certain level and to supplement this with other measures like direct payment for the production of public goods. The first will insure a certain level of public goods production wile the latter may be used for fine-tuning public goods production

Virkemidler for Ren biodiesel i norsk landbruk

publishedVersio

Nordic energy and forest products market review and outlook

The Nordic power market The past has shown that some of the main power price drivers are quite unpredictable, while some major trends are quite certain. The joint Swedish – Norwegian green certificate system is well on track to reach the common goal of 28.4 TWh new renewable electricity production by 2020. The Swedish government has announced that it will prolong the green certificate system, while renewable support in Norway and Finland is uncertain after 2020. Still, wind investments are expected to continue at a fast pace beyond 2020 in the Nordic region. Although many hydropower projects have low costs, environmental restrictions in many rivers limit the potential. The main share of new hydropower will be small-scale run-of-river projects. The Swedish nuclear capacity is expected to decrease, while the capacity in Finland will increase. In total there will be a slight increase in the total nuclear power capacity toward 2030. We assume that fossil power generation will be phased out by 2030 in the Nordic countries. Despite low fossil fuel shares in the Nordic market, thermal power will continue to impact Nordic power prices through increasing exchange to/from the Continent and the UK. Energy intensity in households has started to decline and this is expected to continue to 2040, due to new building standards. The expected growth in population in the Nordic area contributes, however, in the opposite direction. An increasing number of electric vehicles will contribute to an increase in consumption. The Nordic countries have a large power intensive industry sector. The pulp and paper industry is currently consuming approximately 40 TWh annually. We expect a major transition of the forest industry away from paper production, contributing to a reduction in industrial consumption. A switch in the oil sector to electricity produced onshore may contribute to increasing demand. We also assume increasing demand from data centers in the Nordic region. Overall, the industry sector consumption represents the largest uncertainty in future demand. The growth in (variable) renewable power on the Continent will make investments in interconnection capacity more attractive – due to short-term price variations. The export capacity in the Nordic region is expected to increase to 14 GW by 2030. This is about three times the current capacity. The power price is expected to increase continuously toward 2050, with the largest effect in Denmark. The uncertainty regarding future power prices is, however, substantial; with the most important aspects of uncertainties being the price of fossil fuel (gas and coal), CO2-quotas price, the share of renewable energy in the power system, the capacity margins and the development in energy storage and consumer flexibility. Nordic heating and cooling markets Future energy consumption in heating and cooling depends on several factors. Improved building standards and higher outdoor temperatures imply reduced heat demand whereas population growth, fewer people per households and increased cooling demand implies higher energy use for heating and cooling. The total effects are unclear and depend on policies and regulations, including future energy costs that influence the profitability of energy efficiency investments. The current changes are also relatively slow due to slow rehabilitation and replacement rates in the building sector. The renewable share in heating and cooling is relatively low in many countries and replacement of fossil fuels with biomass represents the major potential for biomass in Europe. In the Nordic countries, replacement of fossil fuels in district heating in Denmark and Finland is important, whereas expansion of district heating is needed in Sweden and Norway as most of the existing district heating is based on renewables. Non-energy forest products markets Sawlog is the most important timber grade. In Norway it account for about 70% of the gross income to forest owners. The consumption, and thereby the production, is dependent on the construction activities (i.e. new houses) and the renovation of old ones. Data indicate a cyclic sawnwood sector, with roughly about 10 - 20 years cycles. The dissolution of the former Soviet Union around 1990 and the financial crisis in 2008 represents the two latest downturns in this segment. The short-term trend indicates a 3% p.a. increase in global sawnwood production. In the longer term, there is a large untapped potential in Europe in the sense that there is a large difference in per capita consumption of sawnwood across Europe. It is however not necessarily straight forward to change habits, building regulations etc, which may be needed in order to increase the use of wood in buildings. Newsprint and other printing and writing paper is on the decline globally and in most of the market analyzed in this report. The demand for graphic paper will not vanish, but there are no indications that we will see a large increase in demand in the future. The main reason for the decline is the shift from printed to digital media. It is reasonable to believe that developing economies will jump right to digital media. The short-term decline in global newsprint production is estimated to 4.8% p.a., while the decline in printing and writing paper is estimated to be 1.0% p.a. The products group “other paper and paperboard” comprises hygienic goods (e.g. tissue paper and disposable diapers) and packaging materials (e.g. paperboards), and the latter group is the dominant one. Except for the Americas where the production has been stable after the mid 90-ies, there has been increases in production in both Asia and Europe. Internet trade is probably the most important driver in the near past. The main drivers for hygienic products are economic development and age structure of the population. In the short term, we estimate the yearly increase to 3.0%. Societal demands for mitigation and adaptation to climate change will have implications for the forest sector. EU energy and environmental policies have the potential to advance a paradigm change towards a forest-based bioeconomy. This could mean the production of a wide array of (chemical) products like textile fibers (viscose) or construction materials like cross-laminated timber

Essays on the multifunctionality of agruculture and policy options

Jordbruket produserer mer enn bare varer som kan omsettes i markeder. I tillegg produseres en lang rekke goder, onder og tjenester som ikke kan omsettes i markeder. Jordbruket kan på grunn av dette gi bidra til ulike samfunnsmessige mål samtidig. Dette er essensen i det multifunksjonelle landbruket. Mengdene av de ”produktene” som ikke kan omsettes i markedet vil ikke være samfunnsmessig optimale siden produsentene, dvs. bøndene, ikke får de rette signalene gjennom markende. En måte å korrigere for disse eksternalitetene på, som er hovedtema i avhandlingen, er å betale/skattlegge bøndene direkte basert på hvor mye de produserer av de ulike godene, ondene og tjenestene. Imidlertid, dette er ikke den eneste muligheten, og i en del tilfeller er dette ikke den optimale løsningen. Mange av ”produktene” fra jordbruket er koblet i den forstand at dersom en endrer mengden av ett endres også mengden av ett eller flere andre. Dette, som kalles koblet produksjon eller jointness på engelsk, skyldes enten tekniske og biologiske prosesser eller økonomiske faktorer som faste allokerbare innsatsfaktorer. Dersom vi kjenner disse sammenhengen, vil ulike kombinasjoner av skatlegging/subsidiering av innsatsfaktorer, ”produkter” og praksiser føre til de ønskede mengdene sett fra samfunnets side. I en slik situasjon vil den optimale politikken være den som fører til de laveste administrasjonskostnadene. To av artiklene i denne avhandlingen omhandler virkemidler for å redusere nitrogenforurensingen fra jordbruket. Siden forurensingen fra hver gård eller hvert skifte ikke kan måles eller er veldig kostbar å måle, vil ikke direkte skattlegging av forurensingen være mulig/fornuftig. Den første artikkelen analyserer effekten av private transaksjonskostnader i et marked for omsettelige gjødselkvoter. Det blir vist at transaksjonskostnadene i liten grad påvirker handelen i kvotemarkedet, og at omsettelige kvoter har den forventede miljøeffekten. Den andre artikkelen analyserer en mulighet for å fjerne noe av usikkerheten knyttet til hva som er optimal gjødsling det enkelte år. Det foreslåtte virkemidlet er et system med delte kvoter. Den første delen av kvoten blir tildelt om våren og er lik hvert år, mens den andre delen blir tildelt senere basert på hva som anses som optimal gjødsling hvert enkelt år. Resultatene indikerer at virkemidlet gir reduksjoner i forurensingen til en lavere kostnad (både for samfunnet og for bonden) enn en avgift på gjødsel. De to andre artiklene er knyttet til transaksjonskostnader og optimal politikk når produksjonen er koblet. Transaksjonskostnadene er mye lavere når virkemidlene er knyttet til varer enn når de er knyttet til andre objekter. Dersom koblingen er slikt at bonden ikke kan påvirke den, er virkemidler knyttet til varer helt klart det optimale for å korrigere for eksternaliteter. Dersom koblingen er mer fleksibel, er det ikke mulig å trekke generelle konklusjoner. Forskjellene i transaksjonskostnader mellom ulike mulige virkemidler vil imidlertid fortsatt være avgjørende. Analysene viser også at transaksjonskostnadene kan reduseres betydelig gjennom å redusere antallet virkemidler. Dette er ikke overraskende, men det er overraskende hvor fort transaksjonskostnadene øker når en øker antallet virkemidler (og holder den totale overføringen konstant). For et land som ikke er konkurransedyktig på verdensmarkedene, som Norge, indikerer analysene at den optimale politikken er å bruke prisstøtte (direkte og indirekte) for å sikre produksjon på et vist nivå, og å supplere dette med andre virkemidler som for eksempel direkte støtte for å produsere miljøgoder. Det første vil føre til et vist nivå av de kollektive godene, mens det siste kan brukes for å finjustere produksjonen av dem.Agriculture produces more than just commodities that can be and are traded in markets. In addition, agriculture provides a large range of non-market outputs in the form of goods, bads and services. These multiple outputs may contribute to different societal objectives at once, which is the essence of the concept of multifunctional agriculture. The quantities of the non-market goods, bads and services may not be socially optimal since the producers do not receive the right signals through the markets. One option for correcting for these externalities is to use direct payments/taxes based on level of the non-market outputs. However, this is not the only options, and in some cases this is definitely not the optimal option. Many of the outputs in agriculture are linked in such a way that a change in the level of one will affect the levels of the others. This, termed jointness, is due to technical and biological processes and economic factors like fixed allocable inputs. If these relationships are known, different combinations of taxes/subsidies on inputs, outputs and practices may be used to induce the socially desirable levels of the agricultural outputs. In this setting the optimal policy mix is the mix that results in lowest administrative costs. Two of the papers in this thesis discuss policy measures to reduce nitrogen pollution from agriculture. Since pollution at farm or field level is not observable or very costly to monitor, taxing emissions directly is not a viable option. The first paper analyzes the effect of private transaction costs in a market for fertilizer quotas. It is shown that transaction costs do not influence trade much, and that tradable fertilizer quotas have the expected environmental effects. The second paper analyzes one option for resolving some of the uncertainty about the growing conditions a given year. The proposed instrument is a two-round quota system: a year independent amount is awarded in the spring while the quota in the second (later) round is awarded based on the expected optimal fertilization level the given year. Results indicate that abatement costs (both private and social) are lower for the proposed instrument than for a nitrogen tax. More research is needed in order to investigate the possibility and costs of estimating the yearly optimal fertilization levels ex ante. The two other papers concern transaction costs and optimal policies under jointness. Transaction costs are much lower for polices targeting commodities than for polices targeting other objects. If jointness is such that it is not possible for the farmer to influence the proportions of the different outputs it is clearly optimal to target the commodity. For more flexible forms of jointness it is not possible to draw a general conclusion. Still, the differences in transaction costs between policy options are of great importance. The analysis also shows that transaction costs can be reduced substantially by reducing the number of schemes. It is not surprising that merging schemes would result in lower administrative costs, but it is surprising how fast the total transaction costs increase as the number of schemes increases (given a total transfer to farmers). For a country that is not competitive on the world market, like Norway, the analysis suggests that the optimal policy is to use commodity based support to induce production up to a certain level and to supplement this with other measures like direct payment for the production of public goods. The first will insure a certain level of public goods production wile the latter may be used for fine-tuning public goods production

Virkemidler for Ren biodiesel i norsk landbruk

publishedVersio