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 forest-based 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 (sic)/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.
