Second generation biofuels and the competition for forest raw materials: A partial equilibrium analysis of Sweden

In order to reach the renewable energy policy targets in the transport sector, biofuels from forest raw materials (e.g., harvesting residues) can play an important role. However, these raw materials are currently used in both the heat and power (HP) sector and the traditional forest industries. It is essential to understand how these sectors would be affected by an increased penetration of second generation (2G) biofuels. This study investigates price development and resource allocation in the Swedish forest raw materials market in the presence of 5-30 TWh of 2G biofuel production. Sweden is an interesting case study due to its well-developed forest industries and mature district heating sector, something which makes it a suitable country for future 2G biofuel production. A national partial equilibrium model of the forest sector is extended with a 2G biofuel module to address the impacts of such production. The simulation results show increasing forest industry by-product (e.g. sawdust) prices, thus displaying that the 2G biofuel targets lead to increased raw material competition. The higher feedstock prices make the use of forest biomass in the HP sector less profitable, but we find meagre evidence of substitution of fossil fuels for by-products. In this sector, there is instead an increased use of harvesting residues. Fiberboard and particleboard production ceases entirely due to increased input prices. There is also evidence of synergy effects between the sawmill sector and the use of forest raw materials in the HP sector. Higher by-product prices spur sawmills to produce more sawnwood, something that in turn induces forest owners to increase harvest levels. Already in the 5 TWh Bio-SNG scenario, there is an increase in the harvest level, suggesting that this by-product effect kicks in from start.