Robert Lundmark

Cost structure of and competition for forest-based biomass.

Abstract Biomass has become a popular alternative to satisfy expanding energy demand and as a substitute for fossil fuels and phased-out nuclear energy in Europe. The European Union White Paper stipulates that the utilization of biomass shall increase to 1566 TWh by 2010. However it is often overlooked that the forest resources are already, to a large extent, used by the forest industries. When promoting biomass for energy generation the consequences for the forest industries also need to be considered. Sweden is an excellent case study, as there are vast quantities of forest resources, nuclear power is starting to be phased out, there are restrictions on expanding hydropower and the political desire exists to “set an example” with respect to carbon dioxide emissions. This paper attempts to estimate and analyse the supply of two types of forest resource, namely, roundwood and harvesting residues derived from final harvesting and commercial thinnings. Two separate supply curves are estimated: one for roundwood and one for harvesting residues. The cost structure is based on an economic-engineering approach where the separate cost components are constructed from the lowest cost element into aggregates for labour, capital, materials and overhead costs for each forest resource. The results indicate an unutilized economic supply of 12 TWh of harvesting residues in Sweden. However, after these 12 TWh have been recovered it becomes more profitable to use roundwood for energy purposes than to continue extracting further amounts of harvesting residues.

Choice of location for investments in the European paper industry: the impact of wastepaper

Abstract This paper identifies and estimates the relative impact that factor input prices, output market size and agglomeration effects have on the choice of location for investment projects in the European pulp and paper industry, with special focus on the price of wastepaper. A conditional logit model is developed to fit investment projects across 16 European countries for the period 1985–1995. The results suggest that factor input prices, in general, and the price for wastepaper, in particular, are neither a statistical nor an economic significant location determinant for a paper manufacturer. Furthermore, the results suggest that market size and agglomeration effects are considered more important than the price of raw material when an investment site is chosen.

Investment Behaviour in the European Pulp and Paper Industry

This study analysed the location of investments in the European pulp and paper industry. Three continuous investment models were estimated allowing for fixed as well as random effects using data for 10 European countries over the period 1978-1995. The results indicated that labour wages, market size and agglomeration effects were the most important determinants of investment levels. The impacts of raw material prices were somewhat ambiguous. However, in the long run wastepaper availability seems to matter in the sense of attracting investments. A comparison of the economic significance of changes in the costs of input factors with changes in the market size indicated that proximity to output markets had a larger impact on the decision to invest than proximity to abundant raw materials or cheap access to electricity and labour. Furthermore, the agglomeration coefficient indicated that the power of sunk costs is important.

Bioenergy futures in Sweden - system effects of CO2 reduction and fossil fuel phase-out policies

Bioenergy could contribute both to the reduction of greenhouse gases and to increased energy security, but the extent of this contribution strongly depends on the cost and potential of biomass resources. For Sweden, this study investigates how the implementation of policies for CO2 reduction and for phase out of fossil fuels in road transport affect the future utilization of biomass, in the stationary energy system and in the transport sector, and its price. The analysis is based on the bottom‐up, optimization MARKAL_Sweden model, which includes a comprehensive representation of the national energy system. For the analysis, the biomass supply representation of MARKAL_Sweden is updated and improved by the use of, e.g., forestry forecasting modeling and through construction of detailed biomass supply curves. A time horizon up to 2050 is applied. The results indicate a potential for significantly higher use of bioenergy. In the main analysis scenario, in which CO2 reduction of 80% by 2050 is imposed on the Swedish energy system, the total bioenergy utilization increases by 63% by 2050 compared to 2010. The largest increase occurs in the transport sector, which by 2050 accounts for 43% of the total primary bioenergy use. The high demand and strong competition significantly increase biomass prices and lead to the utilization of higher cost biomass sources such as stumps and cultivated energy forest, as well as use of pulpwood resources for energy purposes.

Sweden's import substitution possibilities for roundwood

Abstract The substitution possibilities between imports and domestically produced goods and commodities are usually measured by Armington elasticities. These elasticities are essential parameters that have large affect on the result of trade models. The purpose of this study is to estimate disaggregated Armington elasticities for different segments of roundwood for Sweden. The data-set spans 1967–2007. The time-series are tested for non-stationary properties. The estimation fails to produce statistically significant elasticities for pulpwood but for sawlogs the estimated elasticity is 3.2. This is a relatively high estimate and indicates that imported and domestic sawlogs are easily substituted. In addition, event cases on the effect of various surrounding events (the fall of the Soviet Union and Swedens membership in the EU) on the estimated Armington elasticities are tested. The results for these event cases indicate that the substitutability between imported and domestic pulpwood increased both with the fall of the Soviet Union and Swedens membership in the EU. However, no such pattern could be observed for sawlogs.

Bioenergy innovation and energy policy

Using panel data on 13 OECD countries between 1979 and 2008 this paper examines the affect climate and energy policies have had on the rate of biotechnology innovations. The explanatory variables include a vector of important determinants of patenting activity for biotechnologies (e.g. specific and general research and development expenditures, energy consumption, energy prices and total number of registered patents). Fixed effects are employed to capture unobservable country-specific heterogeneity using a negative binomial model. The empirical results indicate that policies are important for stimulating innovations in biotechnologies. The development of feed-in-tariffs (FITs) and the implementation of tradable green certificates have had a positive and statistically significant impact on patent activity. The economic impact of green certificates is found to be larger than that of FITs. In addition, R&D activities have also had a positive and statistically significant effect on innovation.

Factor Demand and Price Sensitivity of Forest-Based Biomass in the European Energy and Forest Sectors

Abstract An increasing utilization of biomass is, in the short-term, one of the most realistic alternatives to meet the energy and the environmental goals established by the European Union. As a result, the demand for forest-based products from European forests will increase. However, glaringly little research effort has been made towards analyzing the price effect resulting from the increasing demand for forest-based biomass and how the relevant industry sectors adjust their input demands due to these price changes. The purpose of this paper is thus to provide a disaggregated and detailed empirical estimation and analysis of the various input demand elasticities, as well as of the relevant substitution elasticities. The model is estimated using a panel of 23 European countries for the period between 1999 and 2005, thus allowing for specific country effects. The results indicate that the energy sector is relatively more price sensitive in its input demand for fossil fuels compared to the fibrous fuel categories. Thus, higher fibrous input prices will have a relatively small effect on the quantity of fibrous inputs that the energy sector demands. The forest industry is comparatively more price sensitive in its procurement of fibrous inputs than the energy sector, and will therefore reduce its input demand relatively more as a consequence from a fibrous input price increase. Furthermore, the cross-price elasticities reveal some interesting findings. In general, the energy sector will increase its utilization of fossil fuels as a result of increasing fibrous input price. Conversely, the energy sector will increase the utilization of fibrous input relatively less as a consequence of increasing fossil fuel prices.

European trade and projections in forest-based feed-stocks

ABSTRACT The purpose of this study is to estimate the intra EU trade value of wood products and examine the factors affecting the trade flow. A gravity model is used to estimate the factors affecting the trade flow. The study uses a panel data set, with fixed effects, on trade in two forest products between 28 EU member countries over the period 2005–2014. The forest products are woodchips and particles (HS4401) and industrial roundwood (HS4403). For HS4401, the result suggests that the GDP of both the exporting and importing countries affect the trade flow positively (0.64 and 0.36, respectively). For HS4403, the GDP of the exporting countries affect have a negative effect (−0.69), while the GDP of the importing countries have a positive effect (0.80). In a second step, the estimated parameters are used to forecast the trade up until year 2030. The forecast suggests an increase in the trade by 47 per cent. This suggests an improved efficiency in reaching the EU climate and energy targets. That is, the trade in biofuels is expected to increase due to economic growth, which in turn works towards achieving the renewable and CO2 emission targets in Europe.

Forest products exports and economic growth: evidence from rich countries

ABSTRACT:The forest sector contributes a significant share to national income. The existence and magnitude of causal relationships between forest product exports and economic growth is thus important to understand not least for policy issues. It has vital implications for policy-makers enacting proper development strategies. This causality is usually analyzed using the export-led economic growth hypothesis. International trade is affecting economic growth through enhanced competition and specialization. Export, more specifically, foster economic growth via the accumulation of foreign exchange, by stimulating efficient investments in the right sectors and by allowing for improved economies of scale. Surprisingly, practically no studies have been done analyzing the forest products export-led economic growth hypothesis. Thus, the current study fills an important gap in the literature. The study attempts to test the forest product export-led growth hypothesis for 22 economies over the period 1970 to 2011. Various generations of panel unit root and cointegration tests are applied. The time frame and the selection of countries are purely dictated by the availability of data and the amount of existing productive forest area. The econometric tests are based on augmented Dickey-Fuller unit root and cointegration tests. These tests are necessary before assessing the impact of forest product exports on GDP. The connection between economic growth and forest products exportation is analyzed using an error correction model (ECM) based panel causality test structure. The ECM is subsequently used to estimate short- and long-run elasticities. The series are found to be integrated of order one and cointegrated, especially when applying the third-generation tests. Uni-directional causality running from forest product exports to economic growth is uncovered in the both the short-run and the long-run. Moreover, forest products exportation is found to positively affect economic growth. The short-run elasticity reveals positive and significant income elasticity. A 1% increase in forest product exports will lead to a 0.022% increase in economic growth in the short-run and 0.002% in the long-run. The regional dummy is also significant and positive, implying that countries with significant forest land coverage are bound to experience higher economic growth. The findings will help policymakers in their projections and implementing natural resource and forest policies. Unidirectional causality implies forest product exports can be used to predict economic growth in both short-run and long-run but not vice versa. In general, the results support the ELG hypothesis. Promotion of forest product exportations can lead to a multiplier effect.

Armington Elasticities and Induced Industrial Roundwood Specialization in Europe

Abstract We estimate Armington elasticities for industrial roundwood in eight European countries for the period 1961–2007, and analyze how the estimated elasticities change over time. Results indicate increasing differentiation between domestic and imported volumes during the first half of the time period. However, for the latter half, a decreasing degree of specialization is observed. A plausible explanation is the removal of trade barriers during development of the internal European market. This trend of decreasing specialization is arguably going to continue in the future. For instance, the technical feasibility of using more heterogeneous feed-stock in the paper industry is increasing. Moreover, energy and climate policy is stimulating the use of wood as fuel in the energy sector. These changes in technology and new uses might further decrease the differentiation between domestic and imported industrial roundwood.