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

Eirik Ogner Jåstad, Torjus Folsland Bolkesjø and Per Kristian Rørstad

Forest Policy and Economics, 2020, vol. 113, issue C

Abstract: 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 €/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.

Keywords: Biofuel subsidy; Forest-based biofuel; Forest sector; Liquid biofuel; Nordic policy; Partial equilibrium model (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:forpol:v:113:y:2020:i:c:s1389934119301364

DOI: 10.1016/j.forpol.2020.102091

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