Effects of Increased Demand for Biofuels: A Dynamic Model of the Swedish Forest Sector

Mattias Ankarhem ()
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Mattias Ankarhem: Department of Economics, Umeå University, Postal: S 901 87 Umeå, Sweden

No 658, Umeå Economic Studies from Umeå University, Department of Economics

Abstract: In this paper, we estimate the dynamic effects on the forest sector of an increased demand for biofuels. This is done by developing a partial adjustment model of the forest sector that enables short, intermediate, and long run price elasticities to be estimated. It is relevant to study the effects of increased demand for biofuels as the Swedish government has committed to an energy policy that is likely to further increase the use of renewable resources in the Swedish energy system. Four subsectors are included in the model: the forest owners, who supply sawtimber, pulpwood and forest fuels; the sawmills which demand sawtimber; the pulp and paper industry which demands pulpwood; and the energy industry which demands forest fuels. The results show that the short run elasticities are fairly consistent with earlier studies and that sluggish adjustment in the capital stock is important in determining the short and intermediate run responses. Simulation shows that an increase in the demand for forest fuels has a positive effect on the equilibrium price of all the three types of wood, and a negative effect on the equilibrium quantities of sawtimber and pulpwood.

Keywords: Forest economics; Price elasticities; Long run; Energy sector (search for similar items in EconPapers)
JEL-codes: L73 L78 Q41 Q42 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-agr, nep-ene and nep-env
Date: 2005-04-28
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