INCREASED USE OF BIOENERGY: Impacts and opportunities for the Norwegian Forest Sector

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INCREASED USE OF BIOENERGY: Impacts and opportunities for the Norwegian Forest Sector Erik Trømborg & Birger Solberg Norwegian University of Life Sciences IUFRO Forest Sector Modeling Conference Seattle 2008

Background Objective Methods M h d Main results Future work OUTLINE DEPT. OF ECOLOGY AND MANAGEMENT OF NATURAL RESOURCES (INA)

BACKGROUND The Norwegian energy market Domestic energy consumption only about 8% of the production of primary energy bearers. Bioenergy constitutes 6% of the domestic consumption, electricity 49% and fossil fuels 45% Increased energy consumption Limited increase in electricity supply More power lines to Europe internationalization of the electricity market more stable but also higher electricity prices Need for increased power production and/or reduced consumption to secure energy supply. Biomass can provide heat that reduce electricity consumption.

DEPT. OF ECOLOGY AND MANAGEMENT OF NATURAL RESOURCES (IN NA) PJ 250 200 150 100 50 0 Energy consumption by sector 2006 Manufacturing, mining and quarrying Hydro electric power Fossil fuels Biofuels District heating Transport Households Other sectors Source: Statistics Norway (2008)

PJ 800 700 600 500 400 300 200 100 Domestic energy consumption 1990-2006 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Renew ables except electricity Renew able electricity Non renw ables Source: Statistics Norway (2008)

Calculated prices of utilized energy for households and agriculture 1978-2006 100 90 80 70 60 50 40 øre/kwh 30 20 10 0 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 Electricity prices for households and agriculture Heating kerosene Fuel oil no. 1 Heavy fuel oil Source: Statistics Norway (2008) DEPT. OF ECOLOGY AND MANAGEMENT OF NATURAL RESOURCES (INA)

Climate policy White Paper on Norwegian Climate Policy (28 March 2008). Targets: Carbon-neutral by year 2030 Reduce the annual greenhouse gas emissions by 15 1717 million tons of CO2 equivalents by 2020, including carbon uptake in forests (about 30%). General economic measures, CO2-emission credits and CO2- tax Specific measures within different sectors and industries Need for more renewable energy

Forest resources represents the major feedstock potential for bioenergy production in Norway 60 Potenital increase Current use for energy 50 40 30 20 10 0 PJ Roundwood Harvesting res.and pre-com. thinnings Stump wood and roots Res.from forest and wood industries Municipal waste Industrial waste Agricultural waste Biogas Based on Langerud et.al 2007 and Bernard & Bugge 2006. DEPT. OF ECOLOGY AND MANAGEMENT OF NATURAL RESOURCES (INA)

How will increasing energy prices and increased demand for energy affect the Forest Sector? Changes in production costs in the forest industries Changed production costs might change the production level Changed demand for sawlogs and pulpwood Increased demand d for roundwood ood and harvesting residuals for energy production Changed demand for residuals from the forest industries Changed transport cost Total impact unclear

DEPT. OF EC COLOGY AND MANAGEMENT OBJECTIVE Analyze how increased energy prices including policy incentives will affect the Norwegian Forest Sector OF NATURAL RESOURCES (INA)

Methods Use of the partial equilibrium model NTM II NTM is based on the Global Trade Model (GTM) developed at IIASA in the 80 s (Kallio, Dykstra & Binkley) 19 domestic regions + export/import to Sweden and rest of the world Equilibrium price, production, consumption, intermediate use, and trade are calculated for all products, regions and periods. Non-linear timber supply based on price elasticities derived from econometric studies Cost curves for harvesting residuals (price/volume data not available in Norway)

Incorporation of bioenergy in NTM Bioenergy included as technologies similar to the forest industries Relatively detailed input data: Technology Biofuel Raw Capital Maintenance Efficieni Raw Raw Predicted d material costs c costs cy % material material price processing input NOK/MHw costs (solid m3) excl. VAT Wood stove firewood SPWD 0 0 060 0,60 442 088 0,88 668 firewood PPWD 0 0 0,60 382 0,76 516 13 bioenergy heat technologies competes for raw material with the forest industries CHP based on wood not found profitable in Norway and not analysed Capacities estimated based on census data, energy consumption by sector on municipality level and building construction statistics Competing technologies and joint capacity constraints Exogenous/complete elastic energy prices Raw materials for heat production: pulpwood, sawdust, bark and harvesting residuals

DEPT. OF ECOLOGY AND MANAGEMENT OF NATURAL RESOURCES (INA)

DEPT. OF EC COLOGY AND MANAGEMENT Main results Base year production and potential 8000 7 000 6 000 New potential Production 2003 OF NATURAL RESOURCES (IN NA) GWh 5 000 4 000 3000 2 000 1 000 0 Wood stove Pellets stove Wood based central heating - singel houses Wood based central heating Wood based district heating Bioenergy in industries Bioenergy in forest industries

Projected bioenergy production in 2015 in the Base scenario at different heat prices GWh 25 000 20 000 15 000 10 000 5 000 Other bioenergy District heating Conversion Waste and internal lforest industries i 0 400 450 500 550 600 650 700 750 800 Heat price (NOK/MWh ex VAT)

DEPT. OF EC COLOGY AND MANAGEMENT Impacts on the forest sector Projected prices of pine and non-coniferous pulpwood for different energy price scenarios relative to the projected price 2015 140 120 OF NATURAL RESOURCES (IN NA) % 100 80 60 40 20 0 400 450 500 550 600 650 700 750 800 Heat price (NOK/MWh) Pine pulpw ood Non-coniferous pulpw ood

Energy production, employment and gross value the bioheat market (not including forest industries) 18 16 14 12 10 8 6 4 2 0 0,4 0,45 0,50 0,55 0,60 0,65 0,70 0,75 0,80 NOK/kWh Billion NO OK /1000 man- -years//twh Gross value forest industries 2005 Gross value bioenergy Energy production heat market Employment

m3 Billion NOK /million Wood fuel consumption and feedstock value the bioheat market (not including forest industries) 12 10 8 6 4 2 0 0,4 0,45 0,50 0,55 0,60 0,65 0,70 0,75 0,80 NOK/kWh 2007 industrial harvest Gross value feedstock Wood fuel consumption

Impacts Feedstock in new forest based bioenergy production at NOK 0,70 per kwh (4 mill cum): 1/3 roundwood 1/3 residuals from the forest industries 1/3 harvesting residuals Increased roundwood prices gave reduced profitability and production of fiberboard (-12%) and chemical pulp (-4%) Limited short run effects in Norway because of spruce based paper industry Limited increase in the spruce price Future energy prices and investments are the main uncertainties Sawnwood industries mainly positive effects of increased energy prices Increased production costs Increased prices for sawdust and bark Increased supply of sawlogs when pulpwood prices increases?

Modeling issues When bioenergy is still a relatively small share of the total energy production and the resource potential, cross-sectoral approaches are less demanded. Future and long-run analyses should however to a larger extent include other sectors - waste, forest resources and agricultural crops. Spatial considerations: Biomass markets are expected to become more internationalized trade, transport, regions Dynamic features: Supply and demand relations as well as policies develop over time.

Conclusions Low electricity prices and few central heating facilities are the main explanation of the low share of bioenergy in Norway The bioenergy market is at a breaking point with respect to competitiveness and may play a more significant role in the Norwegian energy market in the coming decades. Increased biomass demand gives opportunities and threats to the forest sector the overall impact for the forest sector are positive in Norway The forest sector should take advantage of bioenergy opportunities and their capacity wrt wood logistics, processing knowledge and heat demandd The use of a relatively detailed spatial model that covers regional differences, competition for biomass as well as dependencies between forest industries and bioenergy production, has been advantageous.

Future work Improve technology data including CHP More detailed analyses of local heat market opportunities (building structure/location, heat distribution facilities in existing buildings) Supply functions for harvesting residuals (costs, forest owner attitudes/behaviour, spatial availability) Bolkesjø, T.F, Analyse bottlenecks, institutional and economical aspects of the (bio)energy market More advanced modelling of the energy market (consumer behaviour, investment decisions etc - inertias) Impacts for second generation biofuels, opportunities for the for the forest sector; biomass demand, logistics, heat demand joint production o

References BOLKESJØ. T.F., TRØMBORG, E. & SOLBERG, B. 2006. Bioenergy from the forest sector: Economic potential and interactions with timber and forest products markets in Norway. Scandinavian Journal of Forest Research, 21: 175-185. Trømborg, E, Bolkesjø, T.F & Solberg, B. 2007: Impacts of policy means for increased use of forest-based bioenergy in Norway a spatial partial equilibrium analysis. Energy Policy 35 (2007) 5980 59905990 Trømborg, E, Bolkesjø, T. & Solberg, B. 2008: Biomass market and trade in Norway: Status and future prospects. Biomass and Bioenergy 32 (2008) 660 671 Junginger, M; Bolkesjø, T; Bradley, D; Dolzan, P; Faaij, A; Heinimö, J; Hektor, B; Leistad, Ø; Ling, E; Perry, M; Piacente, E; Rosillo-Calle, F; Ryckmans, Y; Schouwenberg, P-P; Solberg, B; Trømborg, E; Walter AS, Wit, M; Developments in international bioenergy trade, Biomass and Bioenergy Vol 32, 2008 Trømborg, E. & Leistad, Ø. 2008. Biomass market and trade in Norway: Status and future prospects. Country Report for IEA Task 40. http://www.bioenergytrade.org

DEPT. OF ECOLOGY AND MANAGEMENT OF NATURAL RESOURCES (INA)