Alexander Moiseyev, Birger Solberg, Maarit Kallio

The impact of subsidies and carbon pricing on the wood biomass use for energy in the EU

Meeting of the ECE/FAO ToS on Forest Sector Outlook, June 16, 2014, Geneva.

20.8.2004 2

EFI-GTM model•Global Forest Sector Model•Partial equilibrium model•Several regional agents maximize their profit/welfare under perfectcompetition•Recursive model•Dimensions

• 36 products (6 wood, 4 rec.paper, 26 forest industry products) and additionally electricity and heat are included

• 60 regions (31 in Europe)• 1–3 existing production technologies + new technologies from

investments

20.8.2004 3

EFI GTM model structureDemand 1 Demand 2

Production 1 Production 2

Logs Supply 1

INPUTS (Labor, energy, wood)

COSTS (Labor, energy, chemicals, capital, other)

CAPACITY

Technology 1 Technology 2 Technology 1 Technology 2TRADE

Transportation costs

Po

Qo

Ho

Po

Demand for forest products (GDP, Price)

Forest products conversion

Energy & Heat conversion

Wood supply (growing stock, price)

EFISCEN: Maximum sustainable harvest

Energy model: Demand for 

electricity and heat

Residues

EFI‐GTM links with other models

How much biomass could technically be available for energy production without increasing pressures on the environment?

- Outlook for biomass supply for 2010-2020-2030

-The environmentally-compatible primary biomass potential is estimated around 190 million t of oil equivalent (MtOE) in 2010

- Biomass potential increases to around 295 MtOE by 2030 (compared to 69 MtOEin 2003)

- The potential is sufficient to reach the European renewable energy target in 2010 (150 MtOE )

- The potential also allows ambitious future renewable target beyond 2010

Bioenergy potential from forest sector in the EU, 2030 (based on EFI-GTM scenarios)

2030

0.0

20.0

40.0

60.0

80.0

100.0

120.0

Price25 Price35 Price40 Price50 Price60 Price70 Price80 Price90 Price100 Price120

Ener

gy p

oten

tial,

Mto

e

B2 forest residues Complementary forest residues Complementary fellingsCompetitive use of wood Additional wood import

EEA bioenergy report, Main assumptions:

•- The EU25 population is expected to almost stabilize between 2000 and 2030,•- GDP is expected to grow at an average 2,4% between 2000 and 2030,•- Oil price is assumed at a conservative low level of 35 € per barrel,•- CO2 permit is assumed 30 €/t of CO2 in 2020 and 65 €/t of CO2 in 2030,•- Oil price of 50 €/barrel is assumed in additional sensitivity scenario to reflect recent price increases.

This study main assumptions:

•- EU GDP is expected to grow at an average 2% between 2010 and 2030,•- Oil price is not relevant for the forest sector,•- CO2 permit is assumed from 40 €/t to 100 €/t of CO2 in 2030,•- European coal prices increase only modestly to 75 €/t in 2020, while natural gas price decrease moderately from the present level to 7.7 €/MMBtu by 2020 (Low Coal & Gas Prices Case)•- European coal prices increase linearly to 85 €/t of coal in 2020 from the present level of 70 €/t, and natural gas prices increase to 11 €/MMBtu in 2020 from the current price of 8.5 €/MMBtu. These coal and gas price developments are similar to the assumptions in ECF (2010) (High Coal & Gas Prices Case)

Estimation of costs for residue extraction

NON-CONIFEROUS RESIDUES

CONIFEROUS RESIDUES

EUR/M3 EUR/M3 FINLAND AND SWEDEN

25 25

REST OF EU-15 35 50 EU-10 (NEW MEMBERS)

25 35

Costs estimates for residue extraction were available from Finland and Germany.

Finnish costs were applied also to Sweden,

German costs were assumed to be representative for EU-15 countries except for Sweden and Finland.

Electricity and heat efficiency for power and CHP plants. Data are from the database of the Global Emission Model for Integrated Systems (GEMIS, 2012)

Heat efficiency

Electricity efficiency

Fuel input, MMBtu / MWh

Fuel LHV, MMBtu / ton

Fuel input, ton / MWh

Wood fuel input m3 / MWh

CO2 emission

Power plant, coal 0.40 9.5 25 0.38 0.9Power, coal with pellets co‐firing 0.40 7.6 25 0.30 0.7

pellets input for co‐firing 1.9 13.6 0.14Power plant, lignite 0.40 9.5 10 0.95 1.0Power, lignite with pellets co‐firing 0.40 7.6 10 0.76 0.8pellets input co‐firing 1.9 13.6 0.14Power plant, gas 0.58 6.5 0.4Power plant, wood 0.33 11.5 12 0.96 1.60CHP, coal 0.55 0.33 11.5 25 0.46 1.0CHP, lignite 0.55 0.33 11.5 10 1.15 1.1CHP, gas 0.45 0.45 8.44 0.5CHP, wood 0.55 0.275 13.8 12 1.15 1.92

15.7.2014 10

Electricity generation costs. (Production and investment costs are from European Climate Foundation, 2010. Power perspectives 2030: On the road to a decarbonised power

sector.)

15.7.2014 11

Cost of electricity generation

Electricity generation technology

Capital cost, €/KW

Fixed O&M cost, €/KW

Variable O&M cost, €/MWh

Capacity load factor

Total annualised cost without fuel, €/MWh

Annualised capital costs, € / MWh

Non-fuel O&M Cost, €/MWh

Fuel, €/ MWh

Total costs, €/MWh

CO2 emission factor

CO2 40 €/ ton

CO2 60 €/ ton

CO2 80 €/ ton

CO2 100 €/ ton

A B C D E F G H I J K L M N OCoal conventional 1400 20 1 0.86 16.8 13.2 3.7 26 42.8 0.9 79 97 115 133Coal co-firing (pellets) 1400 20 1 0.86 16.8 13.2 3.7 42 59 0.7 88 102 116 130Gas conventional 700 15 1 0.6 13.3 9.4 3.9 50 63.3 0.4 79 87 95 103Wind Onshore 1400 35 0 0.3 51.1 37.8 13.3 0 51 0 51 51 51 51Wind Offshore 2560 40 0 0.37 68.4 56.0 12.3 0 68.4 0 68 68 68 68Solar PV 1550 15 0 0.12 118.9 104.6 14.3 0 118.9 0 119 119 119 119Wood 2700 13 9 0.8 38.2 27.3 10.9 58 96.2 0 96 96 96 96

Annual electricity production in the EU region (with Norway & Switzerland) in 2030, Low coal & gas prices

15.7.2014 12

0

500

1,000

1,500

2,000

10 €/t 40 €/t 60 €/t 80 €/t 100 €/t

TWh

Wind & Solar

Wood

Coal & wood co‐firing

Coal

Gas

Annual electricity production in the EU region (with Norway & Switzerland) in 2030, High coal & gas prices

15.7.2014 13

0

500

1,000

1,500

2,000

10 €/t 40 €/t 60 €/t 80 €/t 100 €/t

TWh

Wind & Solar

Wood

Coal & wood co‐firing

Coal

Gas

Annual electricity production in the EU region (with Norway & Switzerland) in 2030, GWh with High Coal and Gas prices with and without subsidies for wood-fired and coal with wood co-fired electricity (left - CO2 price 40 euro / tCO2, right - 100

euro / tCO2)

15.7.2014 14

0

500

1,000

1,500

2,000

Withoutsubsidy

Subsidy 30euro/MWh

TWh Wind&Solar

Wood (Ind. Wood)

Wood (LoggingResidues)

Gas

Coal_co‐firing

Coal0

500

1,000

1,500

2,000

Withoutsubsidy

Subsidy 30euro/MWh

TWh Wind&Solar

Wood (Ind. Wood)

Wood (LoggingResidues)

Gas

Coal_co‐firing

Coal

EU region (with Norway and Switzerland) projected industrial roundwood harvest development under the high coal & gas prices

15.7.2014 15

350

360

370

380

390

400

410

420

430

440

450

2015 2020 2025 2030

CO2‐40

CO2‐60

CO2‐80

CO2‐100

CO2‐100‐Subsidy‐30

EU region (with Norway and Switzerland) projected industrial wood use for forest products development under the high coal &

gas prices

15.7.2014 16

350

375

400

425

450

2015 2020 2025 2030

CO2‐40

CO2‐100

CO2‐100‐Subsidy‐30

EU region (with Norway and Switzerland) projected industrial wood imports development under the high coal & gas prices, Y-

axis – Imports, million m3.

15.7.2014 17

0

50

100

150

200

250

2010 2015 2020 2025 2030

CO2‐40

CO2‐100

CO2‐100‐Subsidy30

EU region (with Norway and Switzerland) projected pulpwood price development under the High Coal & Gas prices, Y-axis –

price, €/ m3.

15.7.2014 18

30

40

50

60

70

2015 2020 2025 2030

CO2‐40

CO2‐100

CO2‐100‐Subsidy‐30

Projected change of the use of industrial wood for energy by source in 2030 relative to the Low 10 €/tCO2 scenario, Million m3

Subsidy for wood energy

Additional industrial wood for energy from

Logging Residues

Total logging residues + industrial wood for energy

Wood products Imports Harvest

Total wood

No subsidy CO2‐100 11.5 10.3 8.5 30.2 224.0 254.2

Subsidy 30 UK‐NL‐DK‐DE e/MWh 34.5 101.8 21.5 157.8 230.9 388.7

Subsidy 30 UK‐NL‐DK e/MWh 27.1 72.7 17.3 117.1 228.3 345.4

EFSOS II 21.9 31.6 16.1 69.6 271.9 341.5

15.7.2014 19

Main conclusions recommendations:

-There is sufficient technical availability of biomass for energy to fulfill the EU target on RES;- However, high volumes of biomass for energy can be supplied at rather high energy and CO2 permit (taxes) prices and especially with subsidies;- High energy and CO2 prices are likely to cause substantial some moderate distortion on forest products markets (wood pulp and wood based panels), subsidies will cause significant distortion on forest products markets ;- More efficient policies can be based on direct economic incentives in agriculture (including subsidies) for growing energy crops (including short rotation forestry) and subsidies for pre-commercial thinning in forestry in order to increase actual biomass supply instead of overheating competition for already existing resources.

Thank you!

• A. Moiseyev, B. Solberg and M. Kallio. The impact of subsidies and carbon pricing on the wood biomass use for energy in the EU. Energy 2014. DOI: 10.1016/j.energy.2014.05.051

• A. Moiseyev, B. Solberg and M. Kallio. Wood biomass use for energy in Europe under different assumptions of coal, gas and CO2 emission prices and market conditions. Journal of Forest Economics, 19(2013), 432-449. http://dx.doi.org/10.1016/j.jfe.2013.10.001

15.7.2014 21