Are the Finnish targets for the energy use of forest chips realistic—Assessment with a spatial market model

Published Date
Journal of Forest Economics
April 2011, Vol.17(2):110–126, doi:10.1016/j.jfe.2011.02.005
Fuelwood, timber and climate change: Insights from the forest sector modeling

Author 

• A. Maarit I. Kallio ^a,,
• Perttu Anttila ^b,1,
• Megan McCormick ^a,2,
• Antti Asikainen ^b,3,

• aFinnish Forest Research Institute, P.O. Box 18, Fi-01301 Vantaa, Finland
• bFinnish Forest Research Institute, P.O. Box 68, Fi-80101 Joensuu, Finland

Received 2 July 2010. Accepted 11 February 2011. Available online 24 March 2011. 

Abstract

We develop a spatially elaborate partial equilibrium model for the forest chips market in Finland and demonstrate its use by examining the targets outlined by the government for the increase in the use of forest chips for energy.

Because the supply of stumps and logging residues is tied to roundwood harvests, reaching the target seems unrealistic without investments in the new production capacity of the forest industry. In particular, the industries using sawlogs would need to get back to the high levels of production seen a few years ago. For instance, policies leading to the increased use of wood in construction would support the renewable energy goals as well. Also subsidies for CHP-production at sawmills would facilitate that.

Tight carbon policy alone would lead to considerable increases in the use of forest chips, but because the prices of the CO₂ emission permits are difficult to foresee, subsidies are needed to decrease the uncertainty faced by the market actors.

The government is planning to set subsidies for wood-based electricity, which would be tied to the carbon price. Based on our results, we recommend binding the potential subsidies for chipping energy wood to the carbon price as well.

JEL classification

O13

Q21

Q23

Q48

H23

L73

Keywords

Forest chips

Logging residues

Renewable energy

Co-firing

Biodiesel

Energy policy

Subsidies

Finland

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