The location and capacity-dependent price impacts of biofuel production and its effect on the forest industry

Abstract

Forest-based biofuel stands out as a promising solution to avoid fossil emissions in parts of the transport sector. Biofuel production will need large amounts of forest biomass, collected from a large area. Roundwood is costly to transport compared with other goods. Therefore, the location of forest-based biofuel production is a crucial part of an investment decision. This study analyses the optimal location of biofuel plants in Norway and the implications for the traditional forest sector in the Nordic countries. We test different numbers of production units, different sizes of the units, and various raw materials. The study applies a partial equilibrium model that covers the Norwegian and Nordic forest sectors, with 356 regions in Norway. The results indicate that small biofuel plants have the potential to turn exporting regions into importing regions. Larger biofuel plants are suitable for areas with large harvest activity today or regions with access to harbour or timber terminals along railways. We find that forest owners close to a biofuel plant will profit the most from biofuel production. Policymakers and investors should take into account that different locations and production capacities have different impacts on the forest sectors.