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Bioenergy Markets and Policy

Learning Diary
Any organic matter, i.e. biological material, available on a renewable basis is biomass; and energy generated from the conversion of solid, liquid and gaseous products derived from biomass is called bioenergy. Bioenergy accounts for roughly 9% of world total primary energy supply today [1]. Modern bioenergy on the other hand is an important source of renewable energy, its contribution to final energy demand across all sectors is five times higher than wind and solar PV combined, even when the traditional use of biomass is excluded. Solar energy stored in the wood (round wood, fuel wood, chips, wood residues etc.) are the main basis of bioenergy market in Finland as almost 80% of land area is covered by forest.

  1. Background: World started thinking for alternative energy source when "first oil shock" was began in October 1973. The Organization of Arab Petroleum Exporting Countries proclaimed an oil embargo which was targeted at nations perceived as supporting Israel during the Yom Kippur War (Arab–Israeli War, 1973). In 1980 the average price of oil was $106 per barrel globally as demand far exceeded supply in most western countries after "second oil shock" occurred in the world on 1979 due to decreased oil output in the wake of the Iranian Revolution. Since then several alternative energy started to grip the oil market where bioenergy is one of the most modernized one. Especially Finland and Sweden are the countries with large forest resources hence both countries are leaders in bioenergy development and implementation. Direct, indirect and recovered fuel woods; fuel crops; agricultural, animal and agro industrial by-products and municipal by-products found in soild, liquid and gaseous form are the main sources of bio energy production.
  2. The role of policy: Polices are the statement of intent, generally adopted as well as developed by the senior governance body of an organization and implemented as procedures and protocols. To promote the development of bioenergy in Europe the role of policy instruments are most significant. First EU Forest Strategy was introduced in 1998, after that a new version of it was issued in 2013 [2]. Policy related to bioenergy can be divided into three parts such as Energy policy, environmental or climate policy and agricultural policy.
  • Energy policy: From the outset energy policy goal was to reduce the dependency on OPEC countries for oil importation through alternative technologies and later on the policy also includes the polluting effects, acid rain and at last it includes economic trends regarding competition on electricity market. The main objectives of energy policy are secure energy supply, environmental protection and promote competition.
  • Environmental or climate policy: The UNFCC sets a mandatory limit on greenhouse gas emission for individual nations. The ECTS applies flexible market-based mechanism compatible with environmental policy. The ECCP involves initiatives across the energy, transport an industrial sector.
  • Agricultural policy: The main objective of agricultural policy includes increase of productivity, fair standard of living for agricultural population, secure supply of food and reasonable retail price to consumers.
  1. Economic Instruments: Major economic instruments used in EU countries for bioenergy market development are capital subsidies, tax incentives, energy tax policies, guaranteed markets, soft actions, information & promotion campaigns etc. In Finland the instruments are tax incentives, operational & investment subsidies and energy taxation.
  2. Adoption dynamics: Changing from the current fossil-dependent energy system to a truly sustainable energy system will require fundamental changes in basic structures of society, in the technologies we utilize in the living of our lives and in the way we as citizens and consumers behave relative to energy use [3]. For this to reach the goal of a new technology, adoption dynamics depends on several factors such as market demand & opportunity costs, different management practices, Research & development, profitability etc. These factors are also influenced by different policy measures.
  3. Market behaviour: A market for biomass can be simplified as; forest owner>wood biomass>bioenergy plant. Generally market behaviour depends on the demand and supply of the commodity. Factors that affect the market behaviour are skills, experiences, cost, location, amounts, rules, taxation, subsidies etc.
  4. Concepts and approaches to bioenergy governance: Forest governance refers to the organisations, people, rules, instruments and processes through which decisions are made relating to forests [4]. Key elements of good forest governance include the existence of effective institutions, transparency, low levels of corruption, consistent and clear legislation; secure forest tenure and access rights, and political stability [4]. The absence of these often lies at the root of illegal logging. Forest conflicts may be describe according to FAO,2000 as "Conflicts, regarding natural resource management, occur when there are disagreements and disputes regarding access and management of natural resources." Different types of forest conflicts were happen based on different issues such as urban forestry, deforestation, agriculture, illegal logging etc.
  5. International bioenergy trade: Wood pellets, liquid biofuel, forest chips, round wood, grain, forest products etc. are the major products for international bioenergy trade. Considering the international wood chips (derive from wood waste) market, Sweden, Denmark & Germany are the main importers on the other hand Russia & Baltic countries are main exporters. In 2012, highest wood pellet production of the world occurred in Germany (20%) followed by Sweden (19%) whereas highest per capita consumption was found in Sweden. In 2009, the largest exporter and importer of wood pellets was Germany and Denmark respectively. Now in Finland, industrial scale use of renewable energy is incentivised using a feed-in tariff (FIT) scheme. Some of the market rule measures, alluded to by Nurmi, were proposed by the Finnish government in its "Energy and Climate Strategy for 2030 and Beyond" announced November 24 last year. This includes a proposal to discontinue the FIT for wind in its current form whereas the government notes the FIT for electricity produced from wood chips is a cost-effective way of promoting the use of forest chip [5]. Russia on the other hand most of the exports were sold to Sweden and Denmark. Compared to the previous year, exports increased by 8 percent [6].
  6. Bioenergy market and supply: In bioenergy market supply chains products are produced and delivered from the upstream to downstream. Upstream consists of feedstock from plantations or from forest & agricultural residues. In downstream, products produced from biomass i.e. biogas, bioethanol, biodiesel etc. which are used for heat, electricity and power generation. There are different supply chain factors such as different types of seller & buyer, logistics i.e. transport, distance, weather etc., other factors i.e. technology, knowledge, information etc. could influence the stability of the bioenergy market.
  7. Policies for EU & Nordic Bioenergy market: EC sets target to manage global warming level below 20C (i.e. compared to 1990s level) and developed countries would have to lessen their GHG emissions around 80-90% by 2050.
  8. Recent and future trends in Bioenergy: Energy is necessary for life, but now it is necessary to search for types of energy that can be sustainable for the planet. In Europe, bioenergy plays a central role in national renewable energy action plans accounting for more than half of the projected renewable energy output in 2020. If this trend of bioenergy production in EU continues, in the future, there will be a time when the world has to be dependent on the EU for this technology of energy production, because, petroleum and fossil fuel is obviously not a renewable energy source which is going to be finish sometime. Therefore this can be forecasted that by 2030 and later on, EU will be self-sufficient on energy production.

[2] Chapter 1, Markets and policy. In: Pelkonen, P. et al. eds. (2014) Forest Bioenergy for Europe. What Science can tell us, 4. European Forest Institute. pp 109. [PDF]

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