The Development of Forest-Based Biorefineries: Implications for Market Behavior and Policy
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The Development of Forest-based Biorefineries: Implications for Market Behavior and Policy Patrik Söderholm and Robert Lundmark Abstract and the use of biomass is expected to constitute a major In a forest-based biorefinery, the entire potential of share of the future total use of renewable energy sources forest raw materials and byproducts may be used to pro- in Europe (European Commission 1997, 2006). Essential duce a diverse set of products, including transport fuels, components of national energy policies in Europe, there- chemicals, and pulp and paper products. This paper ana- fore, include not only direct promotion of renewable ener- lyzes the general impact on forest raw material markets gy technologies (e.g., investment and R&D support), but following an increased diffusion of biorefineries and high- also carbon dioxide taxes and emissions trading in carbon lights a number of related public policy issues. The analy- dioxide allowances that discourage the use of fossil fuels. The transition from a fossil fuel-based to a carbon-free sis indicates that the character of forest raw material sup- energy system may have important consequences for the ply, in particular the distinction between main products use of raw materials in society, not the least in cases of and byproducts, will have a major influence on the func- agricultural and forest-based resources. Increases in the tioning and the organization of future forest products mar- relative prices of fossil fuels affect a large number of indus- kets. Moreover, the advent of new uses of forest-based bio- trial and end-use sectors of the economy. The reliance on mass will foster an increased competition for (and thus new energy carriers and materials could even induce fun- higher price of) this resource. An important policy lesson, damental structural and technological changes in the way however, is not to directly regulate the allocation of forest goods and services are produced and supplied. resources between different sectors or promote a certain This paper focuses on a potentially critical change in industrial structure. The rationale for policy intervention the way forest resources will be processed and used in the lies instead in identifying situations in which essential future, namely the development of biorefineries. A biorefin- societal costs and benefits do not enter the private deci- ery is a parallel to a petroleum refinery in which a feedstock sion-making process. The presence of external environ- (crude oil) is converted into fuels and selected market prod- mental costs (e.g., damages to the climate) and the public ucts (e.g., fertilizers and synthetic materials). In a biorefin- spillover effects from R&D and innovation activities pro- ery, however, biomass (plants and plant-derived material vide such rationales, but at the same time require careful based on photosynthesis) would be used as feedstock to analysis prior to the introduction of specific policy instru- produce a diverse set of products (e.g., animal feed, fuels, ments. Overall there exists a need to create a better under- energy, pulp and paper, fuels, or chemicals) depending on standing of the linkage between energy and forest prod- ucts markets, with new co- and byproducts included. The authors are, respectively, Professor ([email protected]) and Associate Professor, ([email protected]), Economics Introduction Unit, Luleå University of Technology, SE 971 87 Luleå, Sweden. This An essential component of the European Union’s ener- paper was received for publication in March 2008 and has been gy policy is the promotion of renewable energy sources, through the Journal’s peer-review process. Article No. 10468. I6 JANUARY/FEBRUARY 2009 the resource inputs and the processing techniques used. useful to highlight a number of general market develop- Biorefineries can be based on either agricultural (Audsley ments and policy issues that should constitute the basis and Annetts 2003) or forest-based raw materials (Van for future economic and social scientific work on forest- Heiningen 2006). A major benefit of integrated forest-based based biorefineries. Also some of the key issues present in biorefineries is that they can make use of the infrastructure the Swedish case are highlighted. at existing chemical pulp mills; and, at the same time, they The paper is organized in the following sections. The utilize a larger share of the wood components to produce a next section briefly presents the concept of an integrated diverse set of chemical products and energy carriers in addi- forest biorefinery with particular emphasis on the flow of tion to pulp. To a large extent, the existing pulp industry is forest raw materials and the end products that can be gen- already a multi-product industry producing electricity, heat, erated. Then, changes in forest products market behavior and other products in addition to pulp. With the develop- are analyzed with a focus on the supply of different types ment of new technologies, however, a large number of addi- of products as well as the potential for increased competi- tional products may be processed and generated in integrat- tion for the forest raw materials and processed products ed biorefineries; this raises questions about possible conse- based on these raw materials. Lastly, a number of poten- quences for forest raw materials markets as well as its impli- tial implications for energy and environmental policy fol- cations for public policy in the forest and energy sectors. lowing the development of biorefineries are highlighted. In a recent communication, the European Commission (2008) endorsed a separate minimum target for the share of sustainable biofuels in the European transport sector and The Basics of Biorefineries The primary goal of converting a given chemical pulp stressed the need for analyses of market impacts and inter- mill into an integrated biorefinery is to create more value actions following the advent of increased use of biofuels. from the bio-based raw material provided by the forestry sec- tor.1 Mensink et al. (2007) noted that a biorefinery is charac- [The] Commission is committed to promoting in Tterized by an “efficient use of the entire potential of raw mate- all its policies the rapid development of second rials and by-streams of the forest-based sector towards a generation biofuels. It will closely monitor mar- broad range of high-added value products (by co-operation ket developments and their effects on food, feed, in and between chains)” (p. 3). Wood contains cellulose (40% energy and other industrial uses of biomass, and to 45%), lignin (20% to 30%), hemicellulose (25% to 30%), and take appropriate action if needed. (p. 8) extractives (3% to 4%). But, a considerable share of the har- vested wood, i.e., the forest residues, never enters the pulp Given this statement, the purposes of this paper are to analyze the impacts on forest raw material markets follow- digester, and in the chemical pulping process about 20 to 30 ing an increased diffusion of integrated biorefineries in the percent of the wood weight – primarily lignin and hemicellu- chemical pulp industry and to discuss a number of related lose – dissolve in the waste liquor (Van Heiningen 2006). energy and environmental policy issues. The analysis is Figure 1 illustrates the flow of forest resources and general in scope and does not include in-depth empirical byproducts in an integrated forest-based biorefinery, as work on specific biorefineries. A major share of the ongo- ing research in this field is dominated by engineers and 1 It should be noted that not every pulp mill may be converted to natural scientists (Van Heiningen 2006); it is, therefore, an integrated biorefinery, only selected ones (e.g., kraft pulp mills). Figure 1. — Raw material flows and end use products in a forest-based biorefinery. Source: Based on Axegård (2005) and Backlund and Axegård (2006). FOREST PRODUCTS JOURNAL Vol. 59, No. 1/2 7 well as the possible end products that ultimately could be remove the lignin from the black liquor by acid precipita- generated from the refinery. The new value streams can be tion. Lignin precipitation after pulping can be used to pro- divided into two main categories (Closset et al. 2005). First, duce carbon fibers when mixed with commercial polymers before wood is pulped, hemicelluloses (essentially a form of (such as polyesters) (Kadla et al. 2002). This is a light but sugar) can be extracted by leaching from, for strong material, which, among other things, example, forest residues and/or wood chips. is used in space technology and in produc- Important challenges for effectively using ing sport equipment (e.g., tennis rackets). these raw materials are to keep the lignin The automobile industry may also repre- content low in the extracted hemicellulose ...a transformation sent a major market for composite materials and to ensure that the wood chips entering of at least containing carbon fibers, in this case as a the pulping stage are of good quality. The parts of the pulp substitute for structural steel. Lignin can extracted hemicellulose can be converted to industry...into also be used to generate phenols, which mono-sugars through hydrolysis, which in represent intermediate products used in the turn can be used to produce ethanol through biorefineries is likely. production of, for example, compact discs a fermentation process. Through additional From the pulp industry’s and plywood. fermentation and subsequent processes, point of view, this Although a considerable amount of however, other – potentially higher value- provides an opportunity research is needed to commercialize the added – products may also be produced. For above technologies and processes, a trans- example, hemicellulose can be used to gen- to increase profitability, formation of at least parts of the pulp erate fiber additives in paper mills, barriers, while still making use industry (e.g., kraft pulp mills) into biore- and hydrogels.