Biofuel Policy and Industrial Transition—A Nordic Perspective

energies

Article Biofuel Policy and Industrial Transition—A Nordic Perspective

Atle Midttun 1,*, Knut Myrum Næss 1 and Proadpran Boonprasurd Piccini 2

1 BI Norwegian Business School, Nydalsveien 37, 0484 Oslo, Norway 2 University of Surrey, Guildford, Surrey GU2 7XH, UK * Correspondence: [email protected]; Tel.: +47-464-10632

Received: 3 June 2019; Accepted: 10 July 2019; Published: 17 July 2019

Abstract: The article explores the interplay between policy, technological innovation and market dynamics. It highlights the challenges of combining biofuel policies for ‘greening’ transport with reviving the Nordic forestry industry. We find that strong policy initiatives have triggered a transition to biofuel in the three Nordic countries but have so far given little stimulus to forest-industrial revival. Instead, biofuel has created dynamic change in the petroleum sector, where retailers and refineries have adopted cheap imported biofuel to diversify out of an exclusive reliance on petroleum, leaving forest-based biofuel unable to compete. However, this does not mean that the forestry industry has remained stagnant. We find that parts of the Nordic forestry industry have staged an impressive revival, though one based predominantly on high value products, such as hygiene products and labels, and not on biofuel. We conclude that, while public policy may influence commercial conditions, it does not—in a market economy—dictate the industrial strategy, which is hard to predict, especially when it moves beyond existing sector-boundaries. However, the recent adjustment in biofuel policy, in part a response to ecological critique, may represent a more promising opportunity for forest-industrial participation in the future.

Keywords: biofuel; industrial transition; technological innovation; transport policy climate policy; market dynamics; ﬁg; forest industry; petroleum industry; reﬁning; retailing; green transition

1. Introduction A number of studies on Nordic biofuel and renewable energy have been conducted over the last four or five years. The focus has been on innovation, and variants of the ‘systems of innovation’ (SI) perspective have provided the conceptual framework. A study of failed biofuel development in Norway [1] investigated the effects of the Norwegian petroleum economy on the biofuel industry, finding that while the petroleum sector exerted a certain drain on risk capital, it did not monopolize technological expertise in a way that hampered the emergence of Norwegian biofuel production. Instead, the study argues, policy failure mattered most. The lack of adequate incentives and support measures to stimulate the development and production of advanced biofuels was of much greater significance than the petroleum economy. A broader study of Nordic road transport [2] highlighted how lock-in mechanisms have benefitted biofuel refining and sales in Finland. The authors show how the network externalities of the dominant fossil transport regime are favourable to bio-ethanol and biodiesel, and can be integrated into existing supply and distribution systems. However, the dominant feedstock has been imported palm oil, with the Finnish petroleum refiner as the major player, while the forestry industry has largely been sidelined. The study also shows how Swedish biofuel policy has traditionally been closely aligned with the car industry and the production of engines specialized in biofuel. In contrast to Finland,

Energies 2019, 12, 2740; doi:10.3390/en12142740 www.mdpi.com/journal/energies Energies 2019, 12, 2740 2 of 19

Swedish biofuel policy has thereby come to rely in part on specialized engines, with a specialized E85 ethanol pump infrastructure integrated with conventional fueling. Another study of road transport in the Nordic countries [3] focused on path creation, highlighting how the ambitious biofuel policy in Finland represents a classic path-creating experiment. However, the authors show that most of the Finnish biofuel production comes from non-forest resources. The study portrays Sweden as having a weaker policy, but one ending up with a similar import-based biofuel supply. A common feature in these studies has been to see the Nordic biofuel development in relation to forest feedstock and the advancement of the domestic forestry industry. In this article, we take a somewhat broader perspective, exploring biofuel as much for its potential in sparking a strategic reorientation of the midstream and downstream petroleum industry, as for any role it might have in stimulating a forest industrial revival. Furthermore, we take a cross-national perspective across the three Nordic countries with vast forest resources: Finland, Norway and Sweden. Our argument for this expanded perspective is that: 1. the public policy goal of green transition in transport may be fulfilled in various ways. Forest-based feedstock and forest industrial processing are only one method among many others, also including imported alternatives. 2. the downstream part of the petroleum value chain is bound to have a dominant position in supplying biofuel to end users through its control of the existing infrastructure. 3. to the extent that the forestry industry engages supplying biofuel, there are attractive options for joint ventures with petroleum refineries, and across national boundaries. 4. Finally, the downstream—and partly also the midstream—petroleum industry may have a strategic interest in finding new ‘green’ alternatives in a climate-constrained world. Their recent de-coupling from the upstream petroleum business has given them new freedoms in this respect.

1.1. A Sectoral Innovation Perspective Our analysis draws on what has come to be called a ‘systems of innovations’ conceptual framework [4], which includes “important economic, social, political, organizational, institutional and other factors that influence the development, diffusion and use of innovations” [5]. The SI approach emphasizes the role of institutions in innovation, and is based on the understanding that firms normally do not innovate in isolation but interact with other organizations through complex relations often characterized by reciprocity and feedback mechanisms in several loops. Within this framework, it has become customary to distinguish between national (OECD), sectoral [6] and regional [7] systems, which may be seen as variants of a generic ‘system of innovation’ approach [5]. Our analysis falls within the sectoral approach [6] focusing on a group of firms that develop and manufacture the products of a specific sector, and generate and utilize the technologies of that sector. However, as previously noted, we have expanded the analysis to incorporate a dual sector perspective, in order to reflect the cross-sectoral scope of biofuel policies and business strategies. More specifically, our analysis of biofuel and industrial transition draws on the work of Malerba and his associates regarding sectoral innovation systems and ‘catch-up cycles’ [8–11]. This approach brings the systems of innovation perspective to bear on the industrial development at the sectoral level. It draws attention to the interplay between technological innovation, market dynamics and institutions, and highlights their co-evolution in industrial transformation. In a nutshell, Lee and Malerba [11] (hereafter L&M) argue that it is the combination of the opening of a window of opportunity (either driven by technology, demand or institutional/policy), the presence of capabilities and the appropriateness of responses/strategies by the actors that determine the changes in industrial leadership. L&M focus on three windows of opportunity that open up for industrial transformation: technology, demand and policy. While recognizing the importance of technology, this article focuses primarily on the two other windows: policy and demand conditions: Energies 2019, 12, 2740 3 of 19

With respect to public policy or institutional changes, L&M point out that the government may intervene in a variety of ways: R&D programmes, subsidies, tax reduction, export support, regulations and public standards. All of these bias markets and business strategies toward compelling societal goals. The case for public policy intervention is, as argued by Mazzucato [12], particularly strong as the public interest calls for a response to major social, environmental and economic challenges, such as climate change. With respect to demand conditions, L&M argue that a new demand may open an opportunity for new entrants, as leading ﬁrms may be slow to enter because they successfully serve existing markets and customers.

The Dynamics of Industrial Transformation While public policy may influence commercial conditions, it does not generally dictate the industrial strategy in a market-based economy. Implementing policies for industrial transformation, therefore, raises challenges with respect to foreseeing market outcomes, particularly when they may involve a cross-sectoral industrial re-configuration. As L&M point out, there are many trajectories for industrial adaptation. These range from path-following incremental adjustment strategies where actors move along conventional technical trajectories, to path-creating strategies where the innovating firm explores new paths of commercial and technological development. In the latter case, new actors can create their own path, which diverges from those taken by its forerunners [13] and which may be difficult for policy-makers to foresee. However, while Malerba’s sectoral perspective establishes a focal point of departure, the industrial response across sectors, we argue, calls for a broader focus capable of capturing the cross-sectoral co-evolution. The Nordic biofuel industry is a case in point. While policy makers—at least in Norway—envisaged that the policy-induced biofuel demand that would provide a basis for a forest-industrial revival, the main industrial transformation appeared in the down- and midstream petroleum industry.

2. Materials and Methods Our study maps biofuel policies, industrial strategies and market dynamics across the forestry and petroleum refining sectors in Norway, Sweden and Finland, and follows core companies from the turn of the millennium up to 2016/2017. In line with the systems of innovation perspective, this analysis is interdisciplinary and draws on a financial analysis, combined with a structural analysis of product-portfolios and a scrutiny of companies’ strategic orientation. Public policy is factored in as a major framework condition. On the forest industry side, the study includes the largest Nordic companies—six of them listed on the stock exchange and two privately owned ones not listed so—and follows these companies from the turn of the century up to 2016. The quantitative variables are the share prices and product portfolios. The first is acquired from the Financial Times database [14]. Our analysis of the forest industry’s often complex product strategy is based on the companies’ sales figures from the financial sections of their annual reports. The evolution of each company’s strategic product portfolio is calculated in terms of the company’s external sales in each product category as a percentage of its total sales. We distinguished between nine major product types: pulp, printing papers, forest and wood, hygiene, bio-products, energy, labels and specialty, packaging and others. To document their strategic transition, the analysis of each company’s product mix was conducted both for 2000 and 2016. Relating the product portfolio data to the share price development allows us to discuss the possible relations between the product mix and economic performance. In addition, the juxtaposition of the quantitative and qualitative data allows us to explore how the companies interpreted and made sense of their evolving strategic configuration. Our analysis of the petroleum companies is less complex when it comes to the product portfolios, and focuses on their production or distribution of biofuels compared to fossil fuels, based on information Energies 2019, 12, 2740 4 of 19 in their annual reports. The volume of respective fuels is registered and related to the revenue and profit, also taken from the company reports. The corporate information is then related to the market data from the petroleum business associations and national statistics authorities. As with the forestry industry, we also include the development of the petroleum companies’ share value based on data from the Financial Times. For both the forestry and petroleum sectors, we have combined the quantitative analysis with a qualitative inquiry, based on the strategic information in the annual reports. We have undertaken a pragmatic textual study of the annual reports for all the companies throughout the period 2000–2016/17. The information from the annual reports has been supplemented by interviews with selected companies, and comments and statements on industrial strategy from industry leaders and influential stakeholders. The juxtaposition of the quantitative and qualitative data has allowed us to explore how the companies interpreted and made sense of their evolving strategic configuration. To include public policy, which in our analysis constitutes a central framework condition, we have relied on data gathered from national and European bodies. Both the EU and the Nordic countries have transparent and easily available online information about biofuel policy and regulation. Although the use of information from multiple sources, and the mixture of quantitative and qualitative data, prevents unified econometric modelling, we argue that this somewhat eclectic approach, in line with many studies in political economy and systems of innovation analysis, has its merits when it comes to gaining institutional and strategic insights.

3. Results While the initial assumption was that Nordic biofuel policy would stimulate industrial catch-up in the forestry industry following the downturn in paper markets, its dominant eﬀect has been to stimulate transition in the petroleum reﬁning and retailing industry. More recently, however, there has also been an emerging industrial engagement in the forestry industry in response to the biofuel policy reform. The following two sections present the industrial development in the respective sectors.

3.1. Biofuel in the Strategic Reorientation of Nordic Petroleum Industry Seen from a market perspective, the policy for promoting biofuel for road vehicles has been an apparent success. To take Norway as an example, the mandatory sales requirements, directed at fuel vendors, have not only been fulfilled but have in fact been massively surpassed by a voluntary biofuel acquisition. As indicated by Midttun & Myrum Næss [15], the total volume of biofuel sold in Norway—at almost 700 million litres in 2017—was more than twice as high as that demanded by the government. It amounted to around 16% of the total fuel sales to road transport, against a requirement of 8%. Seen from an industrial perspective, the increasing biofuel requirements have created a dynamic commercial development in the Nordic petroleum sector. Biofuel supply has been promoted through a supportive engagement from fuel vendors, who are moving into multi-energy services, where biofuel constitutes one ingredient. This strategic reorientation comes as retailers have largely divested from the upstream petroleum industry, and have thus become free to seek complementary feedstocks. The fact that biofuel helps build positive climate-branding is also an important selling point. The refinery industry’s engagement has been more mixed, and ranges from pioneering initiatives like that of Neste (which has become a world leader with its HVO technology) to Esso and Equinor (which have engaged in a minimal way). They have done so by including externally refined biofuel in their distribution to retailers, but have not undertaken bio-refining themselves.

3.1.1. Retailers In Norway, the three dominant retailers Circle K (26%), St1 (24%) and UnoX (24%), all decoupled from upstream petroleum companies, and have earmarked a substantive part of their business beyond petroleum. Circle K (13.1%) is also among the largest retailers in Sweden; the others are OK-Q8 (24.5%) Energies 2019, 12, x FOR PEER REVIEW 5 of 20

In Norway, the three dominant retailers Circle K (26%), St1 (24%) and UnoX (24%), all decoupled Energies 2019, 12, 2740 5 of 19 from upstream petroleum companies, and have earmarked a substantive part of their business beyond petroleum. Circle K (13.1%) is also among the largest retailers in Sweden; the others are OK- andQ8 (24.5%) Preem and (12.6%). Preem In (12.6%). Finland, In ABC Finland, Chain ABC (24.1%), Chain Neste (24.1%), (24.9%), Neste and (24.9%), Teboil and (17.7%) Teboil are (17.7%) the three are biggestthe three petroleum biggest retailers.petroleum Like retailers. their Norwegian Like their counterparts, Norwegian bothcounterparts, the Swedish both and the Finnish Swedish retailers, and withFinnish one retailers, exception, with are one without exception, organizational are without ties organizational to the upstream ties industry. to the upstream industry. Due toto the the strong strong policy policy push push from thefrom Nordic the Nord authorities,ic authorities, the major the retailers major developed retailers substantivedeveloped biofuelsubstantive sales. biofuel As illustrated sales. As in illustrated Figure1, the in threeFigure companies 1, the three that companies report on that the biofuelreport on share the ofbiofuel their salesshare allof their have sales a considerable all have a considerable biofuel engagement, biofuel engagement, ranging from ranging 15 to 17%from of15 theto 17% total of fuel the salestotal (Forfuel Norwaysales (For and Norway Sweden, and data Sweden, is readily data available is read fromily available the National from Institutes the National for Petroleum Institutes andfor BiofuelsPetroleum (respectively and Biofuels Drivkraft (respectively Norge Drivkraft and ‘Svenska Norge Petroleum and ‘Svenska & Biodrivmedel Petroleum & Institutet’ Biodrivmedel SPBI). TheirInstitutet’ Finnish SPBI). counterpart Their Finnish does notcounterpart publish biofuel does not statistics. publish According biofuel statistics. to Statistics According Finland, to the Statistics biofuel consumptionFinland, the biofuel for 2016 consumption (latest data for available) 2016 (latest was almostdata available) 66% lower was in almost 2016 than 66% in lower 2015, in at 2016 less than 5%in 2015, of the at total less roadthan consumption.5% of the total For road 2017, cons Eurostatumption. reports For 2017, a renewables Eurostat proportionreports a renewables in Finnish transportproportion (including in Finnish rail transport transport) (including of 18.83%, rail mosttransp ofort) which of 18.83%, is biofuels. most We of which use the is Eurostatbiofuels. numberWe use inthe this Eurostat report). number The other in this large report). Nordic The retailers other large do not Nordic report retailers their biofuel do not shares,report their but arebiofuel likely shares, to lie inbut the are same likely range, to lie inin compliancethe same range, with in the complian respectivece with national the respective sales requirements national representedsales requirements by the linesrepresented below. by the lines below.

Fuel sales by dominant Scandivanian retailers 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% St1 Preem Neste OK-Q8 UnoX ABC Chain CircleK Teboil

Bio Fossil Norway Sweden Finland

Figure 1. Fuel sales in Scandinavia. Source: [16–25]. [16–25].

The strategic reorientation from petroleum vendorsvendors to multi-energy stations has taken different different forms from company to company. Firms also vary in how, and toto whatwhat extent,extent, they have used their fuel-shift to profileprofile aa ‘green’‘green’ transition.transition. St1, Preem, and ABC are among thethe mostmost profiledprofiled ‘green’‘green’ retailers:retailers: St1’s programmatic statement, “Our goal is to gr graduallyadually substitute fossil energy with renewable solutions,” illustrates the fundamental shiftshift inin attitudeattitude awayaway fromfrom fossilfossil fuelsfuels [[26].26]. Preem also puts its biofuel engagement in a larger context and flagsflags a vision of leading the transformation to a sustainable societysociety [[27].27]. Finland’s secondsecond largestlargest retailer, retailer,ABC ABC, flags, flags an an extensive extensive green green engagement, engagement, and and argues argues that “[I]tthat decreases“[I]t decreases motoring motoring fossil fossil carbon carbon dioxide dioxide emissions emissions by up by to up 80%” to 80%” [28]. [28]. Neste, UnoX, Circle K and OK-Q8 thenthen followfollow withwith aa moremore modestmodest ‘green’‘green’ rebranding:rebranding: Neste flagsflags a “Collaboration for a cleaner future”future” centrallycentrally onon itsits homepagehomepage [[29].29]. The biofuel message from Uno X is rather subdued. There is no reference to biofuel or greening on its homepage at the firstfirst andand secondsecond levels.levels. Only at the third level there appears the followingfollowing assurance that they are not selling palm oil: “We “We engage for a sustainable sustainable and advanced biofuel which

Energies 2019,, 12,, 2740x FOR PEER REVIEW 66 of of 20 19 is an efficient climate solution towards a low emission society. We guarantee that the biofuel bought isby an us e isffi cientfree of climate palm oil solution and remains towards of a palm low emission oil production” society. We[30]. guarantee that the biofuel bought by us isCircle free of palmK profiles oil and itself remains relatively of palm conventionally: oil production” “Circle [30]. K adds the maximum permitted quantityCircle of Kbiofuelsprofiles in itself our transport relatively fuels” conventionally: [31]. “Circle K adds the maximum permitted quantity of biofuelsOK-Q8 in also our figures transport in the fuels” middle [31]. range when it comes to its green aspirations. It points out that OK-Q8OK-Q8 was thealso first figures Swedish in the fuel middle company range to when mix itfive comes per cent to its ethanol green aspirations.in 95-octane Itgasoline points outfor thatenvironmental OK-Q8 was reasons the first [32]. Swedish fuel company to mix five per cent ethanol in 95-octane gasoline for environmentalFinally, Teboil reasons Ab [32 hardly]. has any mention of biofuel or green branding aspirations. In its presentationFinally, ofTeboil its product Ab hardly range, has it lists any petrol mention and ofdiesel, biofuel light or and green heavy branding fuel oil, aspirations. LP gas, lubricants In its presentationand automotive of its chemicals. product range, It ownership it lists petrol by PJSC and LUKOIL, diesel, light an andupstream heavy petroleum fuel oil, LP company, gas, lubricants may andexplain automotive this biofuel chemicals. reluctance It ownership[33]. by PJSC LUKOIL, an upstream petroleum company, may explainThe this Nordic biofuel market reluctance also [includes33]. smaller actors, such as Eco1, that specialize exclusively in biofuels.The NordicThrough market a focus also on includes quality, smaller both in actors, terms suchof sustainability as Eco1, that and specialize technical exclusively characteristics in biofuels. at a Throughpremium acost, focus they on quality,market boththeir infuels terms to companie of sustainabilitys under and public technical contracts characteristics that have a at requirement a premium cost,for biofuels, they market as well their as fuelsto private to companies companies under and publicconsumers contracts who thatare willing have a requirementto pay. for biofuels, as well as to private companies and consumers who are willing to pay. 3.1.2. Refiners 3.1.2. Refiners The active policy-induced biofuel engagement by many retailers has triggered a considerable biofuelThe commitment active policy-induced by refineries, biofuel immediately engagement before by many them retailers in the hasvalue triggered chain. However, a considerable this biofuelengagement commitment has been byquite refineries, selective, immediately reflecting both before diverse them engagements in the value in chain. upstream However, petroleum this engagementextraction, technological has been quite capabilities selective, and reflecting strategic both orientation. diverse engagements in upstream petroleum extraction,As indicated technological in Figure capabilities 2, the Nordic and strategic refinery orientation.industry consists of a relatively small number of companies,As indicated with dominant in Figure market2, the Nordic positions refinery in their industry home market—Neste consists of a relatively with a 100% small market number share of companies,in Finland, withPreem dominant with a market78% market positions share in in their Sweden home market—Nesteand Equinor with with a a 64% 100% market market share share in Finland,Norway. Preem with a 78% market share in Sweden and Equinor with a 64% market share in Norway.

20 19 %

10 57 % 81 %

Million tons crude 100 % 5 43 %

0 Norway Sweden Finland

Esso Equinor Preem St1 Neste

Figure 2. NordicNordic crude oil refining reﬁning capacity. Source: [[27,34–37].27,34–37].

Finnish Neste stands out with strong strategic commitments to the development of a biofuel product line. Swedish Preem and Finnish St1 have moremore modestmodest engagements.engagements. Because these are companies withoutwithout an an upstream upstream petroleum petroleum business, business, biofuel biofuel provides provides a diversiﬁcation a diversification of the feedstock of the andfeedstock of strategic and of dependencies, strategic dependencies, as well as a as green well transition as a green in transition climate-focused in climate-focused markets. Reﬁners markets. like EquinorRefiners andlike Esso,Equinor both and with Esso, strong both ties with to upstreamstrong ties petroleum to upstream extraction, petroleum have extraction, stayed out have of biofuel.stayed However,out of biofuel. they haveHowever, had tothey provide have ahad biofuel to prov admixtureide a biofuel in order admixture to supply in market order demand.to supply market demand.

Energies 2019, 12, x FOR PEER REVIEW 7 of 20

Neste Neste is clearly the pioneer among the Nordic refiners, both as an early entrant and in terms of quantity. As early as 2006, when the policy debate surrounding biofuels began picking up in the EU

Energiesand the2019 Nordics,, 12, 2740 Neste created Biodiesel as a separate business area, alongside oil refining, oil 7retail of 19 andEnergies shipping. 2019, 12, x FOR PEER REVIEW 7 of 20 In the course of less than a decade, Neste has built up a considerable biofuel refining business, NestewhichNeste now stands at 15% of the total fuel refining (Figure 3). Because biofuel has a substantially higherNesteNeste profit is clearlyclearlymargin, thethe this pioneerpioneer level among of revenue the Nordic is even refiners,refi ners,more bothbothimpressive, asas anan earlyearly with entrantentrant around andand 28% inin termsterms of the ofof quantity.company’squantity. AsAs 2017 earlyearly revenue asas 2006,2006, stream whenwhen from thethe policypolicy production debatedebate coming surroundingsurrounding from biofuel. biofuelsbiofuels beganbegan pickingpicking upup inin thethe EUEU andand thethe Nordics,Nordics, NesteNeste createdcreated BiodieselBiodiesel as aa separateseparate businessbusiness area, alongsidealongside oil refining,refining, oiloil retailretail andand shipping.shipping. InIn thethe coursecourse ofof lessless thanthan aa decade,decade, NesteNeste hashas builtbuilt upup aa considerableconsiderable biofuel refiningrefining business, whichwhich nownow stands stands at at 15% 15% of of the the total total fuel fuel refining refini (Figureng (Figure3). Because 3). Because biofuel bi hasofuel a substantially has a substantially higher profithigher margin, profit thismargin, level this of revenue level of is evenrevenue more is impressive,even more with impressive, around 28%with of around the company’s 28% of 2017 the revenuecompany’s stream 2017 from revenue production stream from coming production from biofuel. coming from biofuel.

Figure 3. Neste production volume and revenue. Source: [16].

This development reflects a major strategic commitment. As indicated in Figure 4, Neste spent more than €2 billion in the decade after 2007. The investments (yellow columns) were especially concentrated between 2005 and 2011, with a total of more than €1.8 billion invested. As of 2018, the total production capacity stands at 2.7 million tons per year with production in Finland and Singapore.FigureFigure Neste 3.3. usesNeste a production variety of volumefeedstocks and revenue.revenue.including Source: palm [[16]. 16oil,]. used cooking oil and other waste products. Neste Oil and Lufthansa announced an initiative to use renewable fuels in air This development reﬂects a major strategic commitment. As indicated in Figure4, Neste spent transportThis indevelopment 2010. In December reflects a2018, major the strategic company commi announcedtment. Astheir indicated decision in to Figure invest 4,an Neste additional spent more than €2 billion in the decade after 2007. The investments (yellow columns) were especially €1.4more million than €2 in billiontheir Singapore in the decade refinery, after increasing 2007. The the investments capacity from (yellow 1 million columns) to 2.3 millionwere especially tons per concentrated between 2005 and 2011, with a total of more than €1.8 billion invested. year,concentrated and their between total global 2005 production and 2011, with capaci a totytal to ofaround more 4than million €1.8 tonsbillion per invested. year [38]. As of 2018, the total production capacity stands at 2.7 million tons per year with production in Finland and Singapore. Neste uses a variety of feedstocks including palm oil, used cooking oil and other waste products. Neste Oil and Lufthansa announced an initiative to use renewable fuels in air transport20% in 2010. In December 2018, the company announced their decision to invest an additional700 €1.4 10%million in their Singapore refinery, increasing the capacity from 1 million to 2.3 million tons600 per year, and their total global production capacity to around 4 million tons per year [38]. 500 0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 400 -10% 300 -20%20% 700 200 600 -30%10% 100 500 -40%0% 0 2007 2008 2009Renewables, 2010 capital 2011 expenditure 2012 2013 MEUR 2014 2015 2016 2017 400 -10% Renewables, operating profit % of revenue 300 Oil, operating profit % of revenue -20% 200 -30% Figure 4. Neste Biofuel investments and operating proﬁts. Source: [16]. 100

-40%As of 2018, the total production capacity stands at 2.7 million tons per year with production0 in Renewables, capital expenditure MEUR Finland and Singapore. Neste uses a variety of feedstocks including palm oil, used cooking oil and Renewables, operating profit % of revenue other waste products. Neste Oil and Lufthansa announced an initiative to use renewable fuels in air Oil, operating profit % of revenue

Energies 2019, 12, 2740 8 of 19 transport in 2010. In December 2018, the company announced their decision to invest an additional €1.4 million in their Singapore refinery, increasing the capacity from 1 million to 2.3 million tons per year, and their total global production capacity to around 4 million tons per year [38]. By 2009, the business had been consolidated into three segments: oil products, renewable fuels and oil retail. As capital expenditure dropped off at the beginning of the 2010s, operating profits for renewable fuels started increasing. It was still negative for a couple of years before picking up in 2012 (green line). Since then it has been a crucial area for the company. In 2016 and 2017, the operating profit from renewable fuels has approached 20% of the revenue, more than twice as high as the same numbers for the oil segment (red line) and 8 times as high as marketing and services (grey line). Neste’s engagement in biofuel-retailing has thus functioned as a marketing outlet for the company’s own branded renewable products, including Neste MY Renewable Diesel consisting of 100% HVO, and Neste MY Renewable Gasoline. However, Neste’s biofuel engagement goes way beyond this, as the company has become the dominant global biodiesel producer standing for around half of global production capacity.

Preem As of 2017, Preem accounts for around 80% of Sweden’s refining capacity. The Supply & Refining segment owns and operates two refineries, Preemraff Lysekil and Preemraff Gothenburg. Approximately 62 per cent of production is exported, mainly to the North European market. The proportion of production that is sold in Sweden is sold through the Group’s own market channels as well as through other oil companies [17]. While renewable fuels constitute a significant proportion of sales through the company’s marketing segment, in-house production in Preem is modest. Having started out much later than Neste and with much smaller investments, Preem is still in a catchup phase. In 2015, Preem reported to have invested SEK 1bn in renewable fuels over a ten-year period. In 2017, this investment had given the company a total production of about 160,000 million litres of renewable diesel. Given a total refining capacity of around 18 billion litres, this accounts for less than 1% of Preem’s total production. In contrast to Neste, renewable fuels have not been a separate business segment for Preem. Rather, renewables are integrated into the company’s existing divisions: the modest refining of forest-based biofuel is part of Preem’s supply and refining business, and its larger-scale sale of renewable fuel is part of its marketing segment discussed above. In their 2017 annual report, Preem announced plans to add an additional renewable fuel production capacity of up to 1 billion litres by 2022. Should five planned biozin plants be built in Norway (see below), this would account for around 600 million litres. The company aims to produce at least 3 billion litres of renewable fuel by 2030. Unlike Neste, Preem excludes palm oil from its renewable products [39].

St1 St1 has a broad offering of renewable energy, with business in refining, oil trade, biofuels, wind and geothermal heat. Their biofuel production is concentrated in bioethanol and is part of St1 Renewable Energy Oy, alongside wind power and geothermal heat. As of 2017, St1 owns and operates eight biorefinery facilities, categorized according to the technologies Etanolix, Bionolix and Cellulonix. Etanolix produces bioethanol from fermentable waste and process residues from bakeries, breweries and beverage production. Bionolix produces bioethanol from municipal and commercial biowaste. Cellulonix produces bioethanol from sawmill side products such as chips and sawdust. As with Preem, biofuel production constitutes a modest business area for St1, whereas biofuel sales are more significant. For 2017, the net sales for the renewable energy business segment were 45.6 MEUR, compared with total net sales for St1 Nordic Oy of 6540 MEUR. ST 1 has announced biofuel projects in Columbia, Thailand, Norway and Sweden. In Columbia, they will produce renewable fuels from afforesting land with palm plantations, used to capture atmospheric CO2 before being harvested to produce renewable fuels [40]. In Thailand, they plan to Energies 2019, 12, 2740 9 of 19 produce biofuel from Cassava starch waste [18]. ST 1 is, in other words, following Neste in utilizing palm oil, but seeking to delimit production to avoid climate-related criticism.

Equinor and Esso Equinor (formerly Statoil) stands out in three ways. First, its chief focus is exploration and production, second it has no biofuel production or reﬁning capacity, and third it has divested from fuel retail—selling its service stations to the company Circle K. Like Equinor, Esso has divested from the Nordic retail market in a strategy that concentrates on upstream and midstream petroleum. Its service stations in Finland have been taken over by St1, and its service stations in Norway by the Irish conglomerate DCC. It maintains an oil reﬁnery and wholesale outlet in Norway, with no Nordic biofuel production initiatives in the pipeline.

3.1.3. Summing Up Petroleum To sum up, the dynamic uptake of biofuel in fuel retailing and the refining industry illustrates the importance of expanding the analysis of biofuel uptake beyond just the forestry industry. As previously mentioned, our study has therefore deliberately widened its scope to include both the forestry and the petroleum sectors. As a consequence of the petroleum majors’ divestment of retailing, the strong allegiance to fossil fuel has been broken, and many fuel retailers have found biofuel to be an attractive option. Following the public policy demand for mandatory renewable sales, they have therefore added a sizeable voluntary market. Petroleum refiners without upstream exploration and production have also engaged strongly in biofuel. Neste, in particular, has found biofuel to be a highly attractive new field of development, with higher profit margins than fossil fuel. In this respect Finnish Neste’s and Swedish Preem’s strategies differ from Equinor’s and Esso’s in that the latter two have not engaged in bio-refining but have remained loyally committed to their upstream petroleum resources.

3.2. The Strategic Reorientation of Nordic Forest-Industrial Companies The Nordic forestry industry’s engagement in biofuel has been far less forceful than that of petroleum refining and retailing. All forestry companies have some level of involvement in bioenergy through the use of chips, sawdust and other low value residue. Some have also made investments in liquid biofuels, but at modest levels compared with their core business areas. As of 2018, Swedish BillerudKorsnäs, Swedish-Finnish Stora Enso and Norwegian Norske skog and Holmen produced only solid biofuels. Norske skog had short-lived plans for a forest-based biofuel production plant in 2009 when Norwegian regulatory support was stronger because of a tax exemption for all biodiesel. However, these plans were cancelled as the project became unprofitable due to the introduction of tax on biodiesel [41]. Finnish Metsä has made considerable investments in solid bioenergy, both for the production of heat and electricity for their own plants and adjacent areas, and for the production and sale of pellets. They have also been moving into biochemicals, with side streams of tall oil and turpentine from pulp mills [42]. Tall oil may go into the production of biodiesel. Norwegian Borregaard, Swedish Södra and Finnish UPM have so far been the only forest-industrial companies with investments in liquid biofuels. As of 2018, Borregaard had a production capacity of 20 million litres of bioethanol. Södra had a 25% stake in the company Sunpine, which produces 110 million litres of tall oil per year for further refining by Preem. UPM has invested 179 million euros in its UPM Lappeenranta Biorefinery, which produces UPM BioVerno diesel from crude tall oil, a residue of UPM’s own pulp production. Production started in 2015, and as of 2018 it stood at 120 million litres per year [43,44]. In terms of revenue, biofuel has been a marginal part of these companies’ catchup strategies. While the decline in demand for printing paper in particular pushed the Nordic forestry industry into Energies 2019, 12, x FOR PEER REVIEW 10 of 20 Energies 2019, 12, 2740 10 of 19 and hygiene products, labelling and packaging, or in a return to more balanced forest-industrial production.a major structural transformation, industrial progress has been sought in products such as tissue and hygieneIn the products, companies’ labelling catchup and approaches, packaging, or following in a return the to failing more balancedpaper market, forest-industrial two general production. strategies have Inemerged. the companies’ One group catchup has approaches, met the followingcommercia thel challenges failing paper through market, specialization. two general strategies It has concentratedhave emerged. on One a limited group product has met thespectrum commercial to purs challengesue cost-efficient through scale specialization. and scope Itproduction, has concentrated often togetheron a limited with product internationalization. spectrum to pursue A second cost-e groupfficient has scale instead and met scope the production, structural changes often together by product with differentiation.internationalization. They Ahave second reduced group their has activities instead met in declining the structural markets changes and bysought product to rebalance differentiation. their portfoliosThey have in reduced several theirproduct activities domains. in declining As mentioned markets previously, and sought neither to rebalance of the two their groups portfolios was, by in theseveral end product of 2018, domains. sufficiently As mentioned engaged previously,in biofuel neitherto make of theit a two central groups factor was, byin thetheir end strategic of 2018, reorientation.sufficiently engaged in biofuel to make it a central factor in their strategic reorientation.

3.2.1.3.2.1. Focused, Focused, Specialist Specialist Approaches Approaches TheThe specialist group comprises BillerudKorsnäs,BillerudKorsnäs, SCASCA and and Norske Norske Skog. Skog. As As indicated indicated in in Figure Figure5, 5,BillerudKorsnäs BillerudKorsnäs has—over has—over the the ﬁrst first one one and and a a halfhalf decadesdecades ofof thethe 21st21st century—consolidated its its positionposition in in packaging (up (up from from 76% 76% to to 92% of sales), while reducing its its external sales sales of of pulp and utilizingutilizing it it for for packaging packaging products. SCASCA has alsoalso movedmoved decisivelydecisively into into specialization, specialization, by by scaling scaling up up its hygieneits hygiene production production from from 49% 49%in 2000 in 2000 to 86% to in86% 2016. in In2016. the sameIn the period, same period the company, the company moved decisively moved decisively out of packaging out of packaging (from 35% (fromto 3%)—thus, 35% to 3%)—thus, in this product in this category, product going category, in the go oppositeing in the direction opposite of direction BillerudKorsnäs. of BillerudKorsnäs. NorskeNorske Skog Skog has has responded responded to to the the challenges challenges in in the the newsprint newsprint and and commu communicationnication paper paper market market with an even stronger specializationspecialization inin paper.paper. From From 2000 2000 to to 2016, 2016, the the company company has has moved moved from from 78% 78% to to99% 99% of of its its sales sales in in this this product product area. area.

FigureFigure 5. ProductProduct portfolio portfolio for for ‘specialists’. ‘specialists’. Source: Source: [45–47]. [45–47].

3.2.2.3.2.2. Generalist Generalist Approaches Approaches TheThe generalist generalist group group comprising comprising Holmen, Holmen, StoraEnso StoraEnso and and UPM UPM all all adapted adapted to to the the 21st 21st century century structuralstructural challenges challenges by by balancing their positions (Figure 66).).

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Figure 6.6. Product portfolios of the generalists. Source: [[42,44,48–50].42,44,48–50].

As indicated in Figure6 6,, HolmenHolmen diversiﬁeddiversified moderatelymoderately out out of of paperpaper overover thethe 2000–20162000–2016 periodperiod (down(down fromfrom 50%50% to to 38%). 38%). On On the the other other hand, hand, the the company company increased increased packaging packaging sales sales from from 28% 28% to 33% to and33% theand production the production of forestry of forestry and wood and productswood prod fromucts 20% from to 25%.20% Therefore,to 25%. Therefore, it has moved it has toward moved a balancedtoward a positionbalanced across position its threeacross dominant its three dominant product domains. product domains. Figure6 6 also also indicatesindicates howhow StoraEnsoStoraEnso has has likewise likewise moved moved toward toward a a balanced balanced position. position. StoraStora hashas reduced itsits paper productionproduction fromfrom 53%53% toto 33%33% ofof totaltotal sales,sales, whilewhile increasingincreasing thethe salessales ofof packagingpackaging paperpaper/board/board from 19%19% toto 35%,35%, and undertakingundertaking a moderate increase of its forestry and woodwood products—up fromfrom 10%10% toto 15%.15%. In addition, thethe companycompany alsoalso sellssells pulppulp (up(up fromfrom 12%12% toto 14%).14%). StoraEnso has strongly reduced itsits engagement inin paper.paper. Since 2006, its share of paper sales has declined dramatically, andand thethe marketmarket hashas gonegone throughthrough largelarge structuralstructural changes.changes. While reducing its overall engagementengagement in in paper, paper, StoraEnso StoraEnso has has sought sought to retainto retain the the high-end high-end paper paper market. market. StoraEnso StoraEnso has, likehas, Holmen,like Holmen, also also moved moved toward toward a balanced a balanced position position and and has has largely largely followed followed the the same same pattern pattern as Holmenas Holmen in scalingin scaling up packagingup packaging while while scaling scaling down down paper. paper. The company The company has also has scaled also up scaled forestry up andforestry wood and products, wood products, while still while being still a major beingplayer a major in player pulp. in pulp. As Figure 9 shows, shows, UPM UPM has has similarly similarly moved moved to towardward a abalance. balance. The The company company has has reduced reduced its itsengagement engagement in inpaper paper from from 60% 60% to to 49% 49% from from 2000– 2000–2016.2016. This This has has happened happened in in parallel parallel with an upgrading ofof itsits labelslabels andand specialty specialty paper paper from from 18% 18% to to 25%. 25%. It It has has retained retained a morea more modest modest position position in forestryin forestry and and wood wood products, products, though though down down from 17%from to 17% 12%. to In 12%. addition, In addition, the company the company has increased has itsincreased sale of pulpits sale from of pulp 3% to from 8%. 3% to 8%.

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Recognizing, like Holmen, that the demand for graphic papers has been declining and that the Recognizing, like Holmen, that the demand for graphic papers has been declining and that the decline is expected to continue, UPM Paper ENA has reduced its graphic paper capacity and decline is expected to continue, UPM Paper ENA has reduced its graphic paper capacity and optimized optimized operations to increase competitiveness. operationsMetsä to increase Group has competitiveness. transitioned out of paper and has reduced forest and wood, increasing its positionsMetsä Group in packaging, has transitioned hygiene, pulp out and of bio paper products. and has reduced forest and wood, increasing its positionsFinally, in packaging, Södra is hygiene,Sweden’s pulplargest and forest-owner bio products. association, and a forest-industrial group with operationsFinally, Södra in forestry, is Sweden’s wood, cellulose largest and forest-owner bioenergy. It association, has diversified and somewhat a forest-industrial while still keeping group with operations90% of its in business forestry, in wood, forest, cellulose wood and and pulp. bioenergy. It has diversiﬁed somewhat while still keeping 90% of itsAs business measured in by forest, share woodvalue, andparts pulp. of the Nordic forestry industry have managed a spectacular recovery,As measured mainly by based share onvalue, products parts other of than the Nordicbiofuel (Figure forestry 7). industry have managed a spectacular recovery, mainly based on products other than biofuel (Figure7).

FigureFigure 7. Share 7. Share price price development development of sixof Nordicsix Nordic companies companies in thein the forestry, forestry, paper paper & packaging & packaging industry, 2000–2016.industry, Source: 2000–2016. [14]. Source: [14].

3.2.3.3.2.3. Summing Summing Up Up the the Forest Forest Industry Industry To sumTo sum up, up, contrary contrary to to policy policy expectations,expectations, the the forestry forestry industry industry has hasbeen been far less far engaged less engaged in in biofuel than the petroleum industry, given its limited capability to deliver forest-based biofuel at biofuel than the petroleum industry, given its limited capability to deliver forest-based biofuel at competitive prices. As previously shown, there were other attractive options available. Most of the competitiveNordic forestry prices. industry’s As previously responses shown, to the there ‘paper were-crisis’ other were attractive therefore options not biofuel-focused, available. Most but of the Nordicaimed forestry at strengthening industry’s responsesthe engagement to the in ‘paper-crisis’ higher margin were products therefore such not as biofuel-focused,hygiene, labelling butand aimed at strengtheningpackaging. As the Hansen engagement et al. note ind higher in their margin Nordic products biofuel study such [3], as hygiene,faced with labelling a choice and between packaging. As Hansenproducing et al.low noted volume in high their value Nordic products, biofuel such study as cosmetics, [3], faced and with high-volume a choice low-value between producingproducts, low volumesuch high as biofuels, value products,the former such was often as cosmetics, more appealing. and high-volume low-value products, such as biofuels, the former was often more appealing. 4. Discussion 4. DiscussionIn their theory of catchup-cycles, Lee and Malerba [11] argue that it is the combination of the openingIn their of theory a window of catchup-cycles, of opportunity (driven Lee and by Malerbatechnology, [11 demand] argue or that institutional/policy), it is the combination the of presence of capabilities and the appropriateness of responses/strategies by actors, that determine the the opening of a window of opportunity (driven by technology, demand or institutional/policy), changes in industrial leadership. the presence of capabilities and the appropriateness of responses/strategies by actors, that determine The Nordic biofuel policies that emerged in the first decade of the 21st century created a window the changesof opportunity in industrial for industrial leadership. reorientation. Many policy-makers saw this as a chance to combine the greeningThe Nordic of transport biofuel with policies new thatbusiness emerged opportunities in the ﬁrst for decadea challenged of the Nordic 21st centuryforest industry created facing a window of opportunitya shrinking market for industrial for printing reorientation. paper. Many policy-makers saw this as a chance to combine the greening of transport with new business opportunities for a challenged Nordic forest industry facing a shrinking market for printing paper. Energies 2019, 12, x FOR PEER REVIEW 13 of 20

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4.1. 1st Generation Policy and its Green Stimulus to Petroleum Refining and Retail 4.1. 1st Generation Policy and its Green Stimulus to Petroleum Refining and Retail However, as previously mentioned, the industrial responses to biofuel policy in the first round cameHowever, mainly from as previously the petroleum mentioned, industry. the Policy industrial triggered responses an industrial to biofuel response policy in the firstdown round and midstreamcame mainly petroleum from the industry petroleum more industry. directly Policyand dynamically triggered an than industrial in the forestry response industry. in the down Fuel retailersand midstream directly petroleumtargeted by industry sales requirements more directly imposed and dynamically on them, and/or than by in tax the exemptions forestry industry. in the caseFuel of retailers Sweden directly and Norway, targeted came by sales to requirementssee this as an imposed opportunity on them, to dive andrsify/or bytheir tax feedstock exemptions and in simultaneouslythe case of Sweden shift and toward Norway, green came brands. to see This this asagain an opportunity created a pressure to diversify on theirrefiners feedstock and their and logisticalsimultaneously systems shift to towarddeliver greenfuel in brands. compliance This againwith the created public a pressure regulation, on refiners along with and theirsupplying logistical an emergingsystems to market deliver for fuel voluntary in compliance ‘green withfuel’. the public regulation, along with supplying an emerging marketSome for petroleum voluntary refiners ‘green fuel’. saw the political demand for biofuel as an opportunity for new product development,Some petroleum building refiners on their saw petro-refining the political demand capabilities. for biofuel But asthe an feedstock opportunity from for newthe forestry product industrydevelopment, was too building costly. on The their compet petro-refiningitive fuel capabilities. market has But led the both feedstock refiners from andthe retailers forestry to industryneglect costlywas too forest-based costly. The biofuel competitive and predominantly fuel market has search led bothfor low refiners cost andfeedstock retailers and to supplies neglect costlyfrom internationalforest-based biofuelmarkets—for and predominantly example palm search oil forand low rape cost seed. feedstock Early andmovers supplies like fromNeste international seized this opportunitymarkets—for to example create a palm new oilproduct and rape line seed. in refi Earlyning, movers while likeothers Neste limited seized their this engagement opportunity to to retailing.create a new product line in refining, while others limited their engagement to retailing. TheThe forestry forestry industry industry was, was, by by contrast, contrast, far far less less en engagedgaged during during this this first first wa wave.ve. First, First, it lacked it lacked the petroleumthe petroleum refiners’ refiners’ and andretailers’ retailers’ direct direct connection connection to the to fuel the fuelmarket. market. Second, Second, it did it not did have not have the capabilitythe capability to deliver to deliver forest-based forest-based biofuel biofuel at atcompetitive competitive prices, prices, given given early early biofuel biofuel policy’s policy’s wide wide acceptanceacceptance of of biofuel biofuel feedstock. feedstock. It It therefore therefore remain remaineded largely largely sidelined sidelined under under the the first first ‘biofuel-wave’. ‘biofuel-wave’. Furthermore,Furthermore, as as previously previously shown, shown, there were other attractive options available. Most Most of of the the Nordic Nordic forestryforestry industry’s industry’s responses responses to to the the ‘paper-crisis’ ‘paper-crisis’ were were therefore therefore not biofuel-focused, but but aimed aimed at at strengtheningstrengthening the the engagement in higher margin products such as hygiene, labelling and packaging. InIn thisthis way,way, the the first-generation first-generation biofuel biofuel policy policy stimulated stimulated petroleum petroleum refineries refineries to engage to engage in biofuel, in biofuel,with Neste with in Neste the lead in basedthe lead on based its HVO on technology,its HVO technology, which allowed which the allowed company the to company take a world-scale to take a world-scaleposition in biofuel.position The in resultbiofuel. was The that, result in stark was contrast that, in to stark the forestry contrast industry, to the petroleumforestry industry, refiners petroleumtook a completely refiners dominanttook a completely position do in biofuelminant (Figureposition8). in biofuel (Figure 8).

FigureFigure 8. 8. BiorefineryBioreﬁnery capacity capacity 2018 2018 [16–18,44]. [16–18,44]. 4.2. Will the 2nd Generation Policy Trigger Forest-Based Biofuel? 4.2. Will the 2nd Generation Policy Trigger Forest-Based Biofuel? Following criticism of the use of palm oil and food crops for fuel, European and Nordic biofuel Following criticism of the use of palm oil and food crops for fuel, European and Nordic biofuel policy has been revised. In line with EU policy, the Nordics have begun to move away from food-based policy has been revised. In line with EU policy, the Nordics have begun to move away from food- biofuels and feedstocks which risk deforestation, and toward waste-based biofuels. The approaches diﬀer somewhat between countries:

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Energies 2019, 12, 2740 14 of 19 based biofuels and feedstocks which risk deforestation, and toward waste-based biofuels. The approaches differ somewhat between countries: Norway and Finland practice a mandatory sales requirement in the percentage of total fuel sales. • Norway and Finland practice a mandatory sales requirement in the percentage of total fuel sales. So-called advanced fuels are double-counted. In addition, biofuels sold under the mandatory So-called advanced fuels are double-counted. In addition, biofuels sold under the mandatory sales requirement must lead to a reduction in fossil fuel CO2 emissions equal to at least 50% in sales requirement must lead to a reduction in fossil fuel CO2 emissions equal to at least 50% in Norway and 60% in Finland. Norway has also adopted a practice whereby any biofuels sold on Norway and 60% in Finland. Norway has also adopted a practice whereby any biofuels sold on top of the mandatory sales requirement are exempted from the so-called ‘road tax’. top of the mandatory sales requirement are exempted from the so-called ‘road tax’. Sweden has opted for a different model: there is no mandatory biofuel sales requirement, but only • Sweden has opted for a different model: there is no mandatory biofuel sales requirement, but a CO2 reduction requirement per litre of fuel sold (including petroleum). The current annual only a CO2 reduction requirement per litre of fuel sold (including petroleum). The current annual improvement requirement (February 2019) is 2.6% for petrol and 19.3% for diesel. With clearly improvement requirement (February 2019) is 2.6% for petrol and 19.3% for diesel. With clearly defined principles for calculating CO2 savings, this means that a fuel retailer has the option either defined principles for calculating CO2 savings, this means that a fuel retailer has the option either to sell a comparatively smaller amount of more sustainable biofuel or a greater amount of less to sell a comparatively smaller amount of more sustainable biofuel or a greater amount of less sustainable biofuel. Sweden has also continued its tax exemption regime, whereby the proportion sustainable biofuel. Sweden has also continued its tax exemption regime, whereby the of energy tax levied on biofuels is dependent on the feedstock used for production. proportion of energy tax levied on biofuels is dependent on the feedstock used for production. The second-generationsecond-generation biofuel biofuel policy policy has thushas createdthus created a new anda new expanded and expanded window of opportunitywindow of foropportunity forest-based for supplies.forest-based These supplies. opportunities These opport are largelyunities set are to largely be exploited set to throughbe exploited collaborative through projectscollaborative across projects borders across and borders industrial and divides. industrial Crossover divides. Crossover engagements engagements between between the two the sectors two appearsectors appear to have to stimulated have stimulated a dynamic a dynamic coupling coup betweenling between consumption consumption and production, and production, as well as well as a complementaryas a complementary mobilization mobilization of joint of joint refining refining capabilities capabilities (Figure (Figure9). 9).

1000

800

600

400

200

0 Current joint capacity Planned joint capacity

Sunpine St1 SCA Biozin St1 Viken skog Silva Green Fuel

Figure 9. Collaborative projects. Source: [51–55]. [51–55].

Some of the collaborative projectsprojects on thethe [[ asas ofof 20192019 are:are:

• Biozin (Bergene Holm and Södra) plans to build fivefive plants for the productionproduction of biocrude in • Norway, basedbased onon forestforest residue.residue. • St1, VikenViken SkogSkog SASA andand TreklyngenTreklyngen Holding Holding AS’s AS’s intention intention to to build build a factorya factory for for the the production production of • advancedof advanced bioethanol bioethanol at Follum.at Follum. • Statkraft andand Södra’sSödra’s jointjoint venture,venture, Silva Silva Green Green Fuels, Fuels, plans plans to to construct construct a demonstrationa demonstration plant plant at • Tofteat Tofte to produceto produce biocrude, biocrude, with with a flexible a flexible feedstock feedstock input. input. • St1 isis investing investing in in a biofuela biofuel plant plant in Gothenburg in Gothenbu in collaborationrg in collaboration with SCA. with The SCA. intended The feedstockintended • isfeedstock tall oil from is tall SCA. oil from SCA. However, individual forest-industrial initiatives to scale up biofuel refining such as UPM’s, have However, individual forest-industrial initiatives to scale up biofuel refining such as UPM’s, have also emerged. For UPM, biofuel is an integrated part of a broader strategy of “innovating for a future also emerged. For UPM, biofuel is an integrated part of a broader strategy of “innovating for a future beyond fossils,” by replacing fossil-based products with forest-based products over a large range of beyond fossils,” by replacing fossil-based products with forest-based products over a large range of applications. The company’s planned upscaling of biofuel is massive and represents more than five applications. The company’s planned upscaling of biofuel is massive and represents more than five times its 2018 biofuel production (Figure 10). Nevertheless, in anticipation of competitive challenges times its 2018 biofuel production (Figure 10). Nevertheless, in anticipation of competitive challenges for forest-based feedstock, UPM Kotka and Silva Green Fuels were preparing for multiple feedstocks. for forest-based feedstock, UPM Kotka and Silva Green Fuels were preparing for multiple feedstocks.

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Figure 10.10. Forest industry projects. Source: [43,56,57]. [43,56,57].

However, the forest-industrial biofuel init initiatives—asiatives—asiatives—as wellwell as as the newnew collaborativecollaborative partnerships—are challenged challenged by by petroleum petroleum refiners. reﬁners. Neste, Neste, which which has has already already established established itself itself as a asleadingleading a leading globalglobal global biofuelbiofuel biofuel player,player, player, hashas hasprovenproven proven that,that, that, forfor thethe for themidstreammidstream midstream petroleumpetroleum petroleum industry,industry, industry, biofuelbiofuel biofuel cancan can bebe bea valuable a valuable business business segment. segment. The The company company is, is, therefore therefore envisaging envisaging a a considerable considerable expansion expansion of its Singapore reﬁneryrefinery capacitycapacity (Figure(Figure 1111).).

8000 7000 6000 5000 4000 3000 2000 1000 0 Current Planned

Neste Preem St1

Figure 11. Petroleum industry projects: Source: [8–10,30,32]. [8–10,30,32].

In additionaddition to to Neste, Neste, Swedish Swedish Preem Preem has presentedhas presented as yet as unspecified yet unspecified plans for plans a massive for a upscaling massive inupscaling biofuel, in and biofuel, Finnish and St1 Finnish is following St1 is suit following with projects suit with in Finland, projects Sweden, in Finland, Columbia Sweden, and Columbia Thailand. and Thailand.The plans of all three companies are based on flexible feedstock so that they can optimize on variousThe market plans of opportunities. all three companies Neste hasare provenbased on the flexible advantage feedstock of a broadso that pluralistic they can approachoptimize on to biofuel,various suchmarket that opportunities. the product can Neste serve has various proven markets the advantage according of to a diverse broad criteriapluralistic for eachapproach market. to Thebiofuel, company’s such that soaring the product share can price serve (Figure various 12), mark evenets beating according that of to conventionaldiverse criteria oil for companies each market. like Equinor,The company’s bears witness soaring to share its success. price (Figure As previously 12), even noted, beating Neste’s that of biofuel conventional segment oil delivers companies a higher like valueEquinor, creation bears thanwitness conventional to its success. petroleum As previously refining. noted,noted, Neste’sNeste’s biofuelbiofuel segmentsegment deliversdelivers aa higherhigher value creation than conventional petroleum refining.

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FigureFigure 12. 12.Share Share price price developmentdevelopment of Neste and and oil oil super super majors. majors. Source: Source: [44]. [44 ].

InIn terms terms of of percentages, percentages, thethe plansplans forfor thethe biofuelbiofuel expansion expansion of of the the pe petroleumtroleum refi refineriesneries may may representrepresent a lessa less impressive impressive upscaling upscaling thanthan thethe ambitious projects projects for for increased increased biofuel biofuel refining refining in in collaborativecollaborative and and forest-industrial forest-industrial projects. However, However, they they still still outnumber outnumber the other the other two groups two groups by bya a factor factor of of close close to to 10. 10. Petroleum Petroleum refiners refiners will will therefore therefore surely surely remain remain dominant dominant players players for for the the foreseeableforeseeable future. future. As previously noted, besides the immediate commercial interest, the mid- and downstream As previously noted, besides the immediate commercial interest, the mid- and downstream petroleum industry also gleans major branding advantages from biofuel engagement. As combined petroleum industry also gleans major branding advantages from biofuel engagement. As combined refiners and retailers, Neste, Preem and St1 all benefit from this effect. refiners and retailers, Neste, Preem and St1 all benefit from this effect. For the forestry industry, biofuel is likely to be focused on waste products. This is in fact For the forestry industry, biofuel is likely to be focused on waste products. This is in fact inscribed inscribed in the definition of double counting, which specifies that the feedstock must be based on inwaste the definition from other of doubleproduction counting, proces whichses [58] specifies This makes that biofuel the feedstock an important must element be based in, on but waste not the from othercore production of, industrial processes catchup. None [58] This of the makes large biofuelNordic forestry an important companies element have in,therefore but not yet the defined core of, industrialbiofuel as catchup. a separate None business of the large area. Nordic Collaborativ forestrye companiesprojects may have enhance therefore the yetforestry defined industry’s biofuel as a separateconnection business to fuel markets, area. Collaborative as well as contributing projects may valuable enhance expertise the forestryin refining, industry’s but they are connection unlikely to fuelto markets,transform as forestry well as players contributing into dominant valuable primary expertise energy in refining, suppliers. but they are unlikely to transform forestry players into dominant primary energy suppliers. 5. Conclusions 5. Conclusions To sum up, the following core factors stand out: ToFirst, sum the up, question the following of the core success factors or failure stand out:of biofuel policy depends on the sector in focus: In starkFirst, contrast the question to the forestry of the success industry, or failure petroleum of biofuel refiners policy took depends a completely on the dominant sector in focus:position In starkin contrastbiofuel. to The the forestryrapid expansion industry, petroleumin the first refiners phase took(until a2018) completely was largely dominant based position on feedstock in biofuel. Theimportation. rapid expansion This is in in the line first with phase Fevolden (until and 2018) Klitkou’s was largely [1] finding, based onbut feedstock was interpreted importation. as a policy This is in linefailure with by Fevoldenthem because and Klitkou’sof the strong [1] finding,focus on butthe wasforestry interpreted industry. as From a policy a petroleum failure by retailing them because and ofrefining the strong perspective, focus on however, the forestry it could industry. well be From seen a as petroleum a success. retailing Our finding and is refining that much perspective, of the however,downstream it could petroleum well be sector—particularly seen as a success. Ourafter findingits divestment is that from much upstream of the downstream extraction—has petroleum been sector—particularlymore open to feedstock after its diversification divestment from than upstream the lock-in extraction—has literature would been lead more us open to expect to feedstock [2]. diversificationIndustry, while than being the lock-inrequired literature by legislation would to lead prov uside to increasing expect [2]. quantities Industry, of while renewable being fuels, required has by also found that biofuel could be an important part of its future strategy, as a new green add-on to the legislation to provide increasing quantities of renewable fuels, has also found that biofuel could be an transformation into multi-energy stations. In this way, the companies are scoring a double bonus: important part of its future strategy, as a new green add-on to the transformation into multi-energy diversifying feedstock while going green, as they gradually de-couple from their role as monolithic stations. In this way, the companies are scoring a double bonus: diversifying feedstock while going petroleum vendors. green, as they gradually de-couple from their role as monolithic petroleum vendors. Second, our finding is that for the forestry industry, biofuel is likely to be a side-stream from Second, our finding is that for the forestry industry, biofuel is likely to be a side-stream from higher-value creating products. A basic assumption underlying some of the analyses of the Nordic higher-valueforestry industry creating has products.been that biofuel A basic is assumptionan attractive option underlying because some it can of compensate the analyses for of the the failing Nordic forestrypaper industrymarket (see has e.g., been Trømborg that biofuel 2015 is an[59]). attractive However, option our because analysis it of can forestry compensate industry for product the failing paperportfolios market indicates (see e.g., that Trømborg this assumption 2015 [59 ]).may However, not be ourjustified. analysis Many of forestryof the companies industry producthave portfoliossuccessfully indicates ventured that thisinto assumptionhigher value may products, not be co justified.nfirming Many similar of theobservations companies by have Hansen successfully et al. ventured[3].Third, into in response higher value to the products, new biofuel confirming policy, which similar includes observations so-called bydouble Hansen counting, et al. there [3]. Third,has inbeen response a stronger to the forest-industrial new biofuel policy, engagement which in includes biofuel, but so-called often in double collaboration counting, with there the petroleum has been a

Energies 2019, 12, 2740 17 of 19 stronger forest-industrial engagement in biofuel, but often in collaboration with the petroleum industry. Crossover engagements between the two sectors appear to have stimulated a dynamic coupling between consumption and production, as well as a complementary mobilization of joint refining capabilities. The plans are often based on flexible feedstock so that they can optimize on various market opportunities, following Neste’s successful biofuel strategy. Nevertheless, the petroleum industry is still the dominant biorefinery player. Last, the success of forest-based biofuel is highly contingent on its ecological and social sustainability. The attack on biofuel for displacing food crops, and the discussion about biofuel’s possible negative impact on CO2 absorption from forests, has led to policy setbacks. Any successful boost to forest-based biofuel production is dependent on the industry convincingly documenting its sustainability in competition with other green alternatives. Theoretically, our study indicates the need for an extension of Malerba’s sectoral system of innovation into a broader cross-sectoral perspective, as industrial dynamics play out in new commercial configurations. Our study indicates that under conditions of commercial innovation sectoral boundaries may evolve, and this evolution needs to be part of the analysis itself. Nevertheless, we have found that the core elements of Lee and Malerba’s catchup perspective still hold, and that they represent a useful framework for studying sector-level industrial transformation.

Author Contributions: A.M.: Conceptualization, formal analysis, funding acquisition, investigation, methodology, project administration, writing - original draft; K.M.N.: Data curation, formal analysis, investigation, methodology, project administration, writing - original draft; P.B.P.: Data curation, formal analysis, investigation, methodology, project administration, writing - original draft. Funding: This research was funded by THE RESEARCH COUNCIL OF NORWAY, under the Grant for the BIOnext project in collaboration with the following industrial partners: Avinor, Glommen Skog, Moelven Industrier and Statkraft. Acknowledgments: We are grateful for valuable comments from professors Torjus Bolkesjø and Erik Trømborg at the Norwegian University of Life Sciences, as well as research scientists Judit Sandquist and Gonzalo del Alamo Serrano at SINTEF Energy Research. We also wish to thank our industry partners Olav Mosvold Larsen, Avinor, Morten Fossum, Statkraft, Berit Rødseth, Moelven and Gudmund Nortun, Glommen Skog for valuable comments. Conﬂicts of Interest: The authors declare no conﬂict of interest. The funders provided valuable factual comments and materials, but had no role in the design of the study; in the collection, analyses, or interpretation of data; in the writing of the manuscript, or in the decision to publish the results.

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