Module 6: Economics of
Forest Biomass and Bioenergy
Objectives
• Identify the supply of woody biomass in the South.
• Describe the costs related to woody biomass
production and utilization.
• Understand the cost-competitiveness of forest biomass
and bioenergy.
Module 6: Economics of Forest Biomass and Bioenergy
Objectives
• Recognize the potential socioeconomic
impacts of woody biomass production and
utilization on rural communities.
• Identify legislation that supports the utilization
of forest biomass for energy and other biobased products.
Module 6: Economics of Forest Biomass and Bioenergy
Outline
• Supply of forest biomass for energy
–
–
–
–
–
Factors affecting supply
Sources
Quantity
Location
Stability
• Cost Competitiveness
– Feedstock Production
– Electricity and Ethanol Production
– Carbon Displacement
• Landowner Benefits
• Community Impacts
• Incentives
Module 6: Economics of Forest Biomass and Bioenergy
Supply of Forest Biomass
• Factors Affecting Supply
– Costs (influenced by technology, production scale and
system, etc.)
– Biomass market development
– Energy markets/prices
– Competing uses of forest resources (e.g., wood products
markets, ecological services, etc.)
– Policies
– Others (e.g., environmental consideration, social
acceptance, etc.)
Module 6: Economics of Forest Biomass and Bioenergy
Sources
• Logging residues
• Thinnings including
silvcultural practices
and fuel treatments
• Short-rotation woody
crops
• Mill residues
• Urban residues
• Trees damaged by
natural disasters
• Others (small diameter
trees, stand
improvement, etc.)
Source: Perlack and others 2005
Module 6: Economics of Forest Biomass and Bioenergy
Logging Residues
• Logging residues are probably
among the least costly forest
biomass for energy.
• 20 million dry tons per year in
the South (Gan & Smith 2006)
– Approximately ½ of the
US supply
Capacity (MW)
Source: Gan and Smith 2006
Operational power/electricity
capacity from logging residues
by state
Module 6: Economics of Forest Biomass and Bioenergy
300or above(9)
200to 299 (7)
100 to 199 (12)
50 to 99 (4)
0 to 49 (18)
Fuel Treatment Thinnings
• Preliminary estimates of
this supply (Perlack et al 2005)
– 2.7 billion dry tons
identified for treatment in
the South
– 20 million dry tons
collectable
• Primary source is private
lands in the South
• Using this biomass for
energy production can
compensate (at least
partially) the cost of forest
fuel treatment.
Module 6: Economics of Forest Biomass and Bioenergy
Silvicultural Thinnings
• Availability varies with
forest conditions and
management objectives.
• The higher value portion of
the removal from
commercial thinning has
been used.
• Residue procurement costs
are relatively high, though it
can partially be offset by the
production of high quality
timber in the future.
Natural Disasters
• The quantity of this biomass
source varies over time and
space. Its utilization can
contribute to the restoration
of damaged forests.
• Hurricanes
– Hugo (1989): 2.4 billion dry
tons (Haymond et al. 1996)
– Katrina and Rita (2005): 2.5
billion dry tons (USDA Forest
Service 2005; Texas Forest Service
2005)
• Southern pine beetles
– 1.36 million tons killed
annually, on average (Coulson et
al. 2005)
Module 6: Economics of Forest Biomass and Bioenergy
Biomass from Stand Improvement
• Low stocking, low value, and the
abundance of undesirable or nonmerchantable species in heavily cutover
stands discourage stand rehabilitation
efforts.
• Bioenergy development will create markets
for biomass from these low value species,
stimulating stand improvement.
• Yet improvement depends on the conditions
of the residual stand, landowner objectives,
and financial parameters (Wagner et al. 2003)
Module 6: Economics of Forest Biomass and Bioenergy
Biomass from Controlling Invasive Species
•
•
Limited data are available for this
source of biomass. Surveys of
invasive plant species in the US
South are underway.
Utilization of this biomass can help
share the cost of controlling invasive
plant species.
Source: James H. Miller 2006
Small-Diameter Trees
• Converting southern
pulpwood to pulp or OSB
still offers higher and less
risky profit margins. At
current costs and prices
(without major cost
reductions) producing
only cellulosic ethanol
from pulpwood appears to
be unprofitable.
• Possibility might exist for
using this biomass source
for bioenergy in the future
if oil prices continue to
rise.
Source: Peter Ince 2007
Module 6: Economics of Forest Biomass and Bioenergy
Short-Rotation Woody Crops
• Supply estimates vary greatly with estimation
methods and assumptions about land use and biomass
yields.
• 5 million dry tons annually (Perlack et al. 2005)
Module 6: Economics of Forest Biomass and Bioenergy
Mill Residues
• Most readily available
and good quality
• 97% being currently
utilized by the forest
products industry
• No significant amount
for new energy
production
Module 6: Economics of Forest Biomass and Bioenergy
Urban Residues
• Limited data
available
• 28 million dry tons
(Perlack et al. 2005)
– Wood and yard
waste
– Construction
debris
– Demolition
debris
• Quality varies
Module 6: Economics of Forest Biomass and Bioenergy
Long-Term Supply: The Case of Logging
Residues
• Supply of logging residues nation-wide will increase
- 5% by 2020
- 12% by 2050
• Competing or complementary uses
• Regional differences
Source: Gan and Smith 2006
Module 6: Economics of Forest Biomass and Bioenergy
Cost Competitiveness
• Utilization of logging residues for electricity
production
– Feedstock Production
– Electricity Production
– Carbon Displacement
• Other cases
– Co-firing biomass with coal in electricity production
– Cellulosic ethanol
– Wood pellets
Module 6: Economics of Forest Biomass and Bioenergy
Feedstock Production
• Logging residues
– $28/dry ton or $5.80/MWh (marginal cost)
– $33/dry ton or $6.80/MWh (full cost)
Source: Gan and Smith 2006
Module 6: Economics of Forest Biomass and Bioenergy
Cost Composition of Delivered Logging Residue
(Chipping at Roadside)
4%
8%
Trucking
27%
Chipping at
Landing
Forwarding
31%
Cutting to Heaps
30%
Organizational
Costs
Source: Oijala et al. 1999
Module 6: Economics of Forest Biomass and Bioenergy
Feedstock Production
• Fuel Treatment Thinnings
– $30-40/dry ton or $6.20–8.30/MWh (cut & skid)
– $34-48/dry ton or $7.00–9.90/MWh (cut/skid/chip)
Source: USDA Forest Service 2005
Module 6: Economics of Forest Biomass and Bioenergy
Feedstock Production
• Short-Rotation
Woody Crops
– $52/dry ton or
$10.80/MWh
Source: Gan and Smith 2006
Module 6: Economics of Forest Biomass and Bioenergy
Feedstock Production
• Delivered Coal - $5.32/MWh (2005)
• Logging residues are almost as competitive as coal
• Fuel treatment thinnings and short-rotation woody
crops are more expensive than logging residues.
Source: Gan and Smith 2006; USDA Forest Service 2005
Module 6: Economics of Forest Biomass and Bioenergy
Electricity Production
(New plants using combined-cycle gasification)
• Conventional coal system - $35/MWh
• Biomass systems
Source: Gan and Smith 2002; Gan and Smith 2006
Module 6: Economics of Forest Biomass and Bioenergy
Electricity Production
• Logging residues (average cost)
– $47/MWh (marginal cost)
– $50/MWh (full cost)
Source: Gan and Smith 2006
Module 6: Economics of Forest Biomass and Bioenergy
Why is biomass more expensive?
• Initial capital cost
– Almost 50% higher than a coal system
• Fuel costs
– Biomass fuel is more costly on a per unit energy
basis
Module 6: Economics of Forest Biomass and Bioenergy
Can biomass be more competitive?
• Reduce fuel costs by improving the efficiency
in growing, procuring, transporting, and
processing forest biomass
• Reduce non-fuel costs through improving
efficiency in energy conversion (from biomass
to secondary energy)
• Tax carbon dioxide emissions or provide
incentives/credits for carbon displacement
Module 6: Economics of Forest Biomass and Bioenergy
Co-firing Biomass with Coal
• A near term, low cost option of using biomass
for electricity production
• Up to 15% of fuel input (in heat) can be
substituted with biomass. (DOE, 2000)
Installation costs:
– $50 per kW of biomass generation in
cyclone boilers
– $150 to $300 per kW in pulverized coal
boilers (DOE, 2000)
Module 6: Economics of Forest Biomass and Bioenergy
Ethanol Production Costs
• Current
average
ethanol
production
costs
– Corn
ethanol:
$1.25/gl
– Cellulosic
ethanol:
$2.50/gl
Source: Stanley Bull 2006
Module 6: Economics of Forest Biomass and Bioenergy
Pellet Production Costs
Source: Sudhagar Mani 2006
Carbon Displacement
• Carbon sequestration
– Removal of CO2 from
the atmosphere into
long-lived pools of
carbon including
trees, soils, and wood
products.
Module 6: Economics of Forest Biomass and Bioenergy
Carbon Displacement
• Forest bioenergy is carbon
neutral.
– Forests store CO2 as a
result of photosynthesis
– Burning wood releases
carbon
• Thus, forest bioenergy can
displace CO2 emissions
from burning fossil fuels.
Module 6: Economics of Forest Biomass and Bioenergy
Carbon Displacement
• The price was about $3.50 per ton of CO2 in January 2007 in
Chicago Climate Exchange
• Using recoverable logging residues to generate electricity
– Displaces 19.4
million tons
of carbon
– Average
displacement cost:
$60/ton C (marginal cost)
$70/ton C (full cost)
– This is a relatively
inexpensive way to
displace CO2 emissions
compared to other current
available technologies.
Source: Gan and Smith 2006
Module 6: Economics of Forest Biomass and Bioenergy
Carbon Credits
• Forest biomass/bioenergy production sequestrates
and/or offset carbon in several ways:
– Carbon sequestrated in growing trees
– Carbon sequestrated in forest soils
– Carbon emissions displaced by substituting
forest bioenergy for fossil fuels
• According to the Kyoto Protocol, only additional
carbon sequestrated beyond the base line can be
counted (additionality). Details about carbon
accounting methods can be found in 2006 IPCC
Guidelines for National Greenhouse Gas
Inventories, Volume 4, Agriculture, Forestry, and
Other Land Use (http://www.ipccnggip.iges.or.jp/public/2006gl/index.htm).
• Carbon markets are still under development
(Chicago Climate Exchange,
http://www.chicagoclimatex.com).
Potential Benefits to Landowners
for Forest Biomass/Bioenergy Production
• Revenue from biomass sales
• Savings on site preparation costs in forest
regeneration
• Reduction in fire and disease/pest (e.g., beetles) risks
• Opportunity for stand improvement
• Potential carbon credits
Module 6: Economics of Forest Biomass and Bioenergy
Community Impacts
•
•
•
•
•
•
Employment
Income
Tax revenues
Economic diversification
Community resilience and stability
Social coherence
Job creation is probably the most significant impact.
Module 6: Economics of Forest Biomass and Bioenergy
Job Creation
• Average number of direct jobs created:
– Electricity production
• 10 jobs per MW of power plant capacity
– Ethanol production
• 150 jobs per million gallons
• The total employment impact varies with
plant/mill size, technology used, local
economic structure, etc.
Module 6: Economics of Forest Biomass and Bioenergy
East Texas
• 43 counties
• Forest products
industry
– $17.5 billion in
industry output
– 76,000 jobs
• Energy industry
– 22% of the
region’s output
Module 6: Economics of Forest Biomass and Bioenergy
East Texas
(Total Impacts of Residue Procurement and Electricity
Production)
• Bioenergy development would create:
– 1340 jobs
– $215 in value-added
– $352 million in output
Variable
Direct
Impact
Indirect
Impact
Induced
Impact
Total
Impact
Value added (Million $)
152
29
34
215
Output (Million $)
246
52
54
352
Employment (# of jobs)
410
380
550
1340
Source: Gan and Smith 2007
Module 6: Economics of Forest Biomass and Bioenergy
East Texas
(Impacts of Residue Procurement)
• Logging residue procurement alone would create:
– 560 jobs
– $46 in value-added
– $105 million in output
Variable
Direct
Impact
Indirect
Impact
Induced
Impact
Total
Impact
23
13
10
46
63
27
15
105
260
150
150
560
Value added ($ Million)
Output ($ million)
Employment (# of jobs)
Source: Gan and Smith, 2007
Georgia
• Biorefinery using 440 dry tons daily
– $32.7 million in impacts
– 95 total jobs
– $991,000 annual state tax revenue
Module 6: Economics of Forest Biomass and Bioenergy
Georgia
• Large-scale (533 WTPD) biomass gasification
facility
– $22.2 million in impacts
– 95 total jobs
– $776,000 annual state tax revenue
Module 6: Economics of Forest Biomass and Bioenergy
Policy
• Current Incentives and Renewable Energy
Programs
• Needed Incentives
• International Experience
Module 6: Economics of Forest Biomass and Bioenergy
Existing Bioenergy Incentive Programs
(as related to forestland owners)
• Federal Programs
– Energy Policy Act of 2005
• Extended the Renewable Electricity Production Credit through
December 31, 2007
• Provided grants for the utilization of biomass from forest fuel
treatment
– The Farm Security and Rural Investment Act of 2002
– The Healthy Forests Restoration Act
• State Programs
– These programs vary by state, including taxes/credits,
financial incentives, loans, etc.
– Detailed programs for each state are available at
www.dsireusa.org
Module 6: Economics of Forest Biomass and Bioenergy
Renewable Portfolio Standards (RPS)
• Several states in the country also have
established RPS, requiring that a minimum
percentage of a utility’s overall electricity sales
must be derived from renewable sources.
• Each state has separate standards.
– Texas is the only Southern state with RPS
currently
• 5,880 MW by 2015
Module 6: Economics of Forest Biomass and Bioenergy
Needed Incentives
• Incentives needed (based on electricity
production)
– $12-15/MWh for logging residues
– $18/MWh for fuel treatment thinnings
• Few programs currently provide incentives to
forest biomass producers, particularly
landowners.
Module 6: Economics of Forest Biomass and Bioenergy
Impact of Global CO2 Emission Reduction
on Cost Competitiveness
• CO2 Emissions Reductions
– 20-30% reduction
Source: Gan and Smith, 2002
Module 6: Economics of Forest Biomass and Bioenergy
Impact of Carbon Taxes on Cost
Competitiveness
• CO2 Emissions Taxation - $25/ton C
Source: Gan and Smith, 2002
Module 6: Economics of Forest Biomass and Bioenergy
International Experience
• United Kingdom
• Sweden
Module 6: Economics of Forest Biomass and Bioenergy
United Kingdom
• Renewables Obligation
– Renewable sources required to produce a fraction
of electricity
• Green Fuels Challenge
– Fuel duty rebate on biodiesel
• Introduction of energy crops
– Incentives for start-up costs for energy crops
Module 6: Economics of Forest Biomass and Bioenergy
Sweden
• Fossil fuels reduced
from 80% (1970) to
40% (2006)
• Fossil fuel taxes
• Biomass was 65% of
total district heating
in 2002
Module 6: Economics of Forest Biomass and Bioenergy
Conclusions
• Biomass supply from southern forests is
promising.
• Production costs remain a major barrier to
forest biomass and bioenergy development.
• Logging residues are a relatively less costly
forest biomass source.
Module 6: Economics of Forest Biomass and Bioenergy
Conclusions
• Biomass and bioenergy development can provide
various socioeconomic and environmental
benefits.
• Limited incentives/assistance are available, but
more are needed and deserved, particularly to
biomass producers (landowners).
• We can learn by doing and from international
experience.
Module 6: Economics of Forest Biomass and Bioenergy
Photo Credits
Slide 8: C. Darwin Foster, Texas A&M University
Slide 9: http://www.forestsystems.com/
Slides 10: C. Darwin Foster, Texas A&M University
Slide 11: C. Darwin Foster, Texas A&M University; Erich G. Vallery, USDA
Forest Service, www.forestryimages.com (0745070); Ronald F. Billings,
Texas Forest Service, www.forestryimages.com (0284013a)
Slide 12: Pennsylvania State University
(http://vip.cas.psu.edu/images/DiameterLimitCut.jpg)
Slide 15: Oak Ridge National Laboratory
Slide 16: C. Darwin Foster, Texas A&M University
Module 6: Economics of Forest Biomass and Bioenergy
Photo Credits
Slide 17: Chyrel A. Mayfield, Texas A&M University
Slide 31: Oak Ridge National Laboratory
Slide 32: Clear Power (http://www.clearpower.ie/carbon.html)
Slide 34: Chicago Climate Exchange (CCX)
Slide 36: Southern Rural Development Center
Slide 38: Chyrel A. Mayfield, Texas A&M University
Slide 52: Semida Silveira, Sustainable Vision
Module 6: Economics of Forest Biomass and Bioenergy