Wood-based biodiesel in Finland: Market-mediated impacts on emissions and costs

Renewable energy targets create an increasing demand for bioenergy and transportation biofuels across the EU region. In Finland, forest biomass is the main bioenergy source and appears to be the most promising source for transportation biofuel production. In this study, a biodiesel strategy based on domestic forest biomass is analysed using an integrated modelling framework. A market-oriented framework is applied to estimate the potential greenhouse gas impacts of achieving a national transport biofuel target (10% vs. 20% of total consumption) under the current climate and energy policy obligations. The cost-minimising adaptation of the energy system to policy targets, the demand for wood biomass and emissions from the energy system including the transportation sector are described using the energy system model EPOLA - a dynamic linear optimization model. The resulting response of the Finnish forests (their carbon balance) to the increasing demand for wood biomass is modelled using the EFISCEN forest model. The analysis demonstrates the importance of including market-mediated impacts in the analysis. The majority of adjustments toward the biofuel target takes place in the ETS sector, among the energy producers participating in the EU Emission Trading System, even though the transportation biofuel target is set within the non-ETS sector. The demand for wood in biorefineries raises the wood price thereby weakening its competitive position against fossil fuels. In consequence, wood is likely to be partly replaced by fossil fuels within the ETS sector, for example in district heating. In addition, biorefineries would increase the total use of electricity. Thus, fossil fuel carbon dioxide emissions in the ETS sector within the Finnish borders would increase. Total cumulative emissions, including the non-ETS sector and the forest carbon balance, are slightly lower in the biodiesel scenarios than in the baselines. In transport and in the non-ETS sector in general, the decrease in emissions takes full effect immediately, whilst the decrease in carbon sink in the Finnish forests appears to be gradual. The impact on the carbon sink is fairly small because wood harvesting increases by less than the amount of wood used for biodiesel production. The increase in emissions from the Finnish ETS sector is not accounted for in the total emissions, because at the EU level, emissions in the ETS sector are fixed. Any increase in ETS emissions in Finland has to be compensated by the purchase of emission allowances, and the corresponding emission reduction takes place elsewhere in the ETS area. The possible carbon leakage due to the increased use of forest or imported biomass elsewhere in the EU is excluded from this analysis. Biodiesel proves not to be a cost-effective measure for attaining climate or renewables targets. This is due to the low efficiency of the biodiesel chain in displacing fossil diesel emissions. Just from the mitigation point of view, the direct burning of solid wood biomass in energy-efficient boilers should be favoured.