Economics Collage

From a strictly economic perspective and based on current market conditions, whether the United States chooses to embrace an alternative energy future or continues to rely on non-renewable fossil fuels is largely a matter of political/social choice. At the present time, 2006, it is clear that forest bioenergy resources in general (except for a few special cases) cannot economically compete with fossil fuels. As a result, cost remains one of the major barriers to bioenergy development (GAO 2005). However, forest bioenergy offers a variety of environmental and social benefits to society. Without doubt, forest bioenergy will become increasingly more competitive as its production cost is further reduced with the advances of biomass production and energy conversion technologies, as the prices of fossil fuels continue to rise, and as the incentive programs to account for its environmental and social values are developed.

This section of the Encyclopedia of Southern Bioenergy will synthesize what we know about the economics of forest bioenergy products. Yet, economic issues are interrelated with other issues associated with Forest Management for bioenergy production, biomass Harvesting and Utilization, and Environmental Sustainability of producing forest bioenergy products. Though the economic aspects of these non-economic issues are incorporated in this section, detailed discussion on the non-economic issues can be found in other sections of this encyclopedia.

Specifically, this economics section presents the status of bioenergy products availability and use in the Southern United States with some additional material offering national and international perspectives. Much of the data and information in this section is time sensitive. Our synthesis reflects the situation as it exists circa 2006 and focuses on:

• Supply of Forest Biomass: Availability and location of forest biomass
• Cost Competitiveness: Costs of producing feedstock and bioenergy products from forests as compared to other energy sources 
• Community Impacts: Employment and income impacts on local communities, including case studies 
• Policy Factors and Incentives: Policies and incentive programs that currently exist and would be needed to make forest bioenergy competitive
• Landowner Economics: There are several economic benefits related to biomass and bioenergy production that can be potenially realized by private forest landowners. 

Residues

Among various forest biomass supply sources, logging residues are probably one of the most economical sources that have not been used to a nationally or regionally significant extent in the U.S. Some 40 million dry tons of logging residues can be recovered annually and sustainably in the U. S. Approximately 50% of these recoverable residues are located in the South. Their long-term supply would be relatively stable for the South and the nation as a whole, whereas slight variations would exist across regions.

Though forest biomass resources in the South are promising, production costs, competing uses of forest resources, and environmental concerns may influence biomass supply. In addition, large buyers of forest biomass, by and large, have not emerged region-wide. Yet, this situation could change as bioenergy markets emerge. For information on local buyers, please refer to Southern Region Extension Forestry.

Information of feedstock supply such as sources, quantity, and spatial distribution/concentration is essential to bioenergy development. This section describes:

• Factors Affecting Supply: Economic, engineering, and environmental considerations
• Sources and Quantity of Supply: Sources and supply curves of forest biomass
• Location: Spatial distribution or concentration of forest biomass
• Uncertainty and Long-Term Supply: Factors influencing long-term supply and projection of long-term supply

The South is endowed with rich forest resources and favorable physiographic conditions for biomass production. Though the availability of forest biomass is promising, its actual supply will be affected by an array of factors including the availability of forest resources, recovery limitations imposed by accessibility and  environmental concerns, and economic considerations. Forest resources, accessibility, and environmental concerns are discussed elsewhere in this encyclopedia.

Economic factors affecting the supply of forest biomass include production costs, prices of biomass and its substitutes, competing uses of forest resources, and policy, among others. First, technologies for forest production, biomass harvest and transport, and energy conversion will dictate the production costs of forest biomass and bioenergy. Thus, research and development will have an important role to play in forest biomass and bioenergy development. The costs will also vary with scale of operation, biomass spatial density, terrain conditions, average stem diamater, and transport distance, among other things. The most cost-effective production of biomass for energy occurs when it is produced simultaneously with other higher valued forest products (sawlogs, pulping chips).

Second, there also must be a demand for (buyers of) forest biomass in local markets, which interacts with the supply to determine the market price. Though there are some local buyers in limited locations currently, large buyers have not emerged region-wide. Potential buyers include independent developers, utility companies, biorefineries, larger-scale users of biomass for space heating and chilling, and the producers of other bio-based products in the future.

Third, prices of other types of energy such as fossil fuels will have an influence on the supply of forest biomass. Increases in the price of oil or natural gas will favor bioenergy. Forest bioenergy will also face competition with other renewable energy sources such as agricultural crops and crop residues, solar, wind, and hyro energy, among others. 

Fourth, competing or complementary uses of forest resources for pulpwood, timber, and ecological services will also interact with the supply of forest biomass for energy. Recent adjustments in the forest products industry, particularly in the pulp and paper sector may present an opportunity for using small-diameter trees for bioenergy. Yet, forest bioenergy is unlikely to compete with lumber and wood products industry demand for large-diameter trees, because of the low relative value of energy feedstocks. Production of forest biomass for energy, for example, thinning over-stocked stands, may enhance the production of high quality logs and reduce fire risk whereas there is some concern about the potential loss of soil productivity resulting from excessive removals of biomass. Demand for ecological services such as biodiversity may have a negative or positive impact on the supply of biomass from forests (Schaberg and others 2005).

Finally, policies pertaining to energy, forest management and utilization, environmental protection, and land use, as well as assistance and incentive programs to forest landowners and bioenergy producers and consumers will also affect the supply of forest biomass. Some of these policies include carbon emission taxes, the renewable portfolio standard, etc. These factors combined will determine the profitability of producing forest biomass and bioenergy, a key determinant for developing and sustaining a forest biomass and bioenergy industry.

Biomass Resources

The primary production areas and manufacturing facilities of the forest sector provide many different sources of forest biomass that can be utilized for bioenergy and bio-based products. These sources include logging residues, mill residues, thinnings (traditional forest management and fuel treatments), stands damaged by natural disturbances (fire, windstorm, pest outbreaks, etc.), energy plantations, stands degraded by poor logging practices, and urban wood wastes. The quantity of forest biomass is usually quantified in two ways, the amount of available biomass and the amount of recoverable biomass. For the purpose of this discussion, biomass supply means the quantity of recoverable biomass unless otherwise specified.

Residues

Logging residues constitute one of the largest sources of forest biomass that have not been utilized in the United States. Logging residues - the unused portions of trees cut or killed by logging and left in the woods (Helms 1998) - consist of tops, branches, and downed dead and cull trees. Logging residues amount to 19% (in volume) of total annual removals from the US forest inventory. Based on the 2002 Forest Inventory Analysis (FIA) data (Smith and others 2004), there are approximately 60 million dry tons of logging residues annually available at harvest sites in the U. S. Taking into account the recovery limitations imposed by accessibility and loss during procurement, several studies (Walsh and others 2000; Perlack and others 2005; Gan and Smith 2006) consistently reveal that some 40 million dry tons of logging residues can be recovered annually in the U. S., over 90% of which are from privately owned lands.

Wildfire Damaged Forest

Another source of forest biomass is fuel treatment thinnings. Increasing threats of forest fires in recent years have brought attention to the growing problem of hazardous fuel buildup in the forests. The National Fire Plan of 2000 and the Healthy Forest Restoration Act of 2003 were designed to address hazardous fuels reduction and increased utilization of the material for beneficial purposes. Approximately 8.4 billion dry tons of treatable biomass have been identified nationwide, while only a fraction of this biomass is considered available. Considering accessibility, economic feasibility, and recoverability greatly reduces its supply to about 60 million dry tons per year. This amount would come from both public and private lands with some 60% from private lands (Perlack and others 2005). In addition to fuel treatments, thinnings for the purpose of timber production generate biomass as well. Yet, there is no reliable estimate of this potential biomass supply.

Hurricane Damaged Forest

Biomass from the trees damaged by natural disasters/disturbances can also be used to produce bioenergy and bio-based products. The natural disturbances that occur most often in the southern U.S. include hurricanes, tornados, wildfires, and pest and disease outbreaks. In 1989, Hurricane Hugo damaged 2.4 billion dry tons of timber (Haymond and others 1996). In 2005, Hurricanes Katrina and Rita damaged over 2.5 billion dry tons of timber along the Gulf Coast (USDA Forest Service 2005; Texas Forest Service 2005). The amount of biomass recoverable from these hurricane-damaged forests, though not accurately estimated, should be quite significant because restoring the damaged forests tends to generate more residues than regular timber harvesting. In the South, the southern pine beetle (Dendroctonus frontalis Zimmermann) also causes significant damage to pine forests. Coulson and others (2005) estimated that on average 1.36 million tons of biomass were killed by the pest annually in eleven southern states. About half of this amount was not salvaged and could be used for bioenergy. Whereas the quantity of biomass generated by natural disturbances is quite large, it varies tremendously over time and space. Such variations may hinder its utilization.

Hybrid Poplar

A significant supply of woody biomass can also come from energy plantations--short rotation woody crops (SRWC)--such as willows and poplars. The estimates of biomass supply from energy plantations vary tremendously with different estimation methods and assumptions on land availability, demand for grains and fiber, and biomass yield, among other things. According to Perlack and others (2005), about 5 million dry tons of biomass from SRWC plantations could be available for bioenergy production annually in the U.S. A study by Alig and others (2000) predicted that SRWC plantations would not become significant until 2040 in the South. The availability of smaller trees for pulp fiber and projected large investments in southern softwood production reduced the attractiveness of SRWC in the region. However, Walsh and others (2000) estimated that 188 million dry tons of biomass could be supplied from energy plantations at a delivered price of $50 per dry ton. Obviously, further studies are needed in this area to provide a consensus estimate. The amount shown in the figure entitled "Forest Biomass Resources in the United States" is based on the more conservative estimate by Perlack and others (2005).

Chip Pile

Mill residues are one of the most readily available sources of forest biomass. Mill residues come from three primary sources including primary wood processing mills, secondary wood processing mills, and pulp and paper mills. This biomass source is extremely desirable for use in bioenergy and bio-based products applications. It is clean, uniform, concentrated, low in moisture, and close to utilization facilities, thus requiring minimum further processing efforts and representing a cost-effective source of forest biomass for energy. Because of these desirable qualities, most (about 97%) of the primary wood processing mill residues are currently being utilized (Perlack and others 2005). Thus, we do not anticipate that there would be additional, significant amounts of mill residues available for new bioenergy production.

Urban residues

Finally, urban residues include wood and yard waste and construction and demolition debris. Construction scraps are usually very high quality biomass whereas demolition materials are typically contaminated unless highly processed. It is generally perceived that there is about 20% wood in the urban waste stream. There are very limited data on the availability of urban residues. According to Perlack and others (2005), a total of 28 million dry tons could possibly be collected from urban sources. Yet, urban residues may face competing uses such as mulch, and the quality of demolition debris may hinder their utilization.

Because of high biomass transportation costs, the location and spatial distribution of forest biomass play an important role in its utilization. Biomass in the areas with large supplies and high spatial concentration would be more economical to use than that in other areas with limited supply and low concentration. The supply of biomass is not evenly distributed geographically.

Recoverable Logging Residues
from Growing Stock and Other
Sources in 1997

The largest concentration of logging residues is found in the Southern United States. According to Gan and Smith (2006) approximately half (19.24 million dry tons) of the nations recoverable logging residues are located in the South. Three of the top five supply states for logging residues are located in the South. The map to the right shows the geographic distribution of recoverable logging residues in the United States. Among the 13 Southern states, Alabama, Mississippi, and Georgia lead the way with an annual supply of over 2 million dry tons, followed by North Carolina, Arkansas, Texas, and Louisiana (Table 1).

The need for fuel treatment thinnings exists across the country, while the biomass generated from fuel treatments may vary from region to region due to regional differences in fire risk, vegetation types, forest area and conditions, and socio-demographic factors such as landowner composition and associated forest ownership objectives. Schmidt and others (2002) placed forests into three condition classes: 1=fire regime in historical range, 2=moderately altered fire regime, and 3=significantly altered fire regime. Class 2 and 3 forests will need future restorative treatments to alleviate the intensity and spread of fires, thus potentially generating more biomass from the treatment on a per acre basis. More class 2 and 3 forests are located in the West, Northeast, and North Central states than in the South (below).

Fire Condition Classes

Hence, on a per acre basis, biomass generated from fuel treatments in the South might not be as high as in other regions.

At this time, short rotation woody crops (SRWC) do not play a large role in the supply of forest biomass in the U. S. Gan (1990) reported that SRWC would not become competitive with crops in terms of land use unless decision-makers place a high priority on carbon emission reduction and wildlife habitat protection. The establishment of SRWC is most likely to be concentrated in the eastern United States, particularly in the South and Cornbelt regions. Alig and others (2000) also projected that there would be a larger number of suitable acres in the South and the Cornbelt than in other regions (Table 2). This table suggests the geographic distribution of potential SRWC establishments in the country.

Future Availability of Logging Residues
in the United States

A long-term stable supply of biomass is critical to its industrial utilization. The future availability of logging residues will depend on continued future timber harvests and the ratio of residues to timber removals. According to the 2002 Forest and Rangeland Renewable Resources Planning Act (RPA) assessment (Haynes 2003), the projected timber harvests in the U. S. would generally increase during the next 50 years while regional shifts and small harvest reductions in the short run will be likely. The ratio of residues to timber removals may decrease in the future as technological advances enable us to procure and utilize smaller-size trees for manufacturing traditional forest products. Consequently, the total supply of logging residues in the U.S. would be relatively stable with a slight increase over the next 50 years. The total supply is projected to increase by 5% by 2020 and some 12% by 2050.

Future Availability of Logging Residues
in the Eastern United States

Yet, different areas of the country will be affected in different ways. While increases in logging residues are expected in the South Central, Southeast, and North Central regions, decreases are likely in the Pacific Southwest, Pacific Northwest, Great Plains, and Intermountain states. In the Northeast, the long-term supply of logging residues is projected to increase by 2020 after a dip in 2010 largely because of increased harvests of hardwoods (Gan and Smith 2006). In summary, the nations total supply of logging residues is predicted to remain sustainable over the next 50 years, in spite of some regional differences.

If trees are harvested for bioenergy, pulpwood, and sawlogs, competing or complementary uses of forest resources among these products may exist. A recent study using a dynamic multisector and multiregion model suggests that bioenergy would compete with traditional forest products in the use of forest resources in the short term (before 2030), but they would complement each other in the long term as more lands would be used for forest production that would increase the supply of both timber and feedstock. The short-term effect of bioenergy production on timber output would be moderate (<5% reduction in timber output) under current market and policy conditions associated with bioenergy and greenhouse gas emissions. Hence, given current limited demand for biomass feedstock and the potential expansion of forestland in the long term, both short- and long-term supply of forest biomass for energy production in the nation seems adequate.

Under current market conditions, except for a few special cases like mill residues, forest biomass in general is still hard to compete with coal and oil for energy production in terms of production cost. Even the relatively economical source of biomass, logging residues, is not yet cost competitive with coal for electricity production. However, electricity generation using logging residues represents an economically viable option for carbon dioxide emission mitigation. With proper incentives provided to producers and/or consumers, forest biomass and bioenergy markets are likely to emerge.

The production costs of delivered logging residues are about $30/dry ton with a transportation distance of less than 100 km, compared to about $50/dry ton for short rotation woody crops and $30-50/dry ton for fuel treatment thinning. The cost of electricity generated from logging residues is estimated at a range from $50/MWh to $80/MWh depending upon the technologies used and the scale of power plants, significantly higher than that of coal-generated electricity. A minimum carbon tax of $25 per ton of carbon dioxide or a 25% reduction in global greenhouse gas emissions would be needed in order to make bioelectricity generated from logging residues competitive.

This section delves into the production costs of forest biomass and bioenergy and their cost competitiveness with similar products on the market. Topics include the costs associated with:

• Feedstock Production: Biomass harvesting, transporting, and processing 
• Electricity Production: Bioelectricity as compared to coal-generated electricity 
• Carbon Displacement: Carbon dioxide emission displacement from bioelectricity relative to other carbon dioxide mitigation options

Cost of Delivered Feedstocks

The cost of biomass feedstock is an important component of the overall production cost of forest bioenergy. Therefore, it may be worthwhile to estimate the production cost of forest biomass alone and compare it with that of other types of feedstocks though the cost competitiveness of forest bioenergy will be determined by its overall production cost. Gan and Smith (2006) estimated and compared the amortized costs of delivered biomass with the price of delivered coal on a per unit energy basis. Based on the information on biomass yield and production costs derived from the Oak Ridge Energy Crop County Level Database (Graham and others 1997), they estimated the biomass production costs for short rotation woody crops (SRWC), specifically poplar plantations, to be about $52/dry ton ($10.80/MWh, the cost estimates in this section were based on the energy contained in the feedstock, not the final energy product), while the national average price of delivered coal was $5.32/MWh in 2005. The cost estimates were based on the assumption of a biomass yield of 5 dry tons/ac/yr and a land rent of $50/ac/yr.

Cost of Logging Residues

Logging residues, harvested using the integrated harvesting system that combines timber harvest with residue procurement, appear more economically competitive than SRWC. Based on the procurement costs reported by Puttock (1995) and after making adjustments to better reflect biomass transporting, processing, and handling costs, Gan and Smith (2006) estimated the production cost of logging residues in the United States. The average cost of delivered logging residues was estimated at $28/dry ton ($5.80/MWh ) using the marginal cost method and $33/dry ton ($6.80/MWh) using the full cost method, respectively. The marginal cost method counts only additional costs from the conventional logging operation as the biomass production cost. The full cost method, on the other hand, allocates the total production cost across biomass and conventional wood products. Their estimates are similar to those reported in Europe, $29-39/dry ton ($6-8/MWh) (Asikainen and others, 2002).

Costs for procuring biomass from fuel treatment thinnings were estimated for two different treatments (USDA Forest Service 2005). Using the cut and skid treatment, the cost was $30-40/dry ton ($6.20-8.30/MWh). It increased slightly to $34-48/dry ton ($7.00-9.9/MWh) when the cut/skid/chip method was adopted.

These cost estimates do not account for the benefits or cost savings related to forest management health that traditionally accrue to landowners and forest industries and even to society. These benefits include:

• Forest bioenergy production will promote thinning of overstocked forest stands. Such operations will allow us to produce high-quality timber and/or reduce wildfire risk. Providing better opportunities to manage for higher-value products will encourage landowners to retain land in forests.
• Many hardwood and mixed pine-hardwood stands are badly degraded due to poor past logging practices. A biomass market will allow landowners to at least see these low-value materials pay their way out of the woods so that the stands can be improved to produce high-value products.
• Removal of logging residues will reduce site preparation costs (Gan and Smith 2006) and enhance the survival and growth of seedlings.

Electricity production and heating have been a major use of forest biomass in many developed countries and have shown to be promising in the U.S. as well. In addition, technology for generating electricity from forest biomass is more mature than that for converting forest biomass to liquid fuels as the commercial production of bioelectricity and heat from biomass has existed for a while. For these reasons and given the lack of cost data on the commercial-scale production of cellulosic ethanol, this section focuses on the cost competitiveness of bioelectricity compared with coal-generated electricity.

Electricity Generation Costs

Electricity generation costs using the integrated coal gasification combined cycle system and the conventional pulverized coal system were estimated to be about $35/MWh with the fuel price in 2005. This cost estimate is consistent with the current national average cost of electricity generated from coal. The cost may be higher if more stringent environmental standards have to be met. The cost of using poplar biomass in a biomass gasification combined cycle system is considerably higher than that of using conventional coal or gasification systems. The electricity production cost using the biomass gasification system for hybrid poplar was estimated to be $58/MWh (Gan and Smith 2002) (at right).

Electricity Generation Using
Logging Residues

Logging residues appear to be more competitive than poplar plantations. Costs ranged from $47/MWh (marginal cost) to $50/MWh (full cost) (Gan and Smith 2006) (at left). Similar cost estimates have also been reported in other regions of the U.S. and Canada. Based on the optimal size (137 MW) of power plants for forest harvest residues in Canada, Kumar and others (2003) estimated the electricity production costs at US$63/MWh.

There are several reasons for this cost difference. First, the initial capital cost for a biomass gasification system is almost 50% higher than the costs for a conventional coal or gasification system (EIA 2001). The non-fuel costs of the biomass plant would be almost the same as the total cost of electricity generated at the coal plant. Second, fuel costs also play a role in the cost differential. Biomass fuel is more costly than fossil fuels on a per unit energy basis (Gan and Smith 2006).

There are several ways to make biomass more economically competitive with fossil fuels (Gan and Smith 2002). One is to reduce the non-fuel costs of biomass power generation via improving the efficiency and effectiveness of current biomass conversion technology. Another way is to reduce fuel costs. This can be accomplished through improvements in feedstock productivity and biomass harvesting and transporation systems. Imposing a tax on carbon dioxide emissions or providing an incentive for biomass energy that displaces carbon dioxide emissions would also enhance the competitiveness of biomass energy. For logging residues to be competitive with coal in electricity generation, an emissions tax of $25/ton of carbon dioxide or higher would be needed (below left). Alternatively, global greenhouse gas emissions would need to be curtailed by 20-30% for logging residues to become competitive (below right). For poplar plantations to be competitive with coal, emissions reductions and taxation would have to be further increased. Emisssions would need to be reduced by at least 40% to make poplar plantations competitive in electricity production, while taxation would have to be at least $65/ton of carbon dioxide.

Carbon Dioxide Emissions Tax Effect
on Electricity Generation Costs

Carbon Dioxide Emissions Reductions
Effect on Electricity Generation Costs

The above estimates were based on the electricity generation solely fueled by forest biomass and current general market and technological conditions. They reflect only electricity production costs not environmental or other costs/benefits. Note that electricity production costs vary with technologies used, production scale, fuel costs, and other factors. For instance, co-firing biomass with fossil fuels may help bring the electricity production cost down under certain circumstances; too small or too large power plants may increase the production costs as the costs of biomass transport and electricity generation depend on the scale of the power plant.

Carbon Cycle

Carbon sequestration, the removal of carbon dioxide from the atmosphere into long-lived pools of carbon is an important mitigation option for greenhouse gas emissions. Forest carbon sequestration pools can include above-ground living biomass (trees), living biomass in soils (roots, etc.), and products created from biomass (lumber) (CSiTE 2002). Forests store carbon dioxide as a result of photosynthesis though carbon in the wood (like in fossil fuels) will be released when it is burned. Thus producing and consuming bioenergy from forest biomass represents a carbon recycling process (at right), essentially a carbon neutral process that can displace carbon dioxide emissions from burning fossil fuels. In addition to displacing fossil fuel carbon emissions, producing bioenergy from forest biomass can reduce carbon emissions from the alternate fates of the biomass itself because forest biomass left to decompose, slash burning, prescribed fire, and wildfires release greenhouse gasses. Due to data limitations, this section focuses on the cost-competitiveness of offsetting carbon dioxide emissions via generating electricity from forest biomass.

Gan and Smith (2006) estimated that about 40 million dry tons of logging residues could be recovered annually in the U.S. If this biomass were used for electricity production, the amount of carbon displaced would reach 19.4 million tons C. This is equal to approximately 3% of total current carbon emissions from the U.S. electricity sector.

Carbon Displaced

The cost of carbon displacement is dependent upon the method used to calculate the production costs of logging residues. Using the marginal cost method, it would cost $60/ton C to displace carbon emissions from coal-generated electricity. Using the full cost method, the cost would rise to $70/ton C (Gan and Smith 2006) (at left).

Thus, using forest biomass, particularly logging residues, for electricity production appears to be a relatively cheap way to mitigate carbon dioxide emissions when compared with other mitigation options including agricultural practices and replacement applications. These other mitigation options can cost between $83-$164/ton C (IPCC 2001) (below).

Cost of Carbon Displacement

Bioenergy development can generate a variety of socioeconomic impacts ranging from income and job creation to tax revenue and to community coherence. Of these impacts, the creation of jobs and income is probably the most significant. In addition, bioenergy has the greatest potential for employment creation among alternative energy sources (Domac and others 2005).

This section explains the types and importance of community impacts and illustrates these points by highlighting a series of case studies. These case studies cover different bioenergy production systems in several states in the United States, with emphasis on the U.S. South. The case studies reiterate the potential role that forest bioenergy can play in rural economic development. While the impact varies from case to case, forest bioenergy development demonstrates strong ripple effects on income and employment.

• Types and Importance of Community Impacts
• Case Study: East Texas
• Case Study: Georgia
• Case Study: Oregon
• Case Study: South Carolina

Socioeconomic impacts of bioenergy development are ample and varied. Domac and others (2005) categorized these impacts into four groups: social aspects, macro level, supply side, and demand side. Among these impacts are employment, income, tax revenues, economic diversification, social coherence, and community stability.

The most significant socioeconomic impact is probably the creation of jobs and income. The importance of bioenergy development in job creation has been recognized in both developing and developed countries. A compilation of case studies (Borsboom and others 2002) reiterated this evidence. Studies in Asia, Africa, Canada, and Western Europe all concluded that bioenergy projects created jobs and income in their specific areas. In fact, Domac and others (2005) found that bioenergy had the greatest potential in employment creation among other renewable energy sources. This is partly because biomass harvesting, transporting, and processing are labor intensive. In addition, high transport costs limit the economic transport distance for biomass feedstock, keeping jobs in the local areas. For instance, biomass-based electriticy production, because of relatively high initial investment and the use of locally-produced feedstocks, tends to have a greater ripple effect on local income than power generation using coal and other energy sources.

Along with job creation, biomass and bioenergy development will infuse income to local households and tax revenues to local communities. The increase in household income will raise the standard of living. The tax revenues will help improve local infrastructures, public services or systems including utility supplies, roads, and public transportation, telecommunications, schools, etc. Providing job opportunities for individuals, particularly younger residents, will allow them to remain in the community rather than migrate out in search of quality employment elsewhere, thus preventing aging of the community. All these will enhance social coherence, community stability, and the quality of life (IEA Task 29 2005).

Furthermore, the establishment of a forest biomass and bioenergy industry will contribute to the diversification of local economies. Such diversification is directly linked to the sustainable development of rural communities, particularly those that traditionally depend on timber production (Bliss and Bailey 2005).

These socioeconomic benefits associated with biomass and bioenergy development are extremely important to southern rural communities. A large portion of the forest biomass in the South is concentrated in areas considered rural in nature. Due to overcapacity of the forest products industry, industry adjustments, and globalization, many of these communities are facing an increasing challenge to sustain their economies which have been based on traditional timber harvesting and processing. Production of feedstock, bioenergy, and bio-based products could help maintain the prosperity of these communities, though to become a successful rural development tool such new ventures must be interrelated with community political and socioeconomic systems (Kennedy and others 2001).  By creating value-added products from forest resources, the bioenergy and bio-based products industries could serve as a catalyst for moving southern rural communities into a brighter economic future.

East Texas Study Area 1

Gan and Smith (2006) studied 43 counties in East Texas to determine the socioeconomic effects that logging residue procurement and electricity production would have on the region. The study area (at right) consists of 11.9 million acres of timberland, the majority (93%) of which is controlled by private owners including non-industrial private landowners, the forest products industry, and institutions.

Forestry and the forest products industry have traditionally played a significant role in the regions economy, providing $4.5 billion in output and a total of approximately 100,000 jobs in the region in 1996 (Dreesen and others 2000). Yet, recently the industry has suffered from mill closures and decreases in stumpage prices. Another important industry in the region is the energy sector, which accounts for approximately 22% of the regions total output (IMPLAN 2002). The combination of the forest products and energy industries makes the area a good candidate for producing bioenergy from forest biomass resources. The chart below depicts the importance of the logging and energy sectors to the regions economy.

Logging and Power Generation in East Texas

Using the Input-Output modeling approach, the study revealed that logging residue procurement would generate 568 new jobs, and that electricity production using the residues would generate an additional 769 jobs. The total jobs created, which reflected direct, indirect, and induced impacts, would count for approximately 32.5% of the total current logging employment in the region. The estimated employment multiplier was 3.26. This suggests a strong ripple effect caused by biomass and bioenergy development in the region.

Impact of Bioenergy Development in East Texas

In addition to job creation, bioenergy development would generate $215 million in value-added, with $169.3 million from electricity production and $45.8 million from residue procurement. This is approximately 60% of the current value-added from the logging industry. Moreover, the total impact on output was estimated at $352 million of which $105 million was attributed to logging residue procurement. This total is 38.5% of the current total output from the logging sector. The output and value-added multipliers are smaller than the employment multiplier, suggesting that bioenergy development would have a stronger ripple on employment than on output or value-added. Employment and income affects are shown in the figure to the right.

While this study indicated a positive socioeconomic effect of bioenergy development on the regions economy, it is important to remember that this cannot be generalized for all areas. The impact of biomass and bioenergy development is closely related to such factors as the nature of technology, local economic structures, social profiles, and production processes. Thus, it is important to perform a region-specific assessment before proceeding with any development project.

In Georgia, the supply of diverse biomass sources is widely distributed throughout the state. This supply distribution would allow for the creation of biorefineries thoughout the rural areas of the state. Using IMPLAN data, an economic analysis was conducted that evaluated the impact of a biorefinery that used 440 dry tons of biomass daily. The study results indicated that $32.7 million in direct and indirect impacts would be generated from the goods and services produced by one plant. Each plant would directly employ 19 individuals with another 76 indirect jobs created, for a total of 95 jobs. The state tax revenue generated from one facility would equal $991,000 per year.

Again, these figures are for one biorefinery facility in the state of Georgia. Based on resource availability, researchers indicate that 17 facilities with a 440 dry ton/day requirement could be constructed and only 10% of the biomass resource would be utilized.

In early 2000, researchers conducted a feasibility study for the constructin of a biomass-to-ethanol processing facility for the state of Oregon. The study results indicated that this tpe of facility would be feasible in Oregon (Aden and others 2000). Several feedstocks were analyzed and the most economically feasible feedstock was forest residues. Using forest residues in a natural gas boiler facility produced an internal rate of return of 19% for the facility. This rate of return was calculated based on several assumptions: 1) the marketability of lignin-rich residues; 2) feedstock costs; 3) project financing; and 4) the selling price of ethanol. The study revealed that the internal rate of return would be sensitive to changes in these assumptions.

Using a natural gas boiler system requires that the lignin-rich residue produced be sold to an outside buyer. If a biomass boiler were used, the residue could be used to create process steam, but the capital cost required for the biomass boiler is significantly higher than the natural gas boiler. Yet, if no buyer can be found for the lignin-rich residue, the rate of return on the natural gas boiler would drop significantly making the biomass bioler more attractive.

Overall, the conclusions indicated that a biomass-to-ethanol processing facility using forest residues would be feasible in Oregon.

Co-firing forest biomass with coal is one way to utilize the resource without building new infrastructure. In South Carolina, power company Santee-Cooper is doing just that. Santee-Cooper announced in August 2005 that they would spend several million dollars to retrofit a coal burning plant to also burn wood chips (Stock 2005). The facility will use forest biomass from thinnings of the Francis Marion National Forest. The U.S. Forest Service has begun a massive project to thin young, dense stands in the forest that have sprouted since Hurricane Hugo in 1989. The trees to be removed have made the forest cover too dense for endangered species such as red-cockaded woodpeckers, and also pose a severe wildfire threat. The trees are also too small for the pulpwood and lumber markets. Using this material from thinnings will offset the thinning cost for the Forest Service and will also allow Santee-Cooper to reduce electricity generation costs. The amount of pollution released will also be less than that emitted by a coal-fired plant.

For forest bioenergy to become competitive with fossil fuels, some incentives are needed. Existing incentive programs seem to focus on energy producers (processors) and consumers with few providing incentive to forest landowners. In addition, there is a need for better integration and coordination of different incentive programs to generate a greater impact on bioenergy development.

The production and utilization of forest biomass and bioenergy will generate social, economic, and environmental benefits. Some of these benefits, such as reductions in greenhouse gas emissions and enhancement of national energy security, accrue not only to the users of bioenergy but also to the entire society. This provides justification for governmental support of biomass and bioenergy development. Such support could be in the form of technical assistance, financing options, and incentives and cost sharing for bioenergy development and consumption. This section will discuss the following relevant policy factors and incentive programs.

• Existing Incentive Programs for Biomass and Bioenergy Production and Consumption
• Incentives Needed for Making Forest Biomass and Bioenergy Competitive
• Experience in Other Countries

Incentive programs for biomass and bioenergy are available from a variety of different sources. These programs offer assistance in several forms including tax credit or exemption, grant, loan, cost share, or other types of incentive. Most of the existing programs assist energy producers and consumers with few providing incentives to forest landowners. The U. S. Department of Energy and the U. S. Department of Agriculture administer several federal incentive programs for biomass and bioenergy development.

Incentives related to energy production are generally sponsored by the Department of Energy. These include incentive payments and tax credits for the production of energy using renewable sources. The Energy Policy Act of 2005 contains several sections devoted to renewable energy and biomass energy. For instance, the Act modifies and extends the Renewable Electricity Production Credit through December 31, 2007. The credit provided to qualified producers under this program is good for 10 years and will increase to $10/MWh for bioenergy, which is twice as high as the credit given to wind and geothermal producers. Also, in Section 210 of the Act a grant program for forest fuel utilization of up to $20/green ton was established, though this program is not currently funded.

The U. S. Department of Agriculture also provides incentives for biomass, bioenergy, and bio-based product development in a number of ways. Incentives for forest biomass can be attained through programs administered by the USDA Forest Service and Rural Development Agency. The Farm Security and Rural Investment Act of 2002 and the Healthy Forests Restoration Act are examples of legislation that provide incentives for biomass development. Small business development and rural development grants can also be used to bolster economic conditions in rural ares through the development of a bio-based products industry.

In addition to federal programs, most states throughout the South also offer financial incentives or tax credits to businesses interested in the development of renewable energy sources. These programs can be administered through the state departments of agriculture, rural development agencies, or other various state agencies. Links to each state are available which allow one to search for specific state programs. Summaries of all state programs can be found at the Database of State Incentives for Renewable Energy.

• Alabama
  • Alabama Deparment of Economic and Community Affairs
  • Alabama Department of Agriculture and Industries
  • Alabama Development Office
  • Alabama Forestry Commission
• Arkansas
  • Arkansas Deparment of Economic Development - Energy
  • Arkansas Forestry Commission
  • Arkansas Department of Rural Services
• Florida
  • Florida Department of Environmental Protection
  • Florida Department of Community Affairs
  • Florida Department of Agriculture and Consumer Services
  • Florida Division of Forestry
• Georgia
  • Georgia Energy and Environment
  • Georgia Department of Agriculture
  • Georgia Department of Community Affairs
  • Georgia Department of Economic Development
  • Georgia Forestry Commission
• Kentucky
  • Kentucky Office of Energy Policy
  • Kentucky Department of Agriculture
  • Kentucky Division of Forestry
  • The Center for Rural Development
  • Kentucky Economic Development
• Louisiana
  • Louisiana Department of Natural Resources Technology Assessment Division
  • Louisiana Department of Agriculture and Forestry
  • Louisiana Governors Office of Rural Development
  • Louisiana Department of Economic Development
• Mississippi
  • Mississippi Development Authority - Energy Division
  • Mississippi Department of Agriculture and Commerce
  • Mississippi Forestry Commission
  • Mississippi Development Authority
• North Carolina
  • North Carolina State Energy Office
  • North Carolina Department of Agriculture and Consumer Services
  • North Carolina Division of Forest Resources
  • North Carolina Rural Economic Development Center, Inc.
• Oklahoma
  • Oklahoma Department of Commerce - State Energy Office
  • Oklahoma Department of Agriculture, Food, and Forestry
  • Oklahoma Department of Commerce - Rural Economic Development
• South Carolina
  • South Carolina Energy Office
  • South Carolina Department of Agriculture
  • South Carolina Forestry Commission
  • South Carolina Rural Development Council
• Tennessee
  • Tennessee Department of Agriculture
  • Tennesse Division of Forestry
  • Tennessee Department of Economic and Community Development
• Texas
  • Texas State Energy Conservation Office
  • Texas Department of Agriculture
  • Texas Forest Service
  • Texas Economic Development Council
• Virginia
  • Virginia Division of Energy
  • Virginia Department of Agriculture and Consumer Services
  • Virginia Department of Forestry
  • Virginia Economic Development Partnership
• National Programs
  • United States Department of Energy
    • Office of Energy Efficiency and Renewable Energy
  • United States Department of Agriculture
  • USDA Rural Development Agency
  • USDA U. S. Forest Service
  • US Senate Committee on Energy and Natural Resources
  • US House of Representatives Subcommittee on Energy and Air Quality

Furthermore, there are several federal and state wildfire mitigation programs that offer incentives for fuel treatments on private forestlands. Among the federal programs are the Environmental Quality Incentives Program (EQIP) and the Forest Land Enhancement Program (FLEP). EQIP assists private landowners, helping them to address natural resource problems which threaten environmental quality by providing cost share. Funding for FLEP has been stopped, but any FLEP funds remaining in the states may be spent in accordance with federal and state program rules. Examples of the state programs include the Wildfire Mitigation Program in Mississippi and North Carolina and the Urban Wildland Interface Community Wildfire Preparedness Program in Texas.

Bioenergy development is affected by policies related to agriculture, forestry, energy, environmental protection, rural economic development, etc. Many of the existing incentive programs and related policies are operated by different agencies with their own specific emphases. Better integration and coordination of these programs is needed and will generate synergetic impacts on promoting bioenergy development.

Incentives needed to make bioenergy competitive vary from case to case, depending on the type of final product, sources of feedstocks, technologies, and market conditions among other factors. Electricity generation will need incentives that are different from those required for biofuels and other bio-based products. 

Under current market conditions and technology, an incentive of US$10-30/MWh would be needed for electricity generated from logging residues in general (Gan and Smith 2006), and US$18/MWh would be required for electricity produced from forest fuel treatment thinning (Carlson 2003). Carbon dioxide emission reductions and taxation would also make electricity generation using forest biomass more competitive (see Electricity Production). Under this scenario, emissions would need to be taxed at least at $25/ton of carbon dioxide or reduced by 20-30% worldwide.

While the future looks promising for bioenergy and bio-based products, there are still challenges and barriers to overcome. Though the provision of incentives for forest biomass and bioenergy production is necessary and justifiable, enhanced marketing, community engagement, infrastructure development, collaboration, and education are a few other means to overcome these barriers(Mayfield and others 2005).

Bioenergy is intrinsically linked to energy, environment, agriculture, and forestry issues. As such, it needs to receive consideration within various policy agendas. Unfortunately, there is often a lack of integration across the agendas of different government agencies, which hinders the understanding of opportunities and constraints related to bioenergy, and the convergence of incentives to promote its development (Silveira 2005).

Bioenergy incentives must address the production of fuels, establishment of biomass-based plants, and end-use services and technologies. A variety of market-based mechanisms can be applied at different stages of the fuel chain to stimulate development. In the case of forestry, environmental and market incentives can promote better integration of forest management and industrial activities. In the case of energy crops, mechanisms need to be devised to encourage farmers to grow biomass resources in a sustainable manner.

While many of the scenarios in the United States are similar to those in other countries, the policies used to promote bioenergy can be very different. Examples of policies that are used or need to be implemented globally include:

Market-oriented policy tools:

• Effective regulation of electricity and heat markets
• Green certificates (give a premium to electricity generation from renewable sources)
• Emissions trading (internalizes the costs of carbon emissions improving the competitiveness of bioenergy and other renewables)
• Procurement (creates demand for specific services, i.e. sustainable energy)
• Cooperation in projects based on the Clean Development Mechanism (CDM) and Joint Implementation (JI) according to the Kyoto Protocol

Examples of other policy tools that can be used to promote bioenergy:

• Consultation and voluntary activities with industries (i.e. energy intensive industries, energy companies, building companies, etc.)
• Tax differentiation to increase efficiency and sustainability (i. e. carbon taxes)
• Standards and regulatory instruments (i.e. biofuel standards to create commodity markets)
• Research and development (i.e. cost reduction for efficient technologies and commercialization, improvement of yields in biomass crops, improvement of cost-efficiency in forest management)
• Regional and local energy offices for providing advice
• Information campaigns (i.e. for awareness)
• Incentives (i.e. for technology shift in homes)

Here are two examples showing how these policies have affected bioenergy development in other developed countries.

• United Kingdom
• Sweden

In the United Kingdom, the main driver for use of bioenergy is their ambitious greenhouse gas emissions targets (Bauen 2005). They are calling for a 20% reduction by 2010 compared to 1990 levels. In order to meet this greenhouse gas target, the renewable energy target is 10% energy generation by 2010, of which 1/3 is expected to be from biomass.

To meet these targets, the UK has issued several policy directives including the Renewables Obligation and the Green Fuels Challenge. The Renewables Obligation requires electricity providers to use renewable energy sources to provide a fraction of their electricity, yet the buy-out price per kilowatt hour is not enough to stimulate development of the bioenergy industry, except in cases where low cost biomass waste is used for the fuel source (Bauen 2005). Likewise, the Green Fuels Challenge calls for a fuel duty rebate on biodiesel. The proposed tax reduction would make biodiesel produced from vegetable oil competitive with diesel, but would not make other biodiesel forms competitive.

Another program that has been introduced provides funding for the introduction of energy crops including short-rotation woody crops. This program, funded by the Department of Environment, Food, and Rural Affairs, provides incentives for start-up costs for establishing energy crops. It is estimated that approximately 14,280 acres of energy crops will be established with this program. The short-rotation crops would also be eligible for funding from the Forestry Commissions Woodland Grant Scheme (Bauen 2005).

While there are several initiatives for the development of bioenergy, there is no clear strategy for bioenergy promotion on a short or long-term basis. A clear strategy must be developed before bioenergy development can be truly successful (Bauen 2005).

Swedish Energy Supply in TWh,
1970-2004

The Swedish energy sector has undergone substantial changes in the past three decades. During this time, the utilization of fossil fuels was radically reduced, from 80% of the total energy supply in 1970 to 37% today. Approximately one-third of the total energy supply in the country comes from renewable sources, mainly hydropower, biomass, and wind power. Biomass has attained a particular place in the Swedish energy system and accounts for 18% of the total energy supply or 36% of the final energy use in the country (Swedish Energy Agency 2006).

Solid biomass, peat and waste supplied 112 TWh of energy in 2005, compared with 48 TWh in 1980. Taxes and investment grants have played a decisive role in enhancing the competitiveness of bioenergy in Sweden. Fossil fuels have been taxed in the form of carbon dioxide taxes, SOx taxes, NOx taxes, and the general energy tax. Investment grants have also been provided for the establishment of bioenergy plants. Since energy and environmental taxes have distinguished between types of users and energy carriers, certain segments have been particularly encouraged. Thus biomass has found a proper entry in district heating and, in 2005, accounted for 66% of the total district heating consumed in Sweden.

One-third of Swedish single-family houses are still heated with electricity. This segment is now being targeted with increasing success. Getting biomass-based equipment installed is simpler today as technology providers now offer complete solutions to household users. In fact, a modern bioenergy system is the most cost-efficient alternative for heating single-family houses in Sweden today. Also, further development of the district heating system is still possible.

Forest industries are the largest users of bioenergy in Sweden, with pulp and paper accounting for 80% of the biomass used in the industrial sector. And it is in this sector that the largest potential for bioenergy production still exists as there is significant potential for energy surplus through better process integration within these industries.

Though Swedish policies have been quite successful in enhancing the use of biomass for heat production, the same cannot be said about the fuel mix in power generation and transportation. Only 10 TWh of electricity and 2% of the total amount of fuel used in the transport sector came from biomass in 2005. In the past, electricity prices were low and bioenergy could not compete with nuclear power and hydro power in electricity markets. However, present policies pay a premium to electricity produced from renewable sources and this is boosting electricity generation from biomass.

In the transportation sector, ethanol has been introduced in Sweden mixed with gasoline and FAME with biodiesel. Two factories are producing approximately 75 million gallons (285,000 m³) of ethanol for use as transportation fuel. Imports come from Brazil and other European countries.

Private forest landowners represent the first step in the forest bioenergy supply chain.  Their production of a cellulosic feedstock is central to the emerging bioenergy industry and is equally important to their own forest-based economic and ecological revenue streams. This fact sheet describes the forest biomass/bioenergy production benefits relevant to private forest landowners in the South.

In general, the potential benefits to forest landowners include:

• Revenue from biomass sales,
• Savings on site preparation costs in forest stand regeneration,
• Potential carbon credits,
• Low to no cost stand improvement
• Increased forest health

Revenue from biomass sales. One benefit to private forest landowners from the sale of forest biomass for bioenergy or bio-products is additional income. Currently across the South, quite a few mills are purchasing wood chips for various operations, mostly to producte traditional fiber and wood products. Several biodiesel and ethanol plants are also in operation, and more ethanol and biodiesel plants are under construction throughout the South. Currently, many of these mills and plants are not using woody biomass for energy production. Yet as the bioenergy industry develops, the demand for cellulosic material will increase and more opportunities will be available for private landowners to sell their forest biomass. For the latest information on biomass markets in your area, please refer to Southern Regional Extension Forestry, your state forestry Cooperative Extension program, or state forestry agency.

Savings on site preparation costs in forest stand regeneration. Site preparation costs are a major component of forest stand regeneration costs. According to a south-wide survey in 2004 (Smidt and others, 2005), the cost to shear-rake-and pile, a common site preparation activity in the South, averaged $186/acre. Landowners can save as much as $80 to $100/acre in site preparation costs when logging residues are recovered for bioenergy and bio-products markets (Gan and Smith 2006). Technical and terrain constraints limit the amount of logging residues that can be collected from harvesting sites to about two-thirds of the actual material left on-site. The periodic removal of logging residues does not have significant negative impacts on the long-run productivity of most sites because timber harvesting tends to be an infrequent event on individual sites.

Potential carbon credits. Given increasing concerns about global climate change and air pollution, reductions in greenhouse gas emissions are desirable. In fact, sulfur markets to control SO_x emissions have existed for years. Carbon markets are just now emerging. Forest bioenergy is carbon neutral, meaning that producing energy from forest biomass does not lead to net emissions of CO₂. This is the case because tree growth via photosynthesis absorbs carbon, which almost completely offsets the carbon emissions resulting from burning the tree for energy.  Using forest biomass for bioenergy production can displace CO₂ emissions from combusting fossil fuels. In addition, biomass releases much less SO_x during combustion than coal.

In April 2007, CO₂ traded at about $4/ton at Chicago Climate Exchange. In electric power generation, one ton (green) of forest biomass can displace almost one ton of CO₂ emissions from coal-fired power plants. This implies that one ton of forest biomass used for electricity production would be worth $4 in terms of CO₂ emissions displaced at current carbon prices. Though the carbon value is not big at this point, the carbon price is likely to increase as markets are further developed and concerns about greenhouse gas emissions escalate.

Low to no cost stand improvement. In many areas, particularly hardwood dominant areas, high-grading and diameter-limit-cutting have resulted in low stocking, low value, and undesirable or non-merchantable species. These timber harvesting practices have undermined the long-run productivity of many forests. The impacted forests are not likely to recover without stand rehabilitation and improvement. The development of a bioenergy industry is a potential solution, as this industry should create biomass markets for low value species, and simultaneously stimulate timber stand improvement efforts. Additionally, the development of biomass/bioenergy markets should aide in a landowners? ability to carry out pre-commercial and commercial thinnings and subsequently the production of high-quality timber. Landowners should make decisions regarding stand improvement and/or thinnings based on their ownership objectives, forest and market conditions, and financial parameters (e.g. the discount rate, etc.).

Increased forest health. Major threats to the health of southern forests include wildfire, disease/pest infestations, invasive species, and storms. In fact, it is estimated that 2.7 billion dry tons of forest biomass need to be removed through forest fuel reduction treatments in the South, about 20 million dry tons of which are collectable annually (Schmidt and others, 2002). On average, southern pine beetles killed 1.36 million dry tons of wood annually (Coulson and others, 2005). In addition, restoration of the stands damaged by storms and fire and the control of invasive species could generate significant additional volumes of biomass.

These mitigation or restoration activities, though improving forest health and long-run productivity, are often costly and discouraging to the landowner. The revenue from biomass can offset part of the mitigation/restoration costs.

Producing forest biomass for energy and other bio-products generates not only additional revenue from biomass sales but also a variety of other benefits to landowners. Depending upon the sources of forest biomass, additional benefits include savings on site preparation costs and improvements on forest health and productivity. In addition, carbon values/credits could also be realized by forest landowners as carbon markets and policies are further developed. The benefits from producing forest biomass can be significant and may become important factors influencing a landowner?s decision to produce biomass for energy from conventional forests. Landowners should weigh all benefits against the cost of biomass production in their decision-making.