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.