The European forest trade model EU policy and the impact on forest raw material use

Abstract: The main purpose of this study is to develop a numerical simulation model of the European trade in forest fuels and analyse the possible trade levels for forest fuels in Europe following the implementation of EU energy policy. The White Paper and the RES-E Directive have been designed partly to support an increased use of forest fuels as sources for energy generation. An increased demand for forest fuels in Europe as a whole can imply higher forest fuel prices in some countries for which the aggregated demand curve shifts outward and the demanded quantity increases. An increase in European trade can both strengthen as well as mitigate national upward pressures on the forest fuel prices. Hence, investigating the European trade in forest fuels is important for understanding how industry sectors in the European economies will be affected by the EU policy. The analysis of policy consequences ex ante requires modelling. Since there are few existing models suitable for our purpose a new model needs to be developed. Besides outlining a new model, labelled the European Forest Trade Model (EFTM), as well as coding it using the GAMS software, substantial efforts were made to collect available European statistics on forest fuels. Since the available data generally were insufficient and the estimations made therefore were many, the results from the EFTM should only be discussed on a general level. Future research efforts should therefore aim not only at refining the model; it is equally important to provide the necessary statistical data and resolve any standardisation problems attached to this data. The simulations show that the implementation of the White Paper and the RES-E Directive will boost the trade in forest fuels, resulting in total trade increases of up to 67 percent. Furthermore, the simulation results show national net trading levels. Depending on policy implementation the results differ - one country that was net importing by- products given the White Paper implementation can instead be net exporting by-products when applying the RES-E Directive. The fact that the policy implementations will boost the trade may mitigate potential industry problems to secure the needed inputs. On the other hand, the integration of countries increases the possibility for some industries to increase their production even more, possibly strengthening any input scarcity problems. It is therefore not possible to generally conclude if a more integrated European forest fuel market, and hence an increased European forest fuel trade, will mitigate industry problems to secure their needed inputs or not.