Competition for forest fuels in Sweden : exploring the possibilities of modeling forest fuel markets in a regional partial equilibrium framework

Abstract: This thesis project focuses on the need for better tools for analyzing competition for forest fuels in Sweden, in particular how policy measures may influence the market and involved actors in different regions of Sweden. Raw materials from the forest have for long constituted important inputs in the Swedish forest industry. Today some of these raw materials are increasingly used as inputs also in bioenergy production, largely driven by bioenergy promoting policies, and there are signs of increased competition for forest fuels which may have various and uncertain effects on the industries in question. The thesis project explores the possibilities to adapt previously used forest sector equilibrium models into a new model suitable for analysis of Swedish forest fuel markets, called the Swedish Forest Sector Trade Model (SFSTM). The approach takes into account regional differences in supply and demand for 23 types of products produced and/or used by eight types of producers, plus consumers, in five different regions (four Swedish and one international). The project contributes with the novelty of an economic partial equilibrium model of the Swedish forest sector that includes regional trade and bioenergy production. After extensive data collection and fitting of the model setup according to Swedish circumstances, the model is programmed and solved in GAMS software. The model is calibrated and then tested as a tool for analysis by implementing scenarios that imply shifts in energy demand and introduction of a tax on forest fuels used in bioenergy production.The project results are primarily of interest in understanding the models functionality in a Swedish context, in particular with regards to the availability of regionalized data and related implications for the model setup. The thesis concludes in several key issues and recommendations on further steps to be taken if this type of model should continue to be developed in Sweden, such as; the need for better data on extraction and processing cost of logging residues, the need for better data on exogenous input costs in forest industries, and how the model results are affected by the choice of geographic scale of (trading) regions and related assumptions on transport cost functions.