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Economics of Forest Biomass and Bioenergy

Economics of Forest Biomass and Bioenergy. Jianbang Gan Texas A&M University Matthew Langholtz SFRC UF/BioResource Management Inc. Alan W. Hodges University of Florida. Woody Biomass Outreach Training September 11-12, 2007. Objectives.

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Economics of Forest Biomass and Bioenergy

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  1. Economics of Forest Biomass and Bioenergy Jianbang Gan Texas A&M University Matthew Langholtz SFRC UF/BioResource Management Inc. Alan W. Hodges University of Florida Woody Biomass Outreach Training September 11-12, 2007

  2. Objectives • Understand the costs and benefits of forest biomass and bioenergy (Jianbang Gan) • Create supply curves using local information (Matthew Langholtz) • Understand the economic impact of using woody biomass for bioenergy production on local communities (Alan W. Hodges) Woody Biomass Outreach Training September 11-12, 2007

  3. Costs and Benefits of Forest Biomass and Bioenergy Jianbang Gan Texas A&M University

  4. Outline • Production costs and cost comparisons • Feedstocks • Biofuels (electricity, ethanol, etc.) • CO2 offsetting • Benefits to landowners • Summary and implications Woody Biomass Outreach Training September 11-12, 2007

  5. The Fact Costs and benefits vary from case to case.

  6. Costs of Delivered Logging Residues Average: • $28/dry ton or $5.80/MWh (marginal cost) • $33/dry ton or $6.80/MWh (full cost) Source: Gan and Smith 2006 Woody Biomass Outreach Training September 11-12, 2007

  7. Cost Composition of Delivered Logging Residues (Chipping at Roadside) Source: Oijala et al. 1999 Woody Biomass Outreach Training September 11-12, 2007

  8. Costs of Other Forest Biomass • Biomass from fuel reduction thinnings (USDA Forest Service 2005) • $30-40/dry ton or $6.20–8.30/MWh (cut & skid) • $34-48/dry ton or $7.00–9.90/MWh (cut/skid/chip) • Short-rotation woody crops (Gan and Smith 2006) • $52/dry ton or $10.84/MWh Woody Biomass Outreach Training September 11-12, 2007

  9. Comparison to Coal • Delivered Coal - $5.32/MWh (national average) • Logging residues are almost as competitive as coal. • Fuel reduction thinnings and short-rotation woody crops are more expensive than logging residues. Source: Gan and Smith 2006, USDA Forest Service 2005 Woody Biomass Outreach Training September 11-12, 2007

  10. Electricity Production(New plants using integrated gasification combined cycle) • Conventional coal system - $35/MWh • Biomass systems Source: Gan and Smith 2006 Note: In some other cases, biomass may be more competitive. Woody Biomass Outreach Training September 11-12, 2007

  11. Electricity Production (cont’d) • Logging residues (average cost) • $47/MWh (marginal cost) • $50/MWh (full cost) Source: Gan and Smith 2006 Woody Biomass Outreach Training September 11-12, 2007

  12. How Can Biomass Be More Competitive? • Reduce fuel costs by improving the efficiency in growing, procuring, transporting, and processing forest biomass • Reduce non-fuel costs through improving efficiency in energy conversion (from biomass to secondary energy) • Tax CO2 emissions or provide incentives/credits for carbon displacement Woody Biomass Outreach Training September 11-12, 2007

  13. Co-firing Biomass with Coal • A near term, low cost option of using biomass for electricity production • Up to 15% of fuel input (in heat) can be substituted with biomass. • Installation costs: • $50 per kW of biomass generation in cyclone boilers • $150 to $300 per kW in pulverized coal boilers • Drawbacks: slagging, etc. • Utility experience has been mixed. Woody Biomass Outreach Training September 11-12, 2007

  14. Ethanol Production Costs • Current average ethanol production costs • Corn ethanol: $1.25/gl • Cellulosic ethanol: $2.50/gl Source: Stanley Bull 2006 Woody Biomass Outreach Training September 11-12, 2007

  15. Wood Pulp, OSB vs. Ethanol • Wood pulp or OSB is still more profitable and less risky than ethanol. Source: Peter Ince 2007 Woody Biomass Outreach Training September 11-12, 2007

  16. Pellet Production Costs • $25/ton without drying • $36/ton with drying Source: Sudhagar Mani 2006 Woody Biomass Outreach Training September 11-12, 2007

  17. Carbon Credits • Forest bioenergy is carbon neutral. • Using forest biomass for electricity generation can displace CO2 emissions from coal-fired power plants. • Carbon markets are still under development (Chicago Climate Exchange, http://www.chicagoclimatex.com). Source: Chicago Climate Exchange Woody Biomass Outreach Training September 11-12, 2007

  18. CO2 Emission Displacement • CO2 price: $3.50/ton (Chicago Climate Exchange) • Average displacement cost using logging residues for electricity generation: $16/ton CO2 (marginal cost) $19/ton CO2 (full cost) Source: Gan and Smith 2006 Woody Biomass Outreach Training September 11-12, 2007

  19. Impact of Global CO2 Emission Reduction on Cost Competitiveness • 20-30% CO2 emission reduction Source: Gan and Smith 2006 Woody Biomass Outreach Training September 11-12, 2007

  20. Impact of Carbon Taxes on Cost Competitiveness • CO2emission taxation - $25/ton CO2 Source: Gan and Smith 2006 Woody Biomass Outreach Training September 11-12, 2007

  21. Potential Benefits to Landownersfor Forest Biomass/Bioenergy Production • Revenue from biomass sales • Savings on site preparation costs in forest regeneration (logging residues) • Reduction in the risk of wildfire and disease/pest outbreaks • Opportunity for stand improvement and restoration of damaged stands • Potential carbon credits Woody Biomass Outreach Training September 11-12, 2007

  22. Summary • Production costs, in general, remain a major barrier to forest biomass and bioenergy development. • Some market niches for biomass/bioenergy exist. • Co-benefits could be significant. • Using forest biomass for electricity generation is a viable option for mitigating CO2 emissions. • Logging residues are a less costly biomass source from conventional forests (except for mill residues). Woody Biomass Outreach Training September 11-12, 2007

  23. Implications for R, D&D • Find market niches for forest biomass/bioenergy • Reduce costs • via technology development/improvement (including technologies for both feedstock and energy production) • via management • Integration of forest biomass/bioenergy production with existing forest management • Coordination of forest bioenergy production with the production of fiber and wood products • Policy: Get co-benefits counted • Incentives for biomass/bioenergy production and consumption • Better coordination and integration of energy, environmental, agricultural, forestry, and rural development policies

  24. Local Biomass Supply Curve Construction Matthew LangholtzSFRC UF/BioResource Management Inc. Woody Biomass Outreach Training September 11-12, 2007

  25. Outline Supply curve introduction. Example supply curve construction in Excel Woody Biomass Outreach Training September 11-12, 2007

  26. Related Documents Community Economic Profiles Fact Sheet: Sources and Supply Appendix: Do-It-Yourself Supply Curves Assessing the Economic Availability of Woody Biomass www.interfacesouth.org/woodybiomass Woody Biomass Outreach Training September 11-12, 2007

  27. Background: two axes for two questions • How much supply? • At what price? Woody Biomass Outreach Training September 11-12, 2007

  28. Background: two axes for two questions Woody Biomass Outreach Training September 11-12, 2007

  29. Background: two axes for two questions Price ($/green ton) $35 $30 Forest thinnings: $35/ton 150,000 tons/year $15 Logging residues: $30/ton 100,000 tons/year Urban wood waste: $15/ton Supply (tons/yr) 50,000 tpy 150,000 tpy 300,000 tpy Woody Biomass Outreach Training September 11-12, 2007

  30. Example Supply Curve Woody Biomass Outreach Training September 11-12, 2007

  31. Twenty-eight Supply Curves Woody Biomass Outreach Training September 11-12, 2007

  32. DIY Supply Curves Example From: Do-It-Yourself Supply Curves, available at www.interfacesouth.org/woodybiomass Woody Biomass Outreach Training September 11-12, 2007

  33. Economic Impacts of Biomass Electric Power Generation Alan W. Hodges University of Florida Woody Biomass Outreach Training September 11-12, 2007

  34. Woody Biomass Outreach Training September 11-12, 2007

  35. Regional Input-Output (I-O) Economic Models • The economy is driven by consumption or final demand, including exports, and local purchases. • Model constructed for a specific region. • Represents economic linkages between industries, households, and governments in terms of purchases and expenditures. Labor Exports Backward Linkages Forward Linkages Utilities Household consumption Parts and transportation Value added remanufacturing Woody Biomass Outreach Training September 11-12, 2007

  36. IMPLAN System • Microcomputer system for I-O model construction and impact analysis. • Software licensed by MIG, Inc. since 1995 (www.implan.com) at low cost ($450). • Regional economic database for US states and counties, updated annually, purchased separately ($500-$2600). • Data includes Industry Output, Employment, Value Added (509 Industry sectors), Labor income, Property income, Taxes, Final Demands, Transfer payments, Commodity trade, Capital investment. Woody Biomass Outreach Training September 11-12, 2007

  37. Economic Multipliers • Direct Effects: direct change in industry output, expenditure or employment • Indirect Effects: change in input purchases (supply chain) due to direct effect • Induced Effects: change in employee household personal consumption expenditures due to direct and indirect changes • Type I: (direct + indirect) / direct • Type II: (direct + indirect + induced) / direct (income or employment based) • SAM: includes income effects of household s, government spending, investment, transfer payments Woody Biomass Outreach Training September 11-12, 2007

  38. Functional Economic Areas of the United States Source: US Dept. Commerce (2004) Woody Biomass Outreach Training September 11-12, 2007

  39. Woody Biomass Outreach Training September 11-12, 2007

  40. Wood Fuel Costs for Biomass Power Plants in Selected Communities in Southern States

  41. Economic Impact Measures Total output impacts—the effect on sales revenues of all businesses in a local economy resulting from a change in industry activity. Value added impacts—the effect on personal and business income in the local area. Employment impacts—the effect on the total number of fulltime, part-time and seasonal positions in the local area. Woody Biomass Outreach Training September 11-12, 2007

  42. Construction Impacts of 20 and 40 MW Wood Power Plant in Selected Counties

  43. Operations Impacts (1st yr) for 20 and 40 MW Wood Power Plant in Selected Counties

  44. Employment Impacts of Operations for 20 and 40 MW Wood Power Plant in Selected Counties

  45. Direct, Indirect, and Induced Output (Revenue) Impacts of Operations (1st yr) for 20 MW Wood Power Plant in Selected Counties

  46. Direct, Indirect, and Induced Output (Revenue) Impacts of Operations (1st yr) for 20 MW Wood Power Plant in Selected Counties

  47. Average Employment Impacts (Jobs) by Industry Sector for Wood Power Plant Operations in Selected Counties

  48. Employment Impacts by Occupational Group for Operations of a 40MW Wood-Fired Power Plant in Alachua County, FL

  49. Questions, concerns, or ideas? Woody Biomass Outreach Training September 11-12, 2007

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