The impact of subsidies and carbon pricing on the wood biomass use for energy in the EU

This study examines how subsidies for wood-fired heat and power plants and wood with coal co-fired power plants influence the use of wood biomass for energy in the short (2020) to medium (2030) term in the EU (European Union). Analysis shows that without subsidies wood-fired electricity will take only a marginal market share due to limited availability of low-cost wood from logging residues. A high CO2 price of 100 €/t without subsidies results in 30 million m3 of industrial wood used for energy production, which is sourced from the reduction of 12 million m3 for wood products, 10 million m3 additional imports and 8 million m3 additional harvest. With a subsidy level of 30 €/MWh in the four EU member countries Denmark, Germany, Netherlands and UK, the total amount of industrial wood used for energy becomes 158 million m3. In the latter case, reduction of wood for wood-based products is 35 million m3, additional harvest in the EU is 21 million m3, and import to the EU is 102 million m3. Subsidies to wood-fired and especially coal with wood co-fired mills substantially increase the use of wood and especially industrial wood for energy. However, even with a high 100 €/tCO2 price and subsidy, mostly gas-fired electricity is projected to be displaced in 2030 by the increasing use of industrial wood, which is not beneficial regarding reducing the high CO2 emission from power production using coal. To a large extent, subsidies for wood co-firing maintain the coal power share, which will otherwise be reduced at high carbon emission price level. In addition, the model results show that the main sources of the growing use of industrial wood for energy are imports from regions outside of the EU, which thus creates considerable carbon leakages.