IEA study: large potential for biomass trade, under different scenarios

A new study by the International Energy Agency's Bioenergy Task 40, the leading expert organisation studying the potential for international bioenergy trade, says the use of sustainably produced biomass for energy and liquid biofuels can be increased markedy from the current level over the next decades, when fossil fuels become scarce and more expensive because of the depletion of conventional oil resources.

Drawing on discussions amongst the world's leading energy and bioenergy experts, the report made by researchers from the Lappeenranta University of Technology (Finland) created several scenarios that show different pathways in which this potential may be brought to market by 2020. Each pathway, presented as a prototypical scenario, has different economic, environmental, social and political effects that determine how large, commercially viable and sustainable biomass trade will be. The four scenarios were titled the 'Prosperous Green World', the 'Rich Global Village', the 'Rich Local Village' and 'Small is Beautiful'. No doubt, readers will prefer one alternative over the other (let us know which one you think is most realistic).

Technical sustainable potential
All scenarios start from the basic assessments of the technical potential for biomass and biofuel production (this potential is 'value free' and not determined by economics or politics). Despite the current minor role of bioenergy in the world energy supply, biomass has, in the long run, potential to become a much more important source of energy.

In the most optimistic Bioenergy Task 40 assessments, long term bioenergy potential is considerably larger than the current global energy demand from all sources (400EJ from coal, oil, gas, nuclear), without competing with food and wood production, forest production and biodiversity. The maximum potential for sustainable biomass production in 2050 is estimated to be around 1100 EJ, or around 3 times the total amount of energy used today. A more realistic and average long term potential is thought to be between 250 to 500EJ.

Table 1 (click to enlarge) gives a summary of this potential in the light of the latest studies, per biomass category and shows the main assumptions made in the determination of the potentials. The researchers confirm that Latin America, Sub-Saharan Africa and Eastern Europe as well as Oceania and East and North-East Asia have the most promising potentiality to become important biomass producers in the long run (see earlier post).

Trade in its infancy
Even though the technical potential for biofuels and biomass is huge, current trade of biomass for energy remains extremely small. Today, indirect trade of biofuels through trading of industrial round wood and material byproducts composes the largest share of the trade. The trading represents approximately 5% of the total use of biofuels in industrialised countries (see table, click to enlarge).

The market is set to grow rapidly, though, and can go many ways. This is so because of the complexity of this emerging market. Bioenergy production and trade integrates a large series of economic, social, and environmental factors that are in turn dependent on national and international policies, trade rules, subsidies, taxes, scientific and technological developments as well as on the dynamics of energy and carbon markets.

Four scenarios for biomass trade
In order to assess the advantages, risks and uncertainties of the different pathways of bringing biomass to market, the researchers and working groups created two sets of scenarios. An international and a Finnish working group provided the inputs, whereas questionnaires based on these inputs and send to the world's leading experts (amongst them the members of the EUBIONET network) provided answers. (Here, we only discuss the results from the international workshop).

A total of 81 separate 'driving forces' and 150 questions were ideated by the working group and joined in clusters (in order of importance: economy, policies, environment, technology, production, trade, communication, consumers/suppliers, entrepreneurs and social). These factors were then given a weight of significance, and taken as a starting point to design the dimensions of the four scenarios (diagram, click to enlarge).

Per scenario, a basic SWOT analysis was carried out, showing its strengths, weaknesses, opportunities and threats. Even though all scenarios (including those of the Finnish group) foresee a considerable rise in global biomass trade by 2020, the SWOT analysis determines how large, how commercially viable and how sustainable such international biomass trade will be.

Scenario 1: the 'Prosperous Green World'

Under this scenario (click to enlarge) the state of the biomass market in 2020 will look as follows:
energy :: biofuels :: ethanol :: biodiesel :: biomass :: bioenergy :: trade :: sustainability :: peak oil :: IEA
In the year 2020 the consumption and international trading of biomass has increased remarkably compared to the current situation. Strong and global green regulation has been the main reason for the past development. All the cheap traditional biomass resources are in use and new resources, e.g. dedicated crops, are being developed and utilised. Relatively free market conditions of biomass have stimulating new innovations regarding the production and utilisation of dedicated energy crops.

A transparent certification system of biomass production and trade is in use and it is based on international agreements. The second generation technologies are widely in use in the production of synthetic biofuels. Because of growing utilisation of the energy crops, countries with large biomass resources such as Russia, Indonesia, Brazil etc. have now a more important role as biomass producers than in the beginning of the 21st century. It is unclear if trade between countries will happen on an important scale or will it be limited only to the surplus of biomass that can not be consumed locally. Big consumers of biomass are located in Western Europe, South-East Asia and America. E.g. Brazil has a large surplus of crops and woody biomass and the country is probably taking part in global biomass trade as an exporter. China has invested in biomass production by planting forests. Sustainable development puts more emphasis on the education system and people now more aware of sustainability issues.

An increased worry about the overexploitation and unsustainable utilisation of biomass resources has been taken into account in international agreements on free trade and mitigating the climate change. Several markets, other than energy, have developed and benefited from the sustainable utilisation of biomass. For example, new markets for farmers and forest industry have opened up globally. Most of the forest industry’s mills can be now considered as biorefineries refining biomass into traditional forest products, but also liquid biofuels and chemicals.

Also the global employment situation in general has begun to look brighter and a myriad of new jobs exists especially in the production of biomass in developing countries. This has improved the economical situation in many poor countries.

The driving forces and development route of biomass market during the years 2006-2020 show the following features: During the period between 2006 and 2020, there had been a growing need for a certification system increasing the number of cases of unsustainable production of biomass, but it is not known whether the systems voluntary or obligatory. In other words, the path towards the certification system of biomass for energy remained unclear. In addition to the need of a certification system, sustainable development has been one of the key drivers of the biomass market. Also the climate change and a concern about the environment have had an influence on the development of biomass exploitation in energy production.

International agreements and long-term policies have kept the biomass production, utilisation and trade as a global issue. Additionally, incentives and obligations, technological and organisational improvements and innovations have been important driving forces for the development.

Consumers have played the most important role in the development of the biomass market. Therefore, the public opinion has been an essential factor affecting the emergence of the global market of biomass. Communication towards consumers has been in a critical role to enhance the trade of biomass and its utilisation. With a strong public and political support it is possible to plan for future success. In addition, specific education and dissemination related to bioenergy issues has also had an important role.

The year 2013 was identified as an intermediate stopping point. If “Green prosperous” comes true, certain things need to happen by then. There can not be any surprises and the development can be called “no-surprise strengthening of present trends”. In addition, investing in new green projects has to be identified as an opportunity for economic profit. Also, biomass has to be accepted as a basematerial that is readily available with a high security of supply. If things develop according to the description of the green prosperous scenario, all sectors of bioenergy of business will develop positively.


Scenario 2: the 'Rich Global Village'

The state of the biomass market in 2020 under this scenario may be described roughly in the following terms: the biomass market has become global and large trade streams of biomass from dedicated production areas to the purchasing regions of biomass are a reality. Also large quantities of refined biofuels are traded worldwide. The world can be seen as a paradise full of biomass ready for utilisation and for making money.

In spite of an economically orientated world, sustainability is a part of the business, but not dominating. The EU is the global leader in promoting bioenergy. The massively expanding biomass market in the EU is led by public utilities. The forest biomass in the EU has been certified as sustainable and the utilisation of forest resources has increased remarkably since the beginning of the 21st century. People are keeping themselves away from too strict green thinking because it might slow down the economic development in the short run.

The EU and North and South America are the major players in the biomass market. Brazil became certified sustainable and it attained a position as a major player in biomass trade and is the largest supplier of ethanol for the world market. This has been possible because trade barriers to the import of biomass to the United States and the EU have been removed. The biomass market would grow even faster if big players like the United States, China and India ratify the new Kyoto agreement starting in the year 2013. Energy consumption has grown because decision making of consumers is mainly based on cheap prices. Fast growth in energy consumption has led to the situation where fossil energy sources are becoming scarce, but new renewable energy sources have started to diversify the global energy supply. Palm oil is one of the major biomass products and its production in Indonesia, Malaysia, Vietnam and Brazil fulfils the prevailing loose sustainability requirements.

Most of the biomass production in Africa is not certified as sustainable or secure, but on the other hand in Africa large volumes of biomass are still used locally mainly for cooking and heating. Many investments have been made in bioenergy in regions where the production potential of biomass is high, e.g. in Brazil.

Biomass producers will benefit highly if “Rich global village” comes true. In addition, logistics companies will prosper because large quantities have to be transported from the production regions to the customers. Also global refiners and distributors of biofuels will profit from the market conditions.

The driving forces and the development route of biomass market during the years 2006-2020 show that the market of biomass has grown as fast as possible, with the EU being an example. The status of the biomass market is quite similar to commodity markets, such as the oil market. The main drivers have been dwindling oil resources, the fear of even higher fossil fuel prices and socio-economical impacts of high fossil fuel prices. These factors were the main forces for enhancing large scale and global biomass production and utilisation. There was some uncertainty during the timeframe whether there was enough movement towards biomass utilisation without a high oil price or price peak because of an economically orientated world. In addition to the development of fossil fuel prices, the energy policy including instruments, such as energy taxation, carbon trade, feed-in tariffs and green certificates, can be considered as driving forces of the biomass market. However, most of the energy policy measures have been dumped, except global carbon trade that was needed to enhance the market position and local use of biomass.

Year 2013 as an intermediate stopping point: By the year 2013, the removing of trade barriers of biomass should be well on the way and there should be perceivable signs of development towards a commodity market of biomass.


Scenario 3: the 'Rich local village'

Under this scenario, the state of biomass market in 2020 looks like this: The rich local village is in other respects based on a wealthy unregulated economy, but external trade is limited.

Striving towards self sufficiency and independence from imported energy dominates the energy policy. There has been sustained economic growth, and a high level of technological development has been achieved in several sectors since the year 2006. Environmental and social sustainability have not been the priorities, however they have been taken care of in such a way that economic performance has not been impacted.

High import duties of fossil fuels and other economical incentives for renewable energy have improved the competitiveness of bioenergy and boosted its consumption. A great deal of subsidies have been spent on R&D and investments in bioenergy and other renewable energy technologies for meeting the policy goals. The conditions of this scenario boost the internal production and trade of biomass, because the import of biomass has to compete with subsidised internal biomass resources and products. New local biomass sources have been introduced and they are now widely utilised in energy production.

In energy production, due to availability constraints, the use of local fuels is maximised and all kinds of agricultural by-products, e.g. manure and straw, are used for energy production as well as industrial by-products and forest residues from pre-commercial thinning and final logging. The issues of biodiversity and impacts on soil conditions in the production of biomass are in the background. The price of biomass has increased close to the heavily taxed imported fossil fuels and there is a fierce competition for the limited local biomass resources.

The traditional biomass-based industries, like the forest industry, are coping with stronger competition for raw material than in the past. There has been a significant development in the use of liquid biofuels in the transportation sector in the EU, where biodiesel is the dominating “green” fuel.

Driving forces and development route of biomass market during the years 2006-2020 are largely determined by the aim to sustain economic welfare. Therefore, the economic issues and situation have guided the development of the bioenergy sector, without significant focus on environmental performance. Efficiency has also been recognised only from an economic point of view and that is why all the resources are utilised as efficiently as possible. Protectionism of the internal market is the other dominating characteristic of this scenario.

Without measures of energy policy, the competitiveness and security of the supply of local biomass would not be able to compete with import.

Year 2013 as an intermediate stopping point: by the year 2013, if the world is going towards the “Rich local village”, the EU has given strong preference to its internal market on energy. In addition, imported energy and some biomass products such as ethanol that can be replaced by local products have been subjected to higher import duties. In the “Rich local village” biomass producers, plants and bio-refineries will mostly benefit. Also all sectors of bioenergy (heat, electricity and liquid biofuels etc.) will develop.


Scenario 4: 'Small is beautiful'

State of the biomass market in 2020: in this scenario the world consists of small, self-sufficient and isolated communities. The environmental and social aspects, especially on energy, have high priority in these communities. E.g. the EU can be regarded as a community of this type. The international trade has not grown and the general economic growth of the world has been lower than it was expected in 2006.

Some regions – “the leading communities” – have been more successful in increasing their economic welfare than the rest. The relatively isolated economy and strong internal trade is specific to the communities of this world. To enhance this development, for example in the EU, more independence and power has been allocated to the member states to decide their own energy policies. This has enabled the maximised utilisation of local biomass, solar energy, wind energy and enhanced the competitiveness of local fossil energy sources, as well.

There is a lot of regulation on everything, e.g. the strict regulation for international trade. Therefore, local production is important and due to the lack of international trade the prices of industrial raw material and oil have increased.

In general, the production of agricultural products and energy crops is local. Environment and the effective utilisation of raw-materials have been taken care of profoundly, e.g. more cars are using biofuels in cities and local small-scale renewable energy systems like biofuel fired CHP plants are widely applied. In addition, energy efficient neutral greenhouses are widely in use. Biomass producers and biofuel refineries are mainly local companies. The land area dedicated to biomass production has been increased. Concern about the state of the environment and climate change has led to decreasing primary energy consumption, through energy efficient technologies and measurements such as improved insulation of buildings and energy efficiency of the industrial sector.

In addition, there has been a strong emphasis on promoting public transport systems. Small-scale combined power and heat production has become a commonly utilised competitive technology on a smaller scale than previously. Recycling and reuse of materials has increased remarkably since 2006 and it is implemented on a large scale. The community of this scenario can be called a recycling society. In addition to recycling it has to be decided where to utilise different biomass or other energy sources and where to grow food products.

The production of liquid biofuels is local and it is based on traditional small-scale as well as second generation technologies. The demand for biofuels has increased because of the increased price of oil. The high price of oil has made smaller cars that consume less fuel more popular. The basic idea in this scenario is that the lack of access to cheap external energy sources drives the development of energy market within the communities. The high cost of energy has been one factor that has caused a lack of overall economic growth.

Particularly successful communities which have efficiently utilised their local energy resources, and developed technology in the field of energy efficiency and renewable energy have benefited from the circumstances of this scenario.

Driving forces and development route of biomass markets during the years 2006-2020:
This scenario has mainly been driven by policy and consumers. Together with policy, public opinion and general thinking have been two of the key drivers. Consumers are aware and concerned about the state of the environment which has enormously influenced the development of the bioenergy sector and the actions to enhance it. In addition, the emphasis is on localisation.

When the volume of economy of a community is large enough for self-sufficiently, “Small is beautiful” can be regarded as a rather stable society in terms of the environment and with modest growth in economy and welfare. On the contrary, competition with other economic areas will be severe and without a constant adaptation of policy, after 2040 the future of the “Small is beautiful” society can go shipwrecked again within the international world.

Year 2013 as an intermediate stopping point: if the world looks like “Small is beautiful” in 2020, by the year 2013 first generation biofuels have to be used extensively instead of waiting for the second generation, and attention must be addressed to the current social problems, which may hinder the development. If this scenario comes true, the same businesses as today will succeed, but companies will be smaller. Big companies are no longer in control of the whole energy system, but there is more diversity in energy suppliers. It is necessary to develop and to invest in new and more efficient energy technologies in order to cope with challenges of the diversifying energy supply and improved utilisation of raw materials.

Conclusion
As the scenarios show, bioenergy production and trade can go many different ways. The complexity and multitude of factors involved allows for a range of outcomes: from very large global trades in which the pure, hard logic of economics and profit rules, to the localised, socially sustainable and equitable use of biofuels at the regional level.

We advise the reader to analyse the scenarios in combination with the IEA Bioenergy Task 40 studies on the global potential of biomass production (earlier post), on the sustainability of tropical biofuels such as ethanol from sugar cane (earlier post) and on the effects of stringent sustainability criteria on the commercial viability of biofuels and biomass (earlier post).

Read this way, this kind of scenarios offer a useful tool for planners, investors, policy makers, NGOs and, why not, individual consumers, who are faced by a rapidly developing market that is currently quite chaotic. Confusion exists about the real potential of biomass and biofuels, about the effects on food security, the environment and the socio-economic sphere. Studies like this one show that some of the panic around biofuels is totally unfounded, but that on the other hand, a critical assessment of and a longterm view on where this industry is going remains needed more than ever.

More information:
Jussi Heinimö, Virpi Pakarinen, Ville Ojanen and Tuomo Kässi, International Bioenergy Trade - scenario study on international biomass markets in 2020 [*.pdf], Lappeenranta University of Technology, Research Report 181, prepared for the IEA Bioenergy Task 40, 2007.

Biopact: A look at Africa's biofuels potential, July 30, 2006 [showing the IEA Bioenergy Task 40's longterm assessments of global bioenergy production potential].