In December 2014 the US Forest Service Southern Research Station released A Technical Document Supporting the Forest Service Update of the 2010 RPA Assessment, “Effect of Policies on Pellet Production and Forests in the US South,” which examines the most recent “key drivers of US pellet feedstock supply include both the age structure of current timber inventory and the policies that define sustainability.”
USFS Southern Research Station Report
The document finds that “A simulation of the market responses to increases in both pellet and other bioenergy demand in the US South suggests that prices will increase for timber as harvest increases, and will in turn lead to long-term changes in inventory and forest land area.”
Wood Pellet Production in the US South
Key Findings:
1. The key driver of US pellet demand, and thus US pellet production and export, is the Renewable Energy Directive of the European Union. This demand is expected to increase over the next 5 to 10 years.
2. Key drivers of US pellet feed stock supply from forests include the characteristics of current inventory and the policies that define sustainability.
3. Key drivers of competition (price and quantity) include the price — inelastic demand for feedstock from both traditional producers and policy-induced bioenergy producers as well as a price-inelastic supply response for feedstock. Combined, these result in a higher percentage change in price than the associated percentage change in quantity harvested when pellet feedstock demand increases.
4. An expected increase in US demand for solid wood products will likely result in increased mill residues. This could reduce demand for smaller-sized timber as feedstock for pellet, pulp, or composite panel production, thus reducing timber feedstock price for pellets.
5. The combination of increased pellet feedstock demand, the age class distribution of inventory, and the inelastic supply response of landowners to a change in price have led to increased pellet feedstock prices and increased harvests in the US South.
6. In a simulation of timber markets where increases in demand for timber from the US Coastal South derive from both pellet and other bioenergy demand, the Southern Research Station found that:
(a) Non-sawtimber feedstock prices continue to rise through the end of the projected increase in pellet demand (2020), and then fall as additional timberland is converted from marginal agricultural land, leading to eventual relative increases in inventory.
(b) Even assuming full utilization of mill residues and increased utilization of logging residues, harvest of pine and hardwood non-sawtimber feedstock increases. Under these assumed demands, increased pine harvest leads to increased investment (planting), which leads to ending inventory levels that are higher than under the baseline.
(c) There would be shifts in harvest among subregions and shifts in production from traditional wood products to pellet production.
(d) Timberland area increases with an increase in demand for feedstock for pellets as more plantations are established on marginal agricultural land (assuming that forest land rents increase with increases in non-sawtimber feedstock prices, and that changes in land use are tied to forest land rents).
(e) If these simulation results are extrapolated to a demand scenario where pellet demand continues to increase beyond 2020, the report writers would expect the simulations to show prices remaining high or continuing to increase, and would show timberland area, harvest, and logging residue use for pellets continuing to increase.
Timber Supply
The supply of timber, whether for use in pellets or traditional products, will increase with the offered price. The level of timber inventory in a region is included in the supply function as a proxy for the timber production base capacity. As inventory increases, the base capacity, at the current marginal cost, is expected to increase, and thus more timber can be supplied at a given price.
Logging residue supply
Regardless of the quality issue, the supply of logging residues at a given time is limited by the amount of total timber removed for other products.
Mill residue supply
Currently, of the total production of 103 million oven dry tons of mill residues produced each year in the United States, only an estimated 7 million tons are unused, with the remainder used for paper products or onsite energy production.
Summary
The demand for timber is relatively price inelastic, indicating that the quantity demanded will not decline proportionately with increases in price.
The supply of timber is also relatively price inelastic in the short run, indicating that the quantity supplied will not increase proportionately with increases in price. This means that the market will
be slow to adjust to rapid increases in the demand for timber used for renewable energy.
Biomass feedstock demand will be affected by the level of renewable energy goals and by the amount of subsidy supplied by individual governments.
The full report can be found here: http://www.srs.fs.usda.gov/pubs/47281