Economics and a policy option on wood pellet fuel in Japan

Abstract

Wood pellet has the potential to reduce dependency on fossil fuels, mitigate global warming and stimulate the forest Industries. Economics of wood pellet and impact of carbon tax are examined in this study. The target of the study is space heating energy in the residential, commercial and public sectors in Japan. An energy-economic model in which space heating energy is supplied by wood pellet and kerosene is developed. The model contains market share functions that determine how many customers would choose wood pellet depending on the price competition between wood pellet and kerosene. Model analysis shows the conclusions as follows. Without carbon tax, the pellet price should be less than 35 JPY/kg for the market penetration. With 30,000 JPY/tC carbon tax, it becomes 45 JPY/kg. Imposing carbon tax leads to an increase in the penetration of pellet except for the case where the pellet price stays at as high level as the current situation. It is also shown that the low cost wood collecting system can drastically increase the utilization of forest biomass such as logging residues and thinned wood in favorable situations. The policy scenario for dissemination of pellet is proposed based on the result of the analysis.