Economic Impact Analysis of Woody Biomass Utilization for Bioenergy in Florida
Mandated by Laws of Florida, Chapter 2008-227, Section 113 which reads:
“Woody biomass economic study. – The Department of Agriculture and Consumer Services, in conjunction with the Department of Environmental Protection, shall conduct an economic impact analysis on the effects of granting financial incentives to energy producers who use woody biomass as fuel, including an analysis of effects on wood supply and prices and impacts on current markets and forest sustainability. The departments shall prepare and submit a report on the results of the analysis to the Governor, the President of the Senate, and the Speaker of the House of Representatives no later than March 1, 2010.”
The Florida Forest Service (FFS) has been designated within the Florida Department of Agriculture and Consumer Services (DACS) as the lead agency on the study, and is contracting as described herein with the University of Florida to furnish the analysis mandated by the Laws of Florida, Chapter 2008-227, Section 113. Based on the results of the University of Florida analysis, the Florida Forest Service in conjunction with the Department of Environmental Protection (DEP) will prepare the final project report for the Florida Governor, the President of the Senate, and the Speaker of the House of Representatives as requested.
- James R. Karels, Director, Florida Forest Service, Tallahassee, FL
- Timothy L. White, Ph.D., Professor and Director, School of Forest Resources and Conservation,
University of Florida, Gainesville, FL
- Jarek Nowak, Ph.D., Forest Utilization Specialist, Florida Forest Service, Tallahassee, FL
- Douglas R. Carter, Ph.D., Professor, School of Forest Resources and Conservation,
University of Florida, Gainesville, FL
- Alan W. Hodges, Ph.D., Extension Scientist, Food & Resource Economics Department, University of Florida, Gainesville, FL
- Frederick Rossi, Ph.D., Postdoctoral Research Associate, School of Forest Resources and
Conservation, University of Florida, Gainesville, FL
The forest products industry in Florida generates approximately $16.7 billion in output (revenue) impacts, $7.0 billion in value added (income) impacts, employs 89,000 persons (employment impact), and is a leading economic sector in many rural counties in the northern part of the state (Hodges et al., 2008). Bioenergy production in Florida is expected to increase significantly over the next several decades due to uncertainty associated with costs for fossil fuels, and growing concerns about energy security and climate change (USDOE, 2008). Woody biomass fuels may be used for electric power generation by combustion or gasification processes, and for combined heat and power systems in industrial facilities. In 2006, the latest year for which data are available, wood and wood products industry accounted for 380 MW, or 0.7% of installed Florida capacity to generate electricity (Navigant Consulting, 2008). Based on Navigant’s analyses, the technical potential for additional electricity generation from forest derived woody biomass and short rotation woody crops ranges from 2075 MW to 4400 MW, or 3.9% to 8.3% of 2006 capacity. Woody biomass may also be used as a feedstock for production of cellulosic ethanol and other transportation fuels as technologies mature in the future.
The impacts of the bioenergy industry, and especially the impacts of various federal, state and local government financial incentives on the new market development and on the existing timber and forest product industry, is largely unknown. Renewable energy financial incentives are among top five drivers with the highest potential impact on renewable energy adoption (Navigant Consulting, 2008). Other “key drivers” with high impact potential and high uncertainty are: (i) fossil fuel prices, (ii) greenhouse gas policies, (iii) credit markets, and (iv) renewable energy regulatory framework. This project will evaluate the current and long-term (2009 to 2030) supply of, and demand for, woody biomass in Florida under unfavorable, mid-favorable, and favorable renewable energy adoption scenarios (Navigant Consulting, 2008). These scenarios take into account varying levels of input variables affecting the key renewable energy adoption drivers. The variables under the renewable energy financial incentives category include: federal investment tax credit, federal production tax credit, state solar rebate program, state sales tax exemption, state property tax exemption and state production tax credit. Variables considered under other key driver categories include: CO2 prices on carbon exchange markets, cost of debt, cost of equity, availability of debt, natural gas and coal prices, and last but not least renewable energy certificates (RECs) state spending caps. The unfavorable, mid-favorable, and favorable renewable energy adoption conditions can be depicted by a family of technology adoption curves (Navigant Consulting, 2008). Assuming that biomass-to-electricity technologies would be adopted along the similar trajectories as those depicted by Navigant Consulting, impact of the various financial incentives and other key drivers translates into between 1.6-fold to 3.1-fold increases in woody biomass consumption for electricity generation by 2020, as one moves from unfavorable (no change from 2009 baseline) to mid-favorable and then to favorable renewable energy adoption scenarios, either with or without RECs. One can similarly interpolate the increases in woody biomass consumption for 2015, 2025 and 2030 compared to 2009 baseline using the same family of technology adoption curves.
The analytical and modeled part of the project conducted by the University of Florida will be limited to merchantable timber (plus tree tops), and urban wood waste. These are the woody biomass resources either currently used by the existing forest products industry, or are the most likely to be sought after by the emerging bioenergy industry because of established markets, harvesting methods, relative ease of handling and large volumes available for utilization. The current and future effects of changes in timber and other woody biomass supply/demand on timber markets and forest sustainability will be addressed in terms of timberland acreage and growing stock volumes by major forest cover types.
- Estimate current and long-term (2009 to 2030) potential supply of woody biomass under three scenarios (i) merchantable timber alone, (ii) merchantable timber plus tree tops, (iii) merchantable timber plus tree tops plus urban wood waste in Florida based on the latest published U.S. Forest Service Forest Inventory and Analysis FIA data (Brown, 2007) and Timber Product Output TPO data (Johnson et al., 2008), unless more recent FIA and TPO data sets are available for use by the time the study commences.
- Estimate current and long-term (2009 to 2030) demand for woody biomass (as defined in objective #1) for bioenergy production based on existing, announced, and projected bioenergy facilities in Florida under unfavorable, mid-favorable and favorable renewable energy adoption scenarios similar to those defined by Navigant Consulting (2008). Specifically, scenarios will be examined that assume the amount of woody biomass derived electricity will be between 1% and 20% of total 2006 electricity demand in Florida in 2% increments for years 2009, 2015, 2020, 225 and 2030.
- Project changes in market conditions for conventional forest products including prices and volumes resulting from the increased demand for woody biomass as defined in objective #1.
- Evaluate current and future economic impacts of changes in supply/demand for woody biomass resources (as defined in objective #1) on forest industry output, income, employment, and business taxes for the forestry and energy production sectors.
- Evaluate the near term and long-term (2009-2030 ) sustainability of the forest resource, including timberland acreages and timber volumes by broad forest types under alternative
woody biomass demand scenarios.
USFS Forest Inventory and Analysis:
The current and long-term timber supply situation in Florida will be evaluated using a dynamic, non-linear programming model known as Forest and Agricultural Sector Model—Green House Gas, or FASOMGHG (Adams et al, 2008). For this purpose the FASOMGHG software will be uploaded with the latest available USFS Forest Inventory and Analysis (FIA) plot data, Timber Product Output (TPO) data, felled tree utilization data, and historic and 2008 reforestation and afforestation acreage data. In addition, 2008 forest economic data from Timber Mart South (or comparable source) will be utilized, including such data as reforestation and afforestation costs, forest management costs at various level of management intensity, timber stumpage and delivered prices for logs (sawtimber, pulpwood, fuelwood), as well as 2008 forest product prices for the purpose of calculating the 2008 baselines.
Used to evaluate various policies in the forestry and agricultural sectors, FASOMGHG calculates optimal temporal allocations of land within and between components of these two sectors based on a price-endogenous market structure; it solves for the multi-market, multi-period equilibrium for each forestry and agricultural market identified, as well as for the intertemporal asset market for land. FASOMGHG simulates market behavior over a 70 to 100 year time period, providing projections of the forestry and agricultural sectors at 5 year intervals for 11 regions of the conterminous United States. Production, consumption and price formation are modeled (for both hardwood and softwood) by FASOMGHG for sawtimber, pulpwood, and fuelwood in the forest sector and for a large number of primary and secondary crops and livestock in the agriculture sector. It also takes into account timber management investment decisions and changes in secondary product demands, secondary processing technology, secondary product capacity adjustments across regions. Specifically for Florida, this project will utilize FASOMGHG to estimate impacts to the supply of woody biomass resources, the demand for woody biomass for bioenergy utilization, and the demand for timber resources for conventional forest products as a function of various exogenous policy changes. However, the model will need to be modified in order to address these economic aspects of the forest sector. The most relevant revision will require abstracting Florida from the current FASOMGHG region within which it is located.
The economic impacts of changes in demand for woody biomass due to expanded bioenergy production in Florida will be assessed using the IMPLAN Professional software and associated databases for Florida, coupled with a Computable General Equilibrium (CGE) model simulated with GAMS software. IMPLAN is an Input-Output analysis and Social Accounting Matrix (I-O/SAM) modeling framework that represents the operation of a local or regional economy in terms of transactions between 440 individual industry sectors, nine household income classes, state/local and federal governments (MIG, Inc. 2008). The model accounts for industrial commodity production, employment, labor and property income, interregional trade, transfer payments (e.g. welfare, retirement pensions), capital investment and business inventories. The model enables estimation of economic multipliers that capture the secondary impacts or “ripple effects” of exogenous changes in final demand, including supply chain activities for purchased inputs (indirect effects) and employee household spending (induced effects), as well as direct changes in industry output or employment. Economic impact measures include industry output (revenue), employment (full time and part-time jobs), value added, labor income, property income, and indirect business taxes. Sectors explicitly represented in the models will include timber producers, forest product manufacturers, electric utilities, biofuel producers, and transportation fuel wholesalers. Where appropriate, existing production functions in the model will be customized to represent bioenergy commodities. Data from the I-O/SAM models will be exported to the CGE model for dynamic simulation of industry activity and commodity consumption resulting from changes in volumes and prices of woody biomass resources. This approach overcomes the limitations of static I-O/SAM models to evaluate changes in commodity prices.
Based on the conducted analyses and modeling, current and future economic impacts of changes in woody biomass supply and demand on timber markets and forest sustainability will be described in the University of Florida furnished report. The final report prepared by the Florida Forest Service for the Governor, the President of the Senate, and the Speaker of the House of Representatives will be based largely on the University of Florida report, but may also address to the extent possible estimates of other woody biomass resources potentially available to bioenergy producers (e.g., forest logging residues, non-merchantable timber from pre-commercial thinnings, forest understory woody biomass, urban forest trimmings, etc.). Currently, these additional resources are not widely utilized because of difficulties with their quantification, harvesting, collection, and transportation to energy facilities. Because of these factors their impact on the current and future timber markets in Florida remains somewhat elusive.
In order to provide an opportunity to Florida forest stakeholders and others for input into the project, the following process and timeline have been established:
A public stakeholder meeting
was held April 14, 2009 for public comments. Comment submissions on the study for consideration by the study authors were available via this website through May 15, 2009.
April 14, 2009
| Stakeholder and public meeting in Tallahassee Florida Forest Service HQ Eyster Auditorium- Meeting Agenda
April 15 2009
| Dedicated Florida Forest Service website available for submitting comments on the process leading to the final report, including comments on proposed UF modeling methodology
May 15, 2009
| Last day to post stakeholder and public comments through the dedicated Florida Forest Service website on the proposed process and methodology
March 1, 2010
|Final Woody Biomass Economic Study report furnished to the Governor, President of the Senate, and Speaker of the House
Adams, D., Alig, R., McCarl, B.A., and B.C. Murray. FASOMGHG Conceptual Structure, and Specification: Documentation. April, 2008.
Brown, M.J. 2007. Florida’s forests—2005 Update. Resource Bulletin SRS-118. Asheville, NC: U.S. Department of Agriculture Forest Service, Southern Research Station. 39 p.
Hodges, A.W., M. Rahmani and W.D. Mulkey. Economic contributions of Florida agriculture, natural resources, food and kindred product manufacturing, distribution and service industries in 2006. UF/IFAS EDIS document FE702, 23 pages, March 2008.
Johnson, T.G., Bentley, J.W., Howell, M. 2008. Florida’s timber industry—An Assessment of Timber Product Output and Use, 2005. Resource Bulletin SRS-133. Asheville, NC. U.S. Department of Agriculture Forest Service, Southern Research Station. 31 p.
Minnesota IMPLAN Group (MIG), Inc. IMPLAN Professional Economic Impact and Social Accounting Software and Associated Data for Florida. October 2008.
Navigant Consulting. 2008. Florida Renewable Energy Potential Assessment. Full Report Draft. Prepared for Florida Public Service Commission, Florida Governor’s Energy Office, and Lawrence Berkeley National Laboratory, November 24, 2008.
269 p. accessed online 21-Jan-2009 at: http://www.floridapsc.com
US Department of Energy, Energy Information Administration. Annual Energy Outlook. June 2008.
Jarek Nowak, Ph.D.
Forest Utilization Specialist
Florida Forest Service
3125 Conner Blvd., C-25
Tallahassee, FL 32399-1650
Telephone: 850/ 414-9936
FAX: 850/ 921-6724