The question of the appropriate role of renewables, of biofuels and in particular Woodfuels, in the world’s longer-term energy supply is presently exercising minds in a number of countries. At a national and regional level, particularly within Europe and North America, there is a growing interest in woodfuels as a domestically controlled, renewable and potentially environmentally friendly source of energy (in terms of reducing net atmospheric carbon dioxide emissions). As with any ‘new’ system, the economic implications of using wood as an energy source are of significant concern. So too are questions of how the economics of biofuel systems compare with the economic and financial implications of other energy options, both conventional and renewable.
This paper (1) reviews and evaluates studies addressing these questions; (2) summarizes the main results of these; (3) describes the extent to which incentives and taxes influence the viability of wood energy systems; and (4) identifies topics requiring further in-depth study. The conclusions in this paper are reached by comparing the current and projected future economic viability of woodfuels against other energy sources, taking account of economic principles inherent in the energy sector (in particular, forms of market failure).
There are of course many other important economic aspects arising from the utilization of wood energy which go beyond the scope of this paper. These include the use of woody biomass in the cottage industry, and its application in large-scale industrial/commercial use. Section 2 provides an overview of the role of woodfuels in the world of energy supply, both historically and in the future. This reveals a stark contrast between the developed and developing nations in terms of both the supply and demand for woodfuel. Section 3 pulls together a range of information to review the future role of existing fuel sources. In the first part of Section 3 the focus is fossil fuels. However, an attempt is also made to look at the various processes and technologies, most notably thermochemical technologies (e.g. pyrolysis) and biochemical processes (e.g., fermentation ethanol) which could be used to convert biomass and in particular fuelwood into useful energy products and to provide some feel for the economics of these processes. Section 4 briefly addresses renewables other than wood biomass while Section 5 looks at the extent to which government incentives are important in determining the current and future viability of wood energy systems. This section specifically focuses on market failures relating to uncertainty and technological progress, strategic national concerns, and externalities such as those arising from concern over greenhouse gas emissions and global warming. Section 6 outlines the impact of the Clean Development Mechanism (CDM) with Section 7 providing a discussion of the results of the study. This is followed by some brief conclusions.