Evaluating fuel switching options in the Swedish iron and steel industry under increased competition for forest biomass
2022
Nwachukwu, Chinedu Maureen | Olofsson, Elias | Lundmark, Robert | Wetterlund, Elisabeth
Significant use of forest biomass in the iron and steel industry (ISI) to mitigate fossil CO₂ emissions will affect the biomass availability for other users of the same resource. This paper explores the market effects of increased forest biomass competition when promoting the use of forest-based bio-products in the ISI, as well as the interactions between the ISI and the forest industries. We employ a soft-linking approach that combines a geographically explicit techno-economic energy system model and an economic partial equilibrium model of the forest industries and forestry sectors. This allows for iterative endogenous modelling of new equilibrium price developments for different biomass assortments, determining locational choice of bio-products and assessing optimal bio-products technology choices. The results indicate an upward pressure on biomass prices when bio-products are introduced in the ISI (up to 62%), which affects both forest industries and the ISI itself. Prudence is thus warranted not to render bio-production investments uneconomical ex-post by neglecting to include potential price effects in investment decisions. The estimated price effects can be mitigated by increased domestic biomass supply, adjustments of international trade or by revising relevant policies. Even though the results suggest that the price effects will affect the geographical preferences for individual bio-production plants, proximity to the ISI production facility and integration benefits are more important than the proximity to cheaper biomass feedstocks. Product gas production integrated at ISI sites emerges as particularly attractive, while charcoal production exhibits sensitivity to fluctuating markets, both regarding resulting cost for the ISI, and preferred production locations.
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