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are addressed in the following section. Note that this assessment is intended to provide estimates of forest biomass potential over the medium term; in the near term, logging and infrastructure constraints (not addressed in this study) could be significant obstacles to harvest increases. Our starting point is to estimate the potential of forest biomass to supply electric power plants in Massachusetts. This is an area of immediate concern for DOER given that they are now considering proposals for several facilities and the adequacy of wood supplies to furnish these plants is a central issue. In this scenario, our assumptions have been developed to reflect the current pricing environment for electricity and biomass: real electricity prices are assumed to remain near recent levels as are the price of renewable energy credits.3, 4 Consistent with this assumption, real biomass prices are also assumed to remain near recent levels: delivered wood prices at power plants would be about $30 per green ton, and biomass stumpage prices would average $1−$2 per green ton. We refer to this scenario as the “Low-Price Biomass” scenario. Our second scenario is intended to provide perspective on the upper bound for forest biomass production if bioenergy demand and prices increase beyond the level established in the Low-Price Biomass scenario. It is not reasonable to specify an absolute maximum for biomass supply since supply is an economic concept which depends on timber prices (and a host of other factors). Thus, we need to specify a “high” biomass stumpage price, and then consider how private landowner harvests might respond to this price level. Forest biomass volumes could still increase beyond this level, but it would be increasingly difficult to due to biophysical, economic, and social constraints and increasingly unlikely due to macroeconomic and energy constraints. We refer to this future outlook as the “High-Price Biomass” scenario. How high should the biomass stumpage price be in this “limiting”case? For increased demand from new wood-fired electric power capacity, we have developed an upper-range electric price scenario that leads to real biomass stumpage prices of about $20 per green ton.5 The significant increase in real electricity prices needed for power plants to purchase wood in this scenario could 3 Reference case (or base case) forecasts of electricity prices suggest that real prices will remain relatively flat over the next 15 years, as they play off a projected declining trend in real natural gas prices and a slightly increasing trend in real coal prices (see for example, Annual Energy Outlook 2010: U.S. Energy Information Administration, 2009). 4 The assumption about REC’s is important since they provide a significant share of revenue for wood-fired power plants and they can be modified by state policy. 5 The delivered wood and electricity prices consistent with this scenario are discussed later in this report. be triggered by either macroeconomic or policy shifts.6 Also, policy initiatives (such as REC’s) that provide higher income for utilities could be compatible with this level of biomass stumpage prices.7 We should note that we think that the high level of electricity prices that would drive this scenario is unlikely on the basis of macroeconomic trends and projections of future escalation in coal and natural gas prices. Significant changes in government policies would probably be necessary for this scenario to unfold and could take the form of greater incentives for electric power, or policies that spur substantial investment in thermal, CHP plants, and pellet plants. How much forest biomass would landowners be willing to supply in response to higher prices? As demand and prices increase, more wood can be supplied from private lands by increasing removals of low-value wood from sites that are already under harvest, diverting wood from other end-use markets (such as pulpwood) to biomass, and increasing the number of acres being harvested. The standard and most direct approach to answering this ques- tion would be to estimate the effect of price changes on harvest volumes directly (that is, the timber supply elasticity). We have presented some results from our analysis of this relationship in Massachusetts, but they are merely suggestive due to the poor quality of the data on both harvest volumes and prices. A second approach would be to rely on the literature for estimates of timber supply elasticities that have been developed in other regions. Available studies generally show that timber supply is very inelastic (that is, price changes have little or no influence harvest volumes).8 However, these results are not necessarily relevant in evaluating the biomass supply situation in Massachusetts because the characteristics of the landowners, timber inventory, and forest products industry are very different. Importantly, there are two issues not addressed in previous research that are likely to have a significant effect on forest biomass supply behavior in Massachusetts and call for an alternative approach. The first issue relates to biomass prices and per-acre incomes. Studies which examine the relationship between harvests and prices generally focus on sawtimber prices (and sometimes pulpwood) because these dominate the value of a harvest in most regions. 6 There are numerous policies under consideration that could lead to such changes (see U.S. Environmental Protection Agency, 2009: EPA Analysis of the American Clean Energy and Security Act of 2009). 7 If electric power plant demand for wood increases but there are no increases in electricity prices that would allow power producers to pay the higher prices needed to generate more wood supply, then direct payments to landowners would be another policy that could lead to more biomass production. 8 There are many issues with these studies that raise concerns, perhaps the most serious being data limitations and errors in measuring price and harvest variables. In addition, many studies estimate binary choice models and only address the question of whether or not price has an effect, not the magnitude of that effect. BIOMASS SUSTAINABILITY AND CARBON POLICY STUDY MANOMET CENTER FOR CONSERVATION SCIENCES 32 NATURAL CAPITAL INITIATIVEPDF Image | NATURAL CAPITAL INITIATIVE AT MANOMET
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