Energy subsidy for small-diameter trees must be carefully targeted in order to prevent timber market distortions

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Taxpayer money should not be used to subsidise the combustion of processable pulpwood. The energy subsidy for small-diameter trees should be steered towards biomass that is suitable for energy utilisation. 

“When the drafting of the new subsidy system started last summer, the Government promised that subsidies would not steer industrial wood into combustion. The Government must hold on to this promise when it establishes the energy subsidy for small-diameter trees,” says Anders Portin, head of the Finnish Forest Industries Federation’s Forests and Environment division.

The Ministry of Agriculture and Forestry proposes to make the energy wood subsidy available for all first-thinning forestry locations in the future. Up to now, the subsidy has only been granted for harvesting locations that consist of trees that have a diameter of less than 16 centimetres.

“Sturdy first-thinning locations are already in demand and are in no need of any new subsidies," Portin points out. “Using pulpwood obtained from first-thinning felling sites to generate energy would increase the cost of all timber grades, causing upward pressure on log and sawmill chip prices, in addition to which the price of imported timber would also increase.”

The Ministry is also proposing to establish an upper limit for the subsidy that would limit the amount of subsidisible wood to 50 cubic metres per hectare.

“A more appropriate limit would be 30 cubic metres per hectare. Setting the subsidy limit too high will not prevent pulpwood from being steered into combustion. Typical pulpwood yields per hectare in first-thinning felling operations fit within the 50-cubic-metre limit. If only a small amount of wood falls outside of the upper limit, it will quite easily wind up in the energy wood pile as well,” says Portin.

The Government must proceed carefully when it takes new subsidies into use and it should examine the effect different steering mechanisms have as a totality. Subsidies granted to energy producers can, when coupled with emissions trading, have unpredictable effects.

The danger is that the combined effect of different subsidies will lead to a severe distortion in the timber market, endangering the supply of competitively-priced wood for the forest industry. Weakening competitiveness leads to smaller production volumes. In addition to losses to the national economy, this decreases renewable energy production and makes it harder to achieve renewable energy targets.

“The attainment of renewable energy targets makes it is essential that wood processing and industrial wood felling volumes remain on a high level. This ensures that the forest industry’s manufacturing processes can produce renewable energy, while logging produces felling residue and tree stumps that can be used to generate energy,” Portin says.

For further information, please contact:

Anders Portin, Director, Forestry and Environment,
Finnish Forest Industries Federation,
tel. +358 9 132 6610 or +358 40 586 6179

Jouni Väkevä, Senior Advisor (Forestry),
Finnish Forest Industries Federation,
tel. +358 9 132 6620 or +358 40 5307164