Impact of subsidies and taxes on the timber market must be monitored

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In addition to the State, all of the private sector’s key actors, such as forest owners, energy producers and wood processors, must be brought in on the effort.

Development of a functioning monitoring system and appropriate indicators can help track the causal relationships between policy measures, timber market distortions and the amount of wood entering the market.

Planned Finnish subsidies for renewable energy can, together with the EU’s emissions trading scheme, lead to a situation where excessive amounts of forest resources are steered into use as an energy source. 

Examination of the combined effects of overlapping subsidies and taxes a worthwhile effort

A number of steering mechanisms that have the aim of increasing the energy utilisation of wood are about to enter into force in Finland. The Finnish Parliament has granted its approval to feed-in tariffs for forest chip and wood-fuel power plants as well as to energy subsidies for small-diameter trees, all of which enable energy producers to pay more for wood. The increasing taxation of peat combustion is also prompting energy producers to use wood to replace peat. A separate subsidy for burning wood at coal power plants has also been mooted.

“Monitoring and the ability to react rapidly are needed because overlapping subsidies and taxes can have many undesirable effects. Subsidies and taxes can distort the timber market and weaken the operating environment for wood processing. When the Government decided to grant subsidies for renewable energy, it promised the forest industry that processable wood would not be steered into combustion,” Timo Jaatinen, Director General of the Finnish Forest Industries Federation, points out.

“Production of renewable energy should be increased, but not at the expense of processing. Some 70% of Finland’s renewable energy is already crated in conjunction with wood processing operations – safeguarding the forest industry’s ability to produce energy in conjunction with its manufacturing operations is the best way to support the achievement of Finland’s renewable energy targets,” Jaatinen continues.

The building of a monitoring system should commence without delay because subsidies for wood energy will enter into force in the first half of 2011. Suitable indicators should be created to monitor how different wood types are utilised for processing and combustion as well as to identify how renewable energy production and the price relationships between different timber grades develop.

Further information:
Timo Jaatinen, Director General, Finnish Forest Industries Federation, tel. +358 9 132 6600
Stefan Sundman, Director (Energy and Infrastructure), Finnish Forest Industries Federation,  
tel. +358 9 132 6611, +358 40 535 0501