Modeling Bioenergy in the U.S. Forest Service’s RPA Assessment

Designing U.S. Forest Assessment System to analyze agricultural and forest feedstock markets, including small-diameter and fire salvage wood, and impacts of biorefinery development

Peter J. InceUSDA Forest ServiceForest Products LaboratoryMadison, Wisconsin USA

Forestry and Agriculture Greenhouse Gas Modeling Forum

March 5-8, 2007 – Shepherdstown, West Virginia

Modeling Bioenergy in the U.S. Forest Service’s RPA Assessment

Topics:

Background – “RPA Assessment”

New global modeling approach (USFPM/GFPM)

Modeling future development of wood bioenergy

Assessing biofuel and bioenergy implications

Forestry and Agriculture Greenhouse Gas Modeling Forum

March 5-8, 2007 – Shepherdstown, West Virginia

RPA Assessment

Background:

The Renewable Resources Planning Act (RPA) mandates periodic assessments of the U.S. forest resource situation (every 5 years), including long-range analysis of supply, demand and price trends. The U.S. forest assessment system is a set of bio- economic models that provide 50-year projections.

2000 RPATimberAssessment(Haynes et al.)

RPA Assessment

Background:

From the late 1970s to 2005, the RPA assessment system consisted of North American forest sector models (TAMM-NAPAP-ATLAS). Global trade was exogenous.

The U.S. forest assessment system for the 2010 RPA will include a global forest products model (GFPM) as the new solver of market supply, demand and price equilibria.

Why a global model?

Economic globalization has had big impacts on the forest sector since the early 1990s. Growth in wood fiber demand has shifted to Asia, and U.S. timber harvest has declined.

(The WTO . . . )

(A forest product bulk carrier)

0%

20%

40%

60%

80%

100%

Paper &Board

OSB &Plywood

SoftwoodLumber

HHFurniture

HardwoodLumber

Hardwodflooring

Hwd &softwd

molding

1990 2005

Since 1990 U.S. producers lost domestic market share for all wood products, especially labor-intensive products, with rising imports . . .

In view of economic globalization, the Forest Service is adopting a global forest product market modeling approach for the 2010 RPA.

Sources: Shipments : Dept Commerce, Bureau Census , ASM; Imports & Exports : FAS; Paper & Board: AF&PA

New global modeling approach (USFPM/GFPM)

Global market model:

Global Forest Products Model (GFPM)

• Dynamic Equilibrium Model

• All Major Forest Products and All Countries

• Production, Consumption and Trade

• Based on PELPS (Price- Endogenous Linear Programming System)

Within GFPM (global model) we are developing USFPM – U.S. Forest Product Module . . .

USFPM

To create USFPM we are adding sub-regions and more product detail for the United States (one of numerous countries within GFPM), creating USFPM within GFPM, or “USFPM/GFPM” . . .

USFPM/GFPM

Current GFPM USFPM/GFPM

Demand Demand USA USA World (export) World (export)

Supply/Production Supply/Production USA U.S. North U.S. South

U.S. West World (import) World (import)

USFPM/GFPM expands the regional structure of USA (currently a single region in GFPM), by expanding supply and production into three U.S. sub-regions:

Current GFPM USFPM in GFPM

Fuelwood & Charcoal (N.A.)

Sawlogs & Pulpwood Hardwood Sawtimber (one commodity) Softwood Sawtimber

Hardwood Non-Sawtimber Softwood Non-Sawtimber Other Forest Biomass

(branches, cull, whole-tree chips, etc.)

Agricultural SRWC Residues

Other Indust. Roundwood (N.A.)Other Fiber Pulp Non-Wood Fiber PulpWastepaper Recovered Paper

USFPM/GFPM expands U.S. timber and fiber supply to include both hardwood and softwood sawtimber and non-sawtimber, other forest biomass, ag. SRWC, and residues:

Current GFPM USFPM/GFPM

Sawnwood Hardwood Lumber Softwood Lumber

Veneer/Plywood Veneer/PlywoodParticleboard Oriented Strand Board (OSB)

Industrial ParticleboardFiberboard Fiberboard Mechanical Wood Pulp Mechanical Wood PulpChem./Semichem Pulp Chem./Semichem PulpNewsprint NewsprintPrinting & Writing Paper Printing & Writing PaperOther Paper & Board Other Paper & Board (N.A) Biofuel (Cellulosic Ethanol)Fuelwood Fuelwood

USFPM/GFPM expands the U.S. product structure of GFPM, by differentiating hardwood and softwood lumber, and OSB and particleboard, and adding biofuel to the product mix:

USFPM/GFPM* will be part of the larger U.S. Forest Assessment System (USFAS) for the 2010 RPA Forest Assessment.

USFAS has three major domains,

(1) Forest Use Domain (which includes forestproducts sector, and USFPM/GFPM model)

(2) Forest Dynamics Domain (plot-based forest transition and harvest model)

(3) Forest Ecosystem Services Domain (models of carbon, water, wildlife and ecosystem conditions linked to plot transitions)

Global Economy

Trade

United States Economy

Forest Use DomainLand Uses

Wood Products MarketsResource Management

Forest Dynamics DomainForest area

Forest conditions

Forest Ecosystem Services DomainCarbonWildlifeWater

Climate

USFAS

The Forest Dynamics Domain of USFAS will model transitions across the entire spectrum of U.S. forest inventory plots (FIA database of all forests and plantations).

Transitions will include tree growth, shifts in species mix, and forest management actions such as harvests in responds to timber price and demand (derived from domestic and global markets).

i= 1, N

m= 1,M

t=1, T, d

Stochastic Transition

Model

Summarize all realizations for plot i

T=t+d

Plot=i; Label=Li

Predicted Label

Random draw donor plot / store label

Calculate inventory variables / store results

Harvest Forecast

Price Forecast

Climate Forecast

USFPM\GFPM

Census Data & Woods and Poole

IPCC, climate analysis

Expansion Factor Forecast Land Use Change

Models

Forest Transition Model – based on all FIA forest plots (D. Wear et al.):

Forecast inventoryT + d

{all plots}

{time steps}

{imputations}

Novel Plot Data Base

Historical Plot Data Base

*

For example, USFPM/GFPM will contribute to projected timber harvest and prices by solving for the market equilibrium between the USFAS forest transition model and the global and regional forest product markets.

As in past RPA assessments agricultural short-rotation woody crops such as hybrid poplars, and wood from fire salvage or fuel thinning programs may be introduced also in USFPM/GFPM via cost-based supply functions that can provide new supply sources if competitive with existing supply sources.

Modeling future development of wood bioenergy

The goal is cellulosic ethanol at $1.07/gallon by 2012, with feedstock at $30/dry ton.

The DOE R&D goal for cellulosic ethanol is to compete with corn ethanol (at break-even costs of around $1.10/gallon) . . .

Source: Dr. Stanley Bull, NREL, “Non-Carbon-Emitting Technologies for the Future”, May 8, 2006

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$40

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$80

$120

-- Peter Ruschmeier, 2006 PIMA Conference

Large trees (>10”) are too valuable for use as biofuel feedstock. Only smaller trees (6-8” pulpwood) could be affordable as feedstock.

Source: Regional averages of softwood roundwood prices from International Woodfiber Report

New Housing Units Started in the United StatesSeasonally Adjusted Annual Rate

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its

Multifamily

Single Family

However, in the past year delivered pulpwood prices have moved further away from the DOE feedstock goal ($30 per dry ton) as prices in the West increased with a shortage of sawmill residue chips due to housing and lumber downturn.

Delivered softwood pulp log price indexes by region (avg.)

80

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120

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180

200

1st Qtr'06

2nd Qtr'06

3rd Qtr'06

4th Qtr'06

1st Qtr'07

Pri

ce

Ind

ex

(S

ou

th 1

stQ

06

= 1

00

)

West (PNW)NorthSouth

In the South, delivered pulpwood prices are double the $30 per dry ton feedstock goal, and pulpwood prices are substantially higher in the West.

• In USFPM/GFPM the growth and development of wood products is determined by their cost competitiveness and profitability

• In USFPM/GFPM, biofuels and bioenergy uses will compete for wood raw materials (such as pulpwood) versus other conventional wood products, like pulp & paper or OSB (oriented strand-board)

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OSB / panel mills

Wood pulp mills

Wood receipts at U.S. OSB/panel mills and wood pulp mills* OSB and wood pulp have been projected to be lead competitors for “pulpwood” – but may face future competition from wood biofuels . . .

*Total receipts, softwood & hardwood; roundwood & residues for pulp, and roundwood for OSB.

ProjectedHistorical

2005 RPA Timber Assessment Update

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500

WoodPulp

OSB CellulosicEthanol

$ p

er t

on

of

feed

sto

ck

Profit & Returnon Capital

Other OperatingCosts (approx.)

Feedstock Cost(pulpwood)

= Range of net returns given product price range since mid-90s

January ‘07 prices: Pulp @ $750/ton OSB @ $180/MSF Ethanol @ $2.00/gal

Costs approximated from following sources: NLK (kraft pulp), Spelter-FPL (OSB), NREL (ethanol), Timber Mart-South (feedstock)

At current costs and prices, producing cellulosic fuel ethanol from pulpwood is unprofitable. Wood pulp and OSB offer higher & less risky profit margins.

Relative costs & profit margins in U.S. South . . .

In USFPM/GFPM, we can introduce future cost assumptions for wood biofuels such as cellulosic ethanol

Source: Dr. Stanley Bull, NREL, “Non-Carbon-Emitting Technologies for the Future”, May 8, 2006

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WoodPulp

OSB CellulosicEthanol

$ p

er

ton

of

fee

ds

toc

k

Profit & Returnon Capital

Other OperatingCosts (approx.)

Feedstock Cost(pulpwood)

= Range of net returns given product price range since mid-90s

Median prices: Pulp @ $700/ton OSB @ $240/MSF Ethanol @ $2.50/gal

Costs approximated from following sources: NLK (kraft pulp), Spelter-FPL (OSB), NREL (ethanol), Timber Mart-South (feedstock)

At future costs and median prices, producing cellulosic fuel ethanol from pulpwood may become profitable and competitive with wood pulp and OSB.

Relative costs & profit margins in U.S. South . . .

In this case, biorefining diverts hemicelluloses from black liquor combustion to biofuel and chemical feedstock.

Probability Distribution for IRR (real) / After-tax

Mean = 0.4425941

X <=1.1795%

X <=05%

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-50% 0% 50% 100% 150% 200%

Mean = 44.3%

PulpingExtraction

Separation

Fermentation& Distillation

Wood Sugars

Fuel Ethanol

Acetic Acid

Hemicellulose (fraction of wood)

Also, co-production of fuel ethanol and acetic acid via hemicellulose extraction at a kraft pulp mill may be an economically feasible approach to forest biorefining according to preliminary FPL studies . . .

FPL estimates of returns with variableethanol prices

And, gasification of spent pulping liquors (black liquor) and wood residues with reforming to biofuels and chemicals is another potential approach to forest biorefining, with high estimated rates of return on investment.1

Again, mill by-products (black liquor and wood residues in this case) might be economically diverted from direct combustion to biofuel, even though direct conversion of pulpwood may not be economical.

1Reference: Larson, E.D. et al. 2006. A Cost-Benefit Assessment of Gasification-Based Biorefining in the Kraft Pulp and Paper Industry. FINAL REPORT under contract DE-FC26-04NT42260 with the U.S. Department of Energy. 164 p.

Gasifier technology underdevelopment by Chemrec

The most economical approaches to producing wood-based biofuels (e.g. cellulosic ethanol) are at present based on biorefining of readily available or existing byproduct feedstocks at pulp and paper mills (i.e. hemicelluloses, black liquor and wood residues). Pulpwood is less likely to be used directly as a feedstock unless substantial gains are achieved in cellulosic ethanol production efficiency. However, all available options should be assessed in the context of dynamic and competitive markets.

Assessing biofuel and bioenergy implications

USFPM/GFPM will assess the following:

• Competitive outlook for wood biofuels and bioenergy in the context of all competing wood uses and global wood markets; expected U.S. market implications; future development of wood biofuels and feedstocks

USFAS , the broader U.S. forest assessment system,will assess the following (via forest transition model):

• Forest resource implications (timber inventory, forest ecology) of biofuel/bioenergy development • Forest sector carbon sequestration and other implications of bioenergy and biofuels

Questions?