Forest Policy and Economics 11 (2009) 65–75

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Forest Policy and Economics

j o u r n a l h o m e p a g e : w w w. e l s ev i e r. c o m / l o c a t e / f o r p o l

Process-based analysis of added value in forest product industries

Roger Sathre ⁎, Leif Gustavsson
Ecotechnology, Mid Sweden University, 831 25 Östersund, Sweden

a r t i c l e i n f o a b s t r a c t

Article history: Manufacturing products with greater added value is increasingly viewed as a strategic goal of forest products
Received 8 August 2007 industries. Added value is defined here as the difference in economic value between the physical inputs and
Received in revised form 22 August 2008 outputs of a production process, and is generally analysed at the firm or national economy level. In this study
Accepted 25 September 2008
we identify and discuss issues involved in quantifying added value at the industrial process level, and
develop a bottom-up method to estimate the value added by forest industry processes. We calculate the
Keywords:
Value added
value added by 14 traditional and emerging processes within the Swedish forest products industries, and
Forest products express the results using various indices. We find that the type of biomass input strongly influences the
Bottom-up analysis potential for adding value, with sawlogs allowing more added value and being less sensitive to input price
fluctuations than pulpwood and forest residues. Structural wood products such as lumber and glue-
laminated beams are found to give the greatest value added. Co-production of multiple products from a
single raw material increases total value added. Integrating the value chain of pulp and paper production
significantly increases the value added to pulpwood. Multiple conversion processes exist for using forest
residues as fuel, with a range of potential added value. Consideration of the climate benefits of forest product
use, through the application of a carbon tax, significantly increases the added value.
© 2008 Elsevier B.V. All rights reserved.

1. Introduction different producers. The physical goods from each different producer
are considered equivalent, thus competition between producers is
The contribution to Gross Domestic Product of the forest sector based primarily on price. Many traditional forest products such as
(including forestry, wood industry, and pulp and paper industry) sawn lumber, wood chips and pulp, as well as newer products like
decreased between 1990 and 2000 from 4.9% to 3.4% in Sweden, and ethanol, are traded internationally as commodities. With the ongoing
from 1.5% to 1.1% in Europe as a whole, after adjusting for inflation globalisation of forest products markets, future economic prospects
(Lebedys, 2004). The economic value added by the forest sector are limited in commodity markets due to intense competition from
decreased during the same period by 15% in Sweden, and by 14% in countries with comparatively low labour cost and less stringent
Europe. The European forest industries have recognized the importance environmental standards. A commodity-based economy increases its
of developing innovative forest-based products with higher added value global competitiveness primarily by lowering costs, as well as by
to meet societal demands for materials, energy, employment, and exploiting exchange rate differences. A strategy of adding value
environmental protection (FTP, 2006). The National Research Agenda for competes instead by delivering products that give additional value to
the Swedish forest-based sector states that developing and producing the consumer and the wider society.
forest products with higher added value is an important strategic goal Within the forest products industry, the term “added value” has
(NRA, 2006). It is generally understood that shifting from the high- traditionally been used to describe what is more accurately called
volume production of low-value goods to the selective production of “secondary wood processing,” in which the output of primary wood
higher-value goods will increase the contribution to local and national processing operations (e.g. sawn lumber) is further processed into more
economies from the limited resources of forest land and sustainably- refined wood materials or manufactured wood products. Using this
harvested forest biomass. However, knowledge on specific ways to definition, about 90% of Swedish sawmills in 1995 applied some value-
achieve this goal is incomplete. added processing to at least some of their production, and about 42% of
An emphasis on higher value-added products reduces dependence the total volume of wood products produced by Swedish sawmills
on commodity markets (Kozak and Maness, 2005). Commodities are incorporated some form of value adding (Roos et al., 2000). The process
items of uniform quality that are produced in large quantities by many of value addition in traditional wood products industries has been
studied by several authors. Ringe and Hoover (1987) analysed the value
added during production of structural wood products in the United
⁎ Corresponding author. Tel.: +46 63 165581; fax: +46 63 165500. States, with an emphasis on the variety of raw material quality in the
E-mail address: [email protected] (R. Sathre). forest products industry, and introduced the concept of “marginal log” to

1389-9341/$ – see front matter © 2008 Elsevier B.V. All rights reserved.
doi:10.1016/j.forpol.2008.09.003
66 R. Sathre, L. Gustavsson / Forest Policy and Economics 11 (2009) 65–75

maximise the value added in the production of a range of forest products 2. Process-based added value
with a diverse mix of raw material inputs. In their analysis, value added
was a function of raw material quality and price, conversion technology, 2.1. How value is added
and finished product range and price, all of which varied over time. Lantz
(2005) made a quantitative analysis of the contribution of several value The concept of “value,” and the associated “added value” of industrial
added factors by the Canadian logging, sawmilling, woodworking, and processing, means different things depending on the context. The
pulp and paper sectors. He found that two factors–scale of output consumer of a product desires utility value, a tangible benefit derived
production by individual firms, and price level of product shipments– from using the product. For example, a primary utility value of a house is
were positively correlated to the value added by all the sectors. The the physical shelter that it provides from the elements. Adding utility
effects of other factors–technological innovation, the number of separate value to raw materials, in other words modifying naturally occurring
firms in a given sector and region, and the cost of production inputs– resources so they better fulfil human needs, is a basic goal of industrial
were less significant to the value added by the sectors. Maness (1993) activity. In a market context, the exchange value of an item is the quantity
described how producers of commodity sawn lumber can increase the of a different (monetary or non-monetary) item for which it can be
value of their products by making sawing decisions based on the current traded. Industrial processing generally adds exchange value to raw
market prices of the range of lumber sizes, preferentially producing materials, creating finished products that have greater exchange value
lumber dimensions with the highest market value at the time. than the sum of the inputs, by imparting characteristics (e.g. higher
Within the forest products sector, previous analyses of value added utility value) that are more preferred in the marketplace. Adding
have focused on existing solid wood or pulp products, and have not exchange value generally accompanies the addition of utility value,
quantitatively analysed and compared a broad range of technologies although the quantification of utility value is difficult in a comparison of
and processes that could result in higher total added value in the heterogeneous goods. In a wider scope, societal value is the sum total of
forestry sector. Limiting the analysis of value added to incremental benefits provided to society by the marginal production of an item. This
improvements in established wood processing industries ignores the may include, inter alia, employment and its resulting domestic security,
potential value that could be added to forest-based raw materials in and taxation to governmental authorities and the resulting public
innovative ways, yielding a variety of different products including services provided by them.
liquid fuels, electricity, heat, and structural and paper products. The added value that results from industrial processes is generally
Furthermore, while adding value is increasingly recognized as an defined as the difference in exchange value between the physical
invaluable strategy for the prosperity of both industrial firms and inputs and outputs of a production process. This added exchange value
national economies, the methodological focus has remained on is used as a proxy for added societal value, insomuch as it contributes
aggregated macroeconomic surveys over entire industrial sectors or to employment, government revenue and entrepreneurial incentive.
national economies (United Nations, 2003, 2007). The calculation of This proxy relation is imperfect due to e.g. potential income inequality
economy-wide value added is routinely conducted as part of the growth and non-benign governmental expenditures. Nevertheless,
accounting of national economies. The United Nations System of added exchange value is generally considered to be socially beneficial
National Accounts (United Nations, 2007) sets out basic methodolo- (European Commission, 2006).
gical principles for the systematic and consistent recording of the
flows and stocks of a national economy in order to provide an overall 2.2. Establishing values of inputs and outputs
view of economic activity, including added value. Other macroeco-
nomic methods are also available for calculating value added at the The quantification of added value depends on accurate valuation of
macroeconomic level (Cassing, 1996). Such accounting is by its nature both input materials as well as output products. This can be problematic
aggregated, and data collection is generally organised along economic for several reasons. Three different types of market prices, the “basic,”
or administrative lines rather than technological ones. This accounting the “producer” and the “purchaser” prices, are recognized for valuation
of added value facilitates macroeconomic policymaking, but has of inputs and outputs (United Nations, 2003). Depending on how taxes,
limited relevance toward understanding and optimising the indivi- subsidies and transport costs are recorded, what the purchaser pays and
dual links of a product value chain. The top-down approach based on the seller receives is not identical in these three prices. Recommenda-
aggregated economic data lacks the level of detail needed to tions for the choice of price type used in top-down calculations are
distinguish the value added by specific processes within an industrial equally valid in bottom-up calculations of added value. The valuation of
sector. In addition, the analysis of emerging or potential technologies input should be in terms of current purchaser price, which is the full
is problematic due to the lack of historical market data on such amount paid by the industry to obtain possession of the input goods,
technologies. including the basic price, cost of transport, insurance and packaging, and
Here, we develop a process-based methodology and perform a all taxes and duties on the goods (United Nations, 1983). The role of
bottom-up analysis based on the material and energy balances of taxes, including value added taxes, must be considered carefully to avoid
specific industrial processes. Such an approach allows us to focus on double counting.
the value added by particular industrial transformations, and facil- Additionally, there is an inherent variability in the different types
itates comparison of the value added by individual processes. of input biomass (e.g. sawlogs, pulpwood, forest residues) which are
Moreover, using this approach we can analyse innovative industrial not completely comparable or substitutable. Inputs such as sawlogs
processes for which technological process data are available, but are can be used for a full range of production processes, while others such
not yet established on a commercial scale and thus lack market data as forest residues can be used for some but not all applications. For
needed for macroeconomic analysis. In Section 2 we identify and example, any biomass can be burned to produce heat, but not all
discuss the general issues involved in using a bottom-up approach to biomass can be made into structural timber. Thus it is important to
quantify added value. In Section 3 we develop a process-based distinguish between the type of biomass input, both in terms of
operational methodology to determine added value in forest products economic value as well as in terms of potential utility value.
industries. In Section 4 we describe 14 traditional and emerging A further complication is that market prices of forest-based raw
industrial processes to be analysed, and in Section 5 we present the materials, intermediate products, and finished products are not stable,
results of the analysis. In Section 6 we discuss the uncertainties tending to fluctuate over time scales of days to decades. It is thus
involved, and conduct a sensitivity analysis. In Section 7 we discuss problematic to specify fixed prices as input data to calculations of value
the overall results and draw general conclusions, with an emphasis on added, except with the understanding that the calculated result is an
the policy implications of our findings. instantaneous “snapshot” of a dynamic process. Further calculation of
 R. Sathre, L. Gustavsson / Forest Policy and Economics 11 (2009) 65–75 67

the sensitivity of value addition to changes in the values of inputs and

outputs would better define the significance of such fluctuations. The
differing degree of price volatility of different goods and services,
however, could be incorporated into an accurate evaluation of the
economic risk of producing a particular product. Many value-added
wood-based products are not purchased based on spot prices, but rather
on contract prices that often include a “risk premium.” A buyer may be
willing to pay more for a product via a contract than the current spot
price to insure availability of the product in the future and to hedge
against a possible price increase. Fig. 1. Diagram of three value-adding processes (A, B, and C) done consecutively by
The calculation of added value, measured in terms of differences separate firms (top), and by a single, vertically integrated firm (bottom).
between input prices and output prices, is not solely dependent on
internal production factors related to material and energy flows.
Changes in input prices can–depending on the elasticity of demand– value-adding processes (A, B, and C) performed by three separate firms
cause a change in output prices and of value added. Demand elasticity (top figure), and the same three processes performed by a single
can provoke a decrease in value added (manifested in reduced wages vertically-integrated firm (bottom figure). Process A could be, for
or profit) as a choice made by the firm in an effort to maintain sales example, the felling and transport of trees (the value added chain
volume. External competition can have a similar effect by forcing price could also extend further upstream to include forest establishment and
reductions or allowing price increases. Hence, value added is not only management). Process B could be the conversion of harvested round-
based on internal factors within the production sphere, but can also be wood into lumber or panel products. Process C could be the construction
affected by external factors beyond the direct control of the firm. of a building using wood-based and other types of building materials.
In cases of new technologies that have not established a market In a theoretical free market economy, the sum of value added by
history of prices from which output value may be estimated, the the separate firms (VF—V0) should equal the value added by the
production cost of alternative, competing products, whether biomass- vertically integrated firm (V′F—V0). The actual (or measured) value
based or not, can provide an upper limit on the costs that can be added will however depend on the efficiencies (or inefficiencies) of
economically supported in a biomass conversion process without integration, transaction costs between separate firms, transfer costs
external cost subsidies. Innovative products are often more expensive between different divisions of a firm, and the quality and/or
than existing product when they initially appear on the market (Neij availability of value data at various points of the processing chain.
et al., 2003). In such cases the new product must have some other Integrated forest products firms may also subsidise specific processing
advantage to be attractive to the potential customer. If the advantage is a operations by charging less than market prices for logs or stumpage,
social benefit such as environmental advantages of a sustainably making an accurate breakdown of internal value addition difficult.
produced forest product, the product may deserve an initial public Vertical integration may permit an optimisation of material flows to
subsidy, without which it might not be initially competitive with the added value (Carino and Willis, 2001). On the other hand, integration
existing products on the market. may restrict opportunities for maximising added value from a unit of
The value of a product increases as it proceeds along the value raw material, if the integrated firm is dedicated to producing a single
chain from raw material extraction to use by the customer. Different product (or mix of products) and is slow to reconfigure itself to take
aspects of value are added at different stages of the value chain. At the advantage of emerging opportunities for adding value. In contrast, non-
production level, the focus is on value added through physical or integrated actors (both upstream and downstream) may have the
chemical modification of material inputs. Later in the chain, as the increased flexibility needed to identify potential product markets and
product approaches retail sale to the end-user, value is added through form appropriate ad-hoc partnerships to exploit opportunities as they
e.g. logistical or administrative operations that increase the conve- arise.
nience and availability offered to the final consumer. Thus a given
product, while perhaps physically unchanged, may have different 2.4. Measurement indices
values at different points in the value chain.
Various indices can be used to express the results of calculations of
2.3. System boundaries value added. Gross value added, that is the absolute monetary gain
achieved from the processing of a quantity of material, will depend on
Critical to a comparative analysis of value added is defining what the product and measurement units, and will not be directly comparable
links of the value chain are to be included. An industrial system is not a unless all products are expressed in the same unit (e.g. €/ton, €/GJ, €/m3).
monolithic entity conducting a single transformation process, but is Results of processes that produce non-similar products could be
instead a complex amalgam of different actors each performing a compared by normalising the gross value added by another function
unique part of a long value chain, as raw materials are extracted, of the transformation process. Added value could be related to total
refined, transported, processed, combined, packaged, distributed and output value, for example value added per unit output value (€/€). This
marketed as ready products. Some industrial actors begin their value index would show the proportion of value in the finished product that
adding process with the output products of other actors. The question had been added during the process, ranging from zero to one.
of where to delimit system boundaries of the analysis is not always Another potentially useful expression is the output value per unit
straightforward. In aggregate national accounts of added value, all value of biomass input (€/€). This index would measure the
production except that produced and consumed within the same multiplicative effect of using a scarce biomass resource; that is,
household (with the exception of the services of paid domestic staff) is how the value of a biomass input is related to an increase in total
included within the production boundary (United Nations, 2003). value. A related index is the value added per unit value of biomass
Using a bottom-up approach, focus can be placed on one or several of input (€/€).
the links in the value chain of a product, depending on the objectives A unique aspect of biomass used as an industrial material is its
of the analysis, and based on the detailed material and energy balance renewable nature. Because a sustainably managed forest will continue
information known about each link. to produce biomass indefinitely, it is appropriate to construct indices
Vertical integration of consecutive value-adding processes in a value that evaluate the added value not only from a discrete industrial
chain can affect the calculation of the value added. Fig. 1 illustrates three process, but also from a continuous flow of biomass outputs from the
68 R. Sathre, L. Gustavsson / Forest Policy and Economics 11 (2009) 65–75

forest that become inputs to industry. Based on knowledge of the VBI is the value of the biomass inputs (roundwood, residues) to
productivity of a forest stand in terms of outputs of various biomass the operation;
types (e.g. sawlogs, pulpwood, residues), added value can be VOI is the value of the other material inputs (non-biomass, non-
calculated per hectare-year or hectare-rotation. energy) to the operation;
Other indices of added value can also be envisioned, depending on VEI is the value of the energy supply inputs (fuels and
the goals of the analysis. For example, value added per employee or electricity) to the operation.
per hour of labour could be used as an indicator of human resource
productivity. Likewise, value added by a process divided by the cost (of This analysis focuses on the value added by specific biomass
human resources and capital depreciation) gives a fundamental conversion technologies. Thus, we draw our system boundaries around
measure of economic viability, needing to be greater than unity. a single processing facility, with input and output transactions occurring
Measures such as these are included in national accounts of value at the factory gates. The energy and material inputs are for process
added (United Nations, 2003), and could also be calculated at the requirements only, and do not include energy and materials used for
industrial process level if the additional required data are available. administrative needs within the facility, nor upstream or downstream
logistical needs. We do this in order to compare the value added by
3. Operational methodology individual technological processes (i.e. process A, B or C in Fig. 1, but not
all three processes together). In several cases, we include two successive
In the light of the general methodological issues discussed in the processes within the system boundaries (e.g. planed lumber made from
preceding section, here we develop a process-based operational sawn lumber, and LWC paper made from chemical pulp) to enable the
methodology to calculate added value based on an economic analysis of the significance of common process groups. Otherwise,
evaluation of the mass and energy balances of selected processes in ancillary value added through e.g. secondary processing or marketing
the Swedish forest product industries. efforts is not included.

3.1. Calculation of added value 3.2. Allocation between multiple inputs and outputs

We employ a process-level production function where output value When multiple input materials are used to make a product, the
is related to a vector of inputs, including labour and capital from within comparison of added value of different forest products is potentially
the producing firm as well as material and energy inputs from outside complicated. For example, the production of particleboard requires
the firm. The exchange value added by a production process is the adhesive resin in addition to wood particles, and the production of office
difference in market value between the output products that are sold, paper requires mineral coating materials in addition to wood-based
and the input materials purchased from other sources to use in the pulp. How, then, is the value added by the entire process allocated
production process. Within the firm, utility is added to input materials between the various inputs? More specific for this study, how much of
by the agency of labour and capital (together with the accumulated the total added value can be attributed to the biomass input? This is
knowledge they bring forth) that are considered as internal to the firm important when comparing the value added to a given raw material (e.g.
(see Fig. 2). The resulting added economic value (exchange values of wood) by different processes, some having only wood as input and
output goods minus input goods) is then received by the firm, and makes others having multiple inputs. The allocation of added value among
up employee compensation, taxes, consumption of fixed capital, as well several inputs to a production process is by nature an artificial construct
as gross operation surplus (United Nations, 2003). if all the inputs are essential to the process, but is a necessary step if
Given a forest industry process with a range of inputs and outputs various processes with differing shares of biomass input are to be
such as that illustrated in Fig. 2, value added can be determined based compared with each other. Here we use a simple allocation method
on the identification and economic valuation of material and energy based on proportional input values (Eq. (2), with parameters as defined
flows. We suggest that the following general definition can be used to in Eq. (1)). In this method, the proportion of total added value attributed
determine the total value added by a forest industry process (Eq. (1)): to the biomass input, VAB, is calculated based on the share of total input
value that is contributed by the biomass inputs.
VAT = ðVPP + VMBP + VEBP Þ−ðVBI + VOI + VEI Þ ð1Þ
VBI
where VAB = VAT × ð2Þ
VBI + VOI + VEI
VAT is the total value added by the operation;
VPP is the value of the primary product produced by the operation; The case of multiple products being made from a single input
VMBP is the value of the material by-products produced by the material, for example a process that results in by-products or co-
operation; products, must also be considered. An example common in the wood
VEBP is the value of the energy by-products (fuels and electricity) products sector is the production of biomass residues as a by-product of
produced by the operation; a wood manufacturing process. The value of the by-products could be
considered an additional value assigned to the primary product.
Alternatively, the main product could have one added value and the
by-product another, in which case the value of shared inputs must be
allocated among the multiple outputs. Methods of cost allocation used in
the accounting field (Young, 1985) might provide guidance. Cost
allocation is a way to rationally assign costs that are common to more
than one activity. A number of methods can be employed, including the
relative output method, where common costs are attributed in
proportion to their share of the total output; the revenue method,
where common costs are attributed in proportion to their share of total
revenues; activity based costing, where common costs are allocated
based on the activities that invoke the costs; and the incremental
Fig. 2. Conceptual diagram of the process of adding exchange value within a forest method, where common costs are allocated in order beginning with the
products industry firm. primary user and then proceeding to secondary (incremental) users.
 R. Sathre, L. Gustavsson / Forest Policy and Economics 11 (2009) 65–75 69

pulpwood and forest residue are average values for the whole of
Sweden; actual biomass production of a forest stand will depend on
individual site conditions and management intensity. We have assumed
a constant annual biomass flow from a hectare of forest land (Fig. 3).
Although an individual stand does not produce a steady annual flow of
biomass, on a landscape level the production of many separate stands
will approximate the annual biomass flow modelled here.

4. Selected products and processes

4.1. Description
Fig. 3. Biomass flows from 1 ha of typical Swedish forest land. Harvested amounts are
averaged over a full rotation period to give average annual output. In this analysis we consider the production of 14 different industrial
products made using forest biomass as a primary input material. These
include refined fuels, electricity, heat, pulp and paper products, and solid
In this study the by-products are limited to heat and biofuels, which and composite wood products. The 14 products were selected due to
are required inputs to many of the processes, and are also the main their current importance or potential future importance within the
output of some of the processes studied. For each process, we calculate forest sector. The analysis is based on a unit output of each product,
an energy balance of heat inputs and heat and/or biofuel outputs, and to corresponding to the unit in which the product is generally bought and
the extent possible we use by-product outputs to satisfy heat input sold: energy units (GJ) for fuel and energy products, mass units (tonnes)
demands. Any surplus by-product is then assigned the value of an for pulp and paper products, and volume units (m3) for structural wood
equivalent amount of forest residues, and added to the main product products. The 14 products are listed in Table 1, together with the biomass
value to yield a single added value for the entire industrial process. inputs needed to produce a unit output of each product, other non-
biomass inputs, and other outputs that are co-produced in the
3.3. Land area analysis production process.
The production of liquid fuels are based on current technology on a
We conduct a scenario analysis of value added per hectare of forest scale of 400 MW biomass input. Production efficiency data are based
land. Based on the results of value added by individual processes, we on Hamelinck and Faaij (2006), converted from higher to lower
create three production scenarios that include products of differing heating values (Gustavsson et al., 2007). Ethanol production is via
value added. Scenario “Low” considers processes with relatively enzymatic cellulose hydrolysis and fermentation. Methanol produc-
low value addition, scenario “Medium” considers processes with tion is via gasification, steam reforming, and catalysis. FT-diesel is via
moderate value addition, and scenario “High” considers processes gasification and Fischer-Tropsch catalysis. Data on DME production is
with higher value addition. These scenarios are then applied per hectare from Bio-DME Consortium (2002). DME is produced via gasification,
of forest land, wherein forest biomass production is based on the mean reforming, and synthesis.
annual wood volume increment for Swedish forest land, calculated by Pellets production is based on energy and material efficiency data
the Swedish Forest Agency (2006) at 4.45 m3 over bark per hectare. We from Forsberg (1999), on a scale of 80,000 t pellets per year. The
partition this stemwood growth into sawlogs and pulpwood, based on pellets are produced from forest residues or roundwood that is ground
the average Swedish stemwood utilization of 62% by volume sawlogs in an electric-powered mill, dried using a biofuel-fired dryer, and then
and 38% pulpwood (Swedish Forest Agency, 2006). Furthermore, we extruded in an electric-powered pellet press. Electricity production is
assume that thinning and harvesting residues are recovered at the rate based on data from Gustavsson and Karlsson (2002), using a 100 MW
of 7.9 GJ per hectare-year, the average Swedish potential forest residue biomass integrated gasification/combined cycle (BIG/CC) power plant.
recovery rate (Börjesson et al., 1997). Production figures for sawlogs, Cogenerated heat and power are based on a BIG/CC cogeneration plant

Table 1
Inputs and outputs of the analysed forest-based industry processes

Output product Output unit Biomass input (a) Other inputs Other outputs
m3 ub GJ Electricity Diesel Heat Chemicals Pigment Adhesive Heat Biofuel
GJ GJ GJ See text Tonne Tonne GJ GJ
Ethanol 1 GJ 0.38 2.6 – – – – – – 0.30 –
Methanol 1 GJ 0.23 1.6 0.075 – – – – – – –
DME 1 GJ 0.23 1.6 0.11 – – – – – – –
FT-Diesel 1 GJ 0.30 2.1 – – – – – – 0.18 –
Pellets 1 GJ 0.14 1.0 0.024 0.0008 0.16 – – – – –
Electricity 1 GJe 0.30 2.1 – – – – – – – –
Combined heat and power 1 GJe + 1 GJh 0.33 2.3 – – – – – – – –
Market pulp 1 tonne 5.6 36 3.2 – – (b) – – – 5.2
Newsprint 1 tonne 2.5 16 11 – – – 0.03 – – 0.46
LWC paper 1 tonne 2.1 13 8.2 – – (b) 0.41 – – 1.9
Particleboard 1 m3 1.5 9.4 1.0 0.26 3.2 – – 0.054 (c) – –
Sawn lumber 1 m3 2.0 13 0.21 0.20 – – – – – 7.4 (d)
Planed lumber 1 m3 2.3 15 0.27 0.23 – – – – – 9.5 (d)
Glue-laminated beams 1 m3 2.5 16 0.56 0.25 – – – 0.006 (c) – 10 (d)

a) Volume and energy content are converted assuming a wood density of 0.42 dry tonne/m3 ub (under bark) and a lower heating value of green wood of 15.3 GJ/dry tonne. Heat
content of bark is then added.
b) A mix of pulping chemicals is used for market pulp and LWC paper production. See Section 4.2.
c) Urea-formaldehyde resin used for particleboard, and resorcinol-formaldehyde resin used for glue-laminated beams.
d) Sawmill and planer residues from production of lumber and glue-laminated beams are used either as biofuel or as raw material for particleboard production.
70 R. Sathre, L. Gustavsson / Forest Policy and Economics 11 (2009) 65–75

producing 60 MW of electricity and 60 MW of heat (Gustavsson and Table 2

Karlsson, 2002). Values of input and output materials and energy carriers (€2005/unit)

Production data for pulp and paper production are based on Inputs Unit Value Outputs Unit Value
Holmberg and Gustavsson (in press) and STFI (2003). Market pulp is (€/unit) (€/unit)
bleached sulphate chemical pulp made from softwood pulpwood. Sawlogs m3 ub 35.8 Ethanol GJ 15.3
Newsprint paper is 42 g/m2 weight paper made from softwood Pulpwood m3 ub 24.8 Methanol GJ 14.8
Forest residue GJ 3.7 DME GJ 14.4
pulpwood, containing by weight 89% thermo-mechanical pulp, 8%
Electricity GJ 10.6 FT-Diesel GJ 14.4
chemical pulp, and 3% pigment (here assumed to be kaolin). Light- Diesel GJ 25.3 Pellets GJ 6.2
weight coated (LWC) paper is 60 g/m2 weight paper made from Fuel oil GJ 8.7 Electricity GJe 10.4
softwood pulpwood, containing by weight 41% thermo-mechanical Urea-formaldehyde resin Tonne 500 Market pulp tonne 454
pulp, 18% chemical pulp, and 41% pigment and binding agent (here Resorcinol-formaldehyde resin Tonne 1600 Newsprint tonne 411
Kaolin Tonne 200 LWC paper tonne 708
assumed to be kaolin). Pulping chemicals See text 27.2 Particleboard m3 286
Particleboard is medium density (670 kg/m3) panels made from Sawn lumber m3 286
softwood particles, with an assumed adhesive content of 8% by weight Planed lumber m3 393
urea-formaldehyde resin. Sawn lumber is sawn from roundwood into Glue-laminated m3 1090
beams
standard-sized dimension lumber with a lumber/roundwood ratio of
0.49 (Gustavsson et al., 2006), and kiln dried to a moisture content
below 20% in a biofuel-fired kiln. The wood is assumed to be half Scots
pine and half Norway spruce. Planed lumber is first sawn and dried as we have added transport costs to the processing facility over a
sawn lumber, and then processed in a planing mill to standard sizes. distance of 93 km (Swedish Forest Agency, 2006). Forest residue prices
Energy used for the manufacture of particleboard and sawn lumber is are based on average 2005 prices including delivery to the processing
based on Björklund and Tillman (1997). Energy used for planing is facility (Swedish Energy Agency, 2007). In a sensitivity analysis we
based on FAO (1990). Quantities of planer shavings are calculated vary the prices of biomass raw materials by 20%.
based on the volume difference between standard nominal sizes of Biomass input for glue-laminated beam production has the potential
sawn (unplaned) and planed lumber, averaged over a range of sizes for being selected lower-value products from the sawmill industry, such
(Svensk Byggtjänst, 2006). Glue-laminated beams are made from as offcuts of sawmill production. Furthermore, the pieces can be graded
softwood laminae sawn and dried in the same way as sawn lumber. according to quality to determine their placement within the beam, with
The laminae are then planed and laminated into large-dimension lower quality pieces used where stress levels are lower. The value of
beams with a beam/lumber yield ratio of 0.82 (Puettman and Wilson, these pieces could thus be considered as intermediate between sawn
2005). Phenol-resorcinol-formaldehyde resin is assumed used as lumber and sawmill residue. However, it is difficult to independently
adhesive, using 6 kg resin per m3 of finished beam. establish the value of this input, because in the absence of the glue-
In cases where the available price data for raw materials or finished lamination industry the material would have limited use (hence value)
products include transport costs to or from the factory, respectively, beyond its use as biofuel. In this study we disregard the potential
we have adjusted the prices based on average transport distances synergy between lumber production and beam production, and
(Swedish Forest Agency, 2006) and transport costs (Löfroth et al., conservatively assume that glue-laminated beams are produced directly
2005) for Swedish forest products, to yield prices at the factory gate. from sawlogs, not from sawmill offcuts.
Energy inputs and outputs are valued at the cost or revenue The energy input prices used in this analysis are based on average
experienced by the firm, i.e. purchased energy input prices include values from 2005 (Swedish Energy Agency, 2005, 2006), and include
energy and carbon taxes paid by the firm to the taxation authorities, energy and carbon taxes applied to Swedish industrial users. Heat input
while energy outputs are valued at the base price of the energy carrier greater than that provided by by-product heat or biofuels (see Section 3.2)
excluding taxes. is assumed to be met with purchased forest residues. Prices for adhesive
resins and paper pigments are estimates based on an internet survey of
4.2. Value of inputs recent price quotations. A mixture of pulping chemicals, including
hydrogen peroxide, sodium hydroxide and sodium chlorate, are needed
In this study we use average prices for the Swedish market for the for the manufacture of market pulp and LWC paper. Quantities and prices
year 2005, the latest year for which comprehensive data are available. for these chemicals are based on STFI (2003). Production of 1 tonne of
Input values are based on their delivered price at the factory gate. market pulp requires a unit of chemicals costing 27.2 Euros. Production of
Monetary values are expressed in 2005 Euros, and exchange rates 1 tonne of LWC paper requires about 41% of this amount.
used are 9.2 Swedish Kronor per Euro and 1.2 US Dollar per Euro.
Value added taxes are not considered. The energy content of fuels, and 4.3. Value of outputs
other unit conversion factors, are those used by the Swedish Energy
Agency (2005). The values used for process inputs are listed in Table 2. The values used for process outputs are listed in Table 2. Output
Biomass inputs are obtained from a variety of sources at varying values are based on estimated prices of finished goods at the factory
prices. In this study we consider three distinct categories of forest gate, not including transport and distribution costs to the final
biomass: large diameter softwood sawlogs, small diameter softwood consumer. The determination of value of some products is relatively
pulpwood, and forest residues including thinning and harvesting straightforward, in cases where stable markets exist for the product. In
residues. Biomass residues generated internally during the processing this study, values for sawn lumber, planed lumber, particleboard and
of roundwood are also considered. We focus on adding value to glue-laminated beams are based on average 2005/6 market prices in
harvested roundwood and recovered biomass residues of conven- Sweden (Svensk Byggtjänst, 2006), expressed per m3 of material
tional forestry and do not consider short rotation forestry or averaged over a range of standard product sizes. Prices for pulp and
alternative forest management regimes, nor do we consider other paper products are based on average 2005 export prices for bleached
value provided by forests such as environmental services, amenities, sulphate chemical pulp, 42 g/m2 weight newsprint paper, and 80 g/m2
or non-wood forest products. lightweight coated paper (Swedish Forest Agency, 2006).
Prices for sawlogs and pulpwood are based on average 2005 prices Electricity output is valued at the 2005 average base price of
for Norway spruce and Scots pine logs (Swedish Forest Agency, 2006). electricity in Sweden with no taxes applied, i.e. the amount the firm
These prices are for delivery to the roadside by the cutting area, and would receive for the sale of the electricity. Pellets are valued at the
 R. Sathre, L. Gustavsson / Forest Policy and Economics 11 (2009) 65–75 71

average 2005 price for processed biofuels as given by the Swedish higher efficiency than gasoline in spark-ignition engines (Gustavsson
Energy Agency (2007). The valuation of heat from combined heat and et al., 2007), thus we apply correction factors so that 1 GJ of gasoline is
power (CHP) production is less straightforward. CHP plants co-produce considered equivalent in performance (and hence value) to 0.86 GJ of
usable heat, but produce slightly less electricity than a stand-alone ethanol and 0.89 GJ of methanol. Efficiency differences for different fuels
condensing plant would produce with the same input fuel. In principle, in compression-ignition (diesel) engines are small (Hamelinck and Faaij,
the “cost” of the heat production could thus be estimated as the value of 2006) and we disregard these, thus 1 GJ of diesel is considered
the electricity production foregone when a CHP plant is used instead of a equivalent in performance (and hence value) to 1 GJ of FT-diesel or DME.
stand-alone electricity plant. Another possible method, which we use The conversion of sawlogs into solid wood products (sawn and
here, is to value the heat output based on the value of fuel (forest planed lumber and glue-laminated beams) produces significant
residues are considered here) with the same heat content. Additional amounts of processing residues such as sawdust and slabs. These
work is needed to refine the methodology of valuation of CHP heat residues are assumed to be used to provide necessary process heat, for
output. example for kiln drying of lumber. Surplus residues beyond those used
The value of surplus process heat can also be difficult to determine. internally are, as a base case, considered as a by-product output and
An isolated factory with no internal need for the excess heat may simply are valued at the price of forest residues. As an alternative case to
allow the heat to dissipate, gaining no economic value from it. Excess model the potential for maximising value added along the entire chain
heat from a factory in an urban area, or in an industrial complex, can be including by-products, we use the surplus processing residues as
used for district heating or as process heat in an adjacent factory. The input material for particleboard production. This is an example of co-
economic value of this heat could be estimated based on district heating production of solid wood products and composite wood products
prices, or could be related to the cost of a fuel that would be used to from the same roundwood raw material input.
provide the heat service if the excess heat were not available. In Sweden,
effort is made to efficiently use surplus heat that would otherwise be 5. Results
wasted (Swedish Energy Agency, 2006). In this study we assume that
surplus heat replaces heat from the burning of forest residues, and we 5.1. Value added by individual processes
assign to the surplus heat the value of an equivalent amount of forest
residues. This method, in common with our method of valuing the heat Using Eq. (1), we calculate the value added by the 14 processes. The
output of CHP plants, is a simplification that does not take into account results are presented in Table 3, expressed as three different indices of
e.g. the difference in capital costs associated with either distributing the total added value for a range of products made with sawlogs, pulpwood,
surplus heat or burning the forest residues, and the arrangements made or forest residues. Some products, such as refined fuels, can be made with
between buyer and seller regarding investment and ongoing costs. any type of forest biomass and are thus shown made from all three types
Determining the value of liquid transport fuels can also be of raw materials. Other products, such as pulp products and particle-
problematic. Some products, such as DME and FT-diesel, currently board, require stemwood and are thus shown with either sawlogs or
have limited production, making it difficult to independently establish a pulpwood as input biomass. Some products such as lumber require
value. Ethanol and methanol, while increasingly traded on commodity larger diameter raw material and are thus shown only using sawlogs as
markets, have experienced significant commodity price fluctuations in input material. The total value added (€) is first expressed per unit of
recent years (CBOT, 2007; Methanex, 2007). As a simplifying assump- product (such as GJ of refined fuel, tonne of paper, or m3 of lumber). It is
tion, we assign a value to liquid biofuels corresponding to the production then shown per unit of biomass input (GJ of biomass for all products to
cost of the fossil fuels they replace, not including distribution cost and allow comparison, plus m3 ub sawlogs and m3 ub pulpwood). Finally, the
energy and carbon taxes applied to the fossil fuels (Swedish Petroleum value added per hectare-year of typical forestland production is shown.
Institute, 2007). In a sensitivity analysis we include carbon taxes applied The value added ranges from negative value (i.e. the finished
to petrol and diesel. We modify the value of liquid biofuels to product has less value that the input materials) for some refined fuels
compensate for differences in end-use fuel efficiency (measured in made from sawlogs, to the highest value added by glue-laminated
km/GJ fuel) in different fuel/engine combinations. Alcohols may have a beam production. Production of refined fuels gives positive added

Table 3
Total value added (€) by the production of various products from different raw materials, expressed per unit of production (units are shown in Table 1), per unit of biomass input,
and per hectare-year of forest land

(a) Units of biomass input are GJ lower heating value for all 3 raw materials. Input units of m3 ub are also shown in parentheses for sawlogs and pulpwood.
72 R. Sathre, L. Gustavsson / Forest Policy and Economics 11 (2009) 65–75

Fig. 4. Total value added and biomass value added per unit of total output value (€/€) for various products made with three types of biomass inputs.

value when produced from lower quality input materials such as 5.2. Land use and value added
pulpwood and forest residues. The value added per unit of product is
difficult to compare between different product types, because the Three scenarios for using the biomass outputs from a hectare of
units are non-similar (e.g. value added per GJ of refined fuel, per tonne typical Swedish forest land are based on selected process results from
of paper product, or per m3 of structural material are non-comparable). Table 3. In scenario “Low,” sawlogs are used to make sawn lumber,
Therefore, it is more useful to compare normalised indices such as value pulpwood is used to make market pulp, and forest residue is used to
added per unit of biomass input or per hectare-year. make pellets. In scenario “Medium,” sawlogs are used to make planed
Producing materials from sawlogs creates greater added value than lumber, pulpwood is used to make newsprint paper, and forest
production from pulpwood or forest residue. Glue-laminated beams residues are used to produce ethanol. In scenario “High,” half the
production gives the highest value added, followed by planed lumber, sawlogs are used to make planed lumber and half to make glue-
LWC paper, sawn lumber, and particleboard. Using pulpwood as an laminated beams, with the processing residues from both processes
input, LWC paper gives the higher added value, followed by particle- used to make particleboard. Pulpwood is used to make LWC paper, and
board and newsprint production. Among the products made using forest residues are used to make methanol.
forest residues as raw materials, methanol and combined heat and The total value added per hectare-year for the different scenarios are
power production gives the highest value added. There is significant shown in Fig. 5. Scenario “Low” generates about 350€ in added value per
variation in added value among the different types of liquid fuel, due hectare per year, while Scenario “Medium” generates about 500€.
to varying efficiencies of production and end-use. Pellet production is Scenario “High” produces an annual added value of almost 1200€ per
found to add the least value, in part because the input biomass for hectare, over twice as much as the other scenarios. This analysis is
pellet production is here assumed to be forest residues. Pellets are simplistic in that it does not account for the dynamic shifts in price that
often made of sawmill residues which, when available, can be less would accompany the increased production of higher value-added
expensive than forest residues. goods. For example, a wide-scale production shift towards the higher
Fig. 4 shows value added, expressed as a proportion of total output
value, for a range of products made with sawlogs (for products that
cannot be made from pulpwood or forest residues), pulpwood (for
products that cannot be made with forest residues), or forest residues.
The value added is shown both as total value added (Eq. (1)) including all
production inputs, and biomass value added (Eq. (2)) based on the
biomass inputs only. Products made from forest residue are seen to have
added value of about 20–40% of total output value. Products made from
pulpwood have total added value of about 55–70% of total output value.
Products made from higher quality sawlogs have total added value of
about 70–90% of total output value. The total value added and biomass
value added are identical for several of the products, which have no
other inputs than biomass. For the other products the biomass value
added is lower than the total value added, due to the added value
allocated to the non-biomass inputs. Some products have a biomass
value added that is significantly lower than the total value added, due to
the relatively high value of other, non-biomass inputs such as adhesive
(for particleboard), electricity (for newsprint), or pigment (for LWC Fig. 5. Value added to the biomass output from 1 ha of forest land per year (€/ha-yr),
paper). under three forest product production scenarios.
 R. Sathre, L. Gustavsson / Forest Policy and Economics 11 (2009) 65–75 73

Table 4 to explore the differences in the potential to add value to forest

Percent change in added value due to a 20% decrease/increase in biomass input prices biomass by strategically focusing on some products and processes
Sawlogs Pulpwood Forest Residue rather than others. Nevertheless, further elaboration of this model
Ethanol NA +/− 34% + / −34% including sources of variation in material and energy balances of wood
Methanol +/−43% +/− 18% + / −19% product manufacture (e.g. Sathre and Gustavsson, 2006; Gustavsson
DME +/−74% +/− 25% + / −26% and Sathre, 2006) would allow deeper insight into the effects of
FT-diesel NA +/− 29% + / −29%
individual process improvements on added value.
Pellets NA +/− 46% + / −43%
Electricity NA +/− 36% + / −35% To determine the sensitivity of different products to changes in raw
Combined heat and power +/−48% +/− 12% + / −14% material prices, here we conduct a simplified sensitivity analysis. Table 4
Market pulp +/−15% +/− 7% shows the percent increase or decrease in added value resulting from a
Newsprint +/−8% +/− 5% 20% decrease or increase, respectively, in the biomass input price. The
LWC paper +/−3% +/− 2%
Particleboard +/−7% +/− 4%
products requiring high quality sawlogs have a quite low sensitivity to
Sawn lumber +/−3% input price changes, having a change in added value of 1% to 4% resulting
Sawn lumber + particleboard +/−4% from 20% change in input biomass price. The processed fuels have a
Planed lumber +/−2% much higher sensitivity, up to 43% change in added value from a 20%
Planed lumber + particleboard +/−3%
change in input price.
Glue-laminated beams +/−1%
Glue-lam beams + particleboard +/−1% This analysis assumes a linear relation between added value and
price variation, as a preliminary estimate of sensitivity. It is likely that
NA means “not applicable”and is shown for product combinations that have a negative
added value.
various factors such as economies of scale and scope, and elasticities of
supply and demand, would produce a non-linear relation. Furthermore,
non-biomass material input prices, as well as prices of energy carriers
that comprise both inputs and outputs of many of the processes, will also
value-added products of Scenario “High” would cause prices of those differentially influence the value added by each process. Additional
products to fall, affecting the resulting value added by the production of research is needed to illuminate these issues and produce more robust
the goods. Nevertheless, the analysis illustrates the importance of the relations between price variations and value added potentials.
product mix in determining the total added value from forest land. In all To determine the sensitivity of liquid transport fuels to economic
scenarios, the single biggest part of the total added value is from policy instruments for climate change mitigation, here we analyze the
products made from sawlogs, while products made from forest residues change in added value when Swedish carbon taxes are applied to petrol
generate relatively little added value. Within each scenario, using all and diesel. Our original analysis assumed liquid biofuels to have the
types of biomass inputs creates greater total value added per hectare same value as the production cost of the fossil fuels they replace, without
than using only a part of the available biomass. considering taxation (Section 4.3). The carbon taxes applied in Sweden
to petrol and diesel in 2005 were 2.1 and 2.6 Kronor/litre, respectively
6. Uncertainties and sensitivity analysis (7.0 and 7.9 Euros/GJ, respectively). When these taxes are included in the
price of the fossil fuels, and hence in the effective value of the biofuels
The quantitative results of this analysis are subject to some that replace them, the added value of the biofuel increases by a factor of
uncertainty. We have assigned fixed values to categories of materials about 3 (Fig. 6). The added value increases more for the diesel substitutes
and products based on average prices, when in fact values are not (DME and FT-diesel) than for the petrol substitutes (ethanol and
uniform throughout a category. For example, we have calculated the methanol) due both to the higher carbon tax applied to diesel, and to the
value added to sawlogs based on a fixed input cost for each and every m3 lower end-use efficiency of ethanol and methanol vis-à-vis petrol.
of sawlogs. In fact, prices paid for sawlogs and other raw materials Without carbon taxation the value added by the methanol is
depend on the quality and location of the materials, and vary over a substantially higher than the other liquid fuels, but when carbon tax is
range of prices. Similarly, values of finished wood-based products are included the methanol and DME produce about the same added value.
not fixed, and vary due to physical differences as well as non-material
factors such as image and reputation, though in this analysis we assign
the same average value to all products in a category. In addition, the
quantity of each product demanded on the market will vary depending
on its price, as well as its social utility. We have valued input and output
energy carriers on the basis of 2005 Swedish energy prices, though
electricity and petroleum prices have shown significant volatility in
recent years. Economic policy instruments such as carbon taxes will
increase the cost of fossil fuels, hence affect the potential added value of
biofuels that replace them. Our methodology has used a simplified
approach to valuing heat and biomass by-products, based on the value of
forest residues with a heat content equal to that of the by-products,
while in fact the by-products' value will depend on their quality and
location, among other factors. Furthermore, we assume uniform
transport costs for raw and finished materials of different products,
although the geographic location of the forest, the processing facility and
the end user will vary from case to case, thus affecting the added value.
Market actors exploit these variations in prices and value by
seeking to purchase suitable inputs at the lowest price available, and
selling manufactured products at the highest price the market will
allow. The data sources used in this study do not allow a level of detail
to fully incorporate variation in value within material and product
categories. The goal of this study is not to understand the causes and Fig. 6. Value added (Euros per GJ biomass input) by the production of liquid transport
effects of variation in value added within single categories, but instead fuels, with and without application of carbon taxation.
74 R. Sathre, L. Gustavsson / Forest Policy and Economics 11 (2009) 65–75

7. Discussion and conclusions effect would require the equilibrium analysis of supply and demand of
biomass products and their non-biomass competitors subject to carbon
In this study we have developed a process-based methodology to taxation, which is beyond the scope of this paper.
calculate the value added in forest products industries, and applied it to More widespread implementation of certification programs for
14 processes. Bottom-up and top-down methods are different, but forests and forest products could also considerably affect the value
complementary, approaches to analyzing added value. Both may offer added by forest industries. Illegal logging of unsustainably managed
useful guidance to policy makers. Bottom-up models, such as the one forests depresses market prices for timber by 7% to 16%, depending on
developed here, start from a detailed understanding of the fundamental the product category (United Nations, 2006). The percentage of total
elements and processes of the system, and then generate aggregate forest area that is certified as sustainably managed by a recognized
system behaviour by simulating the relations between the individual certification agency is about 7% globally, and 58% within Sweden.
entities of the system. Top-down models, on the other hand, begin with However, due to the relatively low demand for certified forest products,
an overall description of aggregate performance of the system, and at present there is generally no distinction in market prices for
proceed to subdivide the system to understand its functioning. Bottom- roundwood from certified or non-certified forests. Most consumers
up models have the advantage of greater detail in system parameters, have been unwilling to pay a price premium for sustainably produced
but may lack completeness if parts of the system are excluded from the wood products, though potential for niche markets exists (Jensen et al.,
model. Top-down models include the entire system, but may suffer from 2003). From a value-added perspective, a societal strategy of universal
limitations in understanding the relations between the elements in the certification of forests with no certification-related price distinction
system and how they can be modified to achieve desired objectives. between products would be vastly different from selective certification of
Typically, a bottom-up analysis does not model activities outside of the forests leading to price differentiation between certified and non-
immediate production process, such as “upstream” activities of raw certified products. In any event, the former is currently precluded by
material procurement and “downstream” activities of distribution. widespread unsustainable forestry practices in many parts of the world,
Our analysis has provided additional understanding of the existing and and the latter is subject to a host of market barriers (Werndle et al., 2006).
potential value added by the Swedish forest industries. As expected, we In this study we have discussed the use of a process-based, bottom-
find that the potential for adding value is generally higher for sawlogs than up approach to quantifying added value, and have calculated the value
for lower grades of input materials such as pulpwood and forest residues. added by a range of traditional and emerging technological processes in
We also find that value addition to sawlogs is less sensitive to input cost the Swedish forest products industry. While the scenarios and
fluctuations than when lower grade inputs are used. Structural wood quantitative analyses could be refined and expanded to better
products such as lumber and glue-laminated beams are found to give the characterise the dynamic market forces affecting forest biomass use,
greatest added value, but LWC paper made from pulpwood is also found to the methodology developed here has the potential to offer strategic
give high added value. The co-production of particleboard using the guidance to policy makers in their future development of forest products
residues from solid wood product processing increases the value added to industries. The potential for increasing the added value of individual
the roundwood. Integrating the value chain of pulp and paper production processes is not explicitly considered here. Rather, this descriptive study
significantly increases the value added to pulpwood compared to the seeks to compare various processes as they are carried out at present, to
isolated production of market pulp, and the quality of finished paper also give general insight into the relative value adding significance of the
strongly affects the total added value. Production of sawn and planed individual processes. Future work will be needed to expand the analysis
lumber gives substantially greater added value than the production of to include value addition along the entire value chain of the products
simple sawn lumber. There exists a variety of different conversion from raw materials to end users, and to offer prescriptive suggestions on
processes for using forest residues as an energy source, and they exhibit a increasing the added value in specific product chains.
range of potential added value. Although the economic value added by the Forest land is a limited resource, as is the quantity of forest biomass
various uses of forest residues remains relatively low, the potential that can be sustainably produced on the land. It is thus important to use
energetic contribution of the residues is comparatively significant. these limited resources efficiently to maximise their sustained con-
This suggests that the incorporation of economic valuation of tribution to local and national economies. This study shows that there is
environmental quality has the potential to significantly influence the a wide range of added value among the many products that can be made
value added by forest products manufacture. This is confirmed in our with forest biomass. Each type of biomass produced by the forest, for
sensitivity analysis of carbon taxation applied to liquid transport fuels. example sawlogs, pulpwood and forest residues, can be used to produce
Because the use of some wood products affects greenhouse gas emission various different products. Policy instruments, including energy and
and oil use more than other wood products (Gustavsson et al., 2007), carbon taxes, can increase the value added to forest-based products by
economic policy instruments such as carbon or energy taxes will change internalizing the higher environmental costs of alternative products. A
the relative added value of different forest products. For example, using process-based analysis of forest industries, focused on existing as well as
biomass for combined heat and power production results in a greater innovative products, can help assure that forests remain valuable to
reduction in carbon emission than using the same biomass for ethanol society into the future.
production. Thus, a well-designed carbon tax should increase the value
added to a unit of biomass used for combined heat and power, in Acknowledgements
quantities greater than the increased value added if the biomass were
used for ethanol production. This effect is not limited to forest residue We would like to thank Ole Jess, Steven Shook, Krushna Mahapatra,
use, but is valid also for sawlog processing. The use of wood-based Jonas Holmberg and an anonymous reviewer for their informed
building materials such as lumber and wood-based panels uses less fossil comments on earlier versions of this paper. We gratefully acknowl-
energy and emits less carbon dioxide than the use of reinforced concrete edge the financial support of the European Union, Jämtland County
for construction (Gustavsson et al., 2006). Legislative recognition of this Council, and Sveaskog AB.
environmental benefit, in the form of economic policy instruments for
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