Effects of subsidies on the profitability of energy wood production of wood chips from early thinnings in Finland

To increase the production of wood chips for energy from small-diameter (d1.3 < 10 cm) stems in thinnings from young forest stands, Finland's Ministry of Agriculture and Forestry provides financial incentives for the production of wood chips through the Sustainable Silviculture Foundation Law (Kemera). As of Autumn 2010, the Kemera incentive system provides subsidies for wood chips derived from small-sized stems of young stands, 16–19 €/m3 (8.0–9.5 €/MWh) maximum in typical harvesting conditions (average stem size of removal 30–60 dm3, and whole-tree chip removal 40–70 m3/ha).Total production costs of small-diameter thinning of wood chips with and without the Kemera subsidies were researched. The effects of the Kemera incentives on the profitability of whole-tree chip production were presented and discussed. Results gave a clear indication that wood chips from small-diameter stems cannot currently be produced without the Kemera subsidies from young stands with typical harvesting conditions at the current price level of small-diameter wood chips (17–18 €/MWh). If operating without the Kemera subsidies at a higher price level of small-diameter wood chips, such as 20 €/MWh, the average stem size of whole trees harvested must be greater than 60–70 dm3 with short road transportation distances between 20 and 40 km to be economically profitable in Finland.

► Energy and forest policy implications of targeted financial incentives.
► Analysis of the allocation of subsidies within the Kemera subsidy system.
► Profitability research of energy wood production with variable levels of subsidies.
► Identification of operational requirements of energy wood production from young stands.