The role of biomass in US industrial interfuel substitution

•Biomass usage by the US industrial sector now exceeds coal usage.•Previous interfuel substitution studies have not included biomass as a fuel.•Linear logit model is used to examine role of biomass in interfuel substitution.•Including biomass in the model lowers estimated price elasticities for traditional fuels.•Biomass is found to be a substitute for natural gas for industrial users.

The role of biomass in US industrial interfuel substitution in the industrial sector has typically been analyzed using data for the four traditional fuels of coal, oil, electricity and natural gas. However, the use of biomass as an industrial fuel in the US has grown, and now exceeds that of coal. Using data from 1960 to 2011, interfuel substitution in the US industrial sector is modeled with a dynamic linear logit model which includes biomass alongside the other four traditional fuels. Adding biomass to the model reduces somewhat the estimated own-price and cross-price elasticities for the other four fuels, while revealing that biomass and natural gas are substitute fuels. This implies that previous studies excluding biomass may have overestimated the potential for interfuel substitution, giving policy makers an inaccurate impression of the ability of carbon taxes or other environmental regulation to reduce greenhouse gas (GHG) emissions.