Business Activities, Decision-Making, and Barriers to Viability of the Forest Biomass Harvesting Industry in Washington State

Abstract

Using forest biomass- the leftover byproducts of forestry operations- as an energy source potentially presents a win-win alignment of environmental goals, economic growth, and business success. This research explores the thoughts and actions of businesses involved in the harvest, collection, processing, and transportation of forest biomass to energy production facilities. Drawing on interviews with 21 firms in the industry, this research characterizes the industrial organization, activities, and decision-making of forest biomass harvesting businesses, and examines economic and policy barriers to the viability of the forest biomass-to-energy industry. The state's forest biomass-to-energy industry is organized around contractual relationships between landowners, the processing firms that collect, grind, and transport the biomass, and the energy producers which ultimately consume the biomass. Several types of barriers to entry characterize the forest biomass-to-energy industry, including equipment costs and the learning curve encountered by new processing businesses. In general, businesses' decision-making is driven by profit calculations, although economic models of supply and demand may not fully incorporate businesses' strategic responses to risks and policy incentives. Landowners and processors differ in key aspects of their biomass harvesting activities and strategy: landowners are less tolerant of taking risks, less likely to own biomass harvesting equipment, and less motivated by short-term profits than processing contractors. Policies intended to support the forest biomass-to-energy industry, such as the federal Biomass Crop Assistance Program and the state business and occupation (B&O) tax credit for forest-derived biomass, have not been sufficient to overcome countervailing economic forces limiting forest biomass harvest.