111111111 111111111 111111111111111 11911911119111 —-—--—-—--\9 31293 * LIBRARY Michigan State . University l' W— This is to certify that the thesis entitled WOOD AS AN ENERGY SUBSTITUTE presented by James Anderson Pharo has been accepted towards fulfillment of the requirements for WM) - degree in ML. 1&1/721 #ofessor ‘ Date 8/6/82 0-7639 L481) LlBRARlES “a. RETURNING MATERIALS: filace in took five ' remave this check.ur from your record. gszg will be charged if back is returned after the date ”.1 ;..1, $115117ch :J‘cl'Js‘J. 9d K103 ’ fiiélglg 3§. K119 1170 .1135 V I WOOD AS AN ENERGY SUBSTITUTE By James Anderson Pharo A DISSERTATION Submitted to Michigan State University in partial fulfillment of the requirements for the degree of DOCTOR OF PHILOSOPHY Department of Forestry 1982 Abstract WOOD AS AN ENERGY SUBSTITUTE by James Anderson Pharo This study evaluates wood fuel's substitution potential in a modern American economy. Purpose is to show how cost-efficient wood fuels were during pre- and post-oil embargo periods, identify fuels for which wood showed positive cost savings potential, and show how to make preliminary cost savings comparisons. Although a cost minimiza- tion objective is assumed, safety and environmental concerns are also discussed. Focus narrows progressively from a national supply including all fuel and product derivatives; e.g., gasoline, plastics, lubri- cating oil, and asphalt for petroleum based fuels, through sectorial demand and price situations, to decision criteria. Economic implica- tions of of firewood substitution are examined. Analyses and decision criteria are based upon energy time series quantity and price data for the 14-year period, 1967-80. Findings include the following. Annual wood fuel supply potential, excluding reductions in growing stock and diversions from conventional products, amounts to 731 M tons (11.7 quads of energy). Only 156 M tons (2.5 quads), or 21 percent of the total, is currently economic. James Anderson Pharo If labor costs are ignored, wood- fuel oil substitutes became marginally economic in the commercial sector after 1974. If labor, maintenance, and repair are included in a cost equation, both natural gas and coal were better oil substitutes than wood. Since 1974, only wood- electricity electricity substitutes pro- vided cost savings in residential heating. High costs of delivered firewood and high transportation costs for free firewood--average haul distance is 200 miles per cord--substituting wood heat for any fossil fuel resulted in negative savings between 1974-80. Industrial firewood substitution potential was also strong. The pulp and paper industry substituted about 52 percent of their energy needs with bark, wood, and black liquor solids. Residential firewood prices, which were more than double delivered wood prices to the paper industry, suggest the residential sector can outbid the industry for hardwood resources. Intersector price disparity encoura- ges crossovers between industrial pulpwood and residential firewood. Acknowledgements The author acknowledges encouragement of many friends and asso- ciates within the USDA, Forest Service and at Michigan State University. Dr. Adrian Gilbert, as Director of Policy Analysis, and John Pierovich, as Program Manager at the Southern Forest Fire Laboratory in Macon, Georgia, were instrumental in starting me on this journey. Both Everett Towle, past Director of Policy Analysis, and Tom Roederer, current Director encouraged me and thereby helped bring this work to completion. Bob Gale, Denny Schweitzer, Enoch Bell, and Dean Quinney were sounding boards and helped at some critical develop- ment points. John Hornick, the Wood Energy Biomass Coordinator, always found time to share ideas and much reference material. Thanks to Renee' Dixon (and Mary Thomas) who volunteered long hours at the Library of Congress' Newspaper Reading Room searching out firewood prices. Special thanks to Dennis Parker for his editorial advice. Professor Robert Marty, my advisor and committee chairman, instinctively knew when to push, when to pull, and when to spoon feed to help put this material into a coherent package. Thanks also to Drs. Rudolph, who introduced me to forest management, James, who never tired of lending me reference material, and Stark, who taught me some business sense. ii A major debt of gratitude is due my wife, Jan, and two sons, Jamie and Joey. They shared this dream since January 1974 and have foregone many hours with me so this work might be completed. James Anderson Pharo Table of Contents List of Tables ...................... List of Figures ..................... Chapter 1. Introduction ................. Background . . . . . . .............. Problem Statement ............... . . Objective and Scope ............ . . . . Approach and Orientation ............. Chapter 2. Fuel Selection and Description ........ Fuel Use . . . . ................ Fuel Selection . ................. Anthracite . . . ............. Bituminous . . . ............. Dry Natural Gas . . . . .......... Distillate Oil .............. Residual Oil ............... Liquid Petroleum Gas ........... Kerosene ..... . ........... Electricity .......... . ..... Wood . . . ................ Hood Fuel Description . .............. Net Heat . . . . . ............ Heat Efficiency . . . ........... Ignition Properties ............ Pelletized Wood .............. Summary and Conclusions . . . ........... Chapter 3. Energy Supply and Prices ........... General Background . . .............. Production Data, 1967-1979 . . ..... . . . . . Supply . . . . . . . . . . . . . . . . . . Price . . . . . . . . . . . . . ..... Price and Quantity Relationships ..... Supply from Wood . . ..... . . ........ Production . . . . . . .......... Prices . ................. Supply Price and Quantity Relationships . . Potential Wood Supply . . . . . ...... . . . . Economic Potential . ..... . . . . . . Paramarginal Supply . . . . . ....... Submarginal Supply . ........... Summary and Conclusions . ............. iv vii .00 X ooooooooooxi 01-th H V Chapter 4. Energy Demand and Prices ...... General Background . . . . . . . . . . . Comnercial Sector ........... Demand . . . . . . . . . . . . . Price . . . . . . . . . . . . . . Price and Quantity Comparisons . Residential Sector . . . . . . . . . . . Demand . . . . . . . . . . . . . Price . . . . . . . . . . . . . Price and Quantity Comparisons . Industrial Sector . . . . . . . . . . . . Demand . . . . . . . . . . . . . Price . . . . . . . . . . . . . Price and Quantity Comparisons Summary and Conclusions . . . . . . . . . Chapter 5. Commercial and Residential Space Heating with ”00d 0 O O O O O O O O O O O O I 0 Economic Rationale . . . . . . . . . . . Applications . . . . . . . . . . . . . . EIastiCities O O O O O O O O C O O Cross-price Elasticities . . . . Marginal Rates of Substitution . Case Studies . . . . . . . . . . . . . . Commercial Sector, Case 1 . . . Residential Sector, Case 2 . . . Summary and Conclusions . . . . . . . . Chapter 6. Industrial Sector Wood Use . . . . Cost Minimization . . . . . . . ..... Applications . . . . . . . . . . . . . . Substitute Potential of Wood Products . Crossover Potential . . . . . . . . . . Crossover Implications . . . . . . . . . Summary and Conclusions . . . . . . . . . Chapter 7. Decision Factors in Wood Fuel Uses . General Approach . . . . . . . . . . . . Commercial Wood Substitutes . ..... Life-cycle Analysis . . . . . . Labor and Maintenance . . . . . Discount Factors and the Decision Environment and Safety . . . . . Residential Wood Substitutes . . . . . . Heat Exchange . . . . . . . Temperature Differences . . . . Free Firewood . . . . . . . . Environment and Safety ..... Estimating Savings . . . . . . . Industrial Hood Substitutes . . . . . . Pulp and Paper Experience . . . vi Hypothetical Example . . . . ......... Economic Effectiveness . . . . . . . . . . . Effectiveness Variability . . . . . . . . . Equipment Costs . . . . . ......... Summary and Conclusions . . ............ . Chapter 8. Summary and Conclusions . . . . . . . . . . . . . Appendices A. B. C D Bibliography Conversion Factors and Abbreviations . . . . Combustor Efficiency and Moisture Content . . Full-tree Estimation Procedure . . ...... Residential Firewood Price Estimates . . . . . Table 2.1 2.2 3.1 3.2 3.3 3.4 3.5a 3.5b 3.6 3.7 4.1 4.2 4.3 4.4 4.5 4.6 4.7 5.1 5.2 5.3 5.4 List of Tables Energy consumption, 1979 ......... Heat comparisons ............. Energy balance, 1976 ........... National supply . . . . . ....... National supply prices .......... Commercial forest volume .............. Removal disposition ........... Removal consumption ........... Hood production . . . . . . . ...... Average wood production prices ...... Quantity demanded, 1980 ......... Commercial demand ............ Commercial prices ............ Residential demand . . . . ....... Residential prices ............ Industrial demand ..... . ...... Industrial prices ............ Commercial sector elasticities ...... Comnercial sector cross-price elasticities Commercial marginal rates of substitution Residential marginal rates of substitution vii 13 17 20 21 24 26 26 27 28 37 39 41 44 45 48 49 55 56 58 59 5.5 5.6 6.1 6.2 6.3 6.4 6.5 6.6 7.1 7.2 7.3 7.4 C.1 C.2 D.1 Comparative heating costs .......... . . . 61 Substitution comparisons ........ . . . . . 64 Ratios of industrial prices . ............ 69 Elasticity of substitution ............. 70 Wood consumption and price . ..... . . ..... 73 Values added for wood products . . . . . ...... 75 Hardwood statistics . . . . . . . . . . . . . . . . 76 Elasticities . . . . ..... . ....... . . . 77 Comparative heating system costs . ......... 83 Industrial fuel substitute assessment ....... 90 First year summary, industrial sector . . . . . . . . 91 Cash flows . . . .................. 93 Full-tree estimates . . . . . . . . . . . . . . . . 107 Coefficients . . . . . . . . . . .......... 109 Average firewood prices . . . . . . . . . . . . . . . 111 Figure 3.1 3.2 3.3 3.4 4.1 4.2 4.3 6.1 List of Figures Petroleum supply-demand balance for 1976 Supply price and quantity averages for pre- and post oil embargo periods . . . . . . . . . Wood product supply price and quantity averages for pre- and post-oil embargo periods . . . Potential supply sources for wood fuel Average pre- and post-oil embargo commercial fuel prices and quantities demanded . . . . Average pre- and post-oil embargo residential fuel prices and quantities demanded . . . . Average pre- and post-oil embargo industrial fuel prices and quantities demanded . . . . Effect of fuel costs on profitability ix 18 23 3O 32 42 46 51 72 Chapter 1 Introduction Background History records a pattern of moving from wood to other fuels; e.g., wood to coal, oil, gas, and electricity. Since 1974 and the oil embargo, however, residential and industrial demand has reversed the historical trend away from wood and now looks at it as a popular energy substitute. That wood and wood based substitutes are economic may be erroneous; only history and analysis will bear that out. Early nineteenth century lumber mills and Erie Canal boats used wood energy; national rail systems guided wood-powered locomotives over 9,000 miles of track (Jones 1970). Textile manufacturing was in its ascendancy; wood-fired steam engines powered the country's industrial plants (Hunter 1975). And Mississippi riverboats steamed the nation's greatest waterway. Between 1800 and 1850, our energy base shifted from wood to coal; population grew to 15 million people; agriculture bloomed from small-scale subsistence farming into large- scale commercial enterprise and cash crops (e.g., cotton and tobacco). Coal substitutes and charcoal were common by 1850. Iron pro- cesses using anthracite coal realized a 490 percent advantage over iron made with wood (Walker 1966). Mechanical pulping, introduced about 1850, helped maintain wood use but not as fuel. Paper and paper 2 products shifted from rag-based to wood derivatives. Iron demand during the Civil War increased wood use and helped introduce coal. A building boom helped establish the forest industry; more wood generated steam for sawmills. Transcontinental railroad locomotives could travel further between fuel stoos with coal. After the industrial transition only the residential sector stayed firmly in the wood use camp. Wood fuel uses increased between 1850 and 1870, but use relative to total energy demand declined (Schurr and Netschert 1960, Tillman 1978). , Wood fuel use declined over the next century; periodic events such as the Great Depression and WWII created new, but short-lived, demand increases. Wood became a reliable substitute for energy sources in short supply (Stone 1977). Renewed wood fuel use in resi- dential and industrial sectors after 1974 is the most dramatic substi- tution example of wood fuel. Annual wood stove sales increased from 250 thousand to 2 million, in 1977 (Shapiro 1979); pulp and paper wood waste for fuel use increased from 74 to 91 million tons per year (American Paper Institute 1981). Wood stove sale increases and wood fuel use in paper production suggest a reversal in the 100-year decline in wood use, at least since 1974. Return to wood stoves in the residential sector and a growing dependence on wood fuel in the pulp and paper industry signaled some shift towards wood. Yet, wood can only substitute for other fuels if it can compete with them and established wood product uses. The 1973 oil embargo led to an unprecedented period of unemployment and inflation. Price control removal in late 1973, crop 3 failures in 1974, and natural gas shortages in the eastern United States in 1975 helped move Gross National Product downward and culmi- nated in stagflation--the simultaneous conditions of stagnant economic growth and inflation (Baumol and Blinder 1979). The embargo, its aftermath, and preoccupation with inexpensive energy renewed wood fuel USES. Problem Statement Wood fuel substitutes have concerned the wood products industry (Seidl 1979). Realistic estimates of the amount of wood used for energy are inexact; e.g., media speculation on the possibility of wood fuel as a viable alternative to nuclear power panders to that vocal segment of society seeking to shut down reactors--such speculation sells copy, not energy (Smith 1981, and Stokes 1981). Even if the speculation were true; it helps little in deciding which fuels, con- ditions, or how much cost savings a serious user might expect with a wood substitute. Although balanced arguments for near- and long-term fuel substitutes have been offered (Rider 1981; Schurr, et al. 1979; and Stobaugh and Yergin 1979), most analyses focus on gross supply poten- tial. Comparative economies of wood fuel for heating or driving industry have been ignored. Supply orientation, recently yielding to consumption documentation, ignores price, the major resource allocation mechanism in our society. Objective and Scope This study will identify potential wood substitutes and offer a rationale to decide when wood fuel is economic. The data base from which the rationale is developed centers around 1967-1980. Scope is essentially sectorial: major fuel uses in commercial, residential, and industrial sectors are examined relative to substitu- tion by wood fuel. Demand and price data are organized into time series. Although scope is national, local cases also illustrate fuel use and economy. Approach and Orientation Major fuels are selected and defined in Chapter 2. Importance of combustor efficiency and wood moisture content are demonstrated. Chapter 3 presents time series data for fuel supply. Quantity and price data represent production; coal price is taken at the mine- mouth, wellhead or refiner's acquisition and wellhead prices are used for oil and gas; stumpage prices and quantities are used for wood. Because products are also made from fuels, all production is taken into account and expressed in comparative energy units (conversion factors are given in Appendix A). Average production and price avera- ges are compared for two periods, 1967-73 and 1974-79. Unpriced wood supply is also estimated on an annual basis; mill residues, urban wastes, and potential from biomass farms are included. Demand and price data for fuels in commercial, residential, and industrial sectors are recorded and examined in Chapter 4; quantity and prices are recorded at their point of use. Demand and price averages for 1967-1973 and 1974-1980 are analyzed relative to firewood demand and prices. Firewood includes chips, bark, edgings, sawdust, shavings, and black liquors used by the pulp and paper industry. All components are expressed in equivalent enerqy units to facilitate comparisons. Commercial and residential heating uses are examined for wood substitution potential in Chapter 5. The commercial sector includes non-manufacturing businesses, health and educational institutions, and government. Because actual firewood amounts used are unknown for the commercial sector--cottage industries are often mistakenly included in commercial accounting--residential firewood is utilized for comparative purposes. Cost minimization is the assumed decision criterion for both sectors; substitution potential and two case studies are exa- mined. The residential sector includes single- and multi-family housing units. Cost minimization, especially in input factor markets, is the assumed objective function in industry. Chapter 6 provides a general record of quantity and price relationships designed to identify industrial substitution potential. The industrial sector includes construction, manufacturing, agriculture, and mining establishments. Special attention is given to the wood products industry and the problem of crossovers. The term "crossover" refers to intentional diversion of wood from conventional products to firewood in the resi- dential sector. All three sectors are reexamined in Chapter 7 from a fuel use decision viewpoint. Wood substitution alternatives, environmental concerns and safety are examined. Economic objectives are combined with physical needs for heat; a simple discounting approach is offered for industrial wood use. Chapter 8 summarizes findings from previous chapters. Conclusions are drawn about wood substitution potential and where it fits in an energy economy. Chapter 2 Fuel Selection and Description This chapter identifies major wood-using economic sectors and fuels for which wood is a potential substitute. To identify these substitutes, national consumption characteristics are reviewed by eco- nomic sector. Fuels are chosen on a use basis; fuels whose use was less than 5 percent of the 1979 national total are not viewed as strong firewood substitutes. Economic implications of firewood's phy- sical characteristics are also examined. Fuels selected are then compared. Bases for comparisons are potential and usable heat content. Potential heat is total heat available from a given fuel. Usable, or sensible, heat takes intended use into account; e.g., natural gas heaters are generally more effi- cient than oil furnaces; thus, a million British thermal units of natural gas have more heat potential than a million Btu of heating oil. Two conventions found in the literature are followed: average potential heat (average highest heat expected from a particular fuel) is used for simple comparisons; and, heat is expressed in “Btu." A quadrillion, or (1015), Btu is a “quad.“ With few exceptions current energy literature refers to heat in the English system. In keeping with that convention, energy will be expressed in similar units; although, Appendix A provides some metric conversion factors. Fuel Use In 1979, about 80 quads of energy were used in five major con- suming sectors of our economy (see Table 2.1). The extent of commercial sector wood use, unknown in 1979, mav soon parallel resi- dential use. Other fuels (e.g., geothermal, hydro- and nuclear power) were used primarily at electric generating plants where very small quantities of wood were used. Conmercial, residential, and industrial sector fuel-use characteristics will be examined in detail; wood substitution potential is strongest in these sectors. Fuel Selection Wood fuel substitutes are coal, gas, and petroleum (Table 2.1). Electricity, also a potential substitute, is widely used for heating and cooking. Only fuels for which wood is a strong substitute will be considered beyond Chapter 3, Energy Supply and Prices (e.g., petroleum byproducts such as tars and lubricants will be ignored). Specific fuel characteristics follow. Anthracite. A hard, black, lustrous coal containing a high percentage of fixed carbon and often referred to as "hard coal." Bituminous. Often referred to as "soft coal," bituminous is more volatile than anthracite. Lignite, included in this category, is a volatile brownish-black coal having a high moisture content. Dry Natural Gas. A gaseous mixture of hydrocarbon compounds from which liquids and other miscellaneous products have been removed; the amount of marketable, consumable natural gas available. .wma ucmpar .mmmmop cowmmPEmcmLF; .cowppwa ocm can» mmmom .cwama ucm apzae .uoozwcwe was» mmczpocfim .czocxc: v .Awamofiv m.apngam panopuoz .~.m open» 21 .cowaoscoca 00030055 000 .00030500 .me:m> .Lonewpzmm 00 mmUFLa 0000050: 0000 .000; 500 new .xpwoweuom—m 500 .m00 500500000 050050 550 .00000000 500 .550 Fmsuwmwc A00 .550 0005550m50 50V .mm0 500090: Amy .maocwesuwn A00 .mgwomcspcm AHV "upmzmn .Aafimafiv 00m: 0:0 5000000 000m: ”mootsoma 00.0 50.00 00.0 00.0 05.0 0H.0 00.0 00.H H0.H 0500 00.0 00.0H 00.0 00.0 00.H 00.0 00.0 50.0 00.0 0500 0H.0 00.0 00.0 05.0 00.0 00.0 05.0 50.0 00.0 550H 00.0 00.0 00.0 00.0 00.0 00.0 00.0 00.0 00.0 050a 00.0 00.5 00.H 00.0 00.0 00.0 00.0 00.0 0m.H 050a 00.H 05.0 05.H 00.0 00.H 00.0 00.0 00.0 00.0 0500 00.0 00.0 00.0 00.H 00.0 00.0 00.0 00.0 00.0 0500 00.0 00.0 05.0 00.0 00.0 00.0 0H.0 00.0 00.0 .050H 50.H 00.0 05.0 50.0 50.0 00.0 00.0 00.0 H0.0 H500 00.0 00.0 05.0 00.0 50.0 05.0 50.0 00.0 50.0 0500 00.0 00.0 50.0 00.0 50.0 55.0 50.0 00.0 00.0 000a 00.0 00.0 H0.0 00.0 00.0 05.0 0H.0 00.0 50.0 0000 00.0 00.0 05.0 50.0 00.0 05.0 00.0 0H.0 00.0 5000 tuiitiiiiiiiiniitii sum 0055—55 000 m005500 5005202 iiiiiiiiiiiiiutit- ofimv 500 550 A00 500 000 Am0 500 ~00 aao> 0: 05 m m .moowgn 050000 50005002 .m.m 0—000 22 Price and Quantity Relationships. Average real price increases were determined for the pre- and post-oil embargo periods using producer's price index for crude materials (CEA 1981). Supply data, from Tables 3.2 and 3.3 were averaged for the two periods and their percent changes plotted in Figure 3.2. Some supply declines occurred between 6-year periods as their average prices rose. Anthracite, gas, and kerosene prices rose 38, 73, and 34 percent respectively, while their supplies declined by 34, 9, and 35 percent. Bituminous, distillate, residual, and LPG supplies increased 12 to 23 percent over the two periods as their prices rose from 49 to 55 percent. Wood and electri- city prices fell 7 and 14 percent as their average supplies increased 5 and 31 percent respectively. Supply from Wood Commercial forests, about 483 million acres of land capable of producing 20 ft3 of industrial quality wood per acre per year, con- tained some 693 billion ft3 of growing stock timber in 1976. Distribution was about 64 percent softwood and 36 percent hardwood (Table 3.4). Growth was 21.7 billion ft3, another 3.9 billion ft3 died during the year, and some 14.3 billion ft3 was removed for industrial use. Net growing stock at the end of the 1976 was 659.7 billion ft3 (USDA 1981b). Only commercial wood volume components are published regularly; branches, rotten sections, tops, limbs, and bark above a one-foot stump are often ignored (Spurr and Vaux 1976). Full-tree components, material above a one-foot stump, are added to removal components exa- mined here. 23 0000050 550-0m00 0:0 -000 co» 000mgo>m 00500000 000 00500 050000 Owl uzumomux and >h.o.¢hou4m GOO), 8055000 00 _ E I 3&3 D on; 0400.mm¢ maoz.::p.m 053.590 - uh_0(¢rhz< m0 zupucuac 000 00500 0—0000 0000000 0003 .m.m 0000.0 30 00! . 3? 0003050 5007.500: 00:...- 500an 0002”; -2... 1 s d 3 ud a... m . N 1. a . 710 m i e v N L m mum:.t>< .H.e mg=m_m on! ...._._. _ U<¢Ihz< .. owl rO¢l ._h _ U _ abouam m< .N.¢ mesmwu om: maoziatm IO¢1 Aoopnnmm; mo _ E I t _ 236 D TONI Um.— wh._. _ U _ mhuuau umeOmm—x ow 47 Industrial Sector Demand. Average fuel use for 1967-1980 was 20.0 :_1.0 quads, while total overall use increased 10 percent, but the industrial sector wit- nessed more turbulent overall changes than the other two sectors. All fuel demand was down marginally except for anthracite and firewood, up about 4 percent (Table 4.6). Industrial sector firewood includes bark, waste wood, and black liquor solids from pulping pro- cesses (American Paper Institute 1981). The 1975 recession and a natural gas supply shortage and caused major demand declines, but anthracite demand was up about 6 percent. Natural gas and residual oil demand declined 17 percent in 1975; firewood by 13 percent; and distillate oil by 8 percent. By 1980, distillate oil, LPG, electri- city, and firewood demands reversed themselves enough to post a 40 percent increase between 1967-80 (see Table 4.6). .Egigg. As in other sectors, the most pronounced price rises occurred in 1973-74 and 1978-79. (Anthracite prices declined after 1977, then increased 12 percent in 1979-80, according to Table 4.7 data). Kerosene prices continued to rise dramatically between 1979-80. Nominal firewood prices--average mill pulpwood cost (USDA 1981a)--increased moderately during the period. Largest firewood price increases, +10 percent were in 1972-73, 1976-77, and 1979-80. Low prices, by comparison the other sector prices, were due to long-term contracts and large volume purcha- ses. Intersector price differentials began to disappear by 1980. Price and Quantity Comparisons. Tables' 4.6 and 4.7 data were averaged to compare 1967-73 and 1974-80 periods; prices were deflated 48 .Pwo —m=u_mmc Amv .Fwo mumppwumwu A¢v .mwm possum: “my .mso:PE=uwm Amy .muwumgsucm AHV .uoogmgwm Amv can .xupuwcuompm Amv .mmm Esmpoguma upsuwp ARV .mcmmocmx on "mposm n .Aafimmfiv «am: ecu .Afimmfiv mpaawpmcH Lanna cauwcme< .Ammmfi new .afimmfi .mfimmfiv Noam: .Aommfiv =o_pmpuomm< mew cmowame< ”mmoaaoma mea.oN mmo.fl Hm“.~ H¢¢.H mma.o MHm.H Nom.H Hme.m mNN.m NNO.o ommfl mom.H~ coo.H mam.~ emm.H N¢H.o euo.a oma.~ mem.m Nflo.m «No.0 mamfi Neo.mfi Noo.H Nm~.m HRN.H MHH.o eme.fl emfl.fl mmm.m Hem.m Hmo.o mama Oma.mfi mmm.o mmm.~ mmN.H mofi.o Nm¢.H me~.H mmm.m Noe.m “mo.o Kama mam.mfl Ham.o mmm.~ m¢N.H mmo.o mom.H 4mm.o ~o~.m m¢~.m oec.o maafi mam.mfi com.o «om.N ONH.H Hmo.o mmo.~ ©m~.o Nmm.m ~m~.m mmo.o mama mo~.om mom.o amm.~ mmN.H mmo.o mNN.H mom.o ooo.oH mHo.e mmo.o camfi Hfim.H~ Nom.o Hem.m HON.H ooH.o mmm.H Nam.o mam.oH “Hm.¢ mmo.o mamfl mmm.om mem.o NmH.~ mmH.H HHH.o a-.H mm“.o emm.m mmN.e Nmo.o NNmH Nom.om ~m~.o HHo.~ mfio.H mHH.o ooH.H oH~.o Now.m mm~.¢ meo.o Humfi m¢H.oN mmu.o mem.fl amm.o mNH.o mmH.H mmo.o mmm.m Nea.¢ mmo.o osmfi me~.mfi ooa.o mom.H Hmm.o Hefi.o mHH.H mme.o emm.m mmm.¢ moo.o momfl mfio.mfi «No.0 mNN.H new.o HmH.o HmH.H Hum.o “No.m meo.m euo.o mead www.mH mom.o mmm.H Nm~.o mNH.o eeH.H mo~.o meo.m HHH.m mmo.o Nomfl ulna:unuuuuunuluuiuununnnuuiuuniiuinnuui sum cow—5.63.0 Inlull.liniiiiiliinnniiiiniiuiIIIIIIIII _mpoc “my Amy NNV Amy Amv Nev Amy ANV “Hg ama> a.u=~sau .apcpmaucfi .o.e apnap 49 .mmuwca cooquaq cmcw>wpmou .coo; Amy new .zuwuwcpumpm Amv .mmm Esmpocpma upsupg ARV .mcmmogmx Amy .Fwo Fm:u_mmc Amy .Fwo mum—_wumwc Rev .mmm Facsum: Amv .maocwsauwn Amy .wuwumczucm “av "mpmsmn .wumu woven pose mpmum Go :3; cmusnEou meow: can .Amammflv .mza n w.mmuvga megumzocH .n.e mpnwh 50 using the crude materials for further processing producer price index for fuels (CEA 1981). Of those prices examined only electricity and firewood real prices declined after the embargo. Anthracite, bitumi- nous, gas, and kerosene demand declined in response to price increases averaging more than 50 percent. Distillate, residual, and LPG demand increased despite average price increases of more than 50 percent. Electricity and firewood demand both increased about 30 percent as their real prices declined 14 and 6 percent respectively (Figure 4.3). Summary and Conclusions From 1967 to 1980, total energy demand increased 10 percent in the economy made up of three sectors: commercial, residential, and industrial sectors. Demand increases were: electricity was up by 91 percent, firewood by 70 percent, LPG by 49 percent, and natural gas by 11 percent. Coal and kerosene demand declined 40 percent each; distillate and residual oil demand was down 6 and 14 percent respec- tively. Declines were observed in electricity, firewood, and coal pri- ces. Coal price declines were the exception in an industrial sector where prices increased more than 30 percent over the 14-year period. Natural gas prices rose 106 percent. Firewood substitutes for electricity seem rational choices meriting further study in the industrial sector. Residual and distillate oil prices rose 106 and 92 percent respectively in the commercial sector. Real coal price declines and a declining demand, suggest price declines may continue. Anthracite, 51 . .cmvcmsmc mmpupucasc can mmopga pus» Pm_gum=c:w omgmnsm —.ouumoa new -mga mmmsm>< .m.e mesa—u owl r0¢| uZumoxux maoz.z:p_m *p.o.mhom4m upmm amcu Foam -- 73 .sum copp—ws emu mcmppou Pmcwsoc cw men .ANV amcmnsac .mwupca ppm “manna e0 ace .AHV necessae .me_e,»ee=e _F< .Afimmfiv com: nee Aefimmfiv (om: "meeczeme 0~.~ mmo.H m5.¢ 00N.0 0N.N 05H.H 00.5w 500.0 5N.HH cmm.~ 000a 00.~ 000.H 50.0 NHN.0 00.N NmH.a H5.Nm 000.0 NN.0H 5H0.H 050a N0.H 500.H 05.m m0H.0 ~0.H 000.H 00.0w 050.0 c0.0H <00.H 050H m5.H 000.0 00.0 ~5~.0 m5.H 000.0 m0.0H N00.0 00.0 HHO.H 550a 50.H HH0.0 00.0 00H.0 50.H 0H0.H 0H.- 000.0 00.5 00¢.H 050a Hm.H 000.0 05.~ mmH.0 Hm.H 500.0 -.5H 500.0 50.0 00~.H 050a m¢.H 000.0 00.N m¢~.0 m¢.H mNH.H 0N.0H m0~.0 m0.0 omm.H e50H ~0.H 500.0 mm.~ 00H.0 mm.H ~00.H Hm.5H vem.0 00.0 oem.H 050a 0H.H 000.0 50.H 0~H.0 0H.H 550.0 m~.HH 500.0 mm.¢ mmm.a ~50H 00.H 505.0 H0.H 00H.0 00.H 050.0 0H.0 mam.0 0H.¢ 0¢¢.H H50H 00.H 0N5.0 05.H H¢H.0 00.H 000.H 00.0 00~.0 00.0 mmm.H 050a 50.H 005.0 c0.H «0H.0 50.H 000.0 00.0 050.0 HH.¢ NH¢.H 000a 00.H 050.0 Hm.H 00H.0 e0.H H00.0 5m.0 ~0N.0 00.0 00¢.H 000a ~0.H 000.0 0m.H 50N.0 N0.H 500.0 00.5 000.0 mN.m mmm.H 500a A~0 A00 A~0 ~00 A~0 NHO -0 NM%1 -0 Adv cam» mecumaucH pmrucmuwmmm cps; mecw> Logan; noozmcru o.muvcn was copuassmcou coo: .m.0 mPnMF 74 In 1980, veneer and firewood consumption levels were similar; but veneer prices were far higher than firewood. Only pulp- and firewood prices were competitive. That higher prices for production factors reflect final products value can easily be seen in Table 6.4. Values added, obtained by deducting average mill purchase prices from final sales prices, imply that largest revenue gains were made in pulpwood, then plywood, and finally lumber. Because firewood is con- sumed, there is little added value and purchase price reflects value added. Firewood was always of less value than lumber and veneer; however, product use decisions are not necessarily made on the value added basis. Crossover Potential Based upon Table 6.3 data, strongest crossover potential occurred in pulpwood. Since hardwood is the preferred firewood, hard- wood diversions are most likely unless only softwood species are available. Table 6.5 presents hardwood pulp consumption and residen- tial firewood statistics. Price elasticities suggest firewood crossovers occurred during 1969-70 and 1974-76. Cross-price elasticities, using firewood prices, indicate pulpwood was a good residential firewood substitute during 1967-68, 1971-73, and 1976-80. Results of two elasticity measures were conflicting; thus, ease of substitution indicated by elasticity of substitution was examined. Substitution was inhibited during 1971-74, 1976-77, and 1978-79 (see Table 6.6). Hardwood pulpwood crossover potential to firewood was strong, as expected, during the entire 1967-1980 period. 75 Table 6.4. Values added for wood products.a Process Product Value (5/00 ton) Hydrolysis Ethanol, phenol, furfural 215 Pulping Semi bleached kraft pulp 165 Newsprint 150 Reconstitution Plywood 135 Particleboard 25 Sawmilling Lumber Hardwood furniture grade 65-80 Softwood construction grade 60-70 Combustion Heat, steam 8 Veneer slicing Face veneers ? aSource: Adapted from Glasser (1981). Based upon stumpage prices. Table 6.5 Hardwood statistics.a Pulpwood Firewood Year Quantity Price Quantity Price 1967 0.228 0.75 0.163 1.39 1968 0.236 0.76 0.147 1.51 1969 0.269 0.81 0.130 1.64 1970 0.253 0.83 0.113 1.78 1971 0.255 0.85 0.105 1.91 1972 0.276 0.90 0.101 1.97 1973 0.311 1.01 0.106 2.53 1974 0.321 1.15 0.112 2.68 1975 0.232 1.22 0.118 2.78 1976 0.281 1.27 0.123 3.08 1977 0.287 1.29 0.131 3.45 1978 0.320 1.41 0.142 3.79 1979 0.327 1.56 0.163 4.47 1980 0.340 1.74 0.223 4.75 aSources: USDA (1981a) and usoc (1981). Quantities are in quads; prices are in dollars per million Btu. All quantities are hardwoods, however, general firewood prices (from Table 6.3) are used here. 77 Table 6.6. Elasticities.a Years Price Cross-priceb Substitutionc 1967—1968 2.60 0.42 2.50 1968-1969 2.05 1.58 16.00 1969-1970 (2.51) (0.75) 1.33 1970-1971 0.33 0.11 1.50 1971-1972 1.38 2.56 (5.00) 1972-1973 1.04 0.48 0.33 1973-1974 0.24 0.55 0.33 1974-1975 (5.50) (8.86) 13.00 1975-1976 (4.77) 1.87 2.67 1976-1977 1.35 0.19 (0.50) 1977-1978 1.22 1.16 2.50 1978-1979 0.21 0.13 (28.33) 1979-1980 0.36 0.64 7.00 aSources: Equations (6.1), (6.2), and Table 6.5. Parenthetical terms are negative. bPulpwood quantities and firewood prices. CSubstitution of pulpwood for firewood. 78 Crossover Implications Hardwood uses grew 50 percent in the paper industry for 1967-1980; for firewood, 37 percent during the same period. Delivered pulpwood prices increased 2.3 times and firewood prices increased 3.4 times (Table 6.5). An oven-dry cord of hardwood, averaging 21 million Btu, might have returned $100 per cord for home delivery in 1980; return for that same cord at a mill was about $37 per cord. Most hardwood pulp is used for paperboard products; its short- term elasticity of demand is between -0.10 and -0.20, and -0.17 to -0.35 in the long term. Normal lag between price driven changes in consumption is 3 to 4 months (Buongiorno and Kang 1982). After 1971-1972, firewood's own-price elasticity averaged bet- ween 0.50 and 0.90, neglecting some extremes during the 1973-1980 period (Table 6.6). Firewood demand is inelastic relative to paper- board; thus, firewood demand is less sensitive to price than paper- board demand. If hardwood factor inputs for paperboard are diverted to firewood in response to market demand, the paperboard industry will pay more for wood and try to pass added expenses on to users. Summary and Conclusions Firewood has had strong substitution potential in the paper industry since the oil embargo. Yet ease of substitution, measured by elasticity of substitution, has been relatively weak across the industrial sector. Substitution potential for conventional wood pro- ducts was slight. Lumber and veneer could easily outbid firewood for a wood resource. Hardwood used for paperboard provides an exception to these findings. 79 Crossover potential between hardwood pulpwood and firewood became large as price differences increased. Higher priced residen- tial firewood encouraged crossovers. Comparisons between own-price elasticities suggest paperboard consumption would decline 1 to 2 percent within 3 months in response to each 10-percent market price increase. To cover consumption losses, either new technologies must provide more complete use of raw materials, or additional fuel savings must be realized by consuming more waste for energy. Chapter 7 Decision Factors in Wood Fuel Uses Wood systems cost more than conventional systems, breakdown more frequently, and need more maintenance and repair; relative wood system advantages include their use to augment or substitute for existing systems. If fossil fuels are unavailable, or their costs climb steeply as in 1973-74, wood may help bridge a shortage or moderate expenses, even though storage, shipment, and handling costs are higher. Initial system costs are usually not the overriding criterion for a substitute fuel system; fuel cost savings over a next best alternative is important. This chapter covers some substitute alter- natives by examining comparative costs and expressing other concerns associated with wood systems. General Approach Fuel costs and combustor efficiencies play major roles by limiting economic substitution potential. In local situations, system needs are usually matched with several alternatives, which are then compared in cash flow terms. This approach will look at fuel cost differences over time and then decide which system is economic rela- tive to cost savings and ability to defray initial system expenses. 80 81 Fuel availability and proximity, both conventional and wood alternatives, must first be assured and then matched to application need. Collector and arterial roads must be available to transport wood, and to withstand heavy and continuous loads for industrial uses. Continuing supplies often require improved access. (The 1.872 quads of submarginal supply shown in Figure 3.4 is one example of a supply that may never materialize due to lack of access.) Residential wood users also need supply assurance. Data and analyses presented in earlier chapters will be used to estimate substitution potential; con- cerns which should be addressed before investing in either a wood system or hiring consultants to evaluate specific circumstances will be discussed. The major economic concern is cost savings; but home safety and the environment are two other major concerns. Commercial Wood Substitutes Labor and maintenance costs are often overriding factors in making wood use uneconomic in comparison to natural gas and coal (when available). Government tries to minimize total life-cycle costs, which take into account annually recurring and non-recurring costs over a system's and building's expected life. Federal agencies use standard procedures to compare building and construction projects (Federal Register 1981). A sample case is offered to illustrate the total life-cycle approach. Life-cycle Analysis. Extensive modifications, repair, and conser- vation measures were needed in three buildings totaling 70,000 ftz, Cost comparisons were made under contract (CTA Architects, 1980). 82 System alternatives were coal, gas, oil, electricity, wood, and solar energy. Engineering estimates did not satisfy the contracting office; single discount options and maintenance estimates for wood systems were questioned. Labor and Maintenance. The consultant's estimates were 45 minutes labor per day at a rate of 8.00 $/hr. The Forest Service thought nor- mal operations plus breakdowns, due to system newness, justified 8-hours labor at 12.00 $/hr. Table 7.1 displays the consultant's estimates, which underestimated costs considered by decisionmakers by $90 to $320,000.3 Discount Factors and the Decision. Varying the discount factors from 3 to 10 percent did not improve wood system economics relative to other choices. All three commercial buildings were insulated and new gas boilers were installed with infrared heaters. Environment and Safety. Commercial sector energy needs are usually between residential and industrial needs. Because emissions from wood boilers or heating systems are relatively clean, compared to coal and some heavy oils, systems rated below 1 million Btu per hour (1/21 of a cord per hour) are exempt from most air quality regulations. Commercial wood system emissions are usually below these minimums; thus, air quality has been of little concern. 3Memorandum (7310 Buildings-~dated 12/16/80) to the Chief from the Regional Forester, Region 1. 83 Table 7.1. Comparative heating system costs.a Life-cycleb Alternatives Equipment Fuel Maintenance Total -------------- 1,000 dollars -------------- Coal 152 184 42 378 Single gas boiler 94 260 2 356 Existing (gas) boiler 46 343 52 441 Fuel oil furnace 110 352 6 468 Electric furnace 182 220 2 404 Wood boi lerc 152 199 32 383 Others: Solar with gas 1,046 130 6 1,182 Three gas boilers 112 260 6 378 Three gas plus infrared heaters 120 228 7 355 aA commercial sector example (CTA Architects 1980). bDiscount rate = ((1+e)/(i-e))(1-((1+e)/(1+i))n, where i is the discount rate (10 percent for government projects), e is the fuel escalation rate (projected by USDOE (1980) to be larger than the nominal inflation rate), and n is the number of periods. Constraint: ife. cUSDA, Forest Service adopted a maintenance cost of $268,000. 84 New wood systems require different skills and safety measures than older, conventional equipment; e.g., oil or gas systems. Either a staff must be retrained or new people familiar with the system and safety precautions (e.g., pelletized and chipped fuel feed systems have explosive and fire hazard potential if improperly operated--USDA 1980). Residential Wood Substitutes Heating needs vary depending upon structural insulation, inside-outside temperature differences, and heating system efficiency. Potential economic savings, safety, and environmental concerns for homeowners is examined and general rules of thumb developed. Heat Exchange. Some homes are well insulated; a total air exchange occurs every 3 hours. Other homes are poorly insulated; total air exchanges occur more than once per hour. Improving heat retaining capacities may result in savings; however, analysis of each individual situation is necessary (Meyers 1978). Heat loss coefficients quantify air exchange; typical coef- ficient for a single story home with 1,000 ft2 of floor space is 430 Btu per hour per oF (Sheldon and Shapiro 1978). Coefficients may vary from 30 to 100 percent of the typical coefficient offered here. Temperature Differences. Heating degree days (HDD)--average number of degrees per hour a daily temperature is below 65 oF--is one common measure of inside-outside temperature differences. A national average of 4,778 :_230 HDD was experienced during 1931-1980 (USDC 1980). Heating degree days and exchange coefficients can be used to estimate 85 potential seasonal heating need. Average need for the typical single- family home is 49.3 1 2.4 million Btu per heating season (e.g., 4,778 HDD x 430 Btu/hr/HDD/day/season x 24 hr/day = 49.3 M Btu/season). Total cost for the wood-distillate substitute shown in Table 5.6 declines to $1,151.67, while gain for a wood-electric substitute declines to $243.05 using long-term averages. Perhaps savings would increase and more firewood substitutes become economic if firewood were offered free. Free Firewood. An opportunity cost is associated with cutting, gathering, and transporting firewood to a point of use. Cutting costs are minimal; nominal cost for a chain saw, fuel, and oil amount to 2.00 $lcord. Transportation costs may range from zero, for those individuals fortunate to live in or next to a woodlot, to 20 or 30 cents per mile (10 cents plus for a half-ton pick-up truck and 10 cents or more per mile for fuel). An individual's time might also be considered: transporting a cord of wood 50 miles one way involves two round trips or 200 miles of travel in the pick-up truck (about 5.5 hours time). Felling, limbing, and bucking take 3 hours; loading, unloading, and stacking 1.5 hours. 0ut-of-pocket costs amount to 50 $/cord plus an average of 10 hours labor for free firewood gatherers (Force 1982, Smith and Corcoran 1976, and White and Wilson 1981). Labor aside, free firewood burned at 30 percent moisture con- tent and 50 percent efficiency costs about 7.22 $/M btu, about half the 1980 cost indicated in Table 5.6. If free firewood opportunity costs were half the cost of purchased firewood during 1974-1980, total 86 savings for a wood-electricity substitute were $570.72 while losses associated with wood- distillate oil substitutes were reduced to $607.37. Quality wood stoves cost $800 to $1,000 with chimney and installation (Wood Heating Alliance 1981). At a 7-percent discount rate, stove costs were $497 to $621 in 1974; a wood-electric substitute would pay for itself in 6 years. Wood storage costs--averaging from a few pennies per month per cord for space in the back yard to $3 or more per month per cord in a basement--must be ignored to justify wood system substitutes for oil heating. Also, 10 additional hours labor per cord for stove tending and some $50 annually for chimney cleaning must be overlooked, if wood systems were attractive residential heating substitutes through 1980. Electric, gas, and oil systems usually do not require constant fuel handling and maintenance. Environment and Safety. Wood stoves release more polycyclic organic matter than fireplaces, coke furnaces, and stoker-fed coal burners on a per unit-of-heat output basis. Polycyclic organics include hydrocarbons and condensable organic compounds (known carcinogens). Stove emissions have increased 40 or 50 percent right along with higher stove efficiency due to restricted air flow. Carbon monoxide from wood stoves is more than 10 times that from hand-stoked coal sto- ves and almost 1,000 times a natural gas furnace emission level. Benzo-a-pyrene--whose measurements are challenged because they vary up to 300 percent from standard emission tests--have been used as a 87 carcinogen estimator. Carcinogens from wood stoves, so estimated, are more than two orders of magnitude larger than levels estimated in any other home combustor (Jaasma and Kurstedt 1981). A midwest study found 70 percent of recent home fires were caused by improperly installed wood stoves or unsafe materials used in their installation. Problems found included: melting chimney liners; inadequate clearance between ceilings, floors, and walls; and flue- sharing with other heating units. Also, small children and hot stoves do not mix well; tiny tots receive a diSproportionate number of burns that are reportedly due to stove contact (Robinson 1981). Accidents are not restricted to the home. Free firewood seekers briefly accept the same risk as professional woods workers, as they gather a winter's wood supply. Chain saws can cause nasty cuts, branches can poke eyes, and unaccustomed lifting can cause muscle strain. In 1976-78, nonfatal accidents numbered 9.6 per hundred and lost workdays numbered 6.4 per hundred full-time logging employees (National Safety Counsel 1979). Estimating Saving_. Before choosing wood fuel substitutes, several decisions must be made; then wood fuel costs must be compared with other fuel costs. First, questions of labor, wood storage, and stove- tending need resolving. Because equipment needed to gather wood fuel will normally be reimbursed out of fuel savings, it is not a con- sideration at this point. But, final questions involve estimating economics of each application. Because net annual cost savings must 88 pay off investments, they should be accounted in constant dollars using an appropriate discount rate and then compared with projections out to the end of a stove's useful life. (Since primary estimates assuming an equal system life are usually good enough.) Several approaches can be used to estimate fuel cost differences over time. Historic trends--e.g., 13 percent average increase in cost differen- tial per year for electricity (from Table 5.6)—-can be projected for- ward for a 10-year stove life. A more realistic approach would be to project a range of expectations forward over time. Discounted cost differences should then be compared with expected initial investments; e.g., for stove, chimney, chimney liners, and other equipment. If savings at the end of the stove's expected life are larger than expenditures, wood substitutes are economic. Industrial Wood Substitutes A feasibility assessment must be made prior to an economic analysis; cost savings must exceed system costs and provide a return on investment. Wood storage spaces must be available; roads must be adequate; fuel supplies must be accessible and close to roads. Fuel and support systems must pose relatively few environmental problems. Pulp and Paper Experience. Over the past decade wood-fuel substitutes--bark, hogged fuel, and black liquor solids-~have increased at a 1-percent-per-annum rate in the paper industry. 89 Table 7.2 identifies future substitution potential based upon 1980 savings (American Paper Institute 1981). Coal and natural gas were less costly than wood; savings from distillate Oil and LPG substitutes were relatively small compared to savings potential from a wood- residual Oil substitute. Potential savings for an additional l-percent black liquor-residual oil substitute was $10.8 million; a wood or bark substitute was $4.9 million. Hypothetical Example. Consider a $2 million wood-fired system substi- tute replacing a $150,000 fossil fuel system. First-year fuel cost is $700,000 compared to $2 million for the current system. Operation and maintenance--including electricity, and mechanical and other repairs-- labor costs, and Operating costs Of mobile equipment are $400,000 ver- sus $100,000 for the old system. New system property tax and insurance are expected to be 2.5 percent of system cost, or $50,000 compared with $4,000 for the old system (Table 7.3). To compare systems, year-by-year costs must be projected for their 10-year life-spans. (Initial costs are recorded in year zero; Operational costs at year's end.) Projected annual costs are deducted from present system costs to determine cash flows. Table 7.3 assumes average fuel cost increases of 10 percent annually for both systems. First-year Operational and maintenance costs are relatively high for the new system, drop during the second year, and increase 5 percent per year thereafter; Operation and maintenance for the Old system is 5 percent per year. New system property taxes and insurance 90 .m0:w>om poppoouoa o>5uo0ozo .5oom ma OH x 0mm.o x Ho.o x sum 2 \a oe.H ..m.e0 0 z 0.0 m5 muouwumozm 55o Pozupmmgioooz ucmugmnifi o com Fowucmuoa m0:w>om pouch 0 .5000H mpopwumcH Logo; couwgme<0 acumzvcw gonna oco apoao 000 00.0 00H.0 xcom 000 00.0 0HH.0 Foam ummmo: H00.~ 00.0 000.0 mcoocpp xuopm - e - H.o - e - mo.o coo mm.m mow.o new Peceeez 0.0 H.0 0H.N m0.m Hm HH.5 000.0 004 0.0 0.05 0¢.H 00.0 mNN.N 00.0 00m.0 Foouwmmm 0.0 0.0 00.0 50.0 55 no.0 000.0 ouopppumwo i o i i o i i o i i o i 000 00.0 500.0 Poou ii-iiiiiiiiiiiiiiiiiiiiiiiiiii mcoppou 000a iiiiiiiiiiii-iiiiiiiiiiiiiii woo: Loauwg woo: coaurg Am :0 50pm 2500 (Amuosug Foam pmou Pouch “moo are: mm: e50 ztieoo5 diam z\»0 “we: Powpcmuom m005>om o.u=osmmmmmo waspwumoom "mom povcumzocu .~.5 mpooh 91 Table 7.3. First year sunmary, industrial sector.a Fuel_§ystems Costs Wood Oil ---- 1980 (k $) ---- Initial 2,000 0 Annual: Fuel 700 2,000 Operation and maintenance 400 100 Property tax and insurance ___Jfl1 ____1[ Subtotal 1,150 2,104 Total (including initial) 3,150 2,104 aHypothetical case adapted from Ellis (1978). 92 decrease 5 percent annually due to depreciation; the Old system sche- dule is based upon a $150,000 market value (depreciating to zero in 10 years). Systems' cash flow summary is illustrated in Table 7.4. Economic Effectiveness. Net present worth Of the hypothetical wood system is $4.7 million; payback period is 3 years; internal rate Of return is 38 percent; benefit cost ratio is 3.1. By most economic measures wood substitutes, whose assumptions closely approximate real world situations, is competitive with other projects. A typical company's return-on-investment criterion is 15 percent; average return on assets is only 10 percent. Utilities Often invest in new facilities that yield 8 percent on assets; other energy users turn down conservation investments whose returns fall below 30 percent. Competitive economic effectiveness measures do not ensure investments except in wood products; supply curtailments signaled need for a change (Hatsopoulos, et al. 1978). Effectiveness Variability. Lin (1981) estimated effects Of con- ditional changes on rates of return for steam boiler systems varying in size from 5,000 to 100,000 pounds per hour (i.e., 0.5 to 10.5 cords input per hour). Assumptions were: capital costs, $0.4 to $3.6 million; first-year Operating and maintenance costs, 10 percent Of capital costs; fuel escalation, 10 percent; annual operation, 8,000 hr/yr at 75 percent Of capacity; tax rate, 50 percent; tax cre- dit, 20 percent; investment finances, 80 percent Of capital costs at 15 percent per annum; and system life, 20 years. Estimated rate of return was 42 percent annually. 93 Table 7.4. Cash fiows.a Fuel Systems Year Fossil - Wood = Net Costs Present Worth -------------------------- 1980 (M $) ---------------------- 0 0 2,000 -2,000 -2,000 1 2,104 1,150 954 795 2 2,308 1,028 1,280 889 3 2,533 1,113 1,420 822 4 2,780 1,207 1,573 758 5 3,052 1,308 1,744 701 6 3,351 1,420 1,931 647 7 3,679 1,536 2,143 598 8 4,039 1,678 2,361 549 9 4,436 1,826 2,610 506 10 4,871 1,989 2,882 __465 b -2,000 6,730 aAdapted from Ellis (1978). bNet Present Worth (1974 dollars) = 6,730 + (-2,000) = 4,730. 94 Altering investment conditions impacted the rate of return as follows: 10-percent capital-cost increase, a 3-percent decrease; 25- percent-per-million-Btu increase in wood fuel price, a 5-percent decrease; 1 $/M Btu increase in fossil fuel price, a 10-percent increase; 10-percent tax increase, a 3-percent decrease; and a 5-percent escalation, and a 5-percent increase. Twenty percent capi- tal interest and 2-percent interest rate increases had negligible impacts on rate of return. Equipment Costs. Equipment costs vary according to individual need; e.g., $2,000 to $35,000 for a 0.1 to 3.0 million Btu/hr system (i.e., 1/21 to 1/7 Of a cord input per hour). Wood fuel feeder prices also vary according to size, type, and length (Ekono, Inc. 1982). Due to extreme variability--based upon need, location, technology, and fuel supply--detailed costs should be prepared only after on-site visits by qualified engineers familiar with wood substitute applications. Until recently, price estimates were Obtained directly from equipment manu- facturers or research publications. That trend is slowly reversing; Morbark Industries, Inc. (1982) has recently published an equipment catalogue with prices. Summary and Conclusions High labor and maintenance costs make commercial wood system substitutes marginally unacceptable. Failure to include all relevant costs make a 2.5 cord residential firewood substitute for electricity barely acceptable (e.g., a lesser wood need equals more than a 6-year payback). Industrial wood substitutes are economic; but, industry is 95 reluctant to accept wood substitute projects on the basis Of favorable economic evidence. 0ne decision approach, that will work in each economic sector, is to consider each aspect and condition associated with wood substitutes in an equation as follows. . . . divide half a sheet Of paper by a line into two columns; writing over the one Pro, and over the other Con. Then during three or four days consideration, I put down under the different heads short hints of the different motives, that at different times occur to me, for or against the measure [Wood fuel}. When I have thus got them all together in one view, I endeavor to estimate their respective weights: and where I find two, one on each side, that seem equal, I strike them both out. . . . and thus proceeding I find at length where the balance lies; and after a day or two Of further consideration, nothing new that is Of importance occurs on either side, I come to a determination accordingly. . . .I think I can judge better, and am less liable to make a rash step, and in fact I have found great advantage from this kind of equation.4 Although equipment costs vary across all sectors, only residential wood stoves endanger the environment and increase accident frequency perceptibly. Cost Of reducing, or eliminating, carcinogens from wood stove smoke cannot be Offset by fuel cost savings. Air pollu- tion equipment is one small component Of industrial wood systems' capi- tal costs; 10-percent increases in them decrease annual rates Of return by 3 percent. Because prices and needs vary--perhaps in the same or similar locations--equipment suppliers are reluctant to publish price lists. Generally, costs vary directly with plant size and other variables; e.g., supply continuity. Preliminary analyses, like the 4B. Franklin (Gramlich 1981). 96 ones in this chapter, should be followed by specific analyses, similar in approach but more exacting in content, before deciding on a wood system and fuel as a substitute. Chapter 8 Summary and Conclusions Potential wood fuel users would be well advised to consider combustor efficiency and moisture content Of wood species available to them when they consider wood as a fuel. 0f the two, moisture content is the most important. All energy production increased over the 1967-1980 period except for anthracite coal and kerosene. Supply prices (1967 = 100), for the most part, were up at least 15 percent for the 14-year period. However, electricity, LPG, and real wood prices declined. Firewood and hardwood pulpwood stumpage prices suggest firewood sales to homeowners could have returned $6.00 dollars more on each dollar invested in stumpage for paper interests. Total wood fuel supply potential, excluding reductions in growing stock and diversions from conventional products, amounts to 11.7 quads annually. Of this amount, 2.5 quads are classed as econo- mic, 7.3 quads as paramarginally economic, and 1.9 quads as sub- marginally economic. Prior to the 1973-1974 Oil embargo, wood fuel uses declined to a record low. Since then wood fuel uses increased 40 percent, with a 240-percent residential sector price increase. In the industrial sec- tor, increased use was more than 80 percent with a 124-percent increase in wood prices. All other energy fuels lost ground with 97 98 respect to wood fuel; most other fuels used proportionately more before the embargo were used proportionately less after. Other fuel prices relative to firewood also declined. In the commercial sector, wood fuel substitutes for oil products became economic after the 1973-1974 period. (This was a general truism in all sectors examined.) Wood was an efficient fuel choice over electricity during the 14-year period. (This too is a general truism.) Wood fuel was not, however, the most efficient fuel choice based upon life-cycle, labor, maintenance, and repair considerations. Once other factor costs were included in a comparison equation, firewood came out third best behind natural gas and bituminous coal- fired systems. In the residential sector, a slightly different situation . existed. Residential wood users maximize utility. If cost minimiza- tion is less important than recreation or physical exercise; e.g., in cutting, collecting, and stacking firewood, then wood may serve needs better than other fuels. If an individual has no alternative (income or fuel), then firewood may also be an efficient fuel. What is involved in that choice is ignoring labor associated with gathering and transporting each cord of firewood gathered and labor involved in stove tending. Distance to a firewood source and stumpage costs could change all that, however. Cost becomes prohibitive for haul distances approaching 100 miles one way. A source next door, or a short distance from home, is more efficient than paying for commercially sold fuel. 99 When viewed from the perspective Of out-Of-pocket savings, efficiency of substitution depends upon alternative income sources and the system wood will substitute for. A negative saving occurred when firewood substituted for natural gas or coal. Free firewood, transported 100 miles or more, resulted in negative savings for distillate Oil substitutes, while substitutes for electricity resulted in a 6-year payback for a wood stove installation. Most residential firewood uses are secondary or supplemental uses. More than 4.0 million housing units, with natural gas systems for primary heat, used wood fuel as an alternative in 1977. In the industrial sector, substitution potential of wood for other fuels has been strong since 1974, but ease Of substitution has been weak. Little probability of substituting conventional wood pro- ducts for firewood exists even though factor market cost savings were large. Strong tradition may be ignored at some point, if choice involves survival versus large volumes of unused material. Values added to veneer and lumber suggest diversion to fuel is inefficient. Crossovers between pulp and paper industry and the residential sector is different. Production factor costs in pulp and paper have neither paced industrial factor costs nor residential firewood costs. Hardwood destined for paperboard uses may find its way to residential wood stoves. Average price differential between delivered hardwood pulpwood and firewood, $63 per cord in 1980, make crossovers worthwhile for Operators. Price increases in the industry's factor markets could put hardwood out Of reach of residential firewood users, but that solution would be self-defeating. Firewood price 100 is inelastic relative to pulpwood, meaning price increases will not effect firewood consumption as much as they will affect paperboard demand. Passing a 10-percent price increase in paperboard products on to consumers will reduce overall product demand from 1 to 2 percent in the short run and 3 to 4 percent in the long run. Few choices are open to the paperboard industry. If paperboard is to compete with firewood, it must either improve hardwood use tech- nology, use more Of the wasted wood components, or tie operators closer than ever before. Combinations of the first two alternatives are, perhaps, the most logical to pursue. The third alternative would only be a temporary solution, particularly if market slumps continue. Firewood substitutes have been made for other fuels in the past. During the Great Depression, when wages and incomes were drama- tically reduced, a large increase in wood use for cooking and heating took place. During WWII, when other fuels were diverted to the war effort, a somewhat lesser return to wood fuel uses was witnessed. The Oil embargo and the recessionary period following it triggered another return to wood fuel use. As personal incomes are eroded through inflation; as industrial demand slackens for lack of consumption in product markets; as once dependable fuel supplies dwindle and their prices escalate--the search for efficient energy substitutes will continue. Wood is one such substitute. Annual wood supply potential cannot, however, sustain large energy demands. Total annual available wood resource amounts to less than the quantity consumed by the commercial sector in 1979. At best, a return to wood is one more phenomenon of our energy use history. It 101 can provide a small respite from shortages confronting our nation in coming years. The substitute fuel role wood can play is as another outlet for wood products, especially during slack economic periods. It can employ part of a labor force that would otherwise be unemployed. It can also buy time; it can bridge some energy supply gaps until new technologies are perfected. At this time, however, no one is sure just what form new technologies will take: solar energy, energy from the sea, or perhaps nuclear fusion energy from hydrogen bound in water. Regardless of form or extent Of new technology, wood is here now, but it is not necessarily an inexpensive alternative to other fuel choices. Tradeoffs involved in wood use include labor, more maintenance, and more repairs. Capital investments in equipment capable Of handling and delivering sufficient quantities Of wood to meet demand are Often much larger than similar investments for other fuels. For those industries, residences, and commercial establishments fortunate enough to have a ready and accessible wood supply, return on invest- ments during periods Of rapid inflation are sufficient to adapt a wood fuel system to their needs. For those without access to a supply, or who would otherwise tie themselves to the residue generated from a wood products industry (but not themselves part of that industry), wood fuel substitutes are most likely not economic. Using wood fuel substitutes would have to be rationalized in another way. In this situation, economic efficiency usually dictates using a non-wood alternative. Appendices Appendix A Conversion Factors and Abbreviations The preceding text used English System measurement units to conform with current convention. Each factor meets a specific purpose in the text and all factors are averages (Tillman 1978 and USDOE 1982). Conversions from English to Metric Units 1-pound (lb) = 454 grams (gm) 1-barrel (42 gallon--bl) = 159 liters (l) 1-acre (ac) = 0.404 hectares (ha) 1-cubic foot (ft3) = 0.03 cubic meters (m3) 1-British thermal unit (Btu) = 252 calories (cal) 1-Btu/lb = 0.6 kilo-calories per kilogram (kcal/kg) Abbreviations Q = 1015 = 1-quadrillion (a quadrillion Btu = 1-quad). T=109 M=106 1<=1o3 102 103 Quantity per Quad and Equivalent Heat per Unit Fuel: Quantity/Quad: M Btu/Unit;/Unit: Anthracite 44.1 tons 27.7/t0n Bituminous 45.1 tons 22.2/t0n Natural gas 1.0 T ft3 0.001/ft3 Distillate 7.2 B gallons (gal) 0.138/gal Residual 6.7 8 gal 0.150/gal Kerosene 7.4 B gal 0.136/gal LPG 11.4 B gal 0.088/gal Electricity 294.1 0 k watt hours (kwh) 0.0034/kwh Oven dry wood (00) 62.5 M tons 16.0/t0n Green wood (30% MC) 94.3 M tons 10.6/ton Green wood (50% MC) 128.2 M tons 7.8/t0n Wood Factors (OD) 1-ft3 = 30.2 lb 1-ft3 hardwood = 32.8 lb 1-ft3 softwood = 27.3 lb 1-board foot (bdf) = 2.5 lb 1-bdf hardwood = 2.7 lb 1-bdf softwood = 2.3 lb 1-cord = 1.2 tons 1-cord hardwood = 1.3 tons 1-c0rd softwood = 1.1 tons 1-lb wood 4 lb steam l-lb wood 8,000 Btu Appendix B Combustor Efficiency and Moisture Content One effect of any combustor's efficiency, ex, on fuel.y is to inflate price, Py, because some combustion energy is lost. (Alternatively, net heat could be reduced proportional to ex. Note: inefficiency is 1 - ex.) Adjusted fuel price, Pa’ is Pa = Py/ex° (8.1) When the price ratio, Pr Of firewood, Pf, and some other fuel, 9 Py, is formed it can be adjusted for combustor efficiency as Pr = (Pf/Py)(ef/ey). (3.2) Potential heat from firewood is reduced by moisture content, MC, also; potential heat reduction due to water is usually Of more consequence than combustion efficiency. It can be reflected in margi- nal prices per unit Of heat also. Comparative firewood price, Pc’ due to efficiency and moisture content is Pc = Pf/(ef[1.0000 - 0.0114 MCJ), (B.3) and firewood to any other fuel net price ratio, Pn’ can be estimated directly as Pn = (Pf/Py)(RM). (3.4) where M = 1/(1.0000 - 0.0114 MC) and R is the ratio Of efficiencies given in equation (B.2). Application to firewood prices is straightforward; consider a wood stove that is 50 percent efficient, a gas heater 80 percent 104 105 efficeint, and firewood containing 30 percent moisture by weight. The net price ratio, from equation (8.4), is pn = (1.6)(1.5)(Pf/Pg) = 2-4 (Pf/Pg)° Appendix C Full-tree Estimation Procedure Firewood and other wood fuels are frequently omitted from con- ventional inventories (Spurr and Vaux 1976). Nevertheless, production residues are often used in products or as fuel (Glasser 1981). Residues are materials left from production processes; e.g., sawdust from a lumber mill. Residuals, which differ from residues, are tree components or whole trees left after harvest (Young 1981). Keays (1975) suggested all these components could be estimated by considering full-tree components, both residuals and residues, which included mainstem and its bark, rotten section, branches and tops, top bark, and f0liage--all above a one-foot stump. Wahlgren and Ellis (1978) modified Keays' approach and reduced it to an accounting system; Carpenter used (1979) their system to simulate full-tree volumes in the Southeast. Keays' approach, modified by Wahlgren and Ellis, is generalized further and expressed algebraically in Table 0.1. An application, using 1976 inventory data (USDA 1981b) illustrates ease Of use. All components are expressed as fractional components of mainstem, m (e.g., top bark is 20 percent of branches and tops--0.2c[1 + aJm). The approach, with one exception, is within 12 percent of a recent national inventory (USDA 1981c). Rough and rotten toprOd and bark for softwood was 42 percent less than this inventory; hardwood estimates were within 16 percent. 106 107 .mmuoewumm Eog» umoopoxo on o_=oz mmowpom mow» ioogo :5 .mpcocoosoo 0000:5505 :5 mu» 2 ~0.HH mo Fooowmmg pm: o mm>owp muoooogo 5o m»; z 0.0Ho .000 go» oopmm>goc mo; Aucmpo>woum uoozccoogv ooozogo; coma mpno>pom mo mppfiuammma<0mmww0n0mHmw mwooo .ooozoco; uomo opoo>5om Low 0.0 opnoko .Am5mfiv o___m eee eoco_ea3 oee Am5afiv m5eo¥ "moocseme omm.m~ ALON.OVN.H + Amo.HOAmH.HO0Aom.H0 erN.H + an + HVAQ + HVVAe + H0 oaco-_P=a mwnmi Nmfi.fi0flom.fiqmo.o efla + HVAe + H0e oaew_ea mo.o Aom.H0Aow.ovoN.o eAe + Hvo N.o 02am ace mm.m Aom.HvoN.o eaa + Hvo maao nee maeoeecm ae.~ Aom.flvmfl.o efie + five xcem ecumewaz m5.m om.o so eawpooo eaooex Om.NH oo.H e soone_ez omE:5o> omucowowmwoou omcowmmogaxm mpcmcooeoo 0055 cowpoUPFQQo opanm .wooeepomo ooc0-5_=a .H.o opeee 108 The method offered here uses any available commercial inventory; e.g., Table C.1 using coefficients from Table 0.2 (values of the coef- ficients (a) through (d) for growing stock, three nongrowing stock, and saplings are included.) 109 .mucmcoo -eao .Pe Lac 5e + Hvom.o o_ seen ace .Am5mav mPPFM nee eocm_ee3 oee 5m5mflv aaaox "mooczema ma.0 00.0 00.0 00.0 0H.0 00.0 ooozcgo: 00.0 00.0 0H.0 0H.0 mH.0 0H.0 uoozumom ooe_5em Lev 0m.0 00.0 00.0 00.0 00.0 00.0 voozogo: 00.0 0H.0 00.0 00.0 00.0 00.0 coozuwom moo» 00o monocogm 500 00.0 0H.0 0H.0 0H.0 00.0 0H.0 noozogo: 00.0 mfi.0 0H.0 ma.0 00.0 0H.0 coozpvom xgoo Emum05oz 500 00.0 00.0 00.0 00.0 00.0 00.0 coozcgoz 00.0 00.0 00.0 00.0 00.0 05.0 uoo3u5om copuom on mmcwpaom ooou mpoo>pom 55:0 coupom 55:0 ocoom Lonewpmpoa cwaewpzom mucmconsou mcowuoowmwmmopo 000505 o.mp:mpuwwmwou .N.0 05005 Appendix 0 Residential Firewood Price Estimates Estimates were made by examining 21 city's newspaper classified advertisements for 1971-1980. Newspapers were chosen on an availabi- lity, geographic distribution, and population density basis. Because firewood use varies inversely with population (Lipfert 1981), cities with large populations; e.g., Chicago, New York, and San Francisco, were excluded from the survey. TO ensure finding firewood advertisements, Sunday editions following the second hard freeze were examined. Freeze data for each location were Obtained from the U.S. Weather Service (NOAA 1980). Advertised prices were recorded, adjusted to cord equivalents, and averaged. A pick-up load was a half-cord; a rick was one-third a cord; a cord was 80 ft3 of bark and wood. Average nominal prices are arithmetic means of adjusted adver- tised prices (see Table 0.1). National and local average prices for 1971-1980 have an absolute range varying from 10.00 $/cord in 1971 to 126.00 $/c0rd in 1980. National average prices increased about 10 percent annually (standard deviations of price are also shown in Table 0.1.). Average prices were extended back in time using a linear relationship between average hourly earnings in pulp and paper. (Firewood price[r=0.986] = -11.90 +13.97[wage rate]. Standard error of slope was 0.90; applications is made in Table 4.5). 110 111 .mLo00 000;» co0 nczom 0L0: mugoamg oz 0 .ucoo Lon 0000000 0ocweo: :0 ago mmwgacw .mgmaoamzmc 0ooo0 sogm mucoswmwugm>0o umwmwmmo00 "mogzomo 00.00 00.00 50.00 00.00 00.0 00.0 50.00 00.0 00.00 00.00 .>00 .000 00.00 50.00 00.05 00.05 50.00 00.00 00.00 00.00 00.00 00.00 m0ogw>< 00.00 00.00 05.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00 03 .comwuoz 00.00 00.00 00.05 00.00 00.00 50.00 00.00 00.00 00.50 00.00 <3 .m0uuomm 00.50 00.00 00.50 50.05 00.00 00.00 00.00 00.00 in- 00.00 <> .0cosgowm 00.000 50.000 00.05 00.00 50.00 00.50 05.50 00.00 00.50 00.00 00 .0000 0004 0000 00.00 00.50 00.00 00.00 00.00 00.00 00.00 00.00 00.00 .0. x0 .owcopc< com 00.00 00.00 00.05 50.00 00.50 in- 50.00 in. in. 00.00 <0 .0csnmwggo: 00.00 00.000 00.00 00.00 50.00 00.00 50.50 in- in- 00.00 :0 .00050000 00.05 00.00 00.05 00.00 in- in- 00.00 in- in- in- 02 .o0go0 00.00 50.00 00.05 00.05 00.00 00.00 00.00 00.50 00.00 00.00 >2 .omaooL00 00.00 00.00 00.00 00.00 00.00 00.00 in. in- in- 00.00 02 .oco0o: 00.00 00.00 in- 50.00 00.00 00.00 00.00 00.00 00.00 00.00 22 .000030 00.00 05.05 00.00 00.00 00.00 50.00 00.00 in- in- in- 02 .ucoPHLoa 00.05 00.00 00.05 50.00 00.00 00.00 05.00 00.00 00.50 00.50 >¥ .co00cwx04 00.000 00.000 50.00 50.05 00.50 00.00 00.00 05.50 50.00 00.50 0x .o00000: 00.000 00.000 00.00 00.00 in- 00.05 00.05 in- 00.05 00.00 00 .mocwoz 000 00.00 05.00 00.00 00.00 00.05 05.50 00.00 05.50 00.00 50.00 <0 .ouco0u< 00.000 00.000 00.05 00.00 00.50 00.00 00.50 00.00 00.00 05.50 00 .Lm>cmo 00.000 00.000 00.000 00.000 00.05 05.00 .0. 00.50 in. .0. <0 .oacmsogoom in- 05.05 50.00 00.05 00.05 00.00 00.05 in- in. 00.00 m< .xoom 000000 00.000 00.00 00.05 00.00 00.05 00.00 00.00 00.00 00.00 00.50 N< .chmona 00.00 00.00 50.05 00.00 00.00 00.50 00.00 00.00 00.00 00.00 0< .soc0cwecmm 0000 0500 0500 5500 0500 0500 0500 0500 0500 0500 ououm 0 000000 noozmgwm m0ogm>< .0.0 m00mh Bibliography Bibliography American Gas Association. 1980. 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