Optimal use of forest residues in Europe under different policies-second generation biofuels versus combined heat and power

The European Union has set a 10% target for the share of renewable energy in the transportation sector for 2020. To reach this target, second generation biofuels from, for example, forest residues are expected to replace around 3% of the transport fossil fuel consumption. However, forest residues could also be utilised in the heat and electricity sectors where large amounts of fossil fuels can be replaced, thus reducing global fossil CO2 emissions. This study investigates the use of forest residues or second generation biofuel (ethanol or methanol) or combined heat and power (CHP) production at the European level, with focus on the influence of different economic policy instruments, such as carbon cost or biofuel policy support. A techno-economic, geographically explicit optimisation model is used. The model determines the optimal locations of bioenergy conversion plants by minimising the cost of the entire supply chain. The results show that in order to reach a 3% second generation biofuel share, a biofuel support comparable to today's tax exemptions would be needed. With a carbon cost applied, most available forest residues would be allocated to CHP production, with a substantial resulting CO2 emission reduction potential. The major potential for woody biomass and biofuel production is found in the region around the Baltic Sea, with Italy as one of the main biofuel importers