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Wood Pellets – Does a Resurgence in an old fuel Signal that Technological Innovation is Failing?

An article in the July 7th edition of the Wall Street Journal (WSJ) describes how the use of wood pellets is on the rise as a fuel for electricity in the EU. They are the “new Tulip” now being traded as a commodity on the Amsterdam energy exchange. In just looking up the price for industrial wood pellets, the price is hovering in the range of 130-140 €/MT (metric ton). With an energy content near 7,500 Btu/lb, this is similar to low rank (brown or lignite) coal.

With the well-written WSJ article referenced above, I won’t discuss the issue further here, other than to marvel that the use of wood is competing for the generation of electricity and heat with fossil and other modern renewable. Granted, the wood pellet stoves are much more controlled and efficient than your great-great-great-great-great-great-great-great (i.e. great8 to great10) grandfather’s wood burning stove. But this story is still a good example of technology struggling to overcome the limits of resources and moving back to a previous fuel. Unfortunately, we know that there are limits to the quantity of wood that can be replaced sustainably, but this is also an important feedback.

Over the last 300 years industrialized society has moved away from wood because the fossil energy resources had much higher energy density and concentration in mines and fields with oil and gas. Now industrialized society is moving somewhat (albeit on a very small scale) back to biomass in the form of these wood pellets for heat and electricity (often thrown into boilers with coal), but also including biomass for biofuels. This represents the struggle of “technology” to solve problems that society wishes to solve (in this case less greenhouse gas emissions) and the lack of focus of businesses to create substitutes for the services that primary energy resources (i.e. oil, gas, nuclear materials, biomass, sun, etc.) provide and that people want.

Unfortunately we have traditionally waited for the retrospective economic effects to tell us to return to a focus upon the value that energy resources and services provide to civilization. Data from the last 40 years shows us that people and the government focus upon energy costs when they become approximately 9-10% (at least half is for oil) of the gross domestic product of the US (for example see data at the EIA and chart in this paper by Charles Hall). Full data are not out for the last two years, but it appears as though we passed this threshold in 2007 and were likely well above 10% in 2008.

But this focus upon energy services has become, will become further, and should be center to discussions of economics. What percentage of GDP should we be spending upon energy? If this percentage gets too low, consumers and industry are not focused upon energy conservation and long term impacts. If this percentage gets too high (or too high too quickly) then general economic slowdowns tend to occur, mostly driven by oil prices in the last 40 years. Another question: How much we are in control of what this “energy/GDP” is or can be? The amount of energy obtained compared to searching and obtaining primary energy resources, or energy return on energy invested (EROI), is highly influential. If we get 50 barrels of oil when using the energy equivalent of 1 barrel of oil (e.g. EROI = 50) to find and extract that oil, then we have 49 barrels of oil to power the rest of the economy. If the EROI is 20, then this is significantly different. Less energy for health care. Less energy for education. Less energy for agriculture and food production. Etc.

We must understand to associate EROI with GDP much better than we currently understand. Otherwise, we won’t be able to foresee the longer term and very important implications of our energy policy and technology decisions. EROI must be used and understood as a measure of technical innovation.

About Carey King

Dr. Carey W King performs interdisciplinary research related to how energy systems interact within the economy and environment as well as how our policy and social systems can make decisions and tradeoffs among these often competing factors. The past performance of our energy systems is no guarantee of future returns, yet we must understand the development of past energy systems. Carey’s research goals center on rigorous interpretations of the past to determine the most probable future energy pathways. Carey is a Research Scientist and Assistant Director at the Energy Institute at The University of Texas at Austin, and appointed also at the the Center for International Energy and Environmental Policy within the Jackson School of Geosciences and Business, Government, and Society Department of the McCombs School of Business. Visit his website at: and follow on Twitter @CareyWKing
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  1. I’m glad to see the “New Tulip” being contemplated on exchanges – across the pond or on the CBOT. This is a win-win. During the $150 (US) per barrel-binge, the speculators not only had a negative economic impact on the United States consumer, but also indirectly hampered investment in alternative energy (as much as they helped foster it – if not more). With shipping and transportation costs skyrocketing beyond any expectations, as well as down-stream costs, otherwise disposable “invest-able” dollars were locked up.
    Its nice to see the value of oil commodities seriously cautious about the value of pellet (and biomass) commodities. Not only does this reduce dependence on foreign oil, bolster National Security, and clean our atmosphere – but boosts local economies since power, heat, and transportation materials begin to migrate from “far-away”lands to local resources.
    Jude Augusta
    Director of Business Development

  2. Thank you for giving me the opportunity to comment on this post. It was very insightful. It may also serve as interest to you to know that some of the topics that have been mentioned here I will take to the CHOGM (Commonwealth Heads Of Government Meeting) being currently held in my country where the issues of climate change as well as alternative forms of energy will greatly discussed

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