Commoditization of Biomass Markets

Abstract Commodities are intermediate goods available in standardized qualities that are traded on competitive and liquid international markets. In this chapter, we analyze the current status and trajectories in biomass markets to discern to what extent solid biomass fuels are becoming commoditized. We present five criteria that are key indicators in the process towards commoditization and market maturity. These indicators are then used as a framework to understand biomass market developments, with particular focus on wood pellet markets, and identify current obstacles to market maturity. We continuously draw comparisons with developments in fossil fuel markets with the dramatic developments in crude oil markets from the late 1960s to the mid-1980s used as a key example. In both the crude oil example and in the wood pellet discussion, the successful establishment of a futures contract is seen as a litmus test of the commoditization process. We find several similarities between historical and current fossil fuel markets and wood pellet markets in the reliance of vertical integration as a risk management tool and in how rigid fuel quality standards are perceived as obstacles to market liquidity. However, biomass markets also have particular characteristics that are not present in fossil fuel markets, especially the need for sustainability and traceability in supply chains. These are essential features of biomass fuels since their attractiveness to a very high degree relies on their being superior to fossil fuels in terms of lifecycle environmental performance. However, they do make the process of commoditization more difficult. For future discussions on biomass market developments, the tension here must be addressed.