European energy and environmental policies have extensive effects on the Nordic forest products market. This thesis focuses on four main questions. First, the effects of global changes in the consumption, production, and trade of Finnish and Swedish forest products market. Second, investigate the effects of the policies on the substitution of fossil fuel (coal) by a solid form forest-based biofuel. Third, compares and evaluates Nordic countries’ research perception with the European Union’s other regions’, based on experts’ perceptions on attaining the European Union’s 2020 targets. Fourth, forecasts the interaction between the renewable energy and wood fuel energy production of Sweden, Finland, Denmark, and Norway. The first and fourth studies followed econometric analysis, the second study executes by developing a theoretical model, and third studies followed a questionnaire survey analysis.
The results show that during 1981–2012, structural break years are 1991 and 1992 for the Finnish model and 2004, 2005, and 2006 for the Swedish model. The fossil fuel replacement study showed that combining tax and subsidies increases the aggregate demand for biofuel and increase substitution by about 19% and 31%, respectively. A regional assessment showed that with the Nordic countries’ experts, an overwhelming majority (82–93%) from the European Union’s other regions suggested for stable and adequate incentives to meet renewable energy targets for biomass and perceive that 2020 targets will not be achieved. Finally, estimation between renewable energy and wood fuel show that due to shocks, renewable energy had positive and the wood fuel had an always negative reaction to their own and mutual positive shocks. The thesis concludes that tax and subsidies together have a strong effect on the replacement of fossil fuels by forest-based biofuels, any unexpected shocks may increase renewable energy production and decrease wood fuel production, and consistent policy tools are necessary to achieve European Union targets.