Exploring the import allocation of wood pellets: Insights from price and policy influences under the renewable portfolio standard

Abstract

This study examines the import allocation of wood pellets, shedding light on the direction of import substitution in South Korea. For empirical analyses, this study employs the differential import allocation model incorporating both price and policy factors. The results show that both Southeast Asian countries and the rest of the world (ROW) support an additional increase in total imports. The results also present evidence that the import demand for wood pellets from Vietnam, Malaysia, Indonesia, and ROW is inelastic in response to a change in their own prices. Notably, Malaysian and ROW pellets serve as substitutes for Vietnamese wood pellets, and vice versa. The import demand for Malaysian and ROW pellets appears to be more responsive to fluctuations in the import prices of Vietnamese wood pellets than the reverse. Moreover, the results highlight the presence of policy-induced import allocation. When the mandated share in the renewable portfolio standard increases, South Korea tends to elevate the import demand for Vietnamese and Indonesian wood pellets while decreasing it from ROW. The rolling regression analyses further support the evidence of price- and policy-induced shifts in import sources.