Japan’s import market for wood pellets has expanded rapidly since the introduction of the feed-in tariff (FIT) scheme in 2012, with imports exceeding six million tonnes in 2024, positioning Japan as the world’s second-largest wood pellet importer. Despite this expansion, empirical evidence on its demand structure remains limited. This study employs a Dynamic Linear Approximate Almost Ideal Demand System (Dynamic LA-AIDS) model incorporating demand inertia stemming from long-term fuel supply contracts to analyze Japan’s wood pellet import demand from 2012Q1 to 2025Q3. The results reveal a distinct two-tiered structure: North American pellets behave as a strategic necessity, exhibiting price-inelastic demand and a tendency toward a stable long-run procurement pattern following price and expenditure shocks, suggesting procurement practices that prioritize supply security under long-term contracts. In contrast, Vietnamese pellets behave as a price-sensitive commodity, displaying price-elastic demand and relatively sustained responsiveness following such shocks. These results indicate a dual procurement strategy under the FIT scheme that balances stability and cost flexibility. Importantly, the Japanese demand structure differs from the more uniformly price-inelastic patterns observed in the EU and South Korean markets, providing new insights into how institutional frameworks shape biomass allocation and market responsiveness in renewable energy systems.
Tomoyuki Honda (Thu,) studied this question.