How the Russia-Ukraine Conflict is Shaping U.S. Wood Pellet Exports and EU Import Demand

The EU’s Renewable Energy Directive (RED) classifies wood pellets as carbon neutral, which has resulted in their increased use in commercial heat and electricity generation. Consequently, the EU is heavily reliant on imports to satisfy this growing demand.

The U.S. is the world’s largest wood pellets exporter, reaching a value of $1.8 billion in 2023, with the EU accounting for over 25 percent. Russia and Belarus are also major exporters to the EU. As a result of Russia’s invasion of Ukraine, the EU imposed trade sanctions on Russia and Belarus (for supporting the invasion) causing imports from these countries to plummet.

The goal of this study is to estimate the demand for imported wood pellets in the EU across exporting countries and to assess how these trade sanctions have impacted U.S. wood pellet exports to the EU, as well as exports from other competing countries. The QUAIDS model was used for the analysis, which is an extension of the more popular AIDS model, and uses a quadratic term to allow a more flexible total expenditure effects. Uncompensated elasticities, compensated elasticities, and expenditure elasticities were estimated and used to establish substitution and complementary relationships between exporting countries in the EU market.

Before the sanctions, EU wood pellet demand favored U.S. exports. Additionally, the QUAIDS elasticities indicated that wood pellet demand was elastic and price sensitive overall, with the U.S. wood pellet exports being the least sensitive to price changes. After the sanctions, Russia and Belarus suffered significant losses in export value, while the remaining countries experienced substantial export gains. The U.S. maintains its rank as the top wood pellet exporter to the EU.