Global Pellet Market 2024: Between Oversupply, Policy Shifts, and the Energy Transition

Wood pellets have become a symbol of both the promise and the controversy of biomass. They are compact, tradeable, and – under most policy regimes – counted as renewable energy. Since the early 2000s, pellets have grown into a global commodity, connecting forests in North America and Southeast Asia to power stations in Europe and Japan.

The Bioenergy Europe Statistical Report 2024 (SR24) shows a market at a turning point: global production rose in 2023 by 2.6% to 48.8 million tonnes, while consumption actually fell by 0.9% to 44.4 million tonnesSR24_Pellets_FullVersion699. For the first time in years, production and demand moved in different directions – exposing structural weaknesses.

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Production Trends: A Shifting Geography

The EU27 remains the largest producer, with 20.6 Mt in 2023, but output dropped by -1.8%SR24_Pellets_FullVersion699. This reflects declining domestic demand as subsidies are cut and sustainability rules tighten.

By contrast, Vietnam surged ahead: production jumped +77% to ~4.6 Mt, overtaking Canada and making Vietnam the third-largest exporter worldwideSR24_Pellets_FullVersion699. Japan (51%) and South Korea (47%) absorbed almost all of these exports.

North America (U.S. and Canada) remains stable at 14.3 Mt, but with diverging dynamics: the U.S. expanded exports to Europe (9.5 Mt), while Canada lost market share (-6.6%) after sustainability concerns in British Columbia triggered NGO campaigns.

Meanwhile, Russia suffered a collapse: sanctions and market isolation cut production by ~30%, removing nearly 3 Mt from global supply.

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Consumption Patterns: Europe Declines, Asia Rises

Europe still dominates consumption, but cracks are visible:

• EU27: 22.0 Mt (-3.3%) in 2023. The decline was sharpest in power generation, as countries like the Netherlands and Denmark cut industrial use. Heating markets (Italy, Germany, France) remained stable.
• Other Europe (UK, Switzerland, etc.): 8.1 Mt (-11.7%), largely because Drax and Lynemouth burned fewer pellets.
• Asia: the growth engine. Japan increased consumption by +32% to 6 Mt, South Korea stayed stable at ~4.7 Mt, and smaller markets (e.g., Taiwan) emerged. Together, Asia consumed 10.7 Mt – a record.
• North America: 2.2 Mt, mostly residential heating, with little growth potential.

This shift signals a profound rebalancing: Asia may soon overtake Europe as the largest pellet consumer.

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Policy Drivers: The Silent Hand Behind the Market

Pellet markets are not driven by technology, but by policy frameworks.

1. EU RED III: With Directive (EU) 2023/2413, Brussels excluded primary forests and peatlands from subsidies and tightened carbon accounting. This shrinks demand for imported industrial pellets.
2. UK Contract for Difference (CfD) scheme: Less favorable economics in 2023 reduced burn at major power stations.
3. Japan’s Feed-in Tariff (FIT): Still guarantees a strong pellet import market, making Japan the new #2 global consumer.
4. South Korea’s REC system: Once generous, now unstable. The 2023 subsidy cut has frozen new demand growth.
5. Sanctions on Russia: Removed a major supplier, reshaping global trade flows.

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Implications for the Energy Transition

Pellets play a paradoxical role in the energy transition:

• Dispatchable renewable power: Unlike wind and solar, pellets can deliver baseload or peak power. This is crucial for grid stability – but comes at the cost of higher emissions per MWh.
• Carbon neutrality debate: Pellets are officially counted as carbon neutral in most frameworks, but this rests on the assumption of regrowth. Critics argue that burning now and regrowing later undermines 2030 climate targets.
• Investment risks: With oversupply, declining EU demand, and reputational risks, investors must reassess whether pellet plants are stranded assets in waiting.
• Geopolitics: The rise of Vietnam shows how demand shifts can rapidly create new supply chains. But reliance on imports raises questions of energy security and sustainability certification.

For policymakers, pellets are both a bridge (supporting renewables integration) and a trap (risking lock-in of contested biomass).

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Outlook

• Short-term (2024–2025): Oversupply will pressure prices, especially in Europe. Smaller producers may exit the market.
• Medium-term (2026–2030): Asia will consolidate as the demand center, with Japan and South Korea dictating trade flows.
• Long-term (post-2030): Only pellets from residues and wastes, certified under strict sustainability standards, will remain politically legitimate. Large-scale forest pellet imports are unlikely to survive beyond 2035.

The pellet sector thus embodies the dilemma of the energy transition: it provides immediate dispatchable power, but its political future depends on whether it can prove itself as truly sustainable – not just “renewable on paper.”

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Sources

• Bioenergy Europe Statistical Report 2024
• EU Renewable Energy Directive (RED III)
• Biomasspolicy.com – Pellet Market Coverage