Two-Tiered Demand Structure in Japan’s Biomass Energy Market: Evidence from Wood Pellet Imports Under the Feed-In Tariff Scheme

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.