The paper statistic might be a little misleading. We manufacture two main products: pulp fibres, which go into market pulp, and paper, which is a primary conversion of the pulp into a higher-value-added product.
The paper industry is an interesting one. Much like tissue grades, it has a bit of a moat against transportation costs, because paper historically didn't transport very well. So one of the reasons why we have a lot of paper mills and paper machines in the United States is that they're closer to market. The converse or the opposite would be that one of the reasons why a lot of the paper mills in Canada shut down was that they were too far from market. That is one of those key structural cost disadvantages that I was referring to.
You can think of certain examples. Domtar had to shut down in Prince Albert, for example, and it had to shut down the paper machines in Dryden and repurpose the Dryden mill to a pulp mill.
Every one of these is very much a site-by-site specific evaluation. When you're in secular decline, the first to go are the high-cost producers, and then you start cutting into the muscle. Now we're at the point where we're cutting into the bone. We're shutting down profitable machines and operations in the United States, actually, simply to match our productivity with our customer demand.
As for what can be done to stop the flow of capacity into the United States—and elsewhere, actually, because I think there are more ferocious competitors beyond the United States, such as South America and Asia—I would come back to the notion that if you have structural cost disadvantages, which Canada does.... A simple fact of the matter is that in northern climates trees grow slower, the landmass is vast, and transportation and access are very costly. That's a key factor here.
Another thing that I would ask the committee to consider is that there hasn't been any significant capital modernization in the Canadian industry in over 20 years. The last green fuel mill in Canada was 20 years ago. One of the things that happens as a consequence is that not only do we have higher transportation costs in and out and higher costs to market within Canada, you also don't enjoy the economy of scale. That's because we haven't been building in Canada and because you simply can't feed a mill enough wood to enjoy the kinds of economies of scale that you'd get in a facility where the trees grow faster.
Again, I would repeat that the way out of that quagmire is to create value-added propositions and focus on that. I think Professor Mangin's comment about “local”—having a locally based economy—is a good way to go. An example of that is this discussion about the use of biomass for solid fuel. Domtar burns two million tons a year of biomass solid fuel in our combined heat and power systems. We do it because it's a fuel of convenience for us. As the honourable member mentioned, it's there, so we do it.
But I can't think of anything that has stopped more projects than the low cost of natural gas. The low cost of natural gas will stop all of these projects. For example, for any one of our mills, the technology exists, and it has been demonstrated that you could go entirely fossil-fuel-free in a pulp and paper mill. You could go completely with bio-based fuels and generate electricity, but we're not doing that because of the price of fuel. The economics don't pencil out when you have natural gas at a price of $5 per million BTUs.