Natural Resources Committee on March 13th, 2008

[Omar Alghabra, Liberal, Mississauga—Erindale, ON]

Thank you, Mr. Chair.

Thank you, everybody, for joining us here today.

As you know, the committee has been holding several hearings over the last few weeks on this issue. We're hearing a lot of similar messages on how to deal with this issue.

I have a few questions, and I'll start with Mr. Irving.

Mr. Irving, you talked about encouraging capital investment. I don't know about the committee, but I totally agree with you. You're suggesting that the best way to do it is through the tax system. The struggle I'm having is that, on the same page, you said the research and development tax credit is not working because a lot of these companies are not making profits, and you're suggesting a refundable scheme. We know that a lot of the companies are having difficulties making profits through downturns or start-up.

How do you suggest we encourage investment, if the taxes are not necessarily going to be a workable option, at least in the short term?

[James D. Irving]

We're getting into the tax business, so it can get very complicated very quickly.

There are two parts to it. On the research side, just pure research, I think that can be a refund. If they're not paying taxes, maybe it's a direct contribution back to the company, if they're doing bona fide research. That's the smaller part, although clearly it's big from the point of view of the long term, where-are-we-going point of view.

If you want to talk about the big capital projects today, let's take a pulp or paper mill, for example. You say you need a new paper machine that's half a billion dollars and you're not making any money or you're marginal. Normally you would depreciate it over a number of years. What we promoted with the federal government was that maybe it should be allowed to depreciate 100% for tax purposes over two years, right away. You issue the purchase order New Year's Eve that year, December 31, and you qualify for half your depreciation that year. If you're a taxable company like General Electric or somebody else, this is a form of finance. Sell the tax attributes to General Electric. They'll have a lot of cash all of a sudden, and that is going to finance this installation.

[Omar Alghabra, Liberal, Mississauga—Erindale, ON]

You're suggesting the best way to encourage private investment is through the capital cost allowance.

[James D. Irving]

Yes, because grants, or whatever you want to call them, get very messy very quickly. We need very good technology today. You're not going to make the quality and productivity standards you need with old junk.

We should be bold about it. We fiddle around the edges. We go for a year or two and give 10% or 20%. We should be bold. We're not aggressive enough, certainly not to compete in the global market from this point of view.

[Omar Alghabra, Liberal, Mississauga—Erindale, ON]

Professor Cohen, I enjoyed your presentation.

The question I have for you is that a lot of your recommendations are for the long term, but what do you suggest we do in the short term? We have heard from you, as well as the United Steelworkers here today, in fact all witnesses, that there are current challenges faced by communities, rural communities, especially one-industry communities. What can we do? I'm talking from a federal government perspective. What can we do to work within this transition period?

[Dr. David Cohen]

The first thing is to recognize that you can't save them all. It's not going to go back to the way it was. Not all the communities are going to exist. Not all will stay the same size. What you want to do is give the communities the capacity to make those struggles that will let them survive. That's why I talked about the human capacity building to allow the training, education, supports, and start-up businesses. It's those kinds of things.

I don't think it's going to do a lot of good to pay everybody while they're laid off, until we figure out what to do with them. I don't think it's going to help solve the problem. Facilitate their finding their own solutions, because the solution in a town in northern Quebec is not the same as a solution in a town in coastal British Columbia. One size doesn't fit all. Different people have different skills and different abilities. Different communities have different resiliency. For some it works by developing a community forest and expanding that way. I'd say supporting community forests is one way of helping communities find different ways of managing forests to be more sustainable for that community.

It's trying to empower the local people and give them a hand up rather than a handout, which I guess is a cliché, but I'm a professor, so I use those.

[Omar Alghabra, Liberal, Mississauga—Erindale, ON]

Thank you, Professor.

Mr. Matters, do you want to follow up on that? I'm also interested in your thoughts on the community fund that was announced a month ago and whether you have seen any of it helping any of your membership.

[Bob Matters]

Thank you.

As far as immediate help is concerned, I take a bit of exception to the professor's comment about paying guys while they're laid off not helping. What this government has to do first and foremost is ensure that workers stay in those communities.

Concerning the notion that communities may sink or swim, if given the tools communities are always going to fight to the last breath to swim, not to sink. Communities aren't going to cut their own throats. They're going to keep coming after the provincial government, the federal government, and anybody else to get help to survive.

We have to ensure that the workers stay in those communities and can survive in those communities. So I agree: don't just give them cash; don't just give them EI and say fine. Certainly we can extend EI if it's necessary, but more importantly tie it to the stuff other folks were talking about, training and education, so that they are available to be a resource when things turn around—because they will. We all know they will; everyone agrees they will. We hope it's tomorrow, but it's not going to be.

I'm sorry, the second part of the question was...?

[Omar Alghabra, Liberal, Mississauga—Erindale, ON]

It was about the community fund.

[Bob Matters]

The community fund is a fantastic idea. I appreciate the idea, but I haven't seen a single thing yet. I think it was, frankly, a mistake to simply say we're going to hand over some money with no strings attached, with no real plan, when there should have been the extra work to go in. We've all seen and heard about it: subsidies or handouts are great if you're starving to death, but they don't do anything for planning, and they don't do anything for security.

There should have been more strings attached. There should have been some real stuff attached to that.

[Omar Alghabra, Liberal, Mississauga—Erindale, ON]

Thank you.

Do I still have time?

[The Chair, Conservative, Leon Benoit]

Your time is actually just up, Mr. Alghabra. Thank you.

We go now to the Bloc Québécois, to Madame DeBellefeuille, for up to seven minutes.

[Claude DeBellefeuille, Bloc, Beauharnois—Salaberry, QC]

Thank you, Mr. Chair.

Thank for your testimony.

I imagine, Mr. Cohen, that when you asked us to look at the nice photographs in your document, you were not referring specifically to the degrading Victoria's Secret advertisement. I find it unacceptable, today in 2008, to see a company still using such a degrading image of a woman. I hope that it was not this photograph that you wanted to draw our attention to.

What concerns me a great deal, is that since the beginning of our study, all the witnesses agree that we have to step up our efforts in the area of research and innovation. We must develop technologies that allow for the creation of quality specialized products if we want to stand out and be more competitive on the market. All witnesses, almost without exception, demanded or recommended that the government provide greater support for technological research and development in order to diversify the creation of new products.

Mr. Bouthillier, you stated that the technology exists and that Canada is a leader; you also referred to green chemistry. If I understood you correctly, you say that it is not really necessary to invest in research, which really surprises me, coming from a university professor. I would like to give you the opportunity to tell people that on be contrary, it is important to continue and increase investments in research, both in industry and in educational institutions.

[Luc Bouthillier]

Thank you, Mrs. DeBellefeuille.

Indeed, it may seem surprising to hear from a professor that research is doing well. Of course, more could be done, but the impression is and I will say this in English:

for many people in Canada it seems that the forest sector has no future.

It does have a future and it is already underway because the major granting agencies had the prescience or the shrewdness to fund several development initiatives for new products.

Before, a new product in the forest sector had a life of 50, 60, 100 years. Now, between the time when a product emerges and the time when it reaches market maturity, between 7 to 10 years elapse. We need to pursue this research effort.

To relaunch the forestry sector, there are already... In the area of smart paper, the SENTINEL network has developed all kinds of bioreactive papers. The problem lays with transferring this technology in order to create opportunities for wealth and employment.

[Claude DeBellefeuille, Bloc, Beauharnois—Salaberry, QC]

So you are saying that the ideas are there and that the technology is ready, but we still need to bridge the gap toward marketing on a broader scale, with the goal of making this technology marketable and usable for the industry.

Mr. Bouthillier, I am going to interrupt you. Perhaps we can come back to these questions.

Mr. Irving, in the last budget, $260 million were allocated to research in the oil industry for the study and development of carbon dioxide capture and storage techniques. In addition, $300 million were allocated to the development of the CANDU reactor and laboratory in Chalk River.

As a businessman who works in the forestry sector, what do you expect from the government? There are still a few days before March 31 and the government still has a portion of the surplus that it could distribute before deciding to use it all to pay down the debt. As an industrialist, how much do you think the government should allocate to the sector for innovation-oriented research and development?

[James D. Irving]

As a businessman, given the state of the oil business and the state of the forest products business, I think we should get a great deal more than the oil business, because we have a lot bigger troubles, so we'd encourage the federal government to be very generous.

Look, research is one thing. You have a whole lot of people out there today who are starving to death in the business. They're looking for the next meal. It's very hard to think about retirement when you're thinking about trying to get enough just to live today. That's the crisis, and everybody has a very short fuse.

That's the reality around the research, to get people motivated to step in.

You're asking how much money. God knows. I don't know how much. It will take a lot, but there are good models in a lot of other countries, as the professor said--for example, Finland. That's a great model. We shouldn't reinvent the wheel. I don't know what the amount is. It will take a substantial amount, but we should commit to it. The forest products business has been here for a hundred and some years. It's been a big employer in this country and has created a lot of tax dollars. We're at a point in time that's very difficult. This point in time will change, but we should try to put enough money there, whatever that amount is. I don't know what it is.

[Claude DeBellefeuille, Bloc, Beauharnois—Salaberry, QC]

Mr. Irving, you say that it will take a lot of money. That means that what is being offered now is insufficient. I am thinking of the advantage that oil companies have in the form, for example, of the accelerated capital cost allowance. As part of the $260-million carbon capture and storage project, the companies will be able to take advantage, in addition, of a substantial acceleration of the capital cost allowance.

I notice that you are asking for more money for the development of innovative products and an accelerated capital cost allowance. So you are asking for the same support that the oil patch currently receives.

[James D. Irving]

Excuse me. I missed something in the translation. I'm sorry about that.

[The Chair, Conservative, Leon Benoit]

Madame DeBellefeuille, do you want to ask your question again?

[Claude DeBellefeuille, Bloc, Beauharnois—Salaberry, QC]

What I was saying, Mr. Irving, is that the oil companies received financial support to develop green technologies along with an accelerated capital cost allowance. In your recommendations, you ask for the same thing, that is, more money for development as well as a capital cost allowance system. That is what is currently available to the oil patch. I don't understand why these conditions are offered to oil companies but not to the forestry sector.

Do you agree with me?

[James D. Irving]

I'm not up to speed totally on what the programs are for the oil industries out west, but the oil activity in Alberta is concentrated in one small part of Canada. Forest products are spread across the country, virtually in every province and in thousands of small communities.

Should we get as much or more? I would think, given the present state of things.... And we shouldn't forget here that this is a renewable resource. Once we've dug all the minerals out of the ground and extracted all the oil and extracted all the gas, there is nothing there but a hole. But when we cut the tree, harvest the tree, we plant another tree, and so on in perpetuity, whatever that will yield. It's a great long-term investment for this nation. I think there's no limit to the amount of money we need to spend on that support to get there.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Irving.

Merci, Madame DeBellefeuille.

Ms. Bell, you have up to seven minutes. Go ahead, please.

[Catherine Bell, NDP, Vancouver Island North, BC]

Thank you, Mr. Chair.

Thank you again to all the presenters. This has been a very good study.

We're hearing a lot of recurring themes, and we heard it again today in the group that's before us. Some of what I'm hearing is that Canada has been very short-sighted in terms of encouraging investment in research and development, and that's led to where we are today, with a crisis on our hands, and 30,000 job losses in the forest sector across the country. We're hearing about the impacts on rural communities, many of which are in my riding of Vancouver Island North. We're very forest-dependent. I come from a logging family, so I understand the cyclical nature, and I've always said this is much bigger than what I ever remember my father experiencing in his work life.

One of the things we're also hearing is there is a market out there and we need to adapt to this changing market. Right now there seems to be a market for our raw logs in Asia, yet we're not manufacturing any of those logs here, and that's created a lot of the downturn. A lot of the companies are not based in Canada, and I wonder, from anyone's experience, what does that mean? If the companies are not investing in our country, they're basically taking the money and running. What does that do?

I had a motion in this Parliament to stop raw log exports, but also to encourage value-added manufacturing, whatever that could be. We're hearing that training is important, and we also heard about investment in fuel, in biomass.

This government just invested a lot of money in the grain ethanol business. I just want to know if you, Mr. Cohen and Mr. Irving, believe there should have been more money invested in the forest biomass research and development. Because in the grain and corn ethanol business, the prices are going up, and the building of those facilities is actually collapsing in the U.S. I'm just wondering if that's going to happen in Canada, as well. Yet we didn't see any money for the forest industry investment.

Also, for Mr. Matters or Mr. Hanlon, with regard to the community trust fund that I think was given to the provinces with no strings attached, as you mentioned--and who knows where that could end up--has there been any uptake by your membership or communities, that you're aware of, with requests to get any of that money into the hands of workers for some much-needed assistance?

I'll just start with those two questions.

[The Chair, Conservative, Leon Benoit]

Mr. Cohen, you may go first, please.

[Dr. David Cohen]

Okay.

Before I start, I'll just take 30 seconds to tell you that I purposely included that photo because it was a full-page ad in The New York Times--I'm responding to the previous questioner--and I find it reprehensible, but it seems to be acceptable tactics by certain organizations to attack the industry in Canada. I included it because of its reprehensible nature and to show that it seems to be acceptable if it's for a good cause but not acceptable if it's not for a good cause. I find it very distasteful, and that's why I show it, but it was a full page in The New York Times, and they found nothing wrong with it. I'm glad it was noted.

In terms of the question on ethanol, I think too often governments want to spend money and get results right away, without coming up with a plan or studying what the best way is. The little bit I know on producing biofuels tells me corn is not a good investment of energy for the amount of energy one gets out of it, and we need to look at other sources.

There are two reasons I think corn is probably not the way to go. One is that we should be looking at using waste to generate energy, not creating alternative uses for food products. Because waste currently has very little value, to me it makes sense that we look at it as a way of producing fuel, as opposed to using something that has value.

We're seeing global inflation on food right now, and one of the reasons is the push to get fuel to produce fuel. It's creating hardship--tremendous hardship--in developing countries. In China we've seen the price of meat go up 30% or 40% in the last year, and the government's had to put price controls on food.

So I would agree with you completely, and I would say that rather than jumping in and saying wood's the answer, we need to do the research to find the most viable answers for Canada on a broad scale in terms of biofuels, and not just focus on one area. Then we can start spending the money in that area, and we should base it on how many units of energy it takes to convert it to a unit of energy. If it's one and a half to one, it's not a good investment; if it's 0.1 units of energy to produce a whole unit of energy, that's a good investment.

I think wood would probably come out fairly high on that, but I don't know that much about it; probably someone like Jack might know a little more, but that would be my response.