Natural Resources Committee on Dec. 12th, 2011

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Caron.

Mr. McGuinty, you have up to five minutes, please.

Go ahead.

[David McGuinty, Liberal, Ottawa South, ON]

Thank you, Mr. Chair.

I'd like to go back to maybe a higher perspective from both you, Ms. Cobden, and Mr. Lazar, and get your insight.

Mr. Lazar, I recall when you took on this position. I worked for years with your predecessor. I remember having heard you earlier when you were talking about the transformation you were going to bring to this industry association in terms of the kind of cooperative approach that you've elucidated here today. For example, the boreal forests initiative reflects the reality that there is one boreal forest and there are many parties benefiting from it and many folks with different competing interests.

You've managed to design a process and a structure that has had some success, I think, in reconciling those competing interests. I want you to do us a favour, if you could, as a person who has extensive government and public service and now as a person who is conquering worldwide markets. How important is it for either individual trade associations and industrial sectors or even for this nation-state called Canada to have a brand that we can put in the window in a meaningful way that says we are working at solving environmental issues and we believe we can be economically very profitable in our natural resources sector as we do so?

If you could, just take a second. I was not in Durban. Even had I been invited to attend in Durban, I would not have gone, because I don't think the process was worth the greenhouse gases it took to get there.

The government wouldn't take anyone along on this trip. No opposition members were permitted to attend as official delegates, for example. You have tracked this, I'm sure, very carefully. Could you weave into your answer maybe some insight as to what you think happened in Durban and whether what we put in the window in Durban was good, bad, indifferent, or irrelevant? Just help us understand what this all means.

[Avrim Lazar]

I'll answer from two perspectives, one from the forest industry's perspective. We can't speak for others, but I will talk more largely as a nation.

From a forest industry perspective, our good name is very important to us. Conducting ourselves in a way that tells the world they can trust us to take care of the environment when they're buying our products is very important. We've put our actions where our mouth is. Our actions embody that.

Canada, as a nation, makes a living by exporting natural resources. Whether that's energy or wood, it's the backbone of our economic story. If you look around the world, we're not going to make a living by out-innovating the Chinese. We have to be innovative. They're just as smart and work harder than we do, as do many other countries. So our competitive advantage as a nation is natural resources.

To achieve that competitive advantage, to sustain our ability to translate natural resources into quality of life for Canadians, we need to (a) be brilliant at extracting them and (b) be demonstrably responsible in extracting them. The efforts we are putting into the forest industry, and I know are being put into the energy industry—there have been huge improvements in environmental performance—are all part of sustaining and enhancing Canada's basic economic advantage, which is being the world's most sophisticated and, I hope eventually, the most environmentally responsible promulgator of natural resources. That's how we're going to maintain our health care, our salaries, and our quality of life. That's what we've got, and we've got to do it right.

I could go on forever on international treaties and Durban and all that. My views on what's wrong with the international or public or last four or five speeches that have been posted by the association on YouTube are pretty clear. I can summarize it by saying somehow or other those international negotiations have demonstrated more tribalism and self-interest by all parties than global problem-solving, which is what's needed. We've got a global commons that we have to take care of. Instead of behaving like a global community, we come to those meetings with our self-interest. The Europeans do it, and so do the Americans, the Chinese, and the South Africans. We Canadians do it too. Everybody comes to those meetings thinking of their national self-interest, so we have no forum to deal with the global interest. That's a real shame, but I don't know what the solution is.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. McGuinty.

Mr. Zimmer, up to five minutes.

Go ahead, please.

[Bob Zimmer, Conservative, Prince George—Peace River, BC]

Thanks for coming, Avrim.

I had a question specifically about the boreal forest agreement.

In earlier comments you justified the federal government funding environmental groups such as the David Suzuki Foundation, Greenpeace, etc., within the agreement. What's the logic of that? Why should the federal government be funding these deep-pocket organizations, as I would call them?

[Avrim Lazar]

I don't think you should fund them any more than you should fund us. What we need help with is (a) the science, so we're using government science as a basis of agreement, and (b) the solution space, convening the process. Working with maps and doing the actual land use planning is very intensive work, so we should go there and do our work with no one paying our way. We think the proper spot for government is bringing it all together.

The interesting thing about the boreal agreement—and it's not talked about this way very often—is that it is a civil society solution. It's not the environmental group saying it's government's job to regulate this and stop it and it's not our going to government saying they should stop these environmental groups from beating us up. For Canada, at least, it's a strangely government-free solution. Two parts of civil society have come together and said they wanted to do business and solve something.

The only place we would like to see government involvement is in creating the meeting place and using government's convening power. You should be telling the industry to stop bickering and the environmental groups to come with solutions because you don't want to hear their complaints any more, and then you should invite us both to the same place and ask if we can solve this. In this case we will.

[Bob Zimmer, Conservative, Prince George—Peace River, BC]

Thanks. I also had another question about pulp. You mentioned that pulp seemed to be the good story in terms of forestry, especially in India and emerging markets such as China and that sort of thing.

I wanted to know what the industry's plan is with this. Is it ramping up for an expansion of the pulp markets internationally? If not, why not? And if so, where specifically are you expanding?

[Avrim Lazar]

There are no big cash investments right now, so what we're doing is shutting down less pulp. There's no big capital. We haven't got that kind of big cash infusion, and for a pulp mill you're talking upwards of $800 million. But that's certainly where the investments for modernization are going. Interestingly, we're not just chasing the emerging market, because markets go up and down; we're also finding ways of using those mills for various things. You can use pulp for paper; you can also use it for rayon. We've got quite a few mills now where they're being changed instead of just being ramped up, so when the cotton crops fail, we can produce pulp to replace cotton in the production of fabric. When cotton prices are very low, we'll be using pulp for paper, and these mills can go back and forth, as well as producing bioenergy.

In fact one of our mills now, a northern Ontario mill, Tembec, is producing three-dimensional pulp. Paper is made out of pulp. It's really strong in two dimensions and useless in the third. Well, Tembec is producing three-dimensional pulp, with government support to get from the research to the commercial stage, and we'll be able to use that for car parts and airplane parts. It's completely biodegradable, right out of nature, and the best strength-to-weight ratio you can hope for, because that's what tree fibres are all about.

That's one of the innovations. We used to use the pulp just to make paper, but we are now using it—and Tembec does this as well—to make rayon fabrics and three-dimensional pulp. And for some of that stuff we're extracting the nano-fibres, which are very tiny fibres that have huge strength, and we're using them in additives in building material, to add great strength, or for plasma TV screens.

So it's not just ramping up, because in the old days we used to see an increase in price and we'd just chase it like crazy, build too much capacity, and all go broke. It has taken a long time, but now we're just a bit smarter.

[The Chair, Conservative, Leon Benoit]

You're out of time, Mr. Zimmer.

We'll go to Mr. Allen and Mr. Anderson.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

Thank you very much, Chair.

Avrim, I would like to pick up on one of the comments you made before, that we'd be better off investing in some of the new programs as opposed to the A base. Can you give me two or three examples of A-base funding that you think could be directed a little bit more or actually eliminated?

[Avrim Lazar]

I'm not in a position to do that because I haven't done a study of them, and they're not as visible to us because we never asked for them. We'd be very happy to be consulted by Natural Resources if it is doing a review, and to be part of the process, but it would be irresponsible of me to point here and there without actually doing the due diligence.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

I took by your comment that you might have given some suggestions on that.

[Avrim Lazar]

I just want to be respectful of the people doing it.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

Fair enough.

You talked about the capital stock, and I do know that in Atlantic Canada we've had some challenges, and some of our mills that went down, of course, did not update at the time and did not invest when they were making huge money on the exchange rate, as opposed to some that did and are still operating.

Can you talk about the transformation of the capital stock of the industry in the last five years? How has that changed in the last five or six years, and in your view, where does the effort need to be placed?

[Avrim Lazar]

For a while, there was very little upgrading of the capital stock, because everybody was trying to preserve cash. So at a time when prices were below the cost of production, you either shut down or you went through your savings. Either way, you weren't bringing in investment for upgrading.

In the last couple of years, there has been significant investment. Most of the investment has been by the billion-dollar green transformation fund, which people have used to upgrade and make all sorts of efficiencies, not just bioenergy. It has been a huge boon to the industry, but in addition to that we're beginning to see individual companies having their own private sources of capital. A lot of that right now has been going to delayed improvements that would have been done in the normal course of upgrading over time. Certainly in the pulp business we are seeing people going to dissolving pulp, looking at new applications, and going into more pulp and power.

We've seen modifications on the west coast in the lumber industry to allow them to process more pine-beetle-killed wood efficiently. So it's happening, but we'd love to see more of it happen.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

Do you think we still have a fair ways to go in Ontario, Quebec, and the Atlantic provinces, especially on the sawed lumber side?

[Avrim Lazar]

Huge.

One of the sawmill owners told me that a lot of his competitors are only in business because they haven't done the math yet. It's....

[Voices]

Oh, oh!

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

You've talked a little about how some of the challenges we have obviously at the federal level are because these resources are a provincial jurisdiction and decision, especially when it comes to timber policy and wood allocations and those types of things. What are some of the best practices and some of the...? I've always worried about this: that we may not be getting the optimum value out of every log. Which of the areas that you're seeing are really doing a great job at optimizing the value of those logs?

[Avrim Lazar]

Well, it varies by company. Some of the companies figured out a little earlier that pulp and paper and lumber are not going to be enough and got into the bioenergy and biomaterials game earlier, but now even the ones who were a bit slower are looking at it.

By province, I can't say that one province is ahead of the other. Each has entered into this transformation game from different points.

I can say that B.C....I'll say they came into this too late, but B.C. stopped trying to keep every mill open sooner, before Alberta, and then Alberta came in very soon after that. Then it was Ontario. Quebec has been the slowest to do it. That is because of different social policies in these provinces and because of different economic circumstances. The absolute collapse of the coastal industry in B.C. forced that government to face the music faster than others have had to.

You've got to have a lot of sympathy for the provincial governments. If you're being asked to pull the plug on a town, I don't know how many people would volunteer for that job. But unfortunately, the workers suffer more because of the hesitation than they would have if we had gone to a faster restructuring.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Allen.

Mr. Anderson, for one question.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

Okay. This is in response to two things. One is that when you talk about a solution space and bringing it together, it sounds like you're talking about a decent regulatory regime. We've heard a lot over the last month in our other study about a regulatory regime. We never touched on it a whole lot in the report or the recommendation; I'm just wondering if you have any comments on that.

Secondly, we were talking about China and the development there when Brad had his questions. Are we doing well there because we're competitive or because we're the first people there?

[Avrim Lazar]

Both.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

Okay.

[Avrim Lazar]

In China, relationship is part of competition: being there with your government. They don't just do sales, they do relationships, and sales are inside the relationship. Being there with your government gives you a huge advantage.

Can you forever sell stuff that's more expensive? No. But our wood sector is competitive. We're not competitive into the States because we're so competitive they have to put up barriers for us to jump over.