Natural Resources Committee on April 28th, 2015

[The Chair, Conservative, Leon Benoit]

Good afternoon, everyone.

We're here today, as you all know, to continue our study on the renewal of Canada's forest industry. This study was initiated as a follow-up to a study and a report presented by this committee in June of 2008. We've had several meetings on the issue already.

Today we have all witnesses by teleconference, by the way. It's going to be really important for you to identify yourselves, and you might like to identify the party you're from as well, because they'll have no way of knowing that. If you'd like to do that, do that. It's also going to be very important for the witnesses who are with us by telephone to identify themselves, the group they're from, and their names before they speak so that we can get that on record properly.

We have with us today by teleconference from Yellowknife, from the Government of the Northwest Territories, Evan Walz, assistant deputy minister, environment and natural resources; Frank Lepine, director, forest management division; and William Mawdsley, associate director, forest management division. We have from Whitehorse, Yukon, by teleconference, again from the Government of Yukon, George Ross, deputy minister of energy, mines and resources; and Lyle Dinn, director, forest management branch. We have also with us today, from the Dakwakada Development Corporation, Brian MacDonald, chair.

Those are the witnesses. We will have presentations in the order that you're on the agenda, so we'll start the presentations with the Government of the Northwest Territories.

Mr. Walz, I understand that you probably are going to give the presentation, but if not, you can go ahead and divide it for up to seven minutes, divided any way you see fit.

[Evan Walz, Acting Assistant Deputy Minister, Environment and Natural Resources, Government of the Northwest Territories]

Thank you, Mr. Chairman.

Good afternoon. My name is Evan Walz. I'm the acting assistant deputy minister for the Department of Environment and Natural Resources with the Government of the NWT. As you noted, I'm joined today by Mr. Frank Lepine, the director of forest management; and Mr. Bill Mawdsley, the associate director.

I'd like to thank the committee for the opportunity to present on activities in the NWT that we feel will help to renew and grow our forest industry.

Mr. Chairman, the Northwest Territories is on the cusp of developing an exciting new biomass industry. Currently, about 30,000 cubic metres of wood is harvested annually, mainly for firewood in the Northwest Territories. There are no significant timber processing facilities, and dimensional lumber production is entirely uneconomical.

Recently an opportunity to produce pellet fuel as a cheaper alternative to imported heating oil has emerged. The government is growing the market for pellets through conversion of public buildings to pellet fuel, and private businesses appear to be following suit. Locally produced pellets will cycle, we believe, millions of dollars into the NWT economy, which would otherwise be exported outside. The new industry will create a range of businesses and job opportunities for communities that typically have low rates of employment.

Developing an industry on the order of magnitude envisioned presented many challenges for us. The primary hurdle was the legislative framework, which restricted timber access to five-year authorizations and therefore discouraged long-term investment. In addition, existing forest businesses were small, and are small, and not able to support any large-scale activity. Finally, government policies and support mechanisms were geared towards that small or nominal forest activity. We needed to look at and improve all aspects of our business in order to ensure this industry could grow.

In 2010 a wood marshalling yard model was proposed that provided a method for communities to establish wood marketing through a community business. The premise was if that community could organize a unified aboriginal business and attract a long-term customer for timber in their area, then the GNWT could be petitioned for a forest management agreement to secure long-term tenure.

A local investor developed plans to establish a pellet mill, and several communities subsequently approached the GNWT, seeking forest management agreements. Our government studied the mill project in detail and saw that the forest management agreement requests had merit. The mill project was privately financed and northern-owned, and their business plan appeared sound.

Now, a lot of investment is required to prepare for scaling up the forest industry. Several small community projects had been done with the federal government's support in the past. Building on this, a much larger and more comprehensive regional proposal was presented to the Canadian Northern Economic Development Agency, or CanNor, as well as to Natural Resources Canada, back in 2011. Approximately $6 million has been provided by the federal government over the last three years towards this industry, and that investment has been strategically targeted to build the foundation for an industry start-up in the NWT.

To date, the government has established two forest management agreements with aboriginal business entities. These represent a new system of timber allocation and tenure in the north that enables investment in infrastructure, equipment, and people. The forest management agreements provide 25-year tenure for forest resources, and provide the ability to support an industrial-scale wood buyer.

The entire GNWT has rallied around the initiative, and there has been broad support from within the government. Focused investments have been made to improve technical forest information, to develop management processes, and to build the pellet market. Other projects provide training and employment opportunities, and support aboriginal business initiatives in forest development. In this, the fourth year of federal support, the initiative has shifted into the implementation phase for the FMAs.

With timber harvesting planned for as early as the winter of 2015, support has been focused on business development, land use application preparation, and harvest preparation. While we have come a long way, continued investment will be required if we intend to take full advantage of this opportunity.

Over the next five years, the forest management agreement holders will need continued support in the area of business development. All aspects of FMA business management and timber sales need to be developed, tested, and mastered. Capacity is also an issue. The NWT workforce is largely unprepared for full participation in technical forestry jobs. While steps have been taken to better define the scope of work required in this area, clearly training investments will be required.

Sustainability is also an issue. Maintaining the health and sustainability of NWT forests is a priority for everyone. Forest inventories at present are patchy and mostly outdated. Major investment will be required to ensure accurate information is available, to ensure sustainability, and to track forest renewal.

In closing, the GNWT sees both short-term and long-term potential in developing forest biomass initiatives, particularly in small aboriginal communities. They create capacity in small aboriginal communities with otherwise limited opportunity. They tap into a growing and sustainable marketplace, and they help to reduce our carbon footprint for both communities and governments. Finally, they establish a base for future business opportunities.

As outlined earlier, continued investments will be required from a number of perspectives, including business development, workforce development, and long-term sustainability, to name a few. The GNWT is confident, however, that with ongoing federal and territorial support, this initiative will help move our communities toward a sustainable future built around the forest industry.

Thank you, Mr. Chairman and committee members. At the appropriate time we would be happy to address any questions you may have.

[The Chair, Conservative, Leon Benoit]

Thank you very much, Mr. Walz, for your presentation, and for coming on such short notice. The scheduling around here sometimes requires some short notice, and I do appreciate your response to that.

Thank you also to Mr. Lepine and Mr. Mawdsley who are with you today.

The next presentation is from the Government of Yukon, from Whitehorse. We have George Ross, deputy minister of energy, mines, and resources, and with him, Lyle Dinn, director of the forest management branch.

Go ahead, please, with your presentations.

[George Ross, Deputy Minister, Energy, Mines and Resources, Government of Yukon]

Good afternoon, Mr. Chair and committee members. Thank you for the opportunity to speak to the Standing Committee on Natural Resources today.

My name is George Ross. I'm deputy minister of energy, mines, and resources for the Yukon territorial government. The mandate of my department, Energy, Mines, and Resources, includes the sustainable development of Yukon's renewable resources, so we are keen to discuss the current state of forestry in the Yukon and the future potential for this sector as part of Canada's forest industry.

I think it's fair to say the forest industry in the Yukon is in its early stages of development. Our Forest Resources Act has only been in place since 2011. There are a few small-scale mills and harvesting for home heating, but we feel forestry has a much greater potential to provide employment, sources of energy, and other value-added products for the benefit of all Yukoners.

Only yesterday the Government of Yukon announced a draft bioenergy strategy to the public. This strategy could lead to greater use of Yukon's substantial forest resources to generate heat from wood chips and pellets. This will be a companion piece to a series of incentive programs that the Yukon government implements to encourage institutional and residential biomass heating systems.

In terms of sustainability, it's worth noting that Yukon's current timber harvest levels are well below what they could be. There is certainly potential for growth in Yukon's forest industry.

To give you a more detailed look at the state of the Yukon's forests and forest industry, I'd like to introduce the director of Yukon's forest management branch, Lyle Dinn, to take the presentation from here.

[Lyle Dinn, Director, Forest Management Branch, Government of Yukon]

Thank you, George.

Good afternoon. I'm going to speak to you about forestry in the Yukon Territory. Forestry is a small but important growing sector in our regional economy.

Yukon is a northern jurisdiction with a large forest area and a small population. The territory is a unique first nations governance landscape. There are more first nations with land claim and self-government agreements than all other Canadian jurisdictions combined. In the Yukon, 28 million hectares are forested and 5.4 million hectares have commercial potential. White spruce and lodgepole pine are the main commercial species.

The following is some information on forest health in the Yukon because I know it's of interest to the committee.

There is currently no mountain pine beetle in the Yukon. Mountain pine beetle has been identified as being 30 kilometres to 50 kilometres south of the Yukon-B.C. border. No major outbreak is imminent. Yukon's spruce bark beetle infestation peaked in 2004, with 380,000 hectares. The outbreak was significant, and the salvage harvest is ongoing. However, climate change is anticipated to result in more frequent pest and disease outbreaks and fires. More frequent fires can impact a generation of boreal forest.

The responsibility to manage and regulate forest resources devolved from Canada to the Government of Yukon in 2003. Following devolution in 2003, the Forest Resources Act was assented to in 2008 and enacted in 2011. It is the first Yukon-grown, post-devolution piece of natural resource legislation. The Forest Resources Act is based on the three pillars of planning, tenure, and compliance and enforcement.

The Yukon has completed three regional forest management plans that cover over 2.4 million hectares of forest. The forest resources management plans are unique. The plans are jointly developed by the Yukon government and first nations, which cover both public land and first nations settlement land. The plans are approved by both parties, by their respective minister and chief.

Yukon has a total maximum annual harvest of 189,000 cubic metres. In addition, there is a salvage uplift of one million cubic metres over a 10-year period. The annual harvest volume is 50,000 cubic metres, 80% being harvested for fuelwood.

Two operating mills in the territory focus on rough dimensional lumber for domestic use in the mining industry, and manufacture under 5,000 cubic metres a year. There is no pulp industry and limited other value-added industries. Employment in the industry is estimated at 150 workers, and there are 80 commercial licences issued in the territory.

Yukoners spend $50 million yearly importing fossil fuels to generate heat. The advantages of using local biomass to generate heat are clear. Locally sourced biomass contributes to the local economy and employment, assigns value to an otherwise wasted product, increases the viability of local businesses, avoids shipping fossil fuels large distances, and reduces greenhouse gas emissions.

While most of the rest of Canada's wood products market is export oriented, Yukon wood products are almost exclusively sold locally. The value of wood from wood products into the territory is high, although the latest figures from the period of 2011 to 2013 show there was a construction value of over $300 million in the territory. Yukon is exempt from the Canada-U.S. lumber agreement due to a very low export volume.

Access to markets is a constraining factor for the Yukon wood products industry. High transportation costs are the main barrier. Fuel costs are high, and the nearest access to rail is Fort Nelson, B.C., which is 950 kilometres away.

While there is increasing pressure on wood supply in B.C. and demand for wood products is showing a steady sign of growth, Yukon's forest resources could potentially play a greater role in the broader market. The port of Skagway, Alaska, is not far from Whitehorse—150 kilometres away—and a project to expand and upgrade the port to allow better access to commercial freighters has begun.

Forest management planning in the Yukon requires collaboration and participation with first nations, industry, and stakeholders. This planning regime is vital to enabling a secure forest land base for forest industry development. Examples of collaboration are the first nations implementation agreements.

Yukon has a unique aboriginal relations landscape. As a result of treaty negotiations, 11 out of 14 first nations are self-governing. This landscape is reflected in forest resource management plans in traditional territories. In areas with completed forest resources management plans, the Government of Yukon has signed forestry agreements with first nations. These agreements and forest resources management plans are key to establishing certainty in the forest land base.

The Yukon government is working with industry members to increase their involvement in forest policy development. The Yukon government works collaboratively with the Yukon Wood Products Association to address forest sector challenges in the territory.

There is growth potential for the Yukon forest sector, both for the local wood products industry and beyond. I already emphasized the need to explore biomass opportunities and export potential. Several first nations have an interest in expanding forest sector opportunities. Working with local industry to improve existing mills and with first nations development corporations will build capacity and businesses.

ln northern settings, forestry professionals are often unavailable and cost is prohibitive. Current industry relies on government staff to complete forest development opportunities. This is not a viable, long-term solution.

A pioneering stage forest industry is sensitive to stumpage fees. The forest industry is currently small with generally low profit margins and harvest volumes. With the potential for industry growth, ensuring an appropriate fee structure is in place is key.

Yukon has a small population with high social values when it comes to forests. Larger scale forestry operations present a number of challenges.

It must be said that non-settled first nations, meaning those that do not have a treaty or self-governance agreements, have an impact on potential expansion of the forestry sector. The instability caused by this situation impacts natural resource opportunities. I should point out that southeast Yukon has substantial forest volume relative to the rest of Yukon. The area falls within Kaska traditional territory, and those first nations are some of the few that do not have self-governance agreements. The Yukon government continues to engage with the Kaska nation to find mutual ground to advance opportunities that benefit all.

The Yukon government continues to implement the Forest Resources Act. The current planning and regulatory regime began with the Forest Resources Act, and the government continues to implement the act, with much work remaining.

There is potential for FPInnovations to provide technical support and advice to build first nations and local industry contribution to the wood products sector. Providing the right advice, training, and expertise to first nations and other industry players can help them realize more potential in the wood products market. Investment or incentives to industry for road building and forest management expertise would also enable the industry's greater opportunity for autonomy and growth.

The move toward efficient biomass heating systems is proving to have broad benefits in the north. These include energy savings and local employment opportunities. The Northwest Territories have moved forward with the support of federal agencies in expanding wood pellet demand, and more recently, toward pellet production. Efforts that support developing biomass opportunities in Yukon will serve to build a stronger regional economy in the north.

Value-added local wood products are an area that Yukon could become more competitive in. Identification of new wood products and market development would increase investment in the industry.

I would like to take this opportunity to highlight that Yukon is pleased to have the opportunity to host the Canadian Council of Forest Ministers in July 2016. We look forward to our hosting responsibilities and the national-level discussions on forests that will take place.

Thank you very much.

[George Ross]

Mr. Chair, that concludes the remarks from the Yukon territory.

[The Chair, Conservative, Leon Benoit]

Thank you very much, Mr. Ross and Mr. Dinn. I appreciate your coming on such short notice as well.

The third witness today is from the Dakwakada Development Corporation, Brian MacDonald, chair.

Go ahead with your presentation, please, Mr. MacDonald, for up to seven minutes.

[Brian MacDonald, Chair, Dakwakada Development Corporation]

Thank you, Mr. Chair.

That was a great pronunciation of our name. Sometimes it can tongue-tie people.

I would like to thank the committee for inviting Dakwakada to present before you on the issue of the renewal of Canada's forest industry.

By way of a quick background and to give context to my submission, I will give a quick overview of DDC and some of our experiences over the past 15 years within the context of the forest industry.

DDC is the business arm of an investment trust established by the Champagne and Aishihik First Nations. Our mandate is to seek business opportunities to invest in for the purposes of generating financial returns to the investment trust and ultimately to the first nations. The investment capital is compensation funds that were the result of the settlement of a comprehensive land claim. We currently have ownership in four operating companies as well as our four commercial properties. Our companies employ upwards of 200 people and do approximately $60 million in revenue annually.

DDC has had experience in a number of investment opportunities in the forestry sector over the past 15 years, as I've said. This is largely the result of a significant spruce beetle infestation that created a sense of urgency to utilize forest resources in the traditional territory of the Champagne and Aishihik First Nations that had been affected by the infestation.

In approximately 1999, Dakwakada Development Corporation invested in the development of a small sawmill enterprise in our local community. The intention was to create a sawmill that would produce lumber to supply the local and regional market. Unfortunately, due to numerous factors, which included trade issues at the time with the United States, federal policy related to the management of and access to timber harvesting permits, and market conditions, this venture was ultimately unsuccessful.

This was prior to the devolution transfer agreement that was negotiated between the federal government, the Yukon government, and Yukon first nations that saw the management of forest resources devolved to the territorial government. As it has been determined since then, the forest management practices at that time did play a critical role in limiting the development of the forest industry in the Yukon. For our part we are optimistic that local management of the resources now will provide a more successful outcome.

In 2009, Dakwakada engaged in a feasibility study to assess the opportunity to establish a new pellet industry in the Yukon. We determined at that time that a small regional pellet industry was feasible to service the local market. To achieve this required numerous policy changes at the territorial level that would assist in advancing the promotion of pellets as a viable fuel source for the territory. To date, unfortunately, those policy changes that we identified have not come to fruition. In our opinion, until this is done, the development of this opportunity would be very difficult to advance.

In 2010, Dakwakada Development Corporation, in partnership with the Village of Haines Junction and the Champagne and Aishihik First Nations, undertook the feasibility assessment of developing a power generation and district heating system for their community. A critical part of the feasibility study was the financial support we received from CanNor. The feasibility study determined that a scalable approach could work. However, from Dakwakada's perspective, the socio-economic opportunity outweighed the financial investment opportunity, and as a result was too far outside our investment mandate for DDC to participate in. A critical part of that discussion was reconciling the investment values in a public-private partnership.

Going forward, for DDC to participate in resource development, including the forest industry in the Yukon, it is our position that there must be a resolution to the question of land use planning. In all three of our experiences it became apparent that there was not a consensus on how forest resources should be utilized. While there is now a forest management plan for the Champagne and Aishihik First Nations' traditional territory, the land use plan still required under the terms of the Champagne and Aishihik First Nations land claim agreement has not been completed. As a result, the ambiguity and lack of certainty around the utilization of resources in the traditional territory is a significant inhibitor to investment in that region by our company.

Our experience in the Yukon economy has resulted in our realization that traditional forest industries are less viable than opportunities that focus on innovation and value-added approaches that recognize our small-market reality.

Further, it has been our experience that in a small market, attempts to advance a broad spectrum of opportunities will not result in an economically feasible business model. Small markets require focused efforts that have significant public sector support. This means reducing the plethora of opportunities and studies, and focusing on real opportunities or more probable opportunities. It also requires policy support from all layers of government, as they are generally key partners in small-market economies.

In closing, from my perspective the forest industry as an exploitable resource and as an economic driver of aboriginal communities has an advantage over other resource sectors in that aboriginal communities are often able to more easily reconcile the cultural and economic values with the exploitation of a renewable resource. As such, as the investment arm of an aboriginal community we will continue to support and consider opportunities related to the forest industry within our traditional territory, provided those opportunities provide meaningful economic value back to our shareholders.

Thank you.

[The Chair, Conservative, Leon Benoit]

Thank you very much, Mr. MacDonald, for your presentation.

Just before we go to questions and comments, I have a couple of items for the committee members. First of all, we're here by teleconference, but you do have photos of the witnesses in front of you. It helps. You can see who you're talking to.

Secondly, there will be a bit of a conflict on Thursday afternoon in that the pipeline safety bill will be before the House. We have bells at 5:15, so at five o'clock I'd like to have a very short in camera meeting just to discuss that and see if the committee wants to do anything to deal with that.

I'll leave that until then and get right to questions and comments now. We'll start with the government side, with Ms. Perkins, for up to seven minutes.

To the witnesses, the person you'll be listening to for the next seven minutes is Ms. Perkins. When there's a change of people to make comments or to ask you questions, I'll let you know. I'll let you know how long they'll be asking the questions for, but I think you'll figure that out. Of course, the questioner will direct the question to one of you, two of you, or to all three groups.

Go ahead, please, Ms. Perkins.

[Pat Perkins, Conservative, Whitby—Oshawa, ON]

Thank you, Mr. Chairman.

Thank you for the presentations from all of you.

I would like to explore two things to start with. One of them is the distances. I believe it was Mr. Lyle Dinn who spoke last for the Government of Yukon. I was trying to keep up with you. You were disseminating a tremendous amount of information, and I know that your time constraint was such that you had to do it quickly. I just didn't quite pick up on the distances. You were speaking, I believe, about being 950 kilometres away from the rail, and I didn't pick up on the shipping lanes.

Can you give us some information on that?

[Lyle Dinn]

Yes. The nearest port is Skagway, Alaska, which is about 150 kilometres south of Whitehorse. There's also a port in Haines, Alaska. Neither of these ports have the infrastructure to deal with the export of wood products from Yukon, and the Haines port is 400 kilometres from Whitehorse.

The nearest railhead, which is what I think you were mentioning, is in Fort Nelson, B.C., which is 950 kilometres from Whitehorse. That's a railhead.

[Pat Perkins, Conservative, Whitby—Oshawa, ON]

I would imagine that this is a quite significant challenge then, with respect to your transportation issue.

[Lyle Dinn]

Yes, it's a heavy burden for any exporter of wood products who is going to compete in a commodity market. It's very hard on the industry.

[Pat Perkins, Conservative, Whitby—Oshawa, ON]

Thank you for that.

The committee has always been interested in strategic innovation, particularly the efforts to improve existing forest products and to develop high-value products for future markets. There has been some discussion here today about the pellets—biomass heating and that sort of thing.

What role can the federal government play in order to further strengthen the foundation of innovation in northern Canada's forest industry in the longer term?

I'd like all three of you to answer that.

[The Chair, Conservative, Leon Benoit]

We'll start, then, with Mr. Walz from the Northwest Territories.

[Evan Walz]

Thank you, Mr. Chairman.

Thank you for the question.

As we outlined in our presentation, we have had some good success working with the federal government. There's been a significant amount of money invested but we see that continued investment is really needed. In the presentation, I highlighted three key areas that we think need to be looked at over the next while.

One is continued support in the area of business development. The second would be continued federal support in the area of capacity building, ensuring that northerners are adequately trained to take advantage of the opportunities that this industry might present. Finally, around the issue of sustainability, the third area is support to help us ensure that the forest inventories that we have are accurate, that decision-makers are provided with accurate information to ensure sustainability targets are met. I think those are three areas that we would like to see additional involvement with the federal government and support from the federal government.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Walz.

Now to someone from the Government of Yukon.

[Lyle Dinn]

The Yukon has a contribution agreement with FPInnovations. In part of that, they support us with technical advice related to market development and all things to do with developing a biomass industry. One of the main components that we are most recently discussing with them is their aboriginal forestry technical support program, which we want to roll out in a wider format to include non-first nation businesses. They help these businesses in their market development and their technical support to build businesses that have greater value to the territory.

Really, our advice would be on the market development, and incorporating and strengthening FPInnovations' involvement with resource experts to come to the territory and provide that value, that technical support in market development.

[The Chair, Conservative, Leon Benoit]

Thank you.

Finally, Mr. MacDonald, have you any answer to that question? Go ahead, please.

[Brian MacDonald]

I think that from our perspective, our experience with the biomass feasibility, it was working closely with CanNor, as I mentioned. It was just making sure that there was sufficient financial support to do the necessary feasibility work up front. The reality here is that because it is a new market we don't have a lot of examples to go on. You do need to bring in a lot of outside expertise, which is an upfront cost, and a lot of the private sector is not really prepared to invest necessarily in a small market. So I'd like to see that type of support continue.

[The Chair, Conservative, Leon Benoit]

Okay, thank you very much.

[Pat Perkins, Conservative, Whitby—Oshawa, ON]

Thank you very much.

Okay, on the Canada job grant, Dakwakada Development Corporation received funding from the Canada job grant to train 40 employees. Have we got that right?

[Brian MacDonald]

Yes.

[Pat Perkins, Conservative, Whitby—Oshawa, ON]

Can you give us some specifics in terms of how that funding will be used for the employees? Is it with one of these important points that you've just brought up with respect to the feasibility and retraining of people to do these sorts of things, or what is it we're doing?

[Brian MacDonald]

We had already utilized that funding. Basically, it was focused on all of our senior managers having better project management skill sets, better financial management comprehension, better leadership training, better corporate governance. Basically it kept it at the higher levels within our companies to build those types of skills. I think that going forward the value I would see in that is just better project management of new initiatives for our companies. It wasn't necessarily specific to the forest industry as it is, as we're contemplating here today.