Natural Resources Committee on Nov. 22nd, 2017

[The Chair, Liberal, James Maloney]

Good afternoon, everybody. Gentlemen, good afternoon to you. Thank you for joining us today.

This afternoon for the first hour we have the Forest Products Association of Canada represented by Mr. Robert Larocque, and we have FPInnovations represented by Pierre Lapointe and Jean-Pierre Martel.

Gentlemen, we appreciate your being here. Each group will be given up to 10 minutes for their presentation. After both groups have presented, we will open the floor to questions from people around the table. You're welcome and encouraged to speak in English and/or French.

On that note, Mr. Larocque, since you're here by yourself, why don't we start with you.

[Robert Larocque, Senior Vice-President, Forest Products Association of Canada]

Thank you, Mr. Chair, and members of the committee. I have provided copies of my remarks around the table if you need them. My opening remarks will be bilingual, so I'll be flipping back and forth from French to English if that's okay.

My name is Robert Larocque, and I am the senior vice-president of the Forest Products Association of Canada. I'm very pleased to be here today to represent the forest sector as part of your study on secondary supply chain products in the forestry sector in Canada.

The Forest Products Association of Canada offers a voice, in Canada and beyond, to Canadian lumber and pulp and paper producers on matters related to government, trade, the environment, and our topic of discussion today, the new supply chains in the forest products sector.

First, let me give you a quick snapshot of how important the forest products sector is to Canada's economy. It is a $67-billion industry that represents about 12% of Canada's manufacturing GDP. The industry is one of Canada's largest employers, operating in 600 forest-dependent communities from coast to coast. We directly employ about 230,000 Canadians across the country.

The sector is also important when it comes to the Canadian environment. As custodians of almost 10% of the world's forests, we take our responsibilities as environment stewards very seriously.

Canada has the most independently certified forests in the world, 166 million hectares, or about 43% of all the certified forests. In fact, repeated surveys of international customers have shown that the Canadian forest products industry has the best environmental reputation in the world.

Climate change is emerging as the signature issue of our time. Forest products companies have been ahead of the curve by aggressively reducing their carbon footprint and running more efficient mills. In fact, pulp and paper mills have cut greenhouse gas emissions by an impressive 66% since 1990. That's an equivalent of nine million tonnes of CO2 per year. The sector also does not use coal, compared to our international competition, and barely any oil, less than 1%.

Following Canada's commitment under the Paris Agreement, the forest products industry pledged last May to remove 30 million tonnes a year of greenhouse gas emissions by 2030. That's about 13% of the government's emissions reduction target. We called this initiative the “30 by 30” climate change challenge. We are proud to be part of the solution, and there is no question the Canadian forest products industry is an environmental leader.

I would like to point out that the existing supply chains and traditional products, such as timber and pulp and paper, must be supported to safeguard the future of this sector. All the current efforts related to innovation, international trade, and infrastructure projects are appreciated and must continue, but new supply chains that would enable the sector to produce biofuels, biomaterials, and tall buildings, are within reach.

One of the key factors for a prosperous forest sector in the future is to ensure a sustainable, stable, and economic access to fibre from our Canadian forests. Climate change impacts, such as increased forest fires and pest infestation, have a significant impact on Canadians, on our communities, and on the forest industry.

We also believe that more can be done to make our forests more resilient and to ensure long-term sustainability. We must continue research of long-term potential climate change impacts such as modelling of forest fires and pest infestation, implement climate resilience solutions such as FireSmart communities, and work with our provincial counterparts to modify our forest management activities to allow for selecting and planting trees that are based on the changing climate conditions.

FPAC is currently working on setting up a multi-stakeholder federal and provincial committee to prepare recommendations and actions relating to climate change impacts, enhanced forest management, and policy barriers to a resilient forest.

In terms of mills, one of the new supply chains for the sector is the production of green electricity. The sector has invested billions of dollars in the 2000s, and more than 40 mills now generate green electricity from residues. According to a report by Natural Resources Canada, these investments have sustained more than 14,000 jobs, reduced greenhouse gas emissions by 543,000 tonnes, atmospheric emissions by about 15%, and the water used by mills by the equivalent of 4,000 Olympic-size pools.

While the sector will continue to generate green electricity from residues, new value chains will be created as the sector transforms to produce biofuels, bioproducts, and biomaterials. The sector started the transformation in recent years with more than $1 billion in projects and announcements.

Furthermore, in partnership with the agricultural sector, the sector recently proposed a biodesign supercluster to produce advanced biomaterials and low-carbon fuels with the objectives of establishing new bioeconomy value chains, accelerating disruptive technologies, sustaining rural economies, and improving the environment.

The cluster has established five-year targets of $6 billion in economic growth, 64,000 new direct and indirect jobs, and four million tonnes of GHG reductions.

Unfortunately, the biodesign supercluster was unsuccessful under the current superclusters initiative. However, the sector was very pleased that, at around the same time, a forest bioeconomy framework for Canada was announced by the Canadian Council of Forest Ministers. FPAC supports the ministers' four key pillars: communities and relationships; supply of forest resources and advanced bioproducts; demand for advanced bioproducts, i.e., creating new value chains; and continued support for innovation. These pillars are well aligned with the biodesign cluster and sector transformation. We look forward to working with the Canadian Council of Forest Ministers in the implementation of the framework.

The sector's road to full transition to a low-carbon economy will create a new secondary supply chain in the transportation sector. We will become a supplier of biofuels. In the energy sector, we may become a supplier of renewable natural gas. Regarding sustainable living, we have products used by Canadians in their day-to-day lives, like producing bioplastics, nano materials, and car parts, as well as new construction of tall wood buildings made of engineered wood and wood fibre insulation. However, to get there, we must work together.

Current policies and funding programs, such as Sustainable Development Technology Canada or the investments in forest industry transformation, IFIT, which are necessary, focus on capital investment for new technologies at the mills. Moving forward, it is crucial that we enhance or create new policies and funding programs for two key areas, which I'd like to focus on today. They are ensuring a sustainable and healthy forests for stable and economic access to biomass and accelerating access to new markets and value chains.

In conclusion, I would like to thank the governments, our communities, our academic and indigenous partners that have contributed to the initiation of our sector's transformation. With programs, such as IFIT and the recent clean growth program that was announced this week, the government's vision, through the bioeconomy framework and partners such as FPInnovations, we are moving toward a fully transformed sector. However, to really accelerate the transformation, capitalize on economic and job growth, and ensure environmental benefits, we all need to work together to ensure sustainable and healthy forests, maintain our current programs for the forest sector facilities, and accelerate access to new markets and value chains.

Thank you very much for your attention and I will be pleased to answer your questions.

[The Chair, Liberal, James Maloney]

Thank you very much, Mr. Larocque.

Next, we have Mr. Lapointe or Mr. Martel.

[Pierre Lapointe, President and Chief Executive Officer, FPInnovations]

Thank you for the invitation. I am very pleased to be here.

We have circulated a document with pictures, and since a picture is worth a thousand words, I think it will promote discussion.

I will start by saying who we are, what we are doing, and what is the impact on climate change. You'll see some real examples.

FPInnovations is an organization that was created from the merger of four organizations in 2007. It now represents about 400 to 500 researchers throughout Canada, with headquarters in Montreal and offices in Hinton, Alberta, Quebec City, Thunder Bay, and Vancouver, and 40 industrial advisers throughout Canada. It has a budget of about $75 million to $90 million per year, with one-third from the industry, which has 170 members, one-third from governments—nine provinces, two territories, and the federal government—and one-third from contracts, royalty licensing, and so on and so forth. It is a not-for-profit organization with a public charter.

What I want to introduce to you today is how the forest sector impacts climate change. If you look at slide 4, you will see this: “To mitigate climate change, it is necessary to reduce greenhouse gas emissions and store more carbon.” My objective today is to talk about healthy forests, and a healthy forest sector can do both of these things. We'll give you some examples of both.

If you look at slide 5, you will see that the forest carbon cycle is a natural solution: capturing the carbon dioxide from the tree itself, also capturing manufacturing air emissions, using short- and long-term sequestration in the building itself, and then recycling the use of wood into energy or secondary manufacturing.

In slide 6, we see the opportunities for the forests and forest products in the future. It is very important to realize that FPInnovations does the research on the silviculture, the genomics, the forest operations, and the secondary and tertiary transformation of wood, pulp and paper right up to bioenergy and the bioeconomy.

If you look at some of those projects, you will see that the long-term storage of carbon in wood products, such as wood in buildings and infrastructure. You'll see some examples later of wooden bridges, which are a fantastic new market, and also of mid- and high-rise wood building construction.

We also do quite a bit of research in increased forest protection against fires and pests, such as the mountain pine beetle and spruce budworm, but also, as Bob was saying, we help to transform the present forest sector towards bio-sourced products in creating a biorefinery using biomass to create biofuel, biochemicals, or biomaterials. It is obvious also that the forest sector and the bioeconomy that we're producing for our own research and innovation will provide economic growth and green jobs for both rural and urban communities. We work at both levels.

On slide 7, we have chosen to show three examples of the impacts of the forest sector. Some of them are not foreseen. One of them is in transportation and mobility, and others are in the bioeconomy and buildings. When you look at transportation and mobility on slide 8, what you will see is the development of an electric autonomous shuttle connection with four-season mobility for all mass transit.

We do the study on transportation in the forestry sector. Transport represents 45% of the cost of wood. Then we transfer that to the commercial sector. The first picture on the right-hand side is of the electric interior buses at the Calgary airport, terminal 2. If you go there, you will see those have been produced by the technology of FPInnovations.

If you also look at energy use, which I think is very important and we'll come back to biodiesel, we're really looking at 100% electric or hybrid-electric trailer, winterized, as we understand it. There's also new technology, like platooning, which is in the second picture on the right-hand side, in which you have a three-foot van with only one driver and a 0.6-second space in between. Obviously for northern communities like those in the Plan Nord in Quebec or some in the Tuktoyaktuk-Inuvik area, because there are no drivers, this is a very interesting and very cost-saving measure.

Obviously this is not done totally by FPInnovations. It's a partnership, because we don't do everything, but we make sure that everything gets done. In the case of the transport, we have a partnership with ABB, Ericsson, Motrec, and Technoparc Montréal.

If we look at the bioeconomy, biofuels, and biochemicals, we have a major project in La Tuque, which is north of Trois-Rivières. It is a partnership between the Quebec government, the federal government, the Finnish hydrocarbon industry—which is called Neste—the La Tuque area, and us to produce drop-in biodiesel from residual forest biomass product. The research aspect has three phases. The first one is completed. We're on the technology partnership to eventually produce drop-in biodiesel that would be exported from La Tuque to Trois-Rivières and then to the rest of North America. The total investment when going to the commercial phase would be $1 billion.

Currently, as Bob was saying, replacing some of the natural gas being used with biomass under a pilot project in the pulp and paper plant is also a major research program.

The most fascinating aspect of things is the bioeconomy, from wood chips to bioplastics, as shown on slide 10. We have a pilot plant in Thunder Bay with Résolu where we extract H lignin and a sugar stream, cellulose, C5 and C6. The H lignin is transformed first into carbon biochar, but eventually gets into the animal feedstock. I'd gladly explain why pigs like cellulose, but it is a brand new market and it will help in continuing to produce pulp in Thunder Bay. At the same time, the sugar, C5 and C6, will be shipped to Sarnia to be transformed into biochemicals and different acids. The clients there will be Michelin and Lego, because they like to secure their synthetic rubber.

We have given you some examples. I'll start with the high-rise buildings because they seem to have aroused some interest. In slide 12 you see that we already have major projects in high-rise buildings. We have a 12-storey student housing project in Vancouver, and in Montreal, an eight-storey condominium, an investment of $140 million. Those projects also increase the use of wood in bioproducts such as the bridge you see on the right-hand side, which is 160 metres long and 375 tonnes of charge, which has been constructed in the Chibougamau area for the Stornoway mine. Those are examples of what the forest sector is doing in zone transformation, its contribution to climate change, clean tech, and the future of Canada.

Thank you.

[The Chair, Liberal, James Maloney]

Thank you very much, Mr. Lapointe.

Mr. Tan.

[Geng Tan, Liberal, Don Valley North, ON]

Thank you, Mr. Larocque.

I noticed that you used to be a process engineer. I used to be a certified senior process engineer as well. I also studied in the pulp and paper area at U of T and I used to work for PetroCan. I'm very glad to see you here as a witness today.

About 20 years ago, PetroCan was recognized as a leading-edge research institute in this industry. This is why I feel so proud to have been part of PetroCan 15 or 16 years ago. Then it merged with Forintek Canada Corporation and others that formed FPInnovations.

As I recall, the amalgamation was necessary to deal with reduced profit, cut costs because of the heightened competition in that very rapidly shrinking industry at that time. Then some years ago, Canada mainly sold the high value-added product to our global market. For instance, we sold a high-quality paper and craft department to the Asian market. Our forestry products were much sought after.

However, today it would appear that we are now talking more about certain lumber or the raw material of forest products to the global market and even to Asia or the U.S. But those products no longer have such a high value-added status. Of course, sometimes when we mention biofuels, we mention biomaterials and some new areas that might appear in your talk.

This question is for both witnesses. In your opinion, how healthy is this industry in Canada right now? Do you have any contingency plans to handle this worst-case scenario? How do we maintain this leading-edge research as we did before? How can the government better support the industry to go through the worst periods?

[Robert Larocque]

I think you're right. During the economic crisis of 2008 to 2010 we saw a lot of the changes that happened to our sector, and we lost about a third of the sector. The electronic age also came around. The pulping sector and the lumber side outside of trade disputes is doing well. We diversified. We used to go mostly to the United States. Now about 30% of our products are going to Asia. Globalization has made a difference, and I think we're better positioned today than we were five or 10 years ago.

We've also seen that we can't just rely on newsprint or even paper. We also need to transform. Those are the types of facilities I think you can use to make cellulose filaments. You can use the biomass to make some bioenergy. The traditional sector, like pulp, will continue. People need consumer products. We need to continue to build houses but we need to be able to diversify so if there is a crash in the market, if there is an impact, we're not as taken aback by that specific thing because we would have biofuel or electricity generation. Our facilities will be more diversified from economic impact so we could be able to handle the hit better.

[Pierre Lapointe]

Within the research aspect, what we have been doing is putting value added to the pulp side especially. I'll give you three examples. We have a joint venture with Domtar for producing nanocrystalline cellulose. This is the only company in the world that produces this. It is used by Schlumberger in their drilling mud, which is a totally new market, just totally outside of what we use.

In the case of the sugar extraction stream, it's going to be used by Michelin, the tire company, for synthetic rubber. In the case of cellulose filament, which is a new plant in Trois-Rivières with Kruger, the cellulose filament is going to be used in polymer, but also in the construction industry in Gyproc. It is reducing by 20% the weight of Gyproc.

Finally, especially for the export side of things, we're going outside of the two-by-four concept towards a construction system to export six- to eight-storey buildings to the U.S. and to China. Those really are the trends on the export side to which the industry is transforming itself.

[Geng Tan, Liberal, Don Valley North, ON]

I have just one minute, so I'll go to a quick one.

Just out of curiosity, according to the report provided to us by the Library of Parliament, in 2016 the forestry industry accounted for $23.1 billion, or 1.2%, of Canada's GDP. Your notes mention that Canada's forest product industry is a $67-billion industry and accounts for—

[Robert Larocque]

That's in total revenue.

[Geng Tan, Liberal, Don Valley North, ON]

There's a significant discrepancy between these two numbers. I want to know whose number is more accurate. How did you come up with your number?

[Robert Larocque]

They're both accurate. It's just a different way of looking at the economic impacts. One is based on gross domestic product, which is the $23 billion. Sixty-seven billion dollars is also from Stats Canada, and it's the total revenue of the products made in 2016. It's a different way of looking at the economics.

I'm not an economist, but they're both accurate, actually.

[Geng Tan, Liberal, Don Valley North, ON]

To me the difference is huge.

[The Chair, Liberal, James Maloney]

Thank you.

Ms. Stubbs.

[Shannon Stubbs, Conservative, Lakeland, AB]

Thank you, Mr. Chair.

Thanks to all of our witnesses for being here today.

Bob, I have a couple of questions for you, both on the supply end and then also on the customer end of your industry.

First of all, you mentioned one of the key factors being maintaining resilient and long-term sustainable Canadian forests and the importance of continuing to ensure sustainable, stable, and economic access to fibre from our Canadian forests. I wonder if you have any comments on the impact of the mountain pine beetle and the spruce budworm on the Canadian forest supply. In particular, as you know, in northern Alberta, 50,000 hectares of forest have been affected in the national park alone, but six million hectares are estimated to be at risk there and more than 30,000 trees were cut down in the park just last year. Of course, the spruce budworm is also having a serious impact on forestry in Quebec and New Brunswick. I wonder if we could start there and if you have any comments on that.

[Robert Larocque]

Absolutely. Our number one concern is on climate change impact on the forests. It's the trees. We also deal with the pine beetle out west. Initially we were able to salvage some of the trees that were impacted by pests. Now we're seeing the total effect on the trees that were replanted to cover them. The allowable cuts, for example, are going down significantly, by 20% or 25%, because of pest infestation or fires. This means if we're not working together on trying to minimize those—and I don't think we'll ever eliminate pests or fires, but we can try to minimize them—by 2050 the modelling that we've seen from Natural Resources Canada shows that it's going to get worse and worse if we continue with the status quo. We're very concerned about having enough wood to do all that we want to do and keep the economic impact on the country.

[Shannon Stubbs, Conservative, Lakeland, AB]

Thank you for that context. I know the previous Conservative government, of course, made significant investments to aid in that fight, so hopefully we'll see some action on that from the current government as well.

On the aspect of your customer base and on market access, probably it's fair to say that the U.S. remains a very important customer for Canadian wood products. I wonder if, as you begin, you might comment on the impact of the softwood lumber agreement on your industry's ability to invest in new tech, as well as the long-term impact on your member companies.

After that, I'm interested in your thoughts on the equally significant importance of diversifying our access to markets, and the opportunities, particularly in the Asia-Pacific, for Canadian forest products.

[Robert Larocque]

Very quickly, when there is a trade dispute like the one we're seeing, and we have to put 20% to 25% of tariffs on the side, that's money that the industry cannot pass over. We've been lucky so far that the price of wood in the United States has increased, but that also means it's 20% or 25% that we could have reinvested in our facilities or in new products, and we can't. It is removing capital from our companies.

We're also super concerned about the newsprint and paper countervailing duties that are supposed to be announced in January. If those go through, it means that pulp and engineered wood are pretty much the only things that are not countervailing from the United States. That is very, very concerning. That goes into diversifying our sector. We need to be able to make different things than just the typical pulp and paper, newsprint, and lumber.

One of the key issues involves support. There's some support right now with embassies in showing our products. Canada Wood does some work in Japan, for example, on demonstrations. We feel that because of all the help from FPInnovations we can make those biomaterials, but we need help convincing Nestlé, Danone, and all those people to absorb that kind of product. There are no current programs that are tailored to that.

As I said, we put a lot of money into capital investments. Don't eliminate that, but maybe take a portion of money there, allow a joint venture, like a wood product company with a plastics company, to do internal testing to see if it works, and help take away the risk from the federal government.

[Shannon Stubbs, Conservative, Lakeland, AB]

Do you have any numbers or projections in terms of jobs or revenue, the possibilities with—

[Robert Larocque]

Yes. The supercluster was one that was the full-value chain. The forestry and agricultural industries were making the biomaterial, and then the secondary value chain, Air Canada, Esso, or Nestlé, were taking on the products. It was worth about $800 million of investment in the next five years, and there were 64,000 jobs created. That's the kind of potential we see now.

[Shannon Stubbs, Conservative, Lakeland, AB]

Thank you.

I'd invite you two to expand on comments related to the bio-pathways report. I just wonder if there are any key findings that you wanted to elaborate on that were included in that.

[Robert Larocque]

The bio-pathways report was very critical—and FPInnovations was the lead on the findings—but what helped us out was understanding the true value from the forest sector. I think we've completed that. I think we know mostly what we can make. Again, that work, though, was done specifically in our facilities, the economic conditions that were there.

Now we just have to convince the market to accept it. We need more partnerships. CelluForce is a great example, but it took them three years to be able to sell NCC with Schlumberger. We need to accelerate that. We need to be able to do it right off the bat. If we can make it, and you can absorb it, then let's work together.

[Shannon Stubbs, Conservative, Lakeland, AB]

You referenced the IFIT program that was introduced by the previous Conservative government. I would invite you to expand on any specifics you'd like to about the ways in which that program helps capital investment in new technology.

[Robert Larocque]

It's very efficient. We like the way it's applied. We like the criteria. In my mind, it's one of the best programs that's been delivered in the last 10 years to help our sector out with capital investment and benefits to Canadians. It's in communities and jobs at the time of installation. I just wish a criterion of the IFIT program was that, if we do something cool with a customer, it would also be eligible as a cost. Right now it's not. It's just capital investment.

[Shannon Stubbs, Conservative, Lakeland, AB]

Great. Thank you.

Pierre, if you have anything to add, go ahead.