Natural Resources Committee on Feb. 8th, 2018

[The Chair, Liberal, James Maloney]

I call the meeting to order.

Good morning, everybody. Thanks for joining us today.

There's a slight change to the agenda that everybody has in front of them. Mr. Priddle from The WoodSource is going to be here in the second hour, and you'll see that Mr. Larocque is here from the Forest Products Association now.

On that note, Mr. Larocque, thank you very much for joining us today.

On-screen, we have Mr. Bouchard, who's the executive vice-president of Groupe Rémabec, and Mr. Mercier, who is the president, I believe. Mr. Mercier, on our screen, you're on the bottom, and Mr. Bouchard, you're on our top left. That's for the benefit of the members.

We have some audio problems. There's no sound. Just bear with us for a moment, and we'll try to get this sorted out.

Can you each try to say hello?

[Charles Tardif, Vice-President, Corporate Development and Procurement, Maibec]

Hello.

[The Chair, Liberal, James Maloney]

Okay, perfect. All systems are working now.

Let's start this over again.

The format for the morning allots each individual or each group up to 10 minutes to make a presentation in French and/or English. Following all the presentations, we'll open the floor to questions from around the table.

Mr. Larocque, since you're here with us today, why don't you start us off?

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

Thank you, Mr. Chair and members of the committee. Copies of my remarks are available for committee members if you wish to have them.

My name is Robert Larocque, and I am the senior vice-president at the Forest Products Association of Canada. I'm very pleased to be here today to further discuss the connections between the traditional forest industry and innovators who are seeking to capitalize on new markets and technology innovation.

In my remarks today, I will focus on the supply of forest resources, demand for advanced forest bioproducts and services, and a possible role for the federal government to accelerate the bioeconomy in Canada.

I would like to remind the committee that the Forest Product Association of Canada provides a voice for Canada’s wood, pulp and paper producers, nationally and internationally, in government, trade and environmental affairs, as well as on the topic we will be discussing today, the increasing speed of the bioeconomy in Canada.

I would like to provide the committee with the status of where we stand today in regard to forest resource uses and bioproducts innovation. Based on “The State of the Forest Report 2017”, the forest products sector harvested 160 million cubic metres of wood to produce 77 million cubic metres of wood products and 23 million tonnes of pulp and paper products. The sector also produced 12 million cubic metres of wood residue, which is mainly used to generate clean electricity at our facilities. Natural Resources Canada has evaluated that there are currently 25 million cubic metres of wood residue that could be used to produce new products. The sector currently employs more than 230,000 Canadians and supports more than 600 communities, mostly in rural Canada.

The sector has also invested over $2 billion in innovation over the last decade. By innovating, the industry has already greatly improved its competitiveness and expanded its product and process portfolio.

An impressive array of innovation examples exists across the country and across every segment of the sector. Some highlights include production of clean energy across Canada; new materials and advanced building systems that revolutionize the construction and carbon footprint of larger buildings and structures in the built environment, such as cross-laminated timber; new chemicals, such as nanocrystalline cellulose, cellulosic filaments, or biosourced chemicals that add new valuable characteristics and renewable properties to everyday products such as solvents, insulations, paints, and cleaners; novel product developments, such as wood fibre in composite car parts, electronics, and sensors; and development of new tools and information, such as forestry genomics and enhanced forest inventories, to support long-term forest health and security of fibre.

A critically important success factor to date has been the strong partnership and collaboration that the federal and provincial governments have forged with the industry to develop and support innovation across the forest product supply chain. From facilitating global research collaborations to partnering with industry to support FPInnovations to providing clear funding support for first-in-kind commercialization projects such as the investment in forest industry transformation program, IFIT, and market access-specific supports such as the expanding market opportunities program, the federal government has contributed significantly to the innovation performance of this sector.

In terms of our traditional products such as timber, pulp and paper, I would like to emphasize the need to continue supporting the sector so that we can be assured of a prosperous future.

We are grateful for the current efforts in innovation, in international trade, and in infrastructure products, and they must be maintained. But new supply chains, in which the sector can produce biofuels, biomaterials and tall wood buildings, are within our grasp.

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, our communities, and the forest industry. We also believe that more can be done to make sure our forests stay more resilient and ensure long-term sustainability based on three broad themes: research and development, policies, and support.

Concerning research and development, we must continue to study the long-term potential climate change impacts, such as through modelling of forest fires and pest infestation; enhance our forest inventory methods; accelerate innovation in our forest harvesting practices and equipment; and optimize the Internet of things by expanding the communication capabilities in the forest—for example, by having movable cell towers where forest is harvested. As we harvest at different locations, you can move those cell towers to ensure communication.

With regard to policies, we need to start now to implement climate-resilient solutions, such as FireSmart communities; work with our provincial counterparts to modify our forest management activities to allow for selecting and planting trees, based on changing climate conditions; and evaluate and modify current forest management plans to take into consideration climate change impacts.

Withregard to support, more government support is required to ensure a healthy forest. Currently, most federal funding programs are tailored to mill capital investment support, with significantly fewer funds for forest innovation. Furthermore, current carbon policies are only focused on energy. The same financial support or credits should be available for forest projects that either reduce GHG emissions—for example, forest fires—or improve the amount of carbon a forest absorbs—for example, afforestation.

FPAC believes that now is the time to consult across Canada to develop a series of recommendations and potential actions that we can all take to minimize climate change impact on the forest, enhance forest management, and remove policy barriers to ensure a healthy and resilient forest.

It is also important to highlight those currently proposed federal government policies and decisions that could affect the supply of forest resources. Carbon policies such as a clean fuel standard and implementation of key recommendations from the forest bioeconomy framework will put an additional demand on forest biomass, while species at risk and conservation decisions could reduce the amount of biomass available for harvest. While the use of biomass is beneficial to address climate change, accelerate the bioeconomy, and support a healthy forest products sector, it is critical that we evaluate and work together on all those policies and decisions to understand the overall impact on the supply of forest resources.

Assuming we have a healthy and resilient forest, the sector is well positioned to develop advanced forest bioproducts, and the federal government can play a role that will accelerate the bioeconomy in Canada. One key role the federal government can take is to lead the implementation of the forest bioeconomy framework recently announced by the Canadian Council of Forest Ministers, CCFM.

FPAC supports the ministers' four key pillars: communities and relationships; supply of forest resources and advanced bioproducts; demand for advanced bioproducts—for example, creating new value chains; and continued support for innovation. We look forward to working with the CCFM in the implementation of the framework.

The sector's road to full transition to a low-carbon economy will create new secondary supply chains. In the transportation sector, it could be as a supplier of biofuels; in the energy sector, as a supplier of renewable natural gas; in sustainable living, as supplier of products used by Canadians in their day-to-day lives, producing bioplastics, nanomaterials, and car parts; and in new construction, through construction of tall wood buildings made of engineered wood with wood fibre insulation, but to get there, we must work together.

Current funding like Sustainable Development Technology Canada, IFIT, or even recently the clean growth fund, which are necessary, focus on capital investment for new technologies at the mills. Moving forward, it is crucial that we modify or create new policies and funding programs to accelerate access to new markets and value chains.

Providing support for product testing—for example, compatibility and quality of the bioproduct— small-scale trials at the user's facility, or funds for testing equipment—for example, trial engines that run on biofuels—is critical to opening new markets in the supply chain. The supercluster concept did provide that support, but unfortunately, the biodesign supercluster proposal from the forest products sector was not successful.

The federal government can also show leadership by accelerating the implementation of the greening government strategy announced just before Christmas. The strategy shows promise, but implementation will be key. I would also like today to acknowledge and congratulate committee member MP Cannings on his private member's bill, Bill C-354, which passed second reading in the House yesterday. This bill proposing to amend the Department of Public Works and Government Services Act to require that, in the wording of certain contracts, preference be given to projects that promote the use of wood, while taking into account the associated costs and reductions in greenhouse gas emissions, is another great example of federal government leadership.

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

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

[The Chair, Liberal, James Maloney]

Thank you very much.

Mr. Tardif, why don't we turn it over to you?

[Charles Tardif]

Good morning.

I will give my presentation in French.

My name is Charles Tardif. I am a forestry engineer, and Vice-President, Corporate Development and Procurement, with Maibec Inc.

First, may I thank you for your invitation to appear before your committee in order to describe the challenges that the industry in Canada has to face in terms of secondary wood products, and to make some suggestions on the ways in which the government could provide assistance.

This presentation contains no statistical or economic analyses. It is intended instead to communicate the facts—

[The Chair, Liberal, James Maloney]

Sorry, Mr. Tardif; can I just interrupt you for one moment, please?

[Ted Falk, Conservative, Provencher, MB]

On a point of order, Chair, is there an English copy of the notes that were distributed?

[The Chair, Liberal, James Maloney]

Apparently not, Mr. Falk. I haven't even seen that copy.

[The Clerk of the Committee, Mr. Marc-Olivier Girard]

Normally they are distributed in the language of the witness. Most of the time it's in English.

There is no English copy.

[The Chair, Liberal, James Maloney]

Apparently, no. It was distributed and there wasn't an English copy. I wasn't aware of that.

[Ted Falk, Conservative, Provencher, MB]

Well, okay.

[The Chair, Liberal, James Maloney]

I would have sought your consent, but I wasn't aware of it myself.

[Ted Falk, Conservative, Provencher, MB]

Okay. Thank you.

[The Chair, Liberal, James Maloney]

Sorry, Mr. Tardif. Go ahead.

[Charles Tardif]

Do I have to start over, or do I continue?

This presentation contains no statistical or economic analyses. It is intended instead to communicate the facts as we experience them in our company.

First, what is Maibec?

Maibec has been in operation for more than 70 years. It is a family company, owned by the Tardif family. In 2012, the Fonds de solidarité des travailleurs du Québec joined our company as a minority shareholder.

The company's name, a contraction of the names Maine and Quebec, is significant. In the beginning, the company acquired its logs in the forests of Maine—as we still do—and processed them in Quebec into construction materials to be sold in North America.

Because of our plants, which are located along the Canada-USA border in the Chaudière-Appalaches region of Quebec, in Maine and in New Brunswick, and because of our more than thirty-year experience in producing solid wood siding and white cedar shingles that are pre-stained in our plants, Maibec today is the largest manufacturer of natural and pre-stained white cedar shingles in North America, producing the equivalent of the siding needed for about 6,000 houses per year.

Maibec is the largest manufacturer of factory pre-stained wood siding in eastern North America. We produce enough siding for approximately 10,000 houses per year. We produce the equivalent of more than 250 million board feet, bd ft, of softwood lumber. This is the amount needed to build 17,000 houses per year.

Finally, Maibec is the largest manufacturer of cedar mulch used in Canadian horticulture. We produced more than 9 million bags in 2017.

In total, Maibec employs about 1,000 people in Canada and the United States.

As you will have gathered, Maibec is active in primary and secondary wood processing; we are studying the possibility of starting tertiary processing very shortly, in the form of complete construction systems.

In order to make sure that a secondary processing industry can be developed in Canada, the primary processing industry has to be kept competitive and profitable around the world. Here are the main challenges that our company will have to face in that regard.

First, there must continue to be an available supply of quality roundwood at an affordable price. The Government of Canada could help us by supporting areas such as research in forestry genomics, and FPInnovations could contribute in terms of research.

The second challenge is the availability of well-trained labour in rural areas. The government could help us by supporting training and automation programs, and by encouraging francophone immigration.

The third challenge is about free market access. Of course, the government must negotiate an acceptable and viable agreement on lumber so that Quebec's border sawmills, including Maibec's, can maintain their product's excluded status, as in the last four disputes.

The final challenge is about the market for by-products.

[The Chair, Liberal, James Maloney]

Mr. Tardif, sorry; can I ask you to slow down just a bit? The interpreter apparently is having some difficulty keeping up.

[Charles Tardif]

Okay. That's no problem.

The by-products are woodchips, sawdust, shavings and bark, but the major challenge is with the wood chip market. We have to come up with uses quickly and find high-volume users as a replacement for pulp and paper manufacturers, whose products are disappearing from the market. The products should go to the biofuel, bioproducts and biochemical sectors. To do this, the government should support research and development and assistance programs designed to reduce the financial risk inherent in moving new products from demonstration to industrial scale. It should make regulations requiring fuel to contain some proportion of forest biodiesel. Measures of that kind would allow the industry to develop.

Now, let us move to the secondary processing sector. It can be divided into two parts.

The first part is made up of basic products such as I-beams, joists and treated wood. These are produced by “push production”, meaning you sell what you make. The second part is made up of niche products such as decorative products, an area in which Maibec has gained some expertise.

Challenges with secondary processing are associated with the availability of a well-educated workforce in rural areas. Training programs, encouraging francophone immigration and assistance programs for automation would provide support for our industry.

Other challenges that the sector has to face include the need to understand construction systems, building envelopes, regulations and codes, as well as performance and durability requirements. We would like the federal government to support training and research and development programs like those that already exist, such as the Chaire industrielle de recherche sur la construction écoresponsable en bois, CIRCERB, at the Université Laval, funded by the Natural Sciences and Engineering Research Council of Canada, NSERC. This example shows that the industry is capable of taking great strides forward.

We would also like to enlist the support of FPInnovations, whose program in construction systems, including panels, timber and glue-laminated wood, is unique in North America. The program operates in Quebec City and in a laboratory in Vancouver. It is unique in the sense that few research projects consider panels and sawn wood in construction systems. They are found nowhere else in North America. The exceptional development being done in this area in Quebec City and in Vancouver must be supported. Part of our industry’s future depends on it.

It is appropriate today to highlight the research concept being developed in Quebec City between FPInnovations, the Canadian Forest Service and the Université Laval. Agreements to collaborate and to share offices and research equipment have been reached so that we can be more effective and productive, both in forest development and in the development of products and construction systems. This entirely new model has been in place for a few weeks. This promising model will let us move from basic research to applied research and product development. This is the formula that needs to be followed, and we are very pleased that we have succeeded in creating this synergy in Quebec City. It should allow us to speed up the development of these products.

We must also rise to another challenge, the development of market intelligence. By that, we mean understanding the value chain right to the end customer, especially for the more “pull type” production of niche products. We must continue to develop this aspect that is unique to the secondary processing industry.

We must also gain a better understanding of the technical aspects of wood as a material. This means how it is worked, stained and made to last, the factors on which the long-term guarantees provided by manufacturers depend. In this regard, the support provided at the CIRCERB, and in universities, is extremely important for the industry.

Finally, there must be free access to the market. It is often believed that secondary products are not affected by commercial constraints, but unfortunately they are. Take, for example, our panelling, made of superior quality wood. It is worked and stained in our plant, custom-made for house after house, and delivered with spare mouldings, nails and paint. Those products are taxed when we want to export them to the United States. Of course, in the negotiations about the next lumber agreement, the Government of Canada must ensure that secondary products are excluded from all constraints, which is unfortunately not the case currently.

Finally, I would like to talk about the tertiary processing industry. Products such as commercial and multi-storey building systems that use cross-laminated timber, for example, have to face the same challenges as as the secondary processing industry. This developing sector will increasingly have to influence existing and future building codes to ensure that wood is accepted to a greater extent in building systems throughout Canada.

The Government of Canada can help support the creation of standards, as well as the Canadian Wood Council and the WoodWORKS! promotional program, for example. Canada must set an example thanks to its green infrastructure agenda. It must adopt a wood charter, like Quebec, that would require architects and engineers to assess the possibility of using wood, just as they would use other materials, such as concrete, steel and plastic, for their plans. I think that this would be a big step for the wood industry and for Canada in terms of its vision as a country with a green agenda.

Since my time is short, I will keep to these points, and I am ready to answer any questions the members of the Committee may have.

Thank you.

[The Chair, Liberal, James Maloney]

Thank you, Mr. Tardif.

Mr. Bouchard or Mr. Mercier, I'm not sure who's going to lead off.

[Éric Bouchard, Executive Vice-President, Groupe Rémabec]

Good morning everyone.

My name is Éric Bouchard, and I am the executive vice-president of Groupe Rémabec. I am accompanied by my colleague Mr. Serge Mercier. He is the vice-president of business development and finance for Produits forestiers Arbec inc. and the president of Bioénergie AE Côte-Nord Canada, a subject that we will be talking about a little later.

To begin, I would like to thank you for inviting us. Mr. Mercier and I are very happy to be here with you today to talk about the development of the bioenergy sector. This subject is of relevance today, because this emerging sector has been developing for a few years now. I believe that we have many choices at the moment. The circumstances seem favourable, and the opportunities are clear.

I'll try not to repeat what the two previous witnesses said. Rather, I will talk about aspects that are dearly important to the Groupe, and that may not have been addressed, or that were addressed in a slightly different way.

First, I want to talk about what I consider the three most important links of the chain in the development of the bioenergy sector. Raw materials and the supply thereof constitute the first link; processing plants, the second; and opening new markets, the third. I will be focusing on these three aspects, given that my time is limited.

With regard to the first link, the supply of raw materials, I will mainly talk about the situation in Quebec, because our activities are concentrated in this province. Our traditional markets for our by-products are currently in decline. This has created an imbalance between supply and demand for the by-products.

Furthermore, this has repercussions on the prices of our by-products, which are falling much too quickly compared to the speed at which we can innovate as “sawmillers”. Innovation, for sawmillers, can certainly happen in the plants in order to improve our performance and our productivity, but we must also add value to all the by-products we create.

In the long run, we hope that our clients who are in sectors such as newsprint production are getting ready for a change, even though we can't expect every unit, when faced with a decline, to convert their operations to join more promising markets. We knew that this situation was coming, but we didn't think it would happen so quickly.

How can we add value to our by-products? The bioenergy sector is certainly important. It is a very interesting market because it's just coming to life. We see it as a winning niche market full of major economic opportunities.

Finally, I will finish my point on supply, the first link, by stating that, in our opinion, there are enough quality raw materials to go around. They will allow us to sustain the new, booming economy.

Concerning the second link, the processing plants, many things have moved forward in the last few years. What we are witnessing is the evolution of a great deal of high-performance, proven technologies. The federal government seems to have also implemented programs to innovate in this sector.

Our company considers the federal government as a good partner. You probably already know that Bioénergie AE Côte-Nord Canada is has a major project in the biofuel sector in Port-Cartier, in northern Quebec. It is a $104-million project with a capacity of approximately 42 million litres per year. The federal government, through its sustainable development technology Canada (SDTC) programs, and its investments in forest industry transformation (IFIT), has assisted us with an investment of over $44 million.

In other words, it is therefore possible to implement these kinds of projects. We just have to be proactive and have a certain long-term vision.

We have another more modest project that is in the pre-startup phase. It is a pilot project with pyrolysis oil. Currently, our investment is valued at approximately $8 million, which is a much lower amount than the one for the Port-Cartier project, but we are using different fibres. We have to therefore go in that direction. Solutions, techniques, and all kinds of things are coming to light. We have to position ourselves for what's to come.

Support from the federal government to transition toward this market is important to us. You have been a partner for the second step—the processing plants—and we are currently looking into markets that offer various solutions. The government could set the example for the first of these solutions, because the products from this sector could be used to heat buildings, fuel vehicles, for national defence, and so on. It would be a way to send a message that you believe in this economy, and that it must be developed.

As my colleague Mr. Tardif said, you would have to improve the regulations in order to promote a wider use of these products to transform different sources of energy, such as diesel or aviation fuel, for example, or any other interesting sources of energy. I think that we need support in this regard.

However, beyond all of that, we need a concrete program that will ensure that this industry can develop and give producers somewhat of an assurance about the revenue they could generate from it. I would invite you to research the Renewal Identification Number (RIN), which is an interesting system in the U.S. used by the whole industry, and that actually does issue carbon credits to fuel producers.

It is a great program, and we must draw inspiration from it. As raw materials increasingly become more available, and technology more advanced, the federal government must work with us to carry out these projects. We need emerging projects. Other investors are needed to put more processing plants into production, and, when this market is born, we must be there. It is an interesting way to solidify many markets in a way, because we will secure the forest sector, and build a new economy. We will also create jobs, which is very very important for our country. We will also keep an eye on our environmental footprint by including measures to reduce greenhouse gas emissions in these programs.

So let me say this: Let's stop looking around, and let's start getting things done. Let's implement favourable conditions for the industry, and let's pledge to develop our communities, because many Canadian communities live off the forest. I think that this is a good way to create and diversify wealth nationwide.

We are happy to answer your questions.

[The Chair, Liberal, James Maloney]

Thank you, gentlemen.

Mr. Whalen, you're going to start us off.

[Nick Whalen, Liberal, St. John's East, NL]

Thank you very much, Mr. Chair.

I'm going to start off first, Mr. Larocque, with some questions about some of the data you presented, to try to wrap my head around the value that the currently unused residual wood products might have in the marketplace.

You opened up by quoting the forest report and mentioning this 25 million cubic metres of remaining wood product that's currently unused. Do you have any concept or any estimates of what the value of that wood might be in the marketplace, if we're successful in substituting for plastics, if we're successful in creating standards for biofuels to incorporate wood-sourced biofuels? What's the vision?

[Robert Larocque]

That's a very good question. The issue is that we could make biofuel—and in certain places it's going to make total sense, as my colleagues in Quebec were talking about—but there are also some opportunities to make higher-end value, such as using it, if it's possible, to make wood flooring. You'd go through manufacturing in Canada, which creates more jobs. If we could make all kinds of chemicals in the way the oil and gas industry does, the value would be tremendous, but at the same time, we understand we're not there yet.

Biofuels would be at the lower end of value. Then you would go into longer-lived wood products, which would be a bit more valuable. Then you would go toward the full high-value biorefinery concept. However, we're not there yet with those residues, so I think it's going to be a time of transition.

What we use right now is about $120 million, and we're a $67-billion industry, so that 25 million cubic metres is in the billions of dollars.

[Nick Whalen, Liberal, St. John's East, NL]

If we went into some combination of those things, what types of margins are we talking about for the capital investment that will be needed? Do we have a vision here? What's the value proposition in commercializing this 25 million cubic metres of unused wood?

[Robert Larocque]

The way I see it, based on residue, biofuels have lower margins, according...and then we're all saying we're counting on some kind of carbon pricing or carbon credits or something like that, but less capital investment would be needed to build it. A biofuel plant—and correct me if I'm wrong—when you're looking at it, I think you talked about a $100 million of investments in whatever. For a biorefinery, you're looking at a $750-million to a $1-billion investment. Your ROI depends on how much money you need to put in for your plant. I think on integration, it makes sense to go with biofuel from the residue initially, as long as you get a sustained.... That's what we're talking about. We need to maintain our primary manufacturing—