Natural Resources Committee on Feb. 8th, 2018

[The Chair, Liberal, James Maloney]

Thank you. We're going to have to stop there.

Gentlemen, thanks to all of you for joining us this morning. We appreciate your time and your evidence. You've been very helpful to our study, but unfortunately that's all the time we have, so we'll have to stop here.

We will suspend for two minutes sharp and then start with the second set of witnesses.

Thanks again.

[The Chair, Liberal, James Maloney]

Mr. Priddle, we're going to start. We're just waiting for a couple more witnesses to join us by video conference, but apparently we have some technical issues.

You will have up to 10 minutes to make your presentation, and then, technology willing, we're going to hear from one or two others. At that point we'll take questions from around the table.

I'll open the floor to you.

[Timothy Priddle, President, The WoodSource Inc.]

Thank you very much. Thank you for inviting me here this morning.

My name's Tim, and I own a business in the south end of Ottawa called The WoodSource.

I love everything about wood, I love everything about forests, and I am passionate about what happens in Ottawa and Canada. I travel a lot. We purchase wood from all over Canada, North America, Africa, and South America. Most of the wood we purchase is purchased in Canada. We are a remanufacturing plant, so we take wood that has been sawn from the log form and turn it into finished products. That could be everything from a door frame for a building like this to desktops to baseboard, flooring, or trim.

We work a lot with companies like Maibec. We are the last operating mill in the city of Ottawa. If we had been here 100 years ago there would have been dozens of mills in Ottawa and probably tens of thousands of people working in the wood industry.

The wood industry in Canada has been slow to innovate and automate. A couple of things in recent years that have helped us innovate and automate are what I would consider unfair competition that hit us late in the 1990s and early in the 2000s, with material from overseas—mainly from China—that arrived here. It was manufactured in plants where there were no labour codes, no environmental rules, and people working in absolutely terrible conditions. This material arrived overnight and put many small businesses like ours out of business. These were businesses that had been around for generations,

Those that survived invested heavily in automation and technology to be able to reduce their cost to produce product, and a lot of them have rebounded and been able to respond to the markets, allowing us to thrive in a business that wouldn't otherwise be easy to operate in.

Other things that have affected us include the ongoing softwood lumber dispute with the United States. One thing businesses like is consistency. Over the last 20-25 years, this dispute keeps raising its ugly head. It makes it very difficult for businesses like ours to know what's going to happen, and it negatively influences our business. We have a fair bit of export business to Europe and the United States, and it just throws a wrench in the works when these countervailing duties get thrown in, such as anti-dumping and so on. It messes up the market and confuses everything.

Interestingly enough, some of the things that help our business are things that other governments are doing. Companies like Maibec, Cape Cod, and Fraser—pre-finished siding companies—benefit greatly from, in particular, European countries that provide a disincentive to use sidings made out of vinyl or aluminum. There's a great export market for us in Europe, because homeowners, builders, and contractors who choose to use wood benefit from not being taxed, whereas they're heavily taxed for products that are made out of aluminum and vinyl. It's interesting that what other countries are doing is benefiting our industry here.

In Ontario, we struggle as a remanufacturer. We have high electricity costs in our plant. About 10 years ago, we doubled our capacity, and it took three or four years to get permission to build. It took hundreds of thousands of dollars in studies to get the building permits in place, and when it was finished—from the time we started that process to the time we finished—the cost of our electricity had almost tripled. Part of our plan was to use all our shavings. We create several tons of shavings every day. We wanted to turn that into fuel, but the cost of electricity was so high that we were unable to do that.

Whenever we are looking to improve in technology, we have to go elsewhere, because we can't find technology companies in Canada that are interested in innovating in machinery that helps us. This morning we were in touch with a company called Homag. Two big German companies, Homag and Weinig, as well as a big Italian company, are excellent in woodworking machinery. We have to go overseas to get any high-tech machinery that's going to help us innovate and reduce our costs. It would be nice to see more of a hub in Canada.

In fact, sometimes I think, if you've heard of the economic historian Harold Innis and his staples theory, that we tend to still be hewers of wood and drawers of water. We aren't doing nearly as much as we could in this country to keep jobs here and to take our national resources to a completely finished stage and then export them to the world.

We are also very interested in innovation in the housing market. The housing market is still doing the same things it has been doing for 60 or 70 years. If you take a drive in the west end or east end of Ottawa today, you'll find people trying to nail shingles onto roofs. You'll find people trying to frame, trying to scrape away a bit of the snow so they can stand up walls. We end up with poor-quality houses.

We are very interested in the panel business. We prefabricate components of homes, allowing you to install and finish a home in three or four days, once the foundation is in place, instead of in two or three months. There is very little of this happening in Canada. We see, in working with a number of builders, that this is a very great opportunity for Canada to innovate again and develop a very interesting industry around that. There is a company in Edmonton called Acqbuilt that's doing this, but it's about the only one.

We want to see innovation in that building market. It will also help us develop net-zero homes, which we're trying to achieve but haven't been very successful in doing.

We do everything in our business, from selling a small piece of trim to customers renovating their houses to exporting 100,000 or 200,000 board feet of reclaimed lumber to a company in Europe. We're just finishing a major project in Portugal, where we've been exporting reclaimed lumber. We have a reclaimed component of our business that takes old buildings and reuses that wood. We sell that all around the world. The market for that is far bigger in the United States and Europe than it is in Canada. The CFIA has been very helpful in helping us with that export, and we're grateful for that.

I think that's about all I have to say to introduce myself. We would love the federal government, provincial governments, and municipal governments to work together more in these areas. There is a lot of confusion between the different levels of government. For instance, with regard to the Species at Risk Act that's coming into effect, they need to get together with some of the provincial ministries of natural resources and make sure they're working together. I was just chatting with one of our colleagues out in B.C. who runs a large cedar mill, and they're very worried about things like that.

In my business, we used to get all our wood from British Columbia by train. About 15 or 20 years ago, CP shut down the only track coming into Ottawa. We had a siding off that line. The government wasn't able to think far enough ahead, and the City of Ottawa didn't take that rail line. It's now a recreational pathway.

As I was driving in from that end of town this morning, I realized that it would be nice to have a train taking people downtown so they don't get stuck in gridlock. It took me an hour and a half to get here from Greely. There was a train line that used to have trains going to Ottawa in 10 minutes. That train line is gone. We now have to have hundreds of super-B trucks transporting cedar and fir from the west coast to here on our highways, taking very large loads. We would like to see more automation in the trucking industry. We don't think the railway industry is going to come back in a great way for businesses like ours.

One of the fears I have is.... Several times I've had to call the police when a truck has arrived in our yard and the truck driver was so exhausted. He was completely panicked to get unloaded because he needed to get to Montreal to pick up some steel and head back, and he was obviously doing stuff to help him stay awake. That industry scares me. We need automation. We need more regulation in the trucking industry to try to make the roads safer.

[The Chair, Liberal, James Maloney]

Thank you, Mr. Priddle.

[Timothy Priddle]

Thank you very much.

[The Chair, Liberal, James Maloney]

We are joined now, or I hope we are joined....

Can you hear me where you are in Edmonton?

[Sian Barraclough, Vice-President, Commercial and Energy Management, Capital Power Corporation]

Yes, I can.

[The Chair, Liberal, James Maloney]

All right. Thank you for joining us. I'm sorry about the technical problems.

We have Ms. Barraclough and Mr. Wollin from Capital Power Corporation, and Mr. Madlung for the Bio Mile and Clean Tech. Is that correct?

[Dan Madlung, Chief Executive Officer, BioComposites Group Inc.]

The company is actually called BioComposites Group Inc. We're located on the Bio-Mile in Drayton Valley.

[The Chair, Liberal, James Maloney]

Thank you. Okay. My apologies.

The process is that we're going to give each group up to 10 minutes for a presentation. Then we will open the floor to questions.

We'll jump right in because we're a little behind schedule. I don't know who wants to start off. I'll leave that to you.

[Sian Barraclough]

Okay, I'll start off.

Good morning, chair, ladies and gentlemen, and honourable members of the standing committee. My name is Sian Barraclough and I'm vice-president, commercial and energy management, with Capital Power, headquartered in Edmonton, Alberta.

I'm also accompanied today by my colleague Steven Wollin, vice-president, engineering, for Capital Power.

Thank you for the opportunity to appear before you and to provide background on the bioenergy project we're seeking to develop at our Genesee site. We believe that using forestry residuals through projects such as ours to create electricity delivers against two key federal policy objectives: sustainability of the forestry sector and early reduction in greenhouse gas emissions. Our initiative also supports the vision of the forest bioeconomy framework for Canada announced late in 2017 by the Canadian Council of Forest Ministers.

By way of a brief background, Capital Power is a developer, owner, and operator of generating facilities across Canada and in the United States. We are a publicly traded company with a market capitalization of approximately $2.7 billion with approximately 700 employees located through Canada and in the U.S.

Capital Power currently owns approximately 4,500 megawatts of power generation capacity in 24 facilities. Our generating fleet includes a wide range of fuel types, including coal, natural gas, wind, solar, waste heat, and biomass.

Roughly 30% of our capacity is from our four coal generating facilities, all located in Alberta, and they are the youngest and most efficient coal units in the province.

Our bioenergy project is focused on the Genesee site, home to three of our coal generating facilities. The Genesee site is undergoing a transition to a lower carbon future, supported by three key activities: first, a program that we call the Genesee performance strategy, or GPS, focused on reducing emissions, which GE has stated positions Capital Power as a world leader in carbon reduction from coal plants; second, a staged approach for coal-to-gas conversion; and third, our biofuel substitution strategy.

We have already taken actions that will reduce greenhouse gas emissions through improved efficiency at our units. The GPS initiative alone will deliver an 11% improvement in emissions intensity by 2021 with the units operating as coal facilities.

In addition, we have been actively looking at replacing coal with biomass to deliver additional substantive greenhouse gas emissions reductions. As we transition the units to natural gas, the benefits of both our GPS carbon reduction program and our potential bioenergy project would be sustained.

Woody biomass residuals from existing forestry operations are a significant potential renewable energy resource that can enable a transformation of the electricity sector while helping to sustain a strong forestry sector. The phase-out of incineration of wood waste in the forestry sector has resulted in mounting inventories of wood residuals at some sites, creating a challenge for small and large forestry producers. While some of this residual wood is expected to be used in the production of wood pellets for export, there remains a significant volume of bark residuals that pelletization facilities cannot process and that could end up stockpiled or landfilled. There is sufficient capacity at the Genesee generating station to consume most or all of the surplus woody biomass volumes in Alberta. Cost-effective conversion of waste wood into bioenergy would enhance the sustainability of Alberta's mills, create new rural and indigenous jobs, and reduce methane emissions from decomposition, while also reducing greenhouse gas emissions as a result of the displacement of coal for power generation.

Capital Power has explored biomass fuel conversion options, including pelletization, and concluded that the most cost-efficient near-term means to create bioenergy from forestry residuals at our units is through a customized on-site biomass preprocessing system. This custom-engineered methodology involves drying and sizing the raw wood waste before blowing the fuel into the plant's combustion system. The initial project would allow 15% blending of biomass with coal at one of our Genesee units, while future phases could increase biofuel substitution to 30% of two units with long-term potential to have a single unit run entirely on biofuels. It is also worth noting that biomass fuel substitution could be applicable in Saskatchewan, Nova Scotia, and New Brunswick, provinces that all have important forestry sectors and legacy coal-fired generation plants.

A 15% biofuel substitution project would contribute over 600 person-years of employment, while reducing greenhouse gas emissions by 600,000 tonnes per year, the equivalent of taking 100,000 cars off the road. Coal-powered generation would be reduced by up to 400,000 megawatt hours per year, well in advance of 2030. In addition, the project would deliver dispatchable, renewable generation that would help support increased deployment of wind and solar resources going forward.

To date, we have spent over $2.2 million testing potential bioenergy options at Genesee through two rounds of testing in 2016 and 2017. The testing has proven the feasibility of our unique fuel preprocessing and conveyance approach.

Capital Power has been working closely with industry partners, including West Fraser, the Albert Forest Products Association, and Emissions Reduction Alberta, to move this opportunity forward.

Emissions Reduction Alberta has committed $5 million to the project through its methane challenge competition, a small portion of which was used to support the second round of testing in 2017.

West Fraser also actively supported the testing by providing wood residuals from its Alberta forestry operations.

As part of our 2017 cofiring test program, Alberta Innovates also provided partial funding towards the testing of an advanced solid biofuel created from municipal waste. The results of the test are promising and show that our Genesee facility may also be able to generate renewable electricity using a much wider range of waste fuels, which complements our efforts to utilize forestry residual biomass.

This biofuel substitution technology is unique relative to other low-emitting, dispatchable generation sources, such as nuclear or hydro, because it is rapidly deployable and could be operational in less than two years of an investment decision. Further, it is the lowest-cost solution that we have identified that can create near-zero GHG electricity at a fossil fuel power plant and will be less than half the cost of carbon capture and storage technology.

Although Capital Power would be able to offset a significant portion of our construction and operational cost from avoided carbon levy payment, and although this is the lowest-cost solution to create low-emission electricity at a fossil fuel plant, based on current economics, there is still a financial gap to close. Therefore, we are currently working with the Clean Growth Hub in hopes of identifying federal programming that would be the best fit to close this gap.

Capital Power is committed to a transition to a lower-carbon future at the Genesee site. While making a material contribution to that goal, this biofuel substitution project is also a unique way to improve the sustainability of the forestry sector by finding a productive use for a resource that has traditionally had low value.

Capital Power appreciates the opportunity to provide its views on this very important initiative. We welcome any questions you have.

Thank you.

[The Chair, Liberal, James Maloney]

Thank you.

Mr. Madlung, I believe that you're next.

[Dan Madlung]

Thank you, Mr. Chairman. Good morning, honourable members.

My name is Dan Madlung. I'm a forester; I graduated from UBC in 1979. I worked my way through the forest industry. My last job with a company was with CanFor. I was the vice-president of operations there. I've worked in several countries. When I retired in 2006, my wife and I decided to become entrepreneurs, and we've since built several companies related to the forest industry. The last one we're currently commercializing is a company called BioComposites Group, and that's mainly what I want to talk about today.

BioComposites Group is unique in North America. No other plant is doing what we're doing in North America. We produce a non-woven needle-punched mat. We take natural and synthetic fibres and we use a little needle, barbed at the end, and weave together natural fibres. This process uses no water, no chemicals, no heat; it's just a mechanical process. We have a unique ability to take several natural fibres—wood, flax, or hemp—and we can also combine synthetic fibres, whether they be polypropylene, polyester, or fibreglass.

I purchased this equipment from CanFor after I retired. I used to use wood fibre to make automotive panels; this is an automotive panel here. The ones we used to make in CanFor were quite a bit bigger, so I didn't bring them, but this particular one just happens to be the first automotive panel made in Alberta and the first one made out of hemp in North America.

We built this in Drayton Valley. We did have federal and provincial funds to build it. It's a fairly large plant, with about 36 semi-loads and 34,000 square feet. We've been building this for just over four years. It just started to become commercialized about last September in cash flow. Commercialized products include the only completely biodegradable and non-animal-trapping erosion control mat and a weed suppressant mat, and the latest product is a hydroponic grow mat, which is used for [Inaudible—Editor] in any commercial operations and household operations [Inaudible—Editor]. You can see us on our website or Instagram if you wanted to see more examples of that.

We have a lot of products under development, including a grow medium for greenhouses to replace rockwool, which is not very environmentally friendly. We're making a natural fibre insulation to replace pink insulation. We're replacing fibreglass. This year, just as an example, in replacing fibreglass we're working with some large manufacturers in fibreglass plants in Manitoba to replace the glass fibres with hemp and wood fibres.

We're also doing automotive parts. We're working with some Canadian and U.S. companies. This is the example here. We're fairly close to commercializing that. We're doing automotive interiors and industrial equipment interiors, such as tractors. We make 100% compostable feminine hygiene products—well, I shouldn't say we make them, but that's under development. Several other products would include wood siding replacement, which is currently being tested and has proven highly successful.

On the fibre side, we do utilize wood fibres, but right now our favourite is hemp fibres because they're longer and stronger. We normally mix the two fibres together, depending on the engineering qualities required.

An example of the potential of this is that in Alberta there are 17,000 hectares of industrial hemp grown today. It's grown for the seeds and the stalk, and the straw is basically all wasted. That is what we utilize. The value chain potential of utilizing that straw is 485 direct jobs. These are rural jobs. This would require about a $200 million investment, and I can tell you that investment is coming fast to us and our industry, and that would result in about a $220-million annual revenue stream.

I'm not calculating the impact on the wood industry, but our value add would be about 10 times that of the products that the wood industry would currently make from their waste. However, our volumes are quite small when you look at the wood industry.

Industrial hemp is the second-fastest-growing plant on the planet. It sequesters about five times more CO2 than a forest does.

That's my summary. I'm happy to answer questions. Again, we're unique. We're the only one in North America, and I can tell you that we're growing quickly.

[The Chair, Liberal, James Maloney]

Fantastic. Thank you very much for your presentations.

Mr. Serré is going to start us off.

[Marc Serré, Liberal, Nickel Belt, ON]

Thank you, Mr. Chair. I'll be sharing my time with Mr. Whalen.

Thank you, witnesses, for your testimony and the work you've done. It's really enlightening and it will really help our report here.

Mr. Madlung, you outlined a lot of the products that you've done. It's a great job. We've heard from many other witnesses on the challenges of providing products. You have several products here. Specifically, what can we do at levels of government to ensure that you have a better penetration in the Canadian market and also internationally with the U.S., Asia, and Europe to sell your products and increase exports? What can we do specifically? Do you have any recommendations?

[Dan Madlung]

In terms of our challenges, my wife and I spent about $1 million trying to get into the automotive industry. Getting into these big companies has been a big challenge, so we've actually backed off from that. In order to create cash flow, we've gone to more products that we can get into more quickly.

The trick to commercializing new products is that while there's a lot of support around product development and devising the product, there's very little support for getting it to commercialization. The federal government has a very good program. It's called the BCIP. It orchestrates buying products from companies like ours. It doesn't cost the taxpayer any money; it just helps us specify those products. They buy those off the shelf at the commercial rate, and it then allows us to get that product to the market and get it tested. In the time between when you've developed that product until you have customers, the customer is saying “I really need to have test results on this, and I want to have it tested in the field.” My hat's off to the BCIP program. It doesn't cost the taxpayer any money, but it gets us commercialized.

That's a very good program for getting commercialized in Canada. I think there's a lot of support for companies like ours, and I appreciate that, but maybe we could do more BCIP-type programs, just to get companies like ours to that commercial stage and get out of that valley of death.

[Marc Serré, Liberal, Nickel Belt, ON]

Thank you, and that leads to our other witnesses.

Mr. Priddle, you talked about how the forest industry in the past was slow to innovate. You indicated that you were going to Italy, Germany, and the U.S for high-tech equipment. Also, Capital Power indicated the technology and that some of the markets are not being opened, so what can we do better?

We've heard from other industries about the commercialization and the valley of death and about how we're not doing a good job as a country, so what specific recommendations would you have on commercialization? I'll ask Mr. Priddle and then Capital Power afterwards.

[Timothy Priddle]

I think it would be nice to have an innovation hub in woodworking machinery in Canada. We have a lot of technology companies that have great systems that could be applied to woodworking and aren't. I think a company like Homag is now investing heavily in Canada. It's good to see a German company doing that in the Montreal and Toronto areas.

Ottawa has a technology sector, though, and I often think about how much money gets put into the automation of vehicles and other sorts of things but not into the automation of house building and so on. I think there need to be partnerships between people building houses, people manufacturing stuff for houses, and the government. I think partnerships are very important.

We are currently working with an Ottawa developer that's very interested in this, and we are chatting with some of the folks at NRC. We've partnered with Carleton University, the NRC, and others to start modelling some of this stuff and working on it.

[Marc Serré, Liberal, Nickel Belt, ON]

Thank you.

I think Mr. Whalen had some questions.

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

Thank you.

I know our INDU committee is fairly interested in technologists and that part of the supply chain, and of course the government operations and estimates committee is currently investigating BCIP. Maybe it will provide you with some comfort that other committees are addressing those issues.

With respect to biofuels and the utilization of the 15% or so of extra wood products that are left over in the industry after the housing materials, wood products, and paper are made, and after about 12 million cubic metres of wood products are used for fuel substitution in plants—as we heard in the last presentation—we have this biomass.

I want to make sure we have policies in place that use that to its highest economic purpose. My first question is to the folks who are using it for fuel.

Can I get a sense of what you guys are paying per tonne for access to that wood product?

Then the second question would be for Mr. Madlung, who is using the fibre, to ask what he pays for fibre to displace fibreglass or polymer-based fibres.

Thank you.

[Sian Barraclough]

Maybe I'll take a crack at that.

From our perspective, just to be clear, today at our Genesee units, we aren't using biomass fuel, but we would like to be doing that.

In terms of the cost of the raw biomass to us, we don't expect the biomass itself to be of a high cost—there may be some minimal cost—because at the end of the day, the mills that we're dealing with need to be neutral on this from an economic perspective.

The major cost in terms of procuring the fuel is actually transportation. It's transporting that fuel from the mills that are located in various places around Alberta to our Genesee site.

The other economic gap.... We have increased O and M at our site in order to be able to process the biomass and displace coal, as opposed to using coal. Then, obviously, we have an upfront capital spend. On a 15% project that we're looking at, initially it's about a $50 million capital spend for us, but in terms of specifics on the fuel procurement bill, it's the transportation costs that are the biggest challenge for us.

[The Chair, Liberal, James Maloney]

We're going to have to stop there.

Mr. Waugh is next.

[Kevin Waugh, Conservative, Saskatoon—Grasswood, SK]

Ms. Barraclough, through the clean growth hub, you're working with the feds. How is that working?

[Sian Barraclough]

It's good so far, to be honest. We've just tapped into the clean growth hub. We heard about it fairly recently. We've seen some program announcements that we think may be potential funding opportunities for us. We've just tapped into them and have started conversations. To date, it seems to be going well, and they seem to be helpful.

[Kevin Waugh, Conservative, Saskatoon—Grasswood, SK]

You mentioned indigenous jobs. I actually sit on the INAC committee. How are we doing there? It has been a struggle in this country, first of all educating our indigenous peoples and then getting them involved. The graduation rates are not good in this country, and I just want to know how your company is working with them to get them better-paying jobs and get them into prosperity in this country.