Forest sector helped by green power
Ottawa's $1-billion aid package includes up to $440 million for B.C.

Gordon Hamilton, Canwest News Service
Published: June 17, 2009

Canada's $1 billion aid package to the pulp sector levels the playing field between Canadian and American producers, International Trade Minister Stockwell Day said yesterday.

The program subsidizes energy-efficient capital upgrades at mills for green power projects.

But it targets only pulp and paper mills that produce a carbon-rich byproduct called black liquor, giving them an edge over mills that use other processes, Day acknowledged in a teleconference call.

"It may not meet every need but this will go a significant way to strengthening these particular producers."

B.C. Forests Minister Pat Bell said in an interview the program's focus on bioenergy is a key to a successful pulp sector in this province.

"I would be very surprised if we didn't see a dramatic rise in investment over the next six months to a year."

B.C. is expected to receive from $420 million to $440 million.

The program received broad industry support, but companies like Richmond-based Catalyst Paper expressed concern that their mills, which produce pulp using a thermo-mechanical process, will not be eligible. Catalyst has Island mills at Campbell River, Crofton and Port Alberni. Nanaimo's Harmac Pacific mill and Canfor Pulp Income Fund, with three mills in the Prince George region, immediately said they intend to apply for aid to upgrade boilers to produce energy for the grid.

The aid package, to go before Parliament this fall, is Canada's response to a $7-billion U.S. subsidy that has distorted global pulp and paper markets.

The Canadian aid was also designed to funnel dollars into the industry without violating the 2006 Softwood Lumber Agreement.

Day said Canada has informed the Obama administration of the plan, which is "sympathetic" to Canada's problem.

However, moments before Day spoke, the powerful U.S. lumber lobby Coalition for Fair Lumber Imports, charged the Canadian package violates the softwood agreement, alleging the so-called "safe harbour" that allows public investments in green projects is meant to apply only to forestry. The $1-billion program is set up to aid companies in energy efficiency and improved environmental performance by providing a grant of 16 cents a litre on black liquor, which mills use to power their boilers. The size of the subsidy is dependent on the volume of black liquor a mill produces during this year.

The program received immediate support from the country's largest forest products group. The government got it right, said Avrim Lazar, president of the Forest Products Association of Canada.

The federal program meets three of the association's objectives:
• It counters the $7-billion U.S. black liquor tax rebate, which runs for the entire year.
• It rewards investments aimed at making the Canadian forest industry greener.
• By guaranteeing funds for capital investments, it opens access to more credit with financial institutions, a major issue that has been affecting investment in the troubled forest sector.

But the country's largest forest union said the plan does nothing for forest workers.

"It won't save any mills or prevent further job loss," said Communications, Energy and Paperworkers president Dave Coles. "This money cannot be used to lower the price of the production of pulp, and make our industry more competitive with the U.S."

The federal program is not perfect, but Ottawa had no choice but to act, said Levi Sampson, president of Nanaimo's Harmac Pacific.

He said Harmac Pacific intends to apply for funding to upgrade its own boilers to create green energy for Vancouver Island. Harmac produces 458 million litres of black liquor so would be eligible for $73 million.

"This is not going to help the mills that are in huge financial trouble now," he said. "It's going to strengthen mills that are viable companies and for the most part have been able to get through this downturn.

"You would have seen a lot more mills go down if the U.S. subsidy stood and our government did nothing."

But B.C.'s largest paper producer, Catalyst Paper, fears it will be denied aid while its competitors grow stronger.

Catalyst is not likely to benefit, said vice-president Lyn Brown.

Catalyst's pulp mills are currently shut down and the company is producing no black liquor.