Speeches | Forestry Industry

10 December 2013

Hon. Grant Mitchell rose pursuant to notice of October 17, 2013:

That he will call the attention of the Senate to the forestry industry's efforts to address public criticism about environmental practices and how it could be applied to the energy industry.

He said: I am pleased to rise to speak to this issue, one that is very important to the oil industry in Canada and Alberta.

I have a chance to talk about the oil and gas industry in a way that I think opens up some possibilities, but not by talking directly about the oil and gas industry. Instead, the focus of my comments is on the forestry industry.

I want to thank our deputy leader for keeping this debate alive for me. I owe her a lot for that as I was otherwise disposed with the Defence Committee yesterday.

I want to talk specifically about the forestry industry. I'm going to draw on the comments of the former Executive Director and CEO of the Forest Products Association of Canada, Avrim Lazar.

Avrim Lazar is a remarkable person who did remarkable work on behalf of his industry and his association. He appeared many times before the Energy and Environment Committee and probably several times before the Finance Committee. He was exceptionally good. I had the opportunity — and I recommend this to all of our colleagues — to see his speech on YouTube. It was his retirement speech of this time last year, or 2012, to the Economic Club of Canada in Toronto where he outlined the challenges faced by the forestry industry in the 1980s and 1990s that culminated in their grasp, understanding and ultimately action of the need for transformational change in their industry in the early 2000s.

I borrow heavily from a discussion that I had with Mr. Lazar and also from his speech, and I once again would emphasize that it's worth listening to. It has great insight into the process of transformational change as it can affect a sector. There are lessons that I believe can be taken from this by the energy industry, which faces challenges that, while not exactly the same, are not dissimilar. I think, in fact, that the oil industry, the pipeline industry, is beginning to understand what the forestry industry went through and is beginning to adopt some of their techniques and their fundamental substantive changes in approach to their industry.

About 10 or 12 years ago, the forestry products industry of Canada was highly successful. It employed about 1 million people in Canada. If not the sole support, it was the significant support for over 300 communities in this nation and it was extremely profitable. But as Mr. Lazar said in his speech, in hindsight, it is clear now that if you were to have done a stress test on that industry as we do as a matter of course now on the financial industry, never really on other industries, you would have found that this industry was confronting serious problems. In one sense — and this didn't look like a problem but it came to be a problem — they didn't have to worry about their customers because they could pretty much sell everything they produced, he said.

They were focused on being competitive, which seemed to be the right thing to do at the time, but they began to realize that they needed to focus on adaptability because competitiveness is a subset of adaptability in a time when change is massive and transformational. They found that they fought the environmentalists. Their standard argument was, "We're right, you're wrong."

That was the situation about 10 or 12 years ago. Then, as Mr. Lazar pointed out — and I do not know exactly what his words were — a tsunami hit that industry. The pine beetle became a massive problem in killing forest resources.

Environmentalists began to understand that they would have much more effect by attacking the industry's customers rather than by attacking the industry. He went on to point out that this is a great irony. But one of the things that occurred was that the public stopped blaming the industry for the problem and started blaming themselves, so they fundamentally changed the way they approached the forestry industry. And their buying patterns began to change.

The U.S. housing market collapsed. These things happen in markets. Growth went from the U.S. and Europe, which were fundamentally the markets for the forestry products industry in Canada, to China, dramatically and quickly. And the industry found that the harder it fought against the environmental arguments and the harder it tried to convince the people who were buying its products, the more it found that it had lost its reputational credit. That occurred because, over the previous 20 years, they had run into a great number of environmental challenges. They were accused of clear cutting and of polluting massively with their pulp industry. As I said, they would keep arguing, "No, no. We're right and the environmentalists and everyone else are wrong." So when the crunch really came and they had to defend their markets, they had lost their reputational credit.

What they did was quite profound. They did what any industry would do at first, and they did it about as well as an industry could: They began to focus dramatically on increasing productivity. So they worked with the unions, with workers more generally, and with the companies to find every possible way they could to enhance their productivity. They got some tax concessions from the government, which also enhanced their productivity. But they found that really kept them going on the same treadmill in the same box, and that wasn't working, because the faster they went, the harder they tried, the more these other factors undermined and eroded their capacity to sustain their businesses in a profitable manner, let alone sustain them at all.

So they needed to adapt to the massive challenge of fundamental transformation in the way that they did their industry. Mr. Lazar would describe it as being a terribly tumultuous time for everyone in the industry — CEOs who would have to shut down entire towns, whose family would be unable to walk down Main Street without bumping into somebody who had lost a job, whose relatives had lost a job or whose mother or father had lost a job. It was a very, very difficult time.

And the harder they would work, they were also confronted by the dollar issue, because the dollar was going from 65 cents up to a dollar. Its value increased by two thirds in a relatively short period of time, which meant that the international sale — the export — of our forest products became much more difficult because, relatively speaking, they became much more expensive. So you can imagine a CEO trying to find productivity improvements and increases, and a two-cent increase in the dollar wiping out all that effort. They were on the brink, literally, of destruction; they were on the abyss.

They made some fundamental shifts in the way they viewed the world. First of all — and this is profound — they stopped looking at value-added and started looking at value extraction. So in addition to saying that they were going to stop simply focusing on competitiveness and move to adaptability, following from that, they started looking at value extraction instead of value-added.

So what does that mean? Well, they undertook the study with the help of the collaboration of government, of 36 new bioproduct technologies. It turns out there was a $200-billion bioproduct market worldwide that they had pretty much missed. And out of those 36 technological research projects, they found a number that began to make it possible for them to use their product, our wood, differently to promote different products and to make themselves completely new and different markets.

I will give one example, which is really interesting. They now take from trees nano-crystals, which are used in screens like this to make them hard. Who would have even thought that was a remote possibility in 2000? By 2006-07, they were developing technologies that no one had even possibly imagined before that time.

They developed smart paper. They developed different kinds of additives for different kinds of products. They used every last feature of that tree now in ways that they had not comprehended before. There is very little to almost no waste.

So they looked at value extraction from the products they were producing and the resource they were using, rather than simply the older, more 19th or 20th century view of value-added — just a shift in the paradigm of thought.

They enlisted environmentalists. They stopped viewing environmentalists as their enemy and enlisted them; they embraced them. They went so far as to bring in an international environmental group, one that has been criticized by this government, the Pew Charitable Trusts, to negotiate treaties between Canadian environmental groups and the forestry industry companies.

The company said, "We will take absolute care of forests in these areas; that is to say, we will not forest them," in return for the environmental companies saying, "We will no longer fight the way that we have been fighting against your development in any region whatsoever," and the environmental groups would take some responsibility, therefore, for the sustenance of important jobs in Canada. They literally negotiated a treaty. And they used an international group, the Pew Charitable Trusts from the U.S. to negotiate that because they needed to have credibility in Europe and elsewhere in the world, and that group was able to give them that credibility.

The third thing they did is that they collaborated amongst themselves and with government. And they are very clear that they never could have made this transformation from an industry that was on the abyss to an industry that is now extremely successful once again without collaboration with government.

I mentioned in one example of how government collaborated on technology development. Government also — and this would not be necessary in the energy industry case — helped finance marketing operations in India and China. Government also led trade missions — the Team Canada trade missions that were so successful and renowned throughout the era of the 1990s with the Chrétien and the Martin governments.

So they collaborated. And he mentions that is a quintessential Canadian thing to do, and it was a very significant part of the solution to this huge problem — a solution that was found in this quintessential Canadian arena.

I'm not saying that the oil industry faces exactly the same kinds of challenges, but there are some important parallels between the oil industry today and what the forestry industry was facing before.

The counterpart to the pine beetle — and it's not unrelated — for the oil industry is really the emerging issue of climate change. Say what we will about that, at some level, I think the people of B.C., many Americans and people around the world understand that this is a profound problem. And at some point, the recognition of that as a profound problem can become a problem for our industry. In fact, I would say that it is becoming a problem for the industry.

To the extent that the environmentalists went after customers, consider what's happening in Europe now with the Fuel Quality Directive. Environmentalists and others have convinced many powerful and significant people in the European Union of a Fuel Quality Directive regime, upon whose basis oil sources will be evaluated for their relative emissions standards, and if they're not measured fairly, then they will be discriminated against. If they don't meet these standards, they won't be allowed into Europe.

Well, Alberta oil is not being treated fairly under those fuel quality directives. Already, that's a very significant issue in Europe. The European Union has backed off and is looking at it, but it's exactly the kind of thing that can begin to erode an industry. If they had passed the fuel quality directives as they exist today — and we don't sell oil to Europe yet, but the west-to-east pipeline might open up that possibility — that market would be gone to us because we would be discriminated against. And if products were made in the U.S. with Alberta or Saskatchewan oil — Canadian oil, heavy oil — and then shipped to Europe, those products might be banned in Europe as well. So this is a real threat similar to the threat that the forestry industry saw.

What about opponents of the oil industry going after Keystone and Gateway? They're shifting their focus, and it's not a coincidence that Gateway and Keystone are both held up the way they are. That certainly accumulates to billions and billions as those projects are held up.

The dollar is different. In the case of the forestry industry, the increasing dollar made our forest products very uncompetitive and it was a body blow to that industry. What's very interesting about the dollar today is it's dropping quite significantly. I read an article and one analyst says it has a life of its own in the way it's dropping. It might well be that the market is anticipating that Canadian oil won't find markets. It's the demand for Canadian oil that has pushed up the dollar. There are those who would argue that it's a petro dollar. It's difficult to prove this, of course, but it's a reasonable theory that the dollar dropping could be because — could I have another five minutes?

The Hon. the Speaker pro tempore: Is there more time for Senator Mitchell; five minutes?

Hon. Senators: Agreed.

Senator Mitchell: The dropping dollar could be as a result of the markets beginning to anticipate that Canada will have increasing difficulty finding products for its oil.

Up to three or four years ago it was a question of the oil sands expanding as rapidly as they could because it was a no-brainer. The world and the U.S. were going to have to buy our oil. It was very similar to the situation the forestry products industry found itself in, where we made it and they bought it. That's not so clearly the case. Technology has fundamentally changed now. Our single international market for oil and gas, the U.S., due to new technology changes — fracking, in particular, and finding tremendous oil and gas resources in shale — may well be completely self-sufficient in gas and in oil. So, all of a sudden, that market could be crunched in a very significant way.

I could go on drawing parallels between where the forestry industry was in 2002, before it embraced transformational change, and where the Canadian oil industry is today. I raise this as an alarm because this oil industry is so fundamentally important to the economic future of Canada and certainly to my province of Alberta.

What can be done? Well, collaboration with government. In this case, the most significant thing that the oil industry has to do is earn social licence, and it cannot earn social licence with a government that will not embrace the environment. In fact, what Canadians want and what the international community wants to know is if there is an independent third party, the Canadian government, that will secure in people's minds the sense that when these projects are built, they will be done as cleanly as possible and that as much regard as humanly possible will be paid to emissions. That is fundamentally important. I don't care how good Enbridge is, and it's a great company. It can argue that it can make the best pipeline in the world, and it probably can; and some of its competitors can make equally good pipelines, but they cannot fight the air war that's being fought against them by a government that keeps sending messages that the environment doesn't matter.

Climate change isn't even mentioned a single time — not a single time — in the Throne Speech. And we shut down the offshore spills office in Vancouver when the single greatest problem that B.C. people have with the Gateway pipeline is offshore spills. And we attack environmentalists. Instead, we should be embracing them. That's one fundamental lesson we should learn from the forestry industry.

We need to imagine a different kind of energy future, one where we're using some of the wealth that we're taking from traditional energy and we're beginning to develop a different kind of energy future with renewables that can make us more competitive and productive, by definition, in the world, and that can create other markets for other products, all the while paying attention to greenhouse gas emissions and reducing them.

In order for any of this to occur, we need to have a real debate on climate change. I talked about that some weeks ago in this chamber, namely, the possibilities of how to structure that. We need to have a real debate. Maybe it's around a blast from the past in the use of royal commissions, which have been used with great effect to stimulate transformational change in this country; or maybe it's the round table approach used by Ralph Klein's Conservative government in the mid-1990s, when he first became premier. It created input from the public and gave the public a sense that important issues were being debated and they could see both sides. They could see experts; they could see ordinary Albertans involved in that process. A royal commission could do that as well. There are many other things that need to be done, but the oil industry needs to earn social licence. It can't do that without the help of government.

We all need to begin to imagine a different energy future, one that will sustain a new, invigorated, inspired economy for the next 60 or 70 years, like the one we had that came out of the Second World War; and we need to think about how to facilitate and catalyze that by having a real debate about a really significant problem, climate change, that faces this country.

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