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U.S. biomass subsidy poses new threat to Canada's forest industry

MONTREAL - Canada's battered forest industry faces a new threat on the horizon that could kill thousands of jobs as reports suggest the United States is looking to bolster its biomass subsidy, says the Forest Products Association of Canada.

MONTREAL - Canada's battered forest industry faces a new threat on the horizon that could kill thousands of jobs as reports suggest the United States is looking to bolster its biomass subsidy, says the Forest Products Association of Canada.

Association president Avrim Lazar says U.S. producers would gain a new competitive advantage unless Ottawa develops a national strategy and provides substantial funding to harness the country's potential to become a bioenergy superpower.

"If the U.S. and European government subsidize the movement of their industries in that direction, we're going to lose tens of thousands of jobs and we're going to lose a huge opportunity," he said in an interview.

Left unmatched, an expanded U.S. program will lead to mill closures, Lazar added. The Canadian industry has lost tens of thousands of jobs in recent years as the global recession has wiped out demand for lumber, pulp and paper.

The U.S. biomass crop assistance program, included in a 2008 farm bill, is designed to support the shift from fossil fuels to renewable energy. It is expected to provide about US$25 million in subsidies this year to convert one million tonnes of scrap wood and chips to energy.

However, the U.S. government is under pressure from the forest products industry to expand the program to include large companies and broaden the definition for eligible materials.

Black liquor, timber, lumber, wood pulp and paper products are currently ineligible, but wood chips and bark are permitted.

Canadian producers fear changes to the program's criteria could in effect partially replace the black liquor subsidy set to expire in December, which provided up to US$7 billion annually to the U.S. industry.

It could also raise the cost of fibre for Canadian mills as companies look to secure the subsidy.

Lazar called on Ottawa to partner with industry to develop a bioenergy and bioproducts strategy that integrates production into existing forest production systems.

The Department of Natural Resources said the Canadian government appreciates the biomass program's potential to disadvantage Canadian producers and distort markets.

"We have formally raised our concerns about the impacts this initiative would have on the Canadian forest industry with the United States Department of Agriculture," a spokeswoman said an email.

She said the government is assessing all its options.

Ottawa responded to the black liquor subsidy by providing in June a $1 billion to help the industry improve its environmental efficiency. It is among several initiates put in place to assist the industry and affected communities.

An expanded U.S. policy could provide up to US$4 billion a year in subsidies, with about half going to pulp producers, says Rod Young, chairman of RISI, a Boston-based economic analysis firm that specializes in the forest products industry.

Unlike the black liquor subsidy, which applies solely to pulp producers, the enhanced biomass program would apply to other industry players.

Lumber producers would share US$1.3 billion, other wood products, including plywood, would garner around US$200 million and mechanical pulping could attract US$140 million, he said.

The subsidy would amount to $50 per tonne as of 2010.

Canadian jobs would be threatened unless Canada develops its own program. But Young doubts the impact would be as severe as suggested by Lazar.

"The reason that tens of thousands of jobs are going to disappear in Canada is because Canada is so heavily oriented towards newsprint and newsprint demand is going down like a stone."

But the head of the union representing thousands of forestry workers in Canada said he fears a substantial number of jobs are at risk by a new round of subsidies.

"There are so many jobs that are borderline now anyway. We've got hit with one tsunami after another, there doesn't seem to be an end," Dave Coles, president of the Communications, Energy and Paperworkers Union, said from Vancouver.

He said a national forestry strategy is essential and addressing bioenergy could be a significant way to address the industry's woes and the desire to reduce Canada's carbon footprint.

But Paul Quinn of RBC Capital Markets said developing a national strategy is difficult in Canada where the provinces control the resources.

Quinn said it's too early to know the impact of an enriched biomass program.

"The only estimates out there are way too high, but it looks like something will happen," he said.

 
 
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