Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue 4 - Evidence - Meeting of May 6, 2010
OTTAWA, Thursday, May 6, 2010
The Standing Senate Committee on Agriculture and Forestry met this day at 8:05 a.m. to study the current state and future of Canada's forest sector.
Senator Percy Mockler (Chair) in the chair.
[English]
The Chair: Welcome, honourable senators and guests to the Standing Senate Committee on Agriculture and Forestry. The committee is continuing its study on the current state and future of Canada's forest sector. The meeting this morning will hear two witnesses separately.
Our first witness is Mr. Robert Glowinski. Thank you for accepting our invitation. It is an honour for us to have you make your presentation. Robert Glowinski is President, Forestry and Wood Products for the American Wood Council. He will give us the perspective of the American market on wood and engineered wood products.
Before asking Mr. Glowinski to make his presentation, I would like to recognize Ms. Diana Blenkhorn from the Maritime Lumber Bureau, who is sitting in the public gallery. Thank you for coming this morning as an observer and also a special guest.
[Translation]
I will have the opportunity to introduce Mr. Arsenault a bit later.
[English]
Mr. Glowinski, we invite you to make your presentation, which will be followed by questions and answers. Please proceed.
Robert Glowinski, President, Forestry and Wood Products, American Wood Council: Good morning. I thank the committee for inviting me to join you today. I look forward to sharing with you my observations and thoughts on the industry that has employed me for the last 32 years and the strong relationships we enjoy with our counterparts in Canada.
Today, you have asked me to speak about the U.S. market from a number of standpoints: the outlook for residential construction; the prospects for wood and engineered wood products; and technical cooperation between our two countries. As you further requested, I am also prepared to share with you comments on American building codes and standards regarding wood construction in non-residential buildings.
The American Wood Council, AWC, is both an old organization and a brand new one. For 15 years, we have been part of the American Forest & Paper Association, the U.S. trade association representing the broad forest products industry. Prior to that, we were part of the National Forest Products Association, independent from the paper side of the industry. Recently, the wood products segment of the industry has decided to again return to its roots to create a separate corporation just for wood products, similar to what you have in Canada with your Canadian Wood Council. The new and independent AWC was launched on January 1 of this year. We expect it to be a separate corporation by the end of June.
As well, AWC is a very old institution. With its predecessors in name, the functions of AWC were first established in the United States by the industry in 1902.
AWC is and always has been the technical arm of the U.S. wood products industry. Our mission is to increase the use of wood by assuring the broad regulatory acceptance of wood, developing design tools and guidelines for wood construction, and influencing the development of public policies affecting the use and manufacture of wood products. As a result, our program focuses on building codes and regulations, engineering and standards support and technology transfer to ensure that our principal audiences of building officials, architects and engineers are aware of the opportunities and requirements for greatest wood use. Rather than an organization marketing or promoting specific wood products, through our advocacy and technical representation, AWC seeks to "grow the pie" or expand the opportunity for all wood products without favour to any one in particular.
Our recent organizational changes, however, will bring some new and additional responsibilities to the American Wood Council. The industry has also asked us to provide leadership in the areas of green building and environmental regulation that affects U.S. wood products manufacturing. These two issues are by no means new to us. In fact, AWC staff began monitoring the green building issue as far back as 1992, when the issue was just emerging, and have been heavily involved in policy and strategy development since approximately 2005, when green building rating systems began to gain market traction.
Our industry is inextricably linked to housing. In the U.S, we think we are now just beginning to emerge from the worst U.S. housing downturn since the Second World War. Our data shows that new, private-owned housing starts took place at an annual rate of 617,000 units in the first quarter of 2010, up from 527,000 annualized units in the initial quarter of 2009. These depressed numbers compare with a high point of over 2 million units started during 2004 and 2005 and 1.8 million housing starts as recently as 2006. By comparison, housing starts averaged 1.6 million units a year from 1970 through 2006.
We expect that several factors will impact the near term outlook for U.S. housing starts, some positive and some negative. Included among the positive factors are big improvements that have taken place in home affordability, due to lower prices and mortgage rates. In addition, inventories of unsold homes have declined appreciably. On the other hand, U.S. unemployment and home foreclosure rates both remain high, and government incentives to buy homes expired at the end of April.
The consensus view of economists is that housing starts will total 690,000 units this year and 960,000 units in 2011. The longer-term fundamentals for housing appear reasonably sound, with consensus forecasting 1.75 million units a year from 2011 through 2020.
All in all, while times have been challenging for our industry and likely will remain that way in the short term, prospects are good for housing over the next decade. However, it remains to be seen how long it will take to fully recover from this recession.
What about the impacts on wood products? Overall, U.S. production of wood products — principally lumber, plywood, engineered wood products, oriented strand board, particle board and medium-density fibre board — declined 44 per cent between early 2006 and mid-2009 as the industry's predominant end-use market, home construction, sank.
However, if the U.S. were to hit just an average of 1.35 million single-family and 130,000 manufactured homes for 2012 through 2020, industry economists tell us the opportunities for wood products should be quite good.
Let me comment, as was requested, about our technical cooperation with Canada. For many years, the American Wood Council has enjoyed a strong relationship with Canadian industry. In fact, through your Canadian Wood Council, CWC, Canada has been a long-time member of the American Wood Council. A Canadian representative, Diana Blenkhorn, has consistently served on the governing committees of AWC, and the bylaws of the new American Wood Council are expected to reserve a spot on the board for Canada as well. Through CWC, Canada is a significant contributor to our program.
As you can imagine, for an organization like ours, which is focused on technical and engineering issues, there is really nothing magical about the border between our countries. For example, engineering design for timber is essentially the same both north and south, providing us with many opportunities for technical collaboration. Similarly, our regulatory approaches to construction share this common engineering basis, even though our political systems may enact our respective regulations in differing ways.
This also presents opportunities to us, as we are sometimes able to share best practices in engineering design and regulatory adoption with each other. In fact, I think if you compared the staff and organizational structures of the Canadian Wood Council and the American Wood Council, you would find more similarities than places of departure.
In addition to our direct relationship, AWC and CWC work collectively on a number of industry-wide initiatives. Most notable are the current efforts of the Wood Products Council and its signature WoodWorks non-residential promotion program. Our AWC staff of engineers, architects and former building officials provide technical support to that effort.
This high level of cross-border cooperation does not stop with the staff. As noted, representatives of Canadian industry have long served on my board; and I am in Canada to participate later today in the annual meeting of the Canadian Wood Council, something I have done twice a year for most of my 32 years. In concluding my remarks on this relationship, I am pleased to share with you that it has always been and continues to be very sound.
Finally, let me touch briefly on U.S. building codes and standards for non-residential construction. Although we do not have a single building code like the National Building Code of Canada, we have something similar in our international building code or IBC. The IBC is a model code developed by the private, non-profit International Code Council, and includes volunteer participants from across our construction sector. This includes not only building officials but also engineers, architects, energy experts, industry representatives and a myriad of other affected interests. Together they produce not only the IBC every three years, but also 12 other codes, such as plumbing, fire protection, mechanical, and energy conservation, to name a few, and their newest, just released, green building code.
The tallest wood building currently permitted by the IBC is five storeys without sprinklers, and six storeys with. As for area or footprint, in some cases, wood buildings are permitted to be unlimited in area if they do not exceed one storey. There are restrictions on the use of wood buildings in occupancies that have a high density of occupants or have occupants that need special care, such as jails or medical care facilities.
The U.S. industry does believe wood should be used more. Certain parts of the country have a strong tradition of concrete, masonry or steel construction, often due just to the local availability of those materials. Similarly, some regions of the country have access to high-quality timber. One goal of our industry is to remove the traditional geographic barriers to wood and make wood the first choice of building designers, irrespective of location.
As noted, our IBC is a model code with no compliance obligations until adopted by an enforcing jurisdiction. Adoption is often through the states and, in some cases, local jurisdictions. Most of them do amend the building code in some manner during the adoption process, customizing the model code to their own local conditions.
Historically, some states, such as Florida, have tried to maintain more restrictive local limits on the use of wood, but lately those restrictions are losing the support of Florida building officials. AWC policy is to challenge any local amendment to the model code, particularly if it makes the codes more restrictive.
As development of our model building code is a unique blend of the private and public sectors working together to produce a reasonable, risk-based building code, proposed local modifications that would make the code more restrictive are seldom driven by expected risk reduction, but rather are sought by local special interests. Just as a jurisdiction could make the code more restrictive, in some places, such as Seattle, Washington, multi-family buildings are permitted to be taller than allowed by the model building code.
Accordingly, we do not believe the codes are an impediment to the use of wood. Our last study on the issue suggests that only about 11 per cent of the buildings in the U.S. permitted to be of wood construction by the code are actually built with wood. The question is why are the other 89 per cent not wood.
We believe a leading reason is that owners and their designers do not appreciate the value they are receiving with a wood building, both environmentally and economically. There are those few instances when a wood building is simply not practical, but we believe those are the exception and not the rule. We are regularly and consistently looking for opportunities to show building regulators how the codes can be improved and expanded to allow greater use of wood — properly, safely and expediently.
In closing, let me say that we are at the vanguard of great things in our industry. The new focus of the American Wood Council, our close relationship with and support from our Canadian counterparts, indicators of a conclusion to a long period of economic uncertainty and its concomitant effects on construction, and especially the opportunities that are emerging on the positive role wood can play for the construction sector to offset global warming all hold out hope of a much stronger industry tomorrow. We have used the assistance of my government and yours to get us there, and we may need some more of it before we are really over the top, but I do see great promise ahead.
Thank you again for inviting me to be here with you today. I would be glad to answer any questions you might have.
Senator Robichaud: You mentioned that people do not really know the value they get environmentally when they use wood. Is there any kind of public campaign to show how environmentally friendly wood is?
Mr. Glowinski: No campaign is focused exclusively on the environmental characteristics of wood. However, a number of campaigns are under way in the United States that more broadly focus on all the aspects of wood that would make it economical and valuable in construction. The notable one is the WoodWorks program to which I referred, which is a pilot program in three areas of the United States; it tries to bring to local architects and designers the value, the characteristics and I will call it the environmental bona fides of wood products, but that is part of a larger, non-residential promotion program.
I think our industry has in fact been a little behind in raising the issues with respect to environmental performance, particularly carbon. We can talk more about carbon sequestration, but the ability of wood to sequester carbon, removing potential greenhouse gases, is a positive attribute. We just have not said enough about it.
Senator Robichaud: Will you be going in that direction at some time?
Mr. Glowinski: I hope so. Right now, our mandate in the new American Wood Council does not include promotion and marketing, but to the extent that the issue you raise is seen or characterized as a technical issue, it would be appropriate for us to do what we can to communicate or transfer the technology around the environmental performance of wood, so I am hoping we will get more into that area. In a way, we are still finding our sea legs as to what the American Wood Council is to be.
Senator Eaton: Can you talk a bit more about your WoodWorks program? In Canada we tend to operate in silos. The concrete and steel people told us they go into engineering and architecture schools and give seminars and symposiums. The observer told us about getting the municipalities together in her region to promote wood. Are you doing those things or other things?
Mr. Glowinski: Our WoodWorks program actually is modeled on the Canadian program, so there are many similarities to what we are doing. Unfortunately, perhaps, our program is limited in its geographic scope. We have programs under way in California; the southeast United States, which covers Georgia, South Carolina and North Carolina; and the central Midwest, an area around Wisconsin, Illinois, and Minnesota.
The idea was that the industry, given its limited resources three years ago, would start with pilot programs and hope to expand those programs to the country nationally to get the word out on wood construction. As part of the economic downturn, we have not had the resources to fully implement a nationwide program, but I think the regional programs, the three pilot programs, are very strong, vibrant and effective programs.
I do not know whether anyone has given a presentation about them, but the metrics that have been used in buildings that previously were going to be built out of competing materials but have actually switched to wood are pretty impressive for a new organization.
I will admit to one thing I envy in Canada. I would love to have the ability of your Wood WORKS! program to go in and get communities to engage and to get the people living in communities to really see wood as part of your heritage; I would love to find that in the United States. Unfortunately, we have not identified that community.
In our most wood-friendly communities, places like Portland and Seattle, we run into problems with environmental groups that, for reasons I think are related to the forestry side of our business, prevent the wood industry from stepping up and taking a major role. I think some of those groups will have an interesting debate within their own groups as wood's ability to have a positive impact on greenhouse gases becomes well-known. The principal materials we compete with are concrete and steel, and there is just no comparison with respect to carbon sequestering or carbon contributing. There is an opportunity there, but again, I am envious of what you are able to do in Canada.
Senator Eaton: I have a quick follow-up question. Do you go into architecture or engineering schools? Do you provide any kind of postgraduate or curriculum seminars on the use of wood in buildings?
Mr. Glowinski: I apologize, that was part of your first question. We do. The WoodWorks program is in universities in the United States. As well, the American Wood Council has continuing education programs for engineers and designers. We have approximately 40 programs for which designers, engineers and architects can receive continuing education credit, and these are web-based courses. We are an accredited provider of continuing education by the American Institute of Architects and the American Institute of Building Design, so we can provide continuing education unit, CEU, credits through these classes. You take an exam on our website.
There was a time when the American Wood Council was more involved in promotion and marketing. When that took place, we had programs directly involved with the Association of Collegiate Schools of Architecture, and we used to hold a design competition every year for all architecture schools in the United States and award a prize for a winning design. These were not just fantasy designs; these were practical designs of buildings that needed to take place.
The last one we did was a train station for the Southeastern Pennsylvania Transportation Authority. SEPTA was building a new suburban station and asked if we would partner with it to do this competition. I recall we had somewhere in the neighbourhood of 200 entries. The transit authority was the judge of the competition, selected the winner, did all promotion around it and actually built the station out of wood as a result.
That kind of partnership opportunity is out there. We know the opportunities are out there, but I think there have been some resource constraints that have forced us to choose between some difficult priorities over the last couple of years.
Senator Mercer: The main part of my question was about the education end. If you snooze, you lose. Senator Eaton pretty much covered that. I will feebly try to follow up.
One of the interesting things you said is that the environmentalists, particularly in Oregon and in the State of Washington, have not seemed to cotton on to the idea that using wood is green, that it is environmentally sound. What is the separation between groups of environmentalists and public perception in Oregon, Washington and British Columbia, which, from my observations, have thought similarly on the development? A group of people have constantly opposed the development and cutting of large numbers of trees in those two states and that one province.
However, we do not have that push back in British Columbia now the way we used to. We now have the opposite in British Columbia. People are talking about the harvesting of trees and obviously the planting of trees as being good for the environment as opposed to the opposite. That is my observation.
Have you noticed that difference in attitudes between environmentalists in the West Coast of Canada and the Northwest Coast of the U.S.?
Mr. Glowinski: I am not qualified to talk about British Columbia, but I have not noticed in Oregon and Washington that kind of sudden change in the attitude of the environmental groups.
Up to now, I have been able to speak with you about what I know. I am about to launch into what I think. The environmental groups in the United States are focused on the concept of forestry. They see the cutting of trees as problematic. When we talk to them about wood products and we do not take it back into the forest, we have a very different dialogue with them from when we do. It is almost as if the forestry part of it, the source of our products, is the great unsaid. We are okay, but as soon as we start, from a life cycle basis, going back into the woods, the dialogue changes. I have never understood that, because obviously these groups are intelligent groups and they know the source of the material, but if we leave that out of the dialogue we have a much better conversation.
As an industry, we have actually talked through this; we have said that we are the wood products industry, and maybe that is where we should be focusing our effort, in having the dialogue start with the product — What can the product bring to the table from an environmental standpoint? — and let that be where the dialogue takes place.
This is somewhat of a new concept, because for us in the industry the extension into the forest is very natural. Cutting that off is an interesting concept, but I think we will try it. We will start focusing more on the product aspect, the product contribution — the environmental benefit from wood products — and let others have that forestry debate. I do not know whether that will be successful. It almost seems like a hide-the-canary kind of approach, but it seems to allow us to engage the environmental groups that were not willing to engage with us before.
Senator Mercer: It is interesting. We do not want to surprise these people by telling them that wood comes from trees.
What you have struck on is similar to what we have seen with a number of our witnesses when we talk about the end product and building houses. Then, in talking about the environmental benefit of using wood, people say yes, but their eyes gloss over when you try to make the connection with cutting trees down in the woods.
The other issue, to continue on with Senator Eaton's line of questioning, is your success with education and the competition, such as the transit station in Pennsylvania. Is that nationwide, or is it restricted to the northeast, since it was in Pennsylvania?
Mr. Glowinski: I will answer the second part and then go back to the first. The transit station was just the example in the last year. The assigned project for the student architects was nationwide. It just had to be somewhere because we wanted to give the students a real experience. We did not want to tell them to design a house somewhere. We always tried to focus the students on an actual project so that a year later they could go back and actually see the building that they designed built. Therefore no, there was no restriction to the northeast. In fact, the greatest concentrations of wood construction in the United States are in the three regions where WoodWorks now is, but there was no geographic restriction to the competition.
Touching back on the environmental issue, I would like to chat with you for a moment about the green building rating systems in the United States. LEED is the predominant one. It has come to Canada more recently, and you have it here as well. The LEED rating system does not look at wood as a product at all. The only thing LEED looks at from a wood standpoint is the forestry aspect. Unlike concrete and steel, LEED requires us, and only the wood products industry, to certify its source. In the U.S., LEED further restricts that certification to only one of the three or four certification programs that exist.
Sustainable Forestry Initiative, American Tree Farm System, Canadian Standards Association — none of those three certification programs are recognized in the United States by the pre-eminent green building system. As an industry, we have supported alternative green building rating systems to try to move the debate away from being just LEED-focused, LEED-centric.
We have had some success, but LEED is promoted by the environmental groups, and they have done a terrific job spreading the word and spreading the gospel. There are believers behind LEED in the United States, yet LEED does not focus on what it needs to focus on, which is, in my opinion, energy performance. It focuses on things like whether you put in a bike rack. If you put in a bike rack, that is equivalent in points to putting a multi-million-dollar energy control system in your building.
While I think LEED is well-intentioned, and while I endorse the concept of a green building rating, the system that is predominant in the United States is misguided. We are doing a lot to try to change that. Our advocacy program — our lobbying, if that word is permitted in this chamber — is focused on getting the U.S. Green Building Council to recognize that it has to change. It is just not with the times. It has to change its attitude towards wood. The council cannot require us to do chain-of-custody certification, yet let the steel industry slide by making in-mill claims that it used recycled steel, so not to worry. You get two points for that, which are twice as many as you get for wood.
I am hopeful that some of our advocacy with the U.S. Green Building Council will bear fruit this year. We have had some discussions with the council about switching its concept of prescriptive restrictions, things like bike racks, to the concept of life-cycle analysis. Again, I am hopeful, but LEED now has I think two million members and 100,000 LEED-accredited professionals. It is a juggernaut, and one that our industry needs to continue to advocate with.
Senator Mercer: It would be interesting if there were a catalogue of the winners of the competition, so that you could demonstrate the success of that competition and use it to promote the use of wood in various places. Do you keep a catalogue?
Mr. Glowinski: We did. We stopped this program in 1995. We did it for 18 years in a row, and the industry ran out of money. A group in the U.S., the Wood Products Council, has picked up the concept of the competition. The WPC holds a competition annually for practising architects, not for the student architects. We used to run both competitions. One was for students and one was for practising architects. The American Wood Council had to drop both. One was picked up by the WPC, and I believe the Canadian Wood Council is spearheading that competition, which does continue. I would be glad to send you an older book of the winners, but I have nothing recent.
Senator Eaton: You said there is one system in the U.S. that does not recognize the Canadian certificate. Why?
Mr. Glowinski: We are back to my opinion side rather than my factual side.
The LEED system, which is the one that discriminates against a number of the certification programs, has as its founders the Natural Resources Defense Council and the Sierra Club, two strong environmental organizations that for years prior to the development of LEED fought the industry on cutting any trees.
Senator Eaton: I think you have said enough. As soon as you said Sierra Club, I knew what you would say. Thank you.
Senator Plett: I also want to start, as my friend Senator Mercer did, with an observation, further to what Senator Eaton was speaking about earlier, and that is education. I am a strong believer that education in this particular case is better than legislation, if at all possible. We have heard from witnesses here — architects, engineers, people from the wood industry — who say not enough is being done in the architecture and engineering schools.
I know X number of hours are spent on different types of products, as in any other trade school. I would encourage universities to set aside more hours that architects and engineers need to spend on studying the benefits of wood. Architects have told us here that when these young men and women finish school they just want to make money in a hurry, because they have been at school for a long time. That is one of the drawbacks. I would strongly encourage universities and colleges to spend more time teaching architects about the benefits of wood. I believe that would solve many of our problems in that area. That is merely an observation, and you do not need to respond to it.
I have a couple of questions about building codes, but first I want to ask you about what you said in your presentation about incentives for buying houses in the U.S. I believe you said that in April an incentive program came to an end. Were those incentives for existing homes or new homes? Could you tell me a bit about that incentive program for housing in the United States?
Mr. Glowinski: I am not an expert on it, but I will tell you what I know. There were two tax incentive programs, a $6,500 tax credit and an $8,000 tax credit, both of which expired at the end of April. One was for new houses and one was for existing houses. There was a sudden blip in housing sales in the United States in April as a result of the recognition that the programs were coming to an end. Beyond that, I do not know the mechanics of the tax law.
Senator Plett: That is not what I am interested in. They were for both existing houses and new homes?
Mr. Glowinski: Yes.
Senator Plett: Was the spike more in new homes or existing homes?
Mr. Glowinski: I believe it was in existing homes.
Senator Plett: You mentioned the height of buildings allowed by building codes. Did you say that five-storey buildings do not need sprinklers?
Mr. Glowinski: Yes. You can build certain occupancies in the United States unsprinklered. If the building is fully sprinklered, you can add a storey. That is the maximum height.
Senator Plett: Is the code for sprinklers based on square footage or only on height of buildings?
Mr. Glowinski: It is based on a combination of height, area and occupancy type.
Senator Plett: I find it strange that the code would allow a building of five storeys to be unsprinklered.
Mr. Glowinski: Why is that?
Senator Plett: I am concerned about safety. I do not think that in Canada you can build anything two storeys or higher unsprinklered.
Mr. Glowinski: It sounds like you would be uncomfortable in a five-storey unsprinklered building because it was built out of wood. Would you be more comfortable if the building were constructed of steel?
Senator Plett: I would be uncomfortable in any five-storey building that was unsprinklered.
Mr. Glowinski: That is a good answer.
Senator Plett: Thank you. We can change places.
Mr. Glowinski: We sometimes see a misguided concept of safety. Some think that just because a building is constructed of wood it has inferior fire performance as compared to some of the competing materials. In fact, wood, as compared to light-weight steel, for example, which is its comparable product in the building arena, performs better because steel loses its tensile strength at about 600 degrees.
As long as people say they do not want to be in any unsprinklered building, I understand and respect that.
Senator Plett: I fully agree about the steel. I would feel more comfortable in any storeyed building that was made of concrete, and even there, there are problems. Witnesses have told us, and I agree with this, that more people die due to smoke and things in apartments than do due to the building burning. I understand that entirely. The need for sprinklers is not only in buildings constructed of wood.
Are any hospitals in the United States built of wood? I believe that in Canada we cannot build hospitals out of combustible materials.
Mr. Glowinski: I do not know definitively. We can build smaller urgent care facilities of up to two storeys out of wood, but they do have to be sprinklered. I am not sure of the footprint size for which we can do that, but urban hospitals of six or more storeys cannot be built of wood.
There is recognition that there are proper places to use wood and there are places where wood is not the appropriate material. In the United States, we want to ensure that where it is proper to use wood it is allowed to be used. That is the focus in the building code.
Senator Ogilvie: I was interested in your comment that you believe that in Canada we have a much better attitude toward the forest industry. Yet, your description of the situation is exactly what I encounter in my area, that is, that it is almost immoral to cut a tree and it is certainly dangerous to the environment to haul it out of the woods. However, the very same people want to go to the local supply store and buy wood products of a considerable variety for their renovations. There is certainly a disconnect in parts of our country at least. It is not universal that we have a different view.
At the outset you said that your association is interested in looking at the broad range of use of wood in the commercial arena. We know that different fibres have different utilities and different applications. Is your association also actively interested in research and development at the fibre production level, that is, attempts to identify and produce what are generally in the industry called elite species that have unique fibre qualities that give enhanced construction capabilities or enhanced construction characteristics?
Mr. Glowinski: I will answer the question in two parts.
On the view about wood, Ms. Blenkhorn and others remind me frequently about the success you have had in some of your provinces with an initiative called Wood First. I tell our lobbyists in Washington that I want one of those laws, and they look at me like I am from another planet. I ask why we cannot have that, and they point to the politics at play in the United States and the strength of the environmental groups and say it is just not in the cards. I say that something is not in the cards once that is proven to me, but these people know our political system as that is what they are paid to do.
Despite the same environmental push-back that you say you receive, you have been successful in Canada in passing those provisions to look at wood as an option first. With the number of buildings that we build in the United States, if every one of them had to consider wood first, we probably would not be having this hearing. We would probably all be rejoicing.
Second, on the broad use of wood and research and development on elite species, I want to emphasize that the AWC does not focus on any particular species of wood, even elite species. Our job is to grow the pie for everyone. We leave to the organizations how that pie is divvied up. We want to ensure that those organizations can compete openly and freely. We would never promote or, hopefully, allow a law that favoured an American species over a Canadian or a Canadian species over an American. The market in the U.S. is big enough for all of us to enjoy. What really matters is getting wood used and into the project.
In regard to new products coming into the marketplace — and you have perhaps heard about laminated timber — the opportunities are such that as an organization we need to ensure that the marketplace recognizes and allows those products. A nine-storey cross-laminated timber, CLT, building was recently built in London. With respect to Senator Plett, I am sure the building has sprinklers. It sequesters an amount of carbon that is probably unparalleled by any other nine-storey building in the world. These are new products using the fibre qualities that wood can offer.
There are also wood fibre and plastic composites and wood fibre and cement composites that can be used.
Senator Duffy: Mr. Glowinski, you mentioned that Florida is an area where there seems to be resistance to wood and that the state or some local councils have enacted measures that restrict its use. Please tell us more about that. I am interested in the question of non-tariff barriers or regulatory barriers to the use of wood.
Mr. Glowinski: I think the barriers are coming down. Historically, the old South Florida Building Code for Dade and Broward Counties, which applied to the two southernmost counties in Florida, was very restrictive; it was concrete-centric. Florida has now switched to the International Building Code, which I referred to earlier. The IBC allows wood much more broadly than did the South Florida Building Code. We are beginning to see, from a regulatory standpoint, a sea change in Florida to allow wood buildings.
The problem we have in Florida is the psyche of the builders. There is a history of builders having built with concrete. They say Florida is a high-wind area, and they simply like those heavy, massive concrete buildings. Florida's buildings are expensive and, though I do not wish to denigrate the concrete industry, not particularly good-looking. However, that is what the builders know and what they build.
What we need to change in Florida is not the regulatory restrictions — we have been successful in implementing the IBC state wide — but the mentality and thinking of designers who only know one material. That change is tougher to make than changing regulations.
Senator Duffy: You discussed laminates. We were told during our hearings that some imports of finished products from Asia, such as kitchen cabinets, actually off-gas. What has been your experience with imports that do not meet normal safety regulations? Is there a gap in Canadian and American rules in this area?
Mr. Glowinski: I do not know whether that is true for Canada. There is a gap in this regard for the U.S.; it is one we are working to close.
The California Air Resources Board, CARB, instituted a formaldehyde limit on non-structural panels that go into products like cabinets, such as particle board and medium-density fibreboard. The CARB rule limits formaldehyde; I am unsure of the specific numbers.
Our industry recognizes that there is a problem that sullies our reputation. We asked Congress to pass a law to restrict the amount of formaldehyde off-gassing in wood products that would extend the CARB regulation nation- wide. We are optimistic, but the bill has not yet passed Congress.
Senator Duffy: Do domestic products have similar problems, or is the problem only with imported products?
Mr. Glowinski: The problem is only with offshore imports. Canadian and American products already comply with the most stringent restriction in California.
Senator Duffy: Would you explain the acronym LEED?
Mr. Glowinski: It stands for Leadership in Energy and Environmental Design. Ms. Blenkhorn asked me to point out that LEED has been adopted in Canada as well. LEED's adoption in Canada does not recognize CSA as a certification for timber. Your own system does not recognize your own system.
Senator Duffy: Has LEED been adopted by the Canadian federal government?
Mr. Glowinski: May I defer to my colleague?
Diana Blenkhorn, President and CEO, Maritime Lumber Bureau: LEED is advocated by the federal government in many instances and is promoted or has been adopted in many municipal and provincial jurisdictions in Canada.
Senator Duffy: Environment Canada on one hand and NRCan on the other need to resolve what appears to be a contradictory set of regulations.
Mr. Glowinski: You should get them in here.
Senator Duffy: Anything is possible with a new government.
The Chair: The committee has a mandate.
Senator Robichaud: Mr. Glowinski, you are mostly concerned with the promotion and use of wood as a building material. Is that a fair statement?
Mr. Glowinski: I would not use the word "promotion," but yes, the use of wood as a building material.
Senator Robichaud: Have you looked at other uses for wood, such as for the production of energy, and how that could enter into the mix?
Mr. Glowinski: The American Wood Council has not. The American Forest & Paper Association has a number of large advocacy programs regarding biomass, but that is the AF&PA side of the equation, not the AWC side.
A year ago the wood industry in the United States created another association, the National Alliance of Forest Owners, NAFO, to look at issues like biomass from the province of wood products. AF&PA has both paper and wood. To the extent there is potential for conflicts there between the two industry viewpoints, NAFO has an exclusive timber- owner viewpoint on biomass.
Senator Robichaud: We heard that some country in Europe — I do not know which country — built a demonstration building made almost entirely of wood to promote the green side of wood. Even the insulation in the walls was wood fibre. How would your organization consider such a project?
Mr. Glowinski: We need more buildings like that. I believe the building you refer to is the nine-storey CLT building in London, which has cellulose fibre insulation, and also the mass of the wood acts as insulation.
I think such a project would be terrific. We have had discussions with our Canadian counterparts about how to start constructing buildings like that in the United States. Nine stories is considerably higher than our building code allows, but we have some strategies. We think we can get a building or two like that built as a demonstration, as you point out, to show the world what we can do.
Senator Robichaud: Or show the environmentalists what can be done with wood and how friendly wood is.
Mr. Glowinski: We have learned to talk only about wood as a product and not to tell them where the wood came from.
The Chair: Mr. Glowinski, have you any additional comments you want to make before we conclude?
Mr. Glowinski: Thank you for allowing me to appear. This has been great.
I do not like the LEED green building rating system. When the concept of green building rating systems first came out in the 1990s, we thought this would be the greatest thing since sliced bread. What industry would benefit more from green building rating? The wood industry has products that are perfect for such a system. Perhaps we were asleep at the switch. Those programs became dominated by the environmental groups, who had an agenda, as do we all. They used their agenda very successfully to limit rather than to expand the use of wood, and we are playing catch-up now.
I think we are being successful, but to the extent your group has an opportunity to do something for your own country, look at those green building rating systems. They should be doing a lot more for wood. If you are sincere about wanting to do something for the environment, if you are sincere about wanting to do something about greenhouse gas — Copenhagen, Kyoto, all of that — wood offers you that opportunity. You have to use more of it, not less, because that is what will sequester the carbon.
The Chair: On behalf of the Standing Senate Committee on Agriculture and Forestry, we want to thank you. There is no doubt you will have, with Ms. Diana Blenkhorn, a true partnership. There is no doubt in our minds that you will lead many innovations when it comes to wood in the future.
[Translation]
We will suspend proceedings for two minutes, and then we will hear a presentation from Mr. John Arsenault.
(The committee suspended.)
(The committee resumed.)
The Chair: Honourable senators, let us welcome our second witness, Mr. John Arsenault, Director of the Wood Pellet Association of Canada and Vice-President, Quebec Operations, Energex Pellet Fuel Inc.
[English]
He is coming to talk to us about biomass and new products. Thank you, Mr. Arsenault, for accepting our invitation to appear.
[Translation]
Mr. Arsenault, I would now invite you to give your presentation, which will be followed by a round of questions.
John Arsenault, Director, Vice-President, Quebec Operations, Energex Pellet Fuel Inc., Wood Pellet Association of Canada: Mr. Chair, I will begin by distributing a sample of wood pellets to show you the product that our association represents. I am here as representative of the Wood Pellet Association of Canada, which is the voice of the Canadian wood pellet industry.
There are numerous wood pellet producers located in eastern and western Canada. However, in Ontario, Manitoba and Saskatchewan, there are very few producers, despite the fact that the resource is available.
WPAC's purpose is to promote the wood pellet industry and to advocate for it with stakeholders, markets and governments. The association also has a research mandate for the safety and technical development of the product.
The wood pellets that I have passed around are a renewable solid biofuel with consistent quality and low moisture content. They have a high energy density and a homogeneous size and shape. Their energy density is similar to bituminous coal, a fossil fuel.
The pellets are made from wood that was formerly wasted or burned in tepees that used to be used in sawmills. Bark and harvest residues are used and now timber that is diseased, attacked by insects and burned in forest fires is also used.
By purchasing wood residues from sawmills, pellet producers provide new revenue for the lumber producers, helping to sustain lumber manufacturing jobs. The wood pellet industry has grown steadily over the past two decades, and it is the only market that is growing in the forestry sector.
Wood fibre is dried and compressed. Lignin, which is wood's natural glue, binds the fibre and replaces fossil fuel for heat and power production.
There are numerous environmental benefits to wood pellets. Unlike fossil fuels, wood pellets are renewable and carbon neutral. CO2 released during combustion is offset by CO2 captured during plant growth through photosynthesis.
Aside from the fossil fuels used in harvesting and production, since trucks are used to transport the material to the plants and for distribution to customers, fossil fuels are also consumed in transportation.
Wood pellets result in 91 per cent savings in greenhouse gas emissions as compared to coal combustion. And there are further emissions savings after taking into account energy used during mining and transport to power plants. There are also significant emission reductions of nitrogen oxides, sulfur dioxide, particulate matter, mercury, carbon dioxide, arsenic, cadmium, chromium and nickel, as well as other toxic products resulting from coal combustion. It is recognized that coal-fired plants emit numerous contaminants into the atmosphere.
The global consumption of wood pellets is currently 10 million tonnes annually, and some forecasts are as high as 140 tonnes of global consumption by 2020. Europe consumes eight million tonnes for residential and commercial heating, but especially for the production of electricity as a replacement for coal.
Together, the U.S. and Japan consume about 1.9 million tonnes. The Canadian market is almost non-existent; perhaps 100,000 tonnes of local consumption in Canada this year. Some pellets are used instead of heating oil in eastern Canada where there is no natural gas distribution.
Approximately 90 per cent of Canadian production is exported, mostly to European power plants for co-firing with coal. This is the case with most of the pellets produced in western Canada, where there is not really a local market, and they have thus developed an export-based market. European power plants use wood pellets for co-firing with coal as a highly efficient means of reducing greenhouse gas emissions.
The wood industry has developed gradually for close to 30 years now. My plant in Lac-Mégantic was built in 1982. People here remember the oil crisis of the 1970s; we developed in the oil crisis era. The industry was started in the early 1980s, but almost died out in anticipation of a third oil crisis, which did not occur in the 1980s or the 1990s, but which we likely experienced two years ago. The industry virtually disappeared in North America at the time, but it bounced back in the 1990s.
The wood pellet industry has grown to a sales figure of $280 million in Canada today. There are now 30 pellet plants in Canada, especially on either side of the country.
An average plant employs 30 to 40 people. The Canadian industry directly employs 1,000 people. It supports additional indirect jobs in harvesting, grinding, transportation, equipment supply, et cetera.; as well as the sawmill industries that supply the majority of the raw material.
Canadian annual capacity is about 2 million tonnes, while production is currently about 1.3 million tonnes. We thus have overcapacity in Canada, especially this year. We are emerging from a year of recession that hit us hard. Most plants are operating well below capacity or have temporarily closed until the recovery makes itself felt.
This was the case with my plant in Lac-Mégantic where we had to shut down for part of the winter. The main issue we are facing in trying to sell our product, as an exporter, is the rise of the Canadian dollar against the U.S. dollar and the euro. Certainly, those are factors that we cannot control. The strength of the Canadian dollar is beyond our control.
Another problem for us is the current low price for fossil fuels, especially natural gas. I will be honest with you; for our industry, oil at $140 a barrel is a stimulus, whereas at $60 a barrel it is not, and with natural gas at current prices, we cannot compete in economic terms.
Recently, there were also American subsidies for biomass. The Biomass Crop Assistance Program offered up to $45 per tonne in subsidies for the harvesting of forest biomass for energy purposes. This was part of the U.S. renewable energy development program, but it had a direct impact on us because it allowed our American competitors, on a market where we were both competing, access to a subsidy to which we were not entitled. The border was thus closed to our sales this winter and we even saw the tide turn. For the first time this year, American wood pellets were sold on the Canadian market, undoubtedly because of this subsidy.
As well, new, high-volume capacity in the southeast U.S.A. has flooded the European power market. Wood can be harvested quite cheaply in the southern U.S. There again, thanks to the subsidies, massive production units have been set up in the U.S. south in order to export pellets to markets that we have been developing over the past 20 years. Facilities have also been announced in other parts of the world; Russia has just announced major projects.
There is also an unwillingness on the part of Canadian coal-powered electricity plants to co-fire with wood pellets. European markets are gradually converting from coal to wood as a source of thermal energy to produce electricity, whereas Canada was not in the least interested in doing so until very recently.
The following are the advantages of wood pellets over other renewable energy sources. Energy from wood pellets is less expensive than all other forms of renewable energy, including wind and solar. That is evidenced by European power plants using Canadian wood pellets extensively for over 20 years. The first exports of wood pellets to Europe in order to replace coal date back to 1991.
While production of hydroelectricity is clean, it is difficult to build new dams without significant environment impact. Pellet energy is dispatchable when need be. "Dispatchable" is the term used in the electricity industry. The energy can be used when need be and is not weather-dependent. If electricity is needed at 7 a.m. in order to heat water in the homes, a power plant can be fired up with biomass, and electricity will be produced come rain or come shine.
Dependable energy enables industry growth and stability in Canada. Energy from wood pellets can also make use of the existing electrical grid. Replacing coal with wood pellets does not require any investment in the distribution network, because the production plants are already in place. This form of energy does not require more or less discreet grid extensions.
However, wind energy projects are difficult to build in urban areas, because people object to the sight and noise of windmills.
Wood pellets can be used for both base and peak loads. Of course, the electricity industry faces a daily problem of supply. Electricity demand can vary with peak periods in the mornings and evenings, compared with the middle of the day. The use of wood pellets can accommodate the demands placed on the grid, which is not possible with most other forms of energy, including nuclear.
As for the situation with Canadian coal power plants, Canada has recently announced a greenhouse gas reduction target of 17 per cent from 1995 levels by 2020. According to Statistics Canada, our country consumes 60 million tonnes of coal per year, primarily for coal electricity generation. Just 11 per cent of Canada's coal is used for iron and steel making, cement and other industries.
Since 1990, Canada's annual coal consumption has risen by 10 million tonnes, or 20 per cent, and is continuing to increase as our economy grows. The more active our economy gets, the more electricity we need; the greater the need for electricity, the more we need coal to produce it. Canada obtains 18 per cent of its electricity from coal, from 21 coal-fired power plants across the country. That is a significant part of Canada's electricity. People in Quebec are not aware of that; very little coal is used in the province of Quebec. Most other provinces use power plants that work on either coal or other forms of fossil fuels; with the exception perhaps of British Columbia.
Coal power plants are Canada's worst emitters. As I mentioned earlier, the most prominent of these air emissions are nitrogen oxides, sulphur dioxide and particulate matter as well as toxic metals.
Major environmental issues related to coal emissions include acid rain, smog, toxic substances and greenhouse gases that have been tied to climate change.
Environment Minister Jim Prentice has put the coal plants on notice that they must reduce emissions or potentially close within the next 10 to 15 years. His main suggestion for change is to convert plants from coal to natural gas, which, in our view, is just shifting the problem around; natural gas is also a fossil fuel.
Co-firing just 10 per cent of wood pellets with coal would result in an immediate greenhouse gas reduction of 9 per cent. Some European plants co-fire up to 50 per cent. The cost would increase only slightly over burning 100 per cent coal. Ontario has recently studied the conversion of its power plants and concluded that it could convert one of its power plants, for example, the Atikokan plant in western Ontario, to 100 per cent pellet use. Wood pellets can be co- fired directly in coal-fired boilers using the existing infrastructure. That is what is done in Europe, and it could also be feasible in Canada. However, government intervention is required to make that happen. Left to themselves, power plants would not choose that option.
[English]
In conclusion, the Canadian wood pellet industry has grown rapidly over the past decade to a $280 million per year industry employing a thousand people. Wood pellets are an environmentally friendly renewable fuel. Most people do not even know about it. The Canadian industry is facing market issues due to unfavourable currency exchange rates, U.S. subsidies, low fossil fuel prices and current European oversupply. The Government of Canada should encourage Canadian coal-powered plants to co-fire with wood pellets. This would cause an immediate substantial reduction in greenhouse gases and other poisonous emissions at only a slight cost and would potentially help Canada's coal plants avoid closure.
[Translation]
Senator Rivard: Thank you for your presence here, Mr. Arsenault. I have learned a great deal from you today.
I understand that the United States is subsidizing the production of its wood biomass; in a similar or comparable file, given that the government's losses in the softwood lumber sector amounted to approximately $1 billion, why did your industry not see fit to file a NAFTA complaint to ensure compliance with the trade rules?
Mr. Arsenault: We had a meeting in March with the advisors of the Minister of International Trade and the Minister of Natural Resources, who is also my riding's MP, in order to share with them our grievances in that regard. We are still awaiting a response.
In the meantime, the U.S. industry raised loud cries of outrage; some companies were not happy with such subsidies. As a result, they are reviewing their policy. Intense lobbying efforts are underway, whether for or against, and we are really unsure about the results of those efforts. As we speak, payments have been temporarily suspended. The American government was surprised by a much greater demand than it had expected. At its inception, it was thought that some $50 million a year would be needed to fund the program, but it cost $500 million after only six months. That is another billion-dollar subsidy program that is unfair to us, and frankly, we are surprised that the government did not come out more strongly against that program. Our association has filed comments with the American USDA in order to voice our opposition to the project. We expect that our government will do the same, but we have yet to be given any confirmation of that.
Senator Rivard: Rest assured that we will do follow up with Minister Paradis, who happens to be your MP. Now, what exactly are you expecting from the Canadian government in order to help you better promote wood biomass? Is that because of a lack of awareness? Are you suggesting a joint advertising program? Tax measures? What do you recommend the federal government do to help your industry?
Mr. Arsenault: The example I could give you is that of Sweden. In the early 1990s, it took a major shift away from greenhouse gases and was looking for ways to reach its reduction targets. Tests were conducted with wood pellets in order to replace coal, and when the results proved to be conclusive, the Swedes implemented a number of policies to promote that conversion.
Today, Sweden consumes more pellets than are produced in Canada. They are among the leading producers of wood pellets. They now have an enviable penetration rate. Some 85 per cent of new homes to be built will be equipped with a wood pellet heating system. Their power plants have now been converted, a number of them are operating 100 per cent with wood pellets. A domestic market has been created.
They did not use to produce wood pellets. In the early 1990s, they turned toward their industry and asked it if it had the capacity to supply the product. The industry showed that it was interested, and the market has developed over the last 20 years. The first shipment of wood pellets to Sweden left from Lac-Mégantic, and we are still looking for markets to develop. The Swedish government jump-started the replacement of coal, first by creating an industrial market, and then a residential one, for pellet thermal energy.
Senator Rivest: In fact, you are recommending that pilot projects be conducted, rather than subsidize producers as they do in the United States.
Mr. Arsenault: Or mandatory reductions in greenhouse gases.
Senator Robichaud: I would like to thank you, Mr. Arsenault, for your presentation. It was nice to have distributed some pellets.
Close to where I live in New Brunswick, in place called Saint-Paul de Kent, a company manufactures a similar product, using wood residue, but it has the shape of a very compact log. Is that company part of your association?
Mr. Arsenault: No. The industry that produces eco logs — compressed wood logs — is not part of our association. You have to understand that that is addressed to an upscale market, if I can call it that, or for display purposes; eco logs are not economical in terms of heating, but they do make for a nice fire in the fireplace on a Saturday evening. Someone who buys eco logs will consume a few kilos a year, whereas a pellet consumer will go through several tonnes.
I heard the committee talk with interest about the carbon sequestered in new home construction. Personally, I have a few tonnes of carbon sequestered in my wood home, but I probably avoid close to 10 tonnes of greenhouse gas emissions a year by using my pellet-burning stove.
There is much greater potential to reduce greenhouse gases by using wood as a replacement for fuel. I do not want to minimize the substantial impact of sequestration, but there is a greater potential in terms of replacing fossil fuels with wood. Natural Resources Canada has calculated that Canada produces enough biomass to replace all of our domestic energy needs. I must admit that the biomass produced in Nunavut is probably hard to come by and has a relatively long life cycle, which makes it more difficult to access, but there is a significant amount of renewable energy available in Canada that is, unfortunately, quite underutilized.
Senator Robichaud: A number of my friends use pellets for their stoves, to heat their homes. New Brunswick is considering closing some of its coal-fired plants. Why is it that we seem to have missed the boat? When I say that we "missed the boat", my understanding is that your production is not currently used by industry, but rather by the residential market.
Mr. Arsenault: Essentially, the housing sector represents our only market in Canada.
Senator Robichaud: I am surprised to see that all that potential has not been better developed, especially in New Brunswick, with its wealth of wood reserves. How come the lobbying of officials was not more successful?
Mr. Arsenault: The main barrier is the low price of coal. Another is the cost of producing wood pellets: the cost of harvesting wood and processing its fibre for end-product use is currently higher than that of coal extraction, if you leave out the negative effects of greenhouse gases. It is a strictly economic cost. If there is no mandatory requirement to replace fuel sources, even in Europe, then power plant operators will drag their feet, up until their conversion is directly tied to the obligation to reduce their greenhouse gases.
Senator Robichaud: Is that conversion very expensive?
Mr. Arsenault: Wood pellets can be used by the same coal-fired plants. There are minor conversion costs for the reception and handling of pellets, but the boilers, electrical grid and grinding system can all be used just like for coal combustion. We are working at refining our product, making a wood pellet that could be a more direct replacement of coal, i.e., a roasted wood pellet that would lead to further reductions in conversion fees. That product should be on the market within the next year.
Senator Robichaud: I think we missed a good opportunity, Mr. Chair, when a new heating system was installed following the explosion of a boiler that provided heating to all the Parliament Hill buildings. If we had been made aware, we could have taken action well before. That project could have served to demonstrate the uses of wood pellets.
Mr. Arsenault: Unfortunately, the product information is not transmitted to the technical offices. The consulting engineers who design boilers are still not very familiar with the product. That is why we are looking to work with some major users, who could make an impressive demonstration and show that the conversion costs would actually be lower than anticipated. From that point on, we would expect that institutional or industrial boilers could be converted.
A number of boiler manufacturers have shown an interest. One of the obstacles is the cost of converting the boilers. A number of provinces, if not most, are starting to consider subsidy programs for the conversion of those products. On Prince Edward Island, the Évangéline school board installed a pellet boiler about a year or a year and a half ago and has demonstrated that the product can be used by institutions. The market has to be developed. The conversion process is a relatively long one. Boilers have to be changed one at a time, that will not help create an industry overnight. However, converting electrical power plants does create enormous demand overnight.
For example, Ontario is preparing to convert a number of its power plants from coal to biomass. Ontario is about to create an industry that will consume two million tonnes of wood pellets, and there is not a single producer in the province as we speak. It determined that there were at least two million tonnes of biomass available annually without having to resort to other fibres. It is seriously considering the conversion. The province realizes that this does represent a cost, and unless politicians back down, is ready to take the step toward conversion. It would be creating an attractive industry. We have some objections to the project because it appears that only wood pellets manufactured in Ontario, from Ontarian fibre, will be used. Nevertheless, it may lead to a twofold increase in the market and Canadian production, and will lead to a 20-fold increase in domestic consumption within two or three years. But that can only be done if the government maintains its political decision to replace coal in Ontario. We encourage the other provinces to do as much.
Senator Robichaud: Had we put as much effort into promoting wood pellets as we did for wind energy, that would have been great. Wind farms were established on Prince Edward Island. They are visible from the Northumberland Strait in New Brunswick. That is all very well, but I do not think that those wind turbines are built on Prince Edward Island or in New Brunswick. There is also a lot of unused fibre on Prince Edward Island that is probably wasting away in the forest.
Mr. Arsenault: Prince Edward Island has set the objective of 100 per cent renewable energies in the relatively short term, and biomass can certainly play an important part in that strategy. Ours is one of the only industries able to produce renewable energy at a competitive cost. A kilowatt-hour of energy from wood pellets can be produced for a retail cost of six cents. That is clearly less expensive than wind or solar energy. It is one of the best forms of energy to replace heating oil and coal in the production of thermal energy. However, it is more costly than coal.
Senator Ogilvie: Thank you for your very clear and useful presentation.
[English]
Mr. Chair, I think this document should be used as an example of an informative, well-organized and exceptionally useful reference.
I come from Nova Scotia. I have a couple of observations, followed by a question. You have given an excellent overview of an industry in development, experiencing the growing pains of any new development. This is especially true when you replace existing technology with that development.
In the domestic market, spread of the pellet stove has been held back somewhat because of an inconsistent supply of pellets in our region. This has occurred at some of the most difficult times of a difficult spring, shall we say. People have had difficulty accessing pellets.
With regard to the commercial market in our area, you probably know what is happening in Nova Scotia currently with efforts to replace a significant portion of the province's hydroelectric energy through wood pellets or waste biomass from the forest industry. There is tremendous public and environmental opposition. The idea is that waste material must be left to lie on the forest floor to decompose. Otherwise, we will remove all of these tremendously valuable nutrients from the forest floor.
Those are clearly current issues, but I think they can be dealt with through education as the industry develops.
You deal essentially with waste biomass and its use. We are beginning to see, especially in Atlantic Canada, the development of pellets from hay — waste hay and grasses that grow on marginal land. These are all biomass from renewable resources. How do you see the pellet industry evolving over the next decade from all biomass sources?
Mr. Arsenault: Senator Ogilvie, you represent a region that is an interesting contrast in this regard. Nova Scotia has two pellet production plants. One used to be fully dedicated to exporting pellets to European power plants to make energy. Meanwhile, people want to build new power-generation installations without consideration for the local supply.
On your first question about the domestic market and inconsistent supply, right now our residential market is mainly composed of secondary heat appliances and is subject to competing energy price fluctuations — namely, the price of oil. Two years ago, when the price of oil spiked to $140 a barrel, there was a rush on pellets.
Most of the plants producing now are producing from secondary transformation biomass, that is, using the biomass coming from sawmills. Two years ago, we also had an economic downturn, and the sawmills shut down. Most of you come from regions and are well aware that the forest industry slowed down. What you would call waste is not waste when it has disappeared.
Thirty years ago, when my plant started, we were burning the sawdust in beehives. We could get the sawdust for free at the plant; and in Quebec originally we were even getting a subsidy for transporting the biomass to our plant because the ministry of the environment wanted to get rid of the beehives.
Now I have been told by the sawmill industry for the last couple of years that their profit was the money I gave them for the sawdust. Also, the trucking companies are charging me a fuel surcharge, and I do not have any subsidies anymore. They do not call sawdust waste anymore; they call it secondary product.
Most producers in the East start off on relatively small supplies of secondary transformation. The larger mills that do export cannot rely on this fibre, and we are equipped to use any type of incoming fibre, including directly from the forest. The mom-and-pop operations that initially served the market cannot serve it in the turmoil that we saw two years ago.
However, the industry is stabilizing; in fact, it reversed completely this winter. We all had surpluses. That is because when the price of oil goes up, people switch on their appliances; and when the price of oil goes down, they switch them off.
We have to stop relying on that segment of the market and come to a more stable, industrial-based market where we will have production year round. It is ridiculous for me to have this large plant capable of producing this great energy and shut it down in midwinter because we had a mild winter this year and the price of oil was not there the previous year to support us. The commercial-scale user has to be the baseline to develop this industry in the long run.
Meanwhile, we are seeing many new plants pop up. There is excess supply. New Brunswick has seen four or five new pellet mills come online or be announced, with a total capacity of over several hundred thousand tonnes now installed. To my knowledge, the province consumes about 10,000 or 15,000 tonnes. They will have to export and they will be subject to the gyrations of the exchange rate or shipping rates to Europe. We cannot develop this market on export only. We have to build an internal demand.
Senator Mercer: This has been fascinating, and we have learned a lot. I agree with Senator Ogilvie that your presentation was concise, and we will be referring back to it. At some point, we will finish this study and we will make recommendations. I can see a couple of recommendations I would to come out of this presentation this morning.
The tendency around the world is to move away from coal-fired plants because they are heavy polluters. In this country, the province that produces the most coal is Alberta. It also uses a fair amount of its coal, which is always surprising to some.
It would seem to me that one of the roles of government would be, as you suggested, to mandate the coal-fired electrical industry and say if you want to stay in business — which will save jobs in those communities, in the mines and in some of these remote communities of Canada — one way you will be able to do that is to switch to using pellets or some form of renewable fuel that takes care of some of the environmental side.
How many more jobs would be created if governments were to go along with your suggestion that we mandate coal- fired plants and use a certain percentage of pellets in the production of electricity?
Mr. Arsenault: Right now, the Canadian production capacity is around two million tonnes, and we have created 1,000 direct jobs. Depending on different ratios, we have also created two or three times more jobs indirectly. Mandating the conversion of 10 per cent of the 60 million tonnes that is currently consumed in Canada would triple or quadruple those numbers — 3,000 or 4,000 additional jobs.
Senator Mercer: Of those jobs, I would say 90 per cent plus are in rural Canada.
Mr. Arsenault: Yes. Just about all of our industry is based in the woodlands.
Senator Mercer: It is also mainly based in Eastern Canada; is that correct?
Mr. Arsenault: Right now, the largest production capacity is in British Columbia.
Senator Mercer: Is that using wood destroyed by the pine beetle?
Mr. Arsenault: Eventually it will use significant quantities. Right now, very small quantities of pine beetle wood are being used because they have access to cheaper fibre in the sawdust. British Columbia is home to enormous sawmill activity, and they have an enormous production of sawdust. That is their preferred raw material at this point. However, if you multiply the industry by 10, there is a lot of fibre, such as the beetle kill, available in Canada to provide material for it on a sustainable basis.
Senator Mercer: Sometimes it is so logical, but so complicated. It makes so much sense.
Mr. Arsenault: We have the same thing in Quebec. We do not have the pine beetle, but we have forest fire standing trees, and it is a great application for such products.
Senator Mercer: You used the word "subsidies" several times when we talked about the American industry. I am curious that this subsidy is not subject to some restrictions under NAFTA. You mentioned it, but I want to pursue it further, because I bet you that if the shoe were on the other foot, there would be a challenge coming from our American friends if we were subsidizing the industry and they were not.
Mr. Arsenault: I am surprised by the lack of reaction from our government. I fear they do not understand how much this penetrates all the way back to the forest. We have made representations. I will be making more, and the association will be making more shortly.
Senator Mercer: That is why I asked questions about jobs, not just the 3,000 or so jobs that we could create. I also want to talk about the jobs that you would save in the coal-fired plants by not forcing them to close. I guess I am trying to help you lobby here. I have done that publicly, so everyone knows about it.
Senator Duffy: Are you registered?
Senator Mercer: Yes, I am a member of the Canadian Senate.
It is important to talk about jobs, but it is also important to talk about where those jobs are, and they are in rural Canada.
Mr. Arsenault: Yes.
Senator Mercer: This committee produced a report on rural poverty a number of years ago. Institutionally, we understand the problems of rural Canada. This is not the be-all and end-all, but it is another piece of the puzzle to help rural Canada.
Mr. Arsenault: It is. On that front, I would like to come back to a question Senator Ogilvie asked about: hay. One source of biomass potential in Canada is agricultural crops. There are several tests going on across Canada on the potential use of that.
One problem with hay is that currently it can only be used in industrial applications, but the power generating stations would be a great user of this. There again you have a rural connection. Several agricultural lands could be used that do not compete with food crops. Marginal lands left out there doing nothing could be used to make energy crops, and that would create sustainable jobs in rural communities. However, for that particular market, you need industrial applications.
Senator Mercer: It is interesting how on this committee it all comes around. Way back when we were studying the bovine spongiform encephalopathy, BSE, crisis, we talked to people about switchgrass, particularly in Saskatchewan and parts of Alberta. The benefit of the switchgrass is that you only plant it every 10 years and it keeps producing. From a farmer's point of view, if you have a crop that you do not have to plant every year and you can harvest it every year for 10 years, it is a pretty good business. Are we using switchgrass at all now?
Mr. Arsenault: There is currently no market for switchgrass or grass pellets in Canada. Ontario may be creating one. There is talk about part of their conversion being to agricultural sources, but because of the inherent nature of the grass, the difference between grass pellets and wood pellets is ash content. You have much higher ash content with grass than with wood. The Canadian market right now is a niche market with residential users who want the least amount of ash possible in their appliances. The appliances themselves cannot handle the high ash, but the industrial consumers could.
Low-ash coal is 5 per cent to 6 per cent ash. High-ash biomass is 3 per cent to 4 per cent. Conversion from biomass into coal-fired plants is very easy on that aspect.
Senator Plett: Thank you for a great presentation. I am very interested in what you have presented. I spent my lifetime in the heating business and have been involved in many coal boilers, wood boilers, oil, gas, pretty much every type of boiler, but I have never installed anything using wood pellets. The first time I saw wood pellets was when we travelled to Quebec a few months ago, and I have been intrigued with this technology.
I have a couple of basic questions with regard to costs. I think you said you heat your home with wood pellets. Am I correct?
Mr. Arsenault: Yes.
Senator Plett: In layman's terms, how many bags of these pellets would it take to heat your house for one day at the coldest time of the winter in Quebec? I assume you live in Quebec.
Mr. Arsenault: Yes, I do. It is about two bags per day in Quebec. The rule of thumb is that a litre of oil requires two kilograms of pellets. A tonne of pellets will replace 500 litres of oil.
Senator Plett: How many bags would it take to create one cord of wood logs?
Mr. Arsenault: A 16-inch or 4-foot? Except for natural gas in Canada, burning pellets is an economical way to save money, not only save greenhouse gases, but you have to invest in a stove.
Senator Plett: Save money. This is a sad reflection, and I do not think Canada is unique in this, but most people in the country will ask how much money it will save. Government should not be motivated only by saving money; it should consider the greenhouse gas emissions.
We have installed many wood-electric combination units. If I have a wood stove or a wood boiler, not much conversion would be required to heat with this; am I correct?
Mr. Arsenault: I am afraid there is. This is an engineered fuel, and it needs specialized equipment to handle it and burn it properly. Some conversions have been offered to replace oil burners, for instance, directly into the boiler, but that is not the ideal method of using the product. This product has to be burned in stoves. We recommend that it be burned in stoves that are designed for that purpose. However, several of them are available, including many from Canadian manufacturers.
Senator Plett: Your house has a typical furnace that you heat with?
Mr. Arsenault: In my house I have a pellet stove that is a secondary heat appliance, and it replaces about 85 per cent or 90 per cent of my heating needs, just with a stand-alone unit.
Senator Plett: With no fan.
Mr. Arsenault: No.
Senator Plett: Are there units where you could?
Mr. Arsenault: Yes. Central heating, both boilers and air heating furnaces, and there are Canadian-made units also.
Senator Plett: We have talked about hay, straw. A few years ago I was involved in converting a large farm with about a dozen barns with underground piping systems and so on with a straw boiler. It was supposed to be the state-of- the-art unit. I know the farmer would never have done it intentionally, but fortunately for him the whole thing caught on fire and burnt down and he could go back to a conventional heating system, because it never did work properly.
What has been the success of this system? Some units are being built that heat manure, and some units use straw, and others use wood pellets. What success has there been? If it has been successful, is it a lack of education or advertising, a lack of people knowing about the product that prevents it from coming into other provinces in Canada? I have been in the business, but I am not that familiar with this.
Mr. Arsenault: The penetration in Canada in the residential market is currently being done without subsidies or incentives and with a lack of marketing, so it has to be based strictly on economic value. The product itself has an inherent cost, an extraction cost. Whether it is from agriculture or forestry, there is a cost to bring the fibre out of the forest and use and transform it. With prices of natural gas being low and the price of oil going up and down, people are hesitant to spend the additional money required to have a unit that was designed for the product.
With converting biomass to pellets, you can have an operating system that will not burn down because it has automatic controls and all the bells and whistles needed to make it operate properly. However, that is a cost and a conversion cost to putting in a biomass boiler system. People need financial incentive to do that. We get lots of demand for pellets when the price of oil is at $140. We do not get much demand for pellets when we enter the fall and the price of oil is at $60 like it was last fall, unless there is some incentive or support from the government to favour these conversions.
As an example, as Senator Robichaud said, converting Parliament to biomass would be a great example to the rest of Canada. Unless some significant steps are taken that way, we are subject to the economy trying to drive this, and it has been a long battle. We are still there, and we are trying, but it is a long battle.
Senator Plett: These pellets are basically compressed sawdust; am I correct?
Mr. Arsenault: Yes. That is all that is required.
Senator Plett: It takes about half an hour for this to break up, by the way.
Mr. Arsenault: Yes, but I can give you a sample of a torrefied pellet that will not break up in water. I did not bring that along.
Senator Eaton: Thank you, Mr. Arsenault. I have a quick question. After a year of listening to our testimony, marketing seems to be our big problem in this country with the forestry industry. Have you considered going in Quebec, perhaps with the backing of the wood products association there or FPInnovations, to a new housing development and saying these will be green houses for residential use; let us install a model community here all using wood pellets as heating, for instance?
Mr. Arsenault: There are some examples coming online. In Quebec City a project called Cité Verte will have a central pellet boiler serving that development and could start using pellets in the fall. I understand it has been helped by some programs of the provincial government. That will be a step forward.
One problem with the development of that market is how slow it is to create demand. This development will probably consume 2,500 tonnes of pellets a year. To make our industry work, we need several thousands of those.
Senator Eaton: That is right, but you could start across the country.
Mr. Arsenault: I am all for starting this, and we have to get the ball rolling. However, there are not enough installers and boilermakers to make this significant.
Senator Eaton: It becomes the chicken before the egg — no infrastructure, but nothing to create the infrastructure.
Mr. Arsenault: We need to start setting the example, in both institutional and residential projects, but those are medium-term markets that will develop. In the short term, the only way we can have a significant impact on the market is with large industrial scale. That is what our industry in Canada is geared to serve.
Going from a 100,000-tonne local market to a 2-million-tonne local market, which is what the industry can serve, cannot be done overnight, except in industrial applications.
Senator Duffy: I would like to follow up, Mr. Arsenault. Thank you for mentioning the Miscouche area in Prince Edward Island. We pride ourselves in PEI on being innovators. As you know, we have a system in Charlottetown where in a number of public buildings we create steam and heat the buildings using recycled garbage. We have a number of areas there, and I would be interested in following up with the wood pellet project.
As I understand it, 100 per cent of Nova Scotia's power comes from coal-fired generators. To your knowledge, has anyone spoken to Nova Scotia? Has that province shown any interest, à la Ontario Hydro, in converting some of its coal- fired production? It is a tragedy, but Nova Scotia's coal is imported from Venezuela.
Senator Robichaud: It is the same in New Brunswick.
Senator Duffy: It is not providing mining jobs to miners in Cape Breton or anywhere else in Atlantic Canada. Do you know anything about discussions with Nova Scotia Power?
Mr. Arsenault: We have a long-standing member of the association in Middle Musquodoboit.
Senator Mercer: It is a test we give to everyone who comes to Nova Scotia. If you can pronounce it, you can stay.
Mr. Arsenault: I will publicly apologize for having mispronounced the name.
It has been producing and exporting pellets for 10 years and has been trying to get the local government interested in this. The concept of the local government right now is to use green biomass, and for that it has to install new boiler capacity. It has not been convinced yet of the advantages of keeping the old boilers using wood pellets, and we are working actively to do that.
There are several examples of that. In Belledune there is a big coal-powered plant that imports coal, and they built a new pellet plant for export. They are having a hard time exporting. The two units are right next to each other but they criss-cross each other.
Senator Mercer: The great Canadian way.
Senator Duffy: Mr. Arsenault, I thank you for an excellent presentation and for having brought us into the picture. Thank you for alerting us to what would appear to be dumping in Canada and in Europe by the Americans. I appreciate that.
Senator Fairbairn: It is actually good thinking of what you have been saying with this change. I come from Southern Alberta, and in history there has been a heck of a lot of coal. It is encouraging that you are talking about this new adventure. It will still keep the old places going and providing jobs, and I think that is extremely important. It is good to hear it from you. Thank you.
Mr. Arsenault: Thank you.
The Chair: Before we conclude, did I hear correctly, Mr. Arsenault, that there are no pellet plants in Manitoba?
Mr. Arsenault: I believe there are no wood pellet plants in Manitoba at the present time. There may be some grass pellets, but I am not sure.
Senator Plett: Yes, there are.
The Chair: Could you provide to the committee, in writing, where those pellet plants are located across Canada, please?
Mr. Arsenault: I have a map here.
Senator Mercer: What took you so long?
[Translation]
The Chair: I would like to thank you, Mr. Arsenault, for giving us a good presentation, which will help us make recommendations to the various orders of government. On behalf of the Standing Senate Committee on Agriculture and Forestry, I would like to thank you for having accepted our invitation.
(The committee adjourned.)