Proceedings of the Standing Senate Committee on
Agriculture and Forestry

Issue 5 - Evidence - Meeting of May 13, 2010


OTTAWA, Thursday, May 13, 2010

The Standing Senate Committee on Agriculture and Forestry met this day at 8:07 a.m. to study the current state and future of Canada's forest sector.

Senator Percy Mockler (Chair) in the chair.

[English]

The Chair: We have quorum, and I declare the meeting in session.

I welcome our witnesses to the meeting of the Standing Senate Committee on Agriculture and Forestry, which is currently studying the forestry sector.

[Translation]

I would like to take this opportunity to thank you, Mr. Thériault, for accepting our invitation to appear. I am certain that your presentation will enhance the final report.

[English]

Mr. Samson and Mr. Sherman, thank you for accepting our invitation. There is no doubt that your quality presentation will enhance our final report, and discussions will enable us to make recommendations to governments to enhance and sustain our industry.

I am Senator Percy Mockler from New Brunswick, chair of the committee.

[Translation]

Could the members of the committee introduce themselves?

[English]

Senator Mercer: I am Senator Terry Mercer from Nova Scotia.

[Translation]

Senator Robichaud: I am Senator Fernand Robichaud from New Brunswick.

[English]

Senator Fairbairn: I am Joyce Fairbairn from Alberta.

Senator Mahovlich: I am Frank Mahovlich from Ontario.

Senator Plett: I am Don Plett from Manitoba, and I bet on Pittsburgh yesterday.

Senator Fairbairn: Shame!

Senator Ogilvie: I am Kelvin Ogilvie from Nova Scotia, and I am now moving two seats to the left.

Senator Eaton: I am Nicole Eaton from Ontario, and a huge Habs fan.

Senator Rivard: I am Michel Rivard from Quebec.

The Chair: The committee is continuing its study on the current state and future of Canada's forest sector and looking more particularly at biomass. Today we welcome representatives from three groups. Roger Samson is Executive Director of Resource Efficient Agricultural Production; Adam Sherman is Program Director from the Biomass Energy Resource Center; and Philippe Thériault is Director General of Pioneer Biomass Group.

Philippe Thériault, Director General, Pioneer Biomass Group: Mr. Chair and members of the committee, good morning. I am a professional forester and general manager of Pioneer Biomass Group from Williams Lake, British Columbia.

This is a family company. On behalf of the owners, Mr. Bryan Reid Sr., André Chevigny and David Chevigny, Marcel Therrien, Brian Hansen and myself, I would like to thank the Senate for this invitation. It is a great honour for us to present our perspective on the biomass.

Pioneer Group is one of the largest independent timber management companies in British Columbia. We are also one of the largest timber harvesting companies in British Columbia. We are looking at the biomass from the forest to the end user approach. We do not own the mills or the plant. We are actually the harvesters, the people on the ground doing the job. We hope the highlights of our presentation will show you some of the challenges and some of the potential that we have experienced in the last two years.

Pioneer Group is a family owned group of businesses. We are all entrepreneurs. The businesses are quite diversified and they are all centred on value-added forestry. We do not own a sawmill. Up to two years ago, we did not own a pulp mill. I do not know if it is fortunate or unfortunate, but we now have a share of Harmac Pacific, in Nanaimo, B.C.

For about 30 years, we have been building very high-end western red cedar log homes and some of our products are sold worldwide. From log cabins, the brothers branched off into trucking, logging, timber management, land development, and now the pulp industry and biomass. Our group of companies harvests over 750,000 cubic metres every year. We like to think we are a small business but at this level, we are getting a little big.

The company also has 15 million cubic metres under tenure throughout B.C., and all that volume is purchased on the open market. We bid on it competitively and that is how we acquire the volume. We also are one of the biggest purchasers in the province of British Columbia's B.C. timber sale program, a public auction where they sell the blocks standing, and every year we buy another 500,000 cubic metres out of that program. If it is was just for companies like ours, I do not think we would have many problems with the Softwood Lumber Agreement.

Pioneer Group was incorporated to complement our timber management business and our logging business. As I have said, we also purchased a large share in Harmac Pacific in Nanaimo, B.C., in 2008.

To understand our situation in British Columbia, I would like to talk about the mountain pine beetle, which I am sure you have heard of. The area impacted by the beetles is bigger than the province of New Brunswick and Nova Scotia taken together. We are talking about millions of hectares of dead forest, and when I say dead it is dead. Eighty per cent of the trees are dead standing. That represents about one billion cubic metres of wood, so it is a huge amount of wood. That wood is getting to be a very poor quality, and it will only be available in the short term. It will not be there 15 years from now. Therefore the time to harvest is now.

My hometown of Williams Lake is right on the epicentre of the epidemic so we are at ground zero. For us, this tiny insect, which is about the size of the tip of this pencil, has turned the forest industry upside down. Our town has four sawmills and one plywood plant. Those sawmills are state-of-the-art operations. We went from having a sustainable supply of really good quality wood, to having a short-term surplus of really poor quality wood. That wood is standing there, drying out, cracking and it is stained, so it has very low value now.

At the same time, the harvesting costs just went through the roof. For entrepreneurs like us in logging, we see a drastic reduction in our revenue. One third of the wood is left in piles on the roadsides to be burned because we cannot use it in the sawmills.

To make matters even worse, in Williams Lake there is no pulp mill in an economically viable radius. If the wood is not making the sawmill quality, it is basically left in the bush to be burned. In fact, the wood that gets to the sawmill is also poor quality, so the sawmills are having a hard time processing that wood.

At the same time, we have had the worst financial crisis in recent history, so it is a perfect storm for many businesses in British Columbia. Like everywhere else in forestry dependent towns, sawmills had to shut down. At the end of 2009, most of sawmills completely shut down. Williams Lake does not have a pulp industry so what do we do with the wood?

We had the good fortune to have one of the biggest biomass power plants in North America. The power plant is owned by Capital Power. They basically take the fuel from the sawmills. Just the bark coming out of the barkers fed that biomass plant. The biomass plant was built about 10 years ago and was built to replace all the beehive burners in the valley. Now, no bark, no power, what will they do?

At the same time, the pellet industry in British Columbia was emerging. We have some of the biggest pellet plants. The pellet plant in Williams Lake has production of about 300,000 tonnes a year. The power plants and the pellet plants were running out of wood, so they turned to us since we are one of the biggest loggers in town and asked if we could help.

In our logging operation, of course, with the sawmills shutting down, we faced layoffs. We have over 120 employees. We looked at the possibilities. The owner, David, is quite the entrepreneur and he is not averse to risk. He looked at this and said we would approach the power company and the pellet plant to see if we could help.

All this happened in a matter of weeks. We are not talking six months of planning or a year of planning; it happened literally in a matter of weeks. We acted fast. We purchased two wood grinders. Those grinders are fairly common. We bought them from a local distributor and modified them to take them into the bush because that is where the fibre is located. It was sitting at the roadside ready to burn. We bought the machines, hired some contractors who had no experience in the forest but had experience in the militia contracts and all that, and sent all these people into the bush. We trained our logger operators to run these machines. We complemented the whole thing with our logging equipment and our logging truck drivers were converted into chip truck drivers to maintain employment.

Overall, in that period of time, we delivered about 120 truckloads a day, which represents about 8,000 cubic metres a day. It is a huge volume. We did this 7 days a week just to keep up with the demand on the power plants and the pellet plants.

Our initial investment was over $3 million, and this was in the middle of the financial crisis. I remember approaching the banks and asking for a loan. They looked at it and asked which sector we were in. When we said forestry, they said they would like to do business with us but no one wanted to do business with forestry.

We were fortunate that our local member of Parliament, the Honourable Dick Harris put us in contact with the Northern Development Initiative Trust. That trust is led by Janine North of Prince George. They did a tremendous amount of work there. It was a good place to invest, really.

We worked with them and, again, in a short time frame, put our package together, and we got access to low interest loans of approximately $1 million from that initiative. We coupled that with our personal investment and we maintained about 50 well-paying jobs in Williams Lake. Those jobs have an average salary is $50,000 or $60,000 a year. They are well-paying and family supporting jobs. We took logging guys who were displaced from this crisis and put them into the biomass business; to great success actually, because those guys knew how to do business in the bush.

However, we need to have more of this development initiative, and more support for our local business. For us entrepreneurs, in this scenario, in this financial world that we live in today, we need help like that. Creating those jobs has a huge impact.

When we acquired equipment, we negotiated contracts with the power plants and the pulp mills. We have those contracts to this day. Our first project is to look at the low-hanging fruit on the tree; that is, which one is the cheapest. We started to look at logging residue that was left on roadsides.

In our little area of Williams Lake, we are talking about hundreds of thousands of cubic metres that are left at roadsides and burnt every year. The amount of waste is increasing because of the mountain pine beetles. The wood is of poorer quality, so more of it stays in the bush to be burned. This biomass at the roadside is suitable because it is really dry. Those trees are dead. Some of them have been sitting in the bush for a year. They have had time to cure, so they are good quality material for the biomass but poor for sawmills.

We started using the residue from our own operations. It was a natural fit for us. We see this biomass collection as a complement to our logging operation. When we finish logging, we will come in with the grinders and the chip trucks and clean everything.

We experimented with the equipment and modified our operation to make this economical, but it was not economical at the beginning. We spent hundreds of thousands of dollars trying to figure out this business. It is a normal process, but we now have something that is sustainable.

There are many challenges, for instance, how you deal with the other licensees. As soon as people see us exploiting this biomass, they look at us and say, ``If there is value to this, we want a piece of it.'' There are still many negotiations to happen, but we see this as an opportunity.

At the same time, we have tried a different approach. We tried to harvest strictly for biomass, which is costly. When we say that we are salvaging logging residue, the cost of cutting the trees, skidding them to the roadside and processing them are carried forward from the sawlogs. You are selling sawlogs at a good price. That pays for the biomass at the roadside. However, if you harvest strictly for biomass, then the biomass price that you are selling must carry the costs for cutting, skidding and processing, which can be quite expensive. From our experience, it is too expensive. The power plants and the pulp mills cannot afford those prices. At the same time, it is a challenge that we must overcome. If there is no sawlog value, then we have to find a way of returning the forest to a productive state. We need to solve this problem.

We think about returning the forest to a productive state. If you remove those dead trees, it becomes a huge fire hazard. I do not know if you saw this in the news, but some of the biggest fires in Canada were around the Cariboo Chilcotin region in Williams Lake, because all those trees are dead. One lightning strike can result in thousands of hectares burning. It is important to find a way to return these forests to a productive state.

If we look at it from both a loggers' perspective and a timber management perspective — and, if we look at biomass — biomass provides some good potential. The harvest of biomass creates high-paying jobs. We are talking about $25- to $30-an-hour jobs. That is enough to sustain a family and make a good living. The workers' qualification is similar to logging so the transition is easy. We put loggers in the system and they were up and running within a month. If the biomass market is structured the right way, it can create a market for all that poor quality wood. However, if you do not have a market, that wood will be left there in the bush.

It is a great way to return the problem forest types, for example all those diseased and dead forests, into productive forests. If we cut the trees, then there are silviculture liabilities. We have to take care of it. That is why we have to replant the forest and return it to a productive state. It also increases the capital investment in silviculture. It can have a good spinoff. The B.C. government has some initiatives for carbon credits. A healthy forest is also a sink of CO2. The faster we get those forests back up and running, the better we are.

There is some risk associated with everything. The biggest risk for us is the biomass market, which is still in its infancy. For outside power generation, pulp mills, and so on, the market is not mature enough yet. In B.C., we have a maximum window of opportunity of 10 to 20 years to take advantage of this. That gives us little time to invest in complex technology. We can say that we will invest in bio-oil or things like that, but, by the time the technology is up and running, we may not have time to do so because those trees will be falling on the ground and rotting and will be good for nothing. We have to do something fast.

Another risk for us is that we have many entrepreneurs coming to us to sell us new technology and new businesses. It is hard for a little entrepreneur to sort out who is who, who is real, and who is not. Michael Kerr, with the National Research Council in Prince George, helps us out. He uses federal money to do so. We give him the name of the companies who want to do business with us, whether it is a new type of pellet, or bio-oil, or biodiesel, and he sorts out who is who and gives us a report. We would like to see more of that to help us out. It is hard for us because we do not have a huge staff. We look at opportunities because we do not want to miss the train, but it is difficult for us. We spend a lot of time sorting through who is who. We would like to see a lot more incentive programs, especially on the harvesting side. A lot of money is being spent trying to figure out the system. Unfortunately, right now there is little support, so the money comes out of our pocket to try to figure it out.

In our experience in British Columbia, the future trend is that sawmills will be run more and more based on market. They will not be sustained like they used to be — that is, mills are left running and are never shut down. They will be up and down. As they go up and down, so will the power plants and the pellet plants. They will need an alternate source of fibre. We like to think that we will be there to support that and provide that source. The province will need to find a market for that poor quality wood. No matter how they look at it, they have to deal with the issue. We think that biomass is one of those ways of dealing with it.

Power generation, using biomass, creates some well paying jobs, too. The jobs in the bush are labour intensive. You have to pay a big bang for your bucks if you are to create some jobs. I talked about this before, namely, we need to design incentive programs, both at the provincial and the federal level, to remain competitive. Our neighbours in the South are thinking about it. They have some subsidizing programs for the biomass crops; we do not at this point. We must think about that, too — not just forestry but other fuels, too, like our colleague Mr. Samson.

In summary, we believe that traditional logging and sawmilling is in decline, due to the poor quality of wood and the increasing harvest costs. The biomass harvest can complement the logging operation. We would like to think that, somewhere down the road, it could even pay its fair share. If it managed to pay its fair share of that wood, then it could help with sawmills, too, by reducing the overall cost of harvesting per hectare. It maximizes the return per hectare in the forest by using everything. We are using everything, including limbs and tops.

This work is labour intensive, but loggers can easily be trained to harvest biomass. I believe that, in the longer term, other markets for that woody biomass will be developed. Right now, we are talking with some companies from the United States about a different type of pellet. It is not the conventional pellets but a pellet that resembles coal. It could be stored outside, so progress is being made. We believe that biomass is here to stay.

We feel that there is a tremendous amount of political support for the projects. Both the provinces and the federal government seem to support the use of biomass. We would like to see this continue.

Right now, British Columbia has the biggest wood basket available in the world, but it is only available for the next 15 to 20 years, so we need to maximize that as much as we can.

Roger Samson, Executive Director, Resource Efficient Agricultural Production (REAP): Thank you very much, Mr. Chairman, and thank you to the committee for the invitation to be here today.

REAP Canada is pleased to participate in the current state and future of Canada's forest sector. Since 1991, REAP Canada has been a leading expert in the science, development and policy aspects of sustainable bio-energy production and utilization. We work in Canada, North America and in developing countries.

The global wood products industry is now undergoing the transition that agriculture underwent 10,000 years ago. Global production of industrial roundwood is rapidly making a transition from wood recovered from the natural forest to farming in plantations in the tropics and subtropics. In 2010, plantations now make up approximately 35 per cent of global roundwood supply, and it is likely headed to surpass 50 per cent. Effectively, the age of farming fibre has arrived and it is now easier and cheaper than ``hunting and gathering'' fibre to meet society's needs for low-cost fibre products like pulp and paper.

The comparative advantage of the Canadian forest sector as a leading supplier of low value commodities, like pulp and paper, is effectively over. The advent of farming fibre in the tropics and subtropics is the primary reason we are experiencing a crisis in the forest products industry, albeit there is a tremendous crisis on the West Coast with the pest management problem. However, the economic crisis accelerated its demise. In many ways, the Canadian forest sector is poised to enter a prolonged state of decline, much like the agriculture sector underwent in the past two decades.

The global wood products industry is like the agriculture sector; it has a surplus production capacity. The continued development of farming fibre has resulted in increasingly efficient and economical approaches to fibre production.

To revitalize the forest products sector, we can learn from the approach of the agricultural sector to create demand enhancement for the industry. The agriculture sector has dramatically reversed its fortunes by diversifying outside of traditional food markets into bio-energy markets. The forest products industry needs to do the same. A progressive forest bio-energy policy will revitalize employment in the forest regions of our nation, and in particular, it can help appreciably reduce Eastern Canada's dependency on imported heating oil and coal.

How can we develop the forest bio-energy sector sustainably and develop a long-term prosperity strategy for the sector? Effectively, we need to do two things well. First, we need to ensure we create a sustainable biomass resource supply; and second, we need to convert that biomass into useful energy products in an economically and energy efficient way.

From a sustainability standpoint, we need to ensure a bio-energy strategy maintains and enhances the health of forest soils and biodiversity in our forests. We need to minimize soil erosion and siltation from runoff and maintain and enhance soil carbon in forest soils. We must be judicious in the use of forest residues that are recovered for biomass energy applications. Excessive subsidies for the bio-energy sector will promote unsustainable forestry practices, much the same as excessive commodity prices for the agriculture sector promote unsustainable farming practices.

In terms of bio-energy conversion, we need to understand how best we can use wood residues to supply energy for consumers to replace fossil fuels. We need to recognize that wood residues are a low quality and disperse energy resource relative to fossil fuels. A major tenet of sustainable energy use is to match energy quality with its end-use application. Yes, we can convert trees into liquid fuels, but the amount of energy recovered and the subsidization by taxpayers to develop this end-use pathway indicate that it is the least viable strategy, both financially and in terms of energy output, for producing energy from the forest sector.

A cellulosic ethanol or a bio-oil fuel cycle only recovers about 50 per cent of the energy found in wood. In contrast, direct wood biomass use in heat applications and combined heat and power applications can recover 75 per cent to 85 per cent of the energy to displace fossil fuels. A dedicated biomass power plant, or co-firing biomass with coal, results in about 25 per cent to 30 per cent conversion efficiency.

We can look at similar regions to Canada, such as Sweden, on how to successfully develop the forest bio-energy sector. Sweden has a population of 8 million. It is comparable in population and climate to Quebec. In 2008, Sweden had an installed capacity of approximately 20,000 pellet stoves, 120,000 household pellet boilers and 4,000 medium- sized pellet boilers, as well as combined heat and power plants. The annual wood pellet consumption was 1.85 million tonnes, or approximately 230 kilograms per person.

What can government do to help promote the sector? The best approach is to support demand enhancement for biomass energy rather than directly supporting supply increases through, for example, subsidies for the construction of new processing plants. Currently, provincial and federal governments are subsidizing the construction of new pellet plants when existing plants are operating at two-thirds capacity on a national basis.

The second strategy the government can use is to support policies that more effectively regulate the industry by developing minimum efficiency standards and by ensuring that biomass is burned in modern appliances with low particulate emissions. Biomass pellet boilers can have particulate emissions that are equivalent to heating oil furnaces for use in urban areas.

The provincial and federal governments can also create incentives to help support biomass conversion by end users that will help drive consumption. This could come in the form of cost sharing on equipment purchases for industrial, commercial and residential installations of biomass boilers and stoves, such as a 25 per cent capital offset.

The federal government could create a more modest version of the American Biomass Crop Assistance Program, or BCAP. The BCAP program pays wood energy conversion facilities or energy crop conversion facilities up to $45 per tonne for biomass used for producing bio-energy over a two-year period.

In the Canadian context, this could be applied to densified fuels, which are known to have lower particulate emissions than bulk burning of biomass. This would help protect Canadian pellet producers from cheap U.S. imports and would accelerate the use of densified fuel, which supports the federal government's efforts for clean air policies.

A useful Canadian BCAP program to support the densified fuel sector would be $20 per tonne in over a four-year period. This would greatly stimulate the use of biomass in heat related energy applications.

The federal government could also reinstate the 1-cent-per-kilowatt-hour incentive for renewable power production in Canada. This would help support the development and use of biomass in power applications.

Finally, all levels of government could work together to convert government and municipal buildings to biomass heating to develop the market. This could include converting correctional facilities, schools, hospitals and municipal buildings. For example, the state of Vermont has now converted 41 schools to biomass heating. Thanks to Mr. Sherman for updating me on the number.

In sum, the agricultural sector has benefited appreciably from the federal government's interventions to create demand enhancement as a means to address its surplus production capacity. It is now time for the federal government to play a leadership role in developing the heat and power applications from the forest sector. The best role for the federal government to create the least harm to the existing players in the biomass energy industry in Canada would be to create modest incentives to support biomass utilization and to create modest incentives for densified fuel producers and renewable power generators.

Adam Sherman, Program Director, Biomass Energy Resource Center (BERC): Thank you, Mr. Chairman, and members of the committee. It is an honour to be here and to be invited to give you a perspective of what our organization is doing in the United States. I think everyone has a handout of my presentation, which I will use as a guide to walk you through my comments this morning.

I will be giving a United States perspective and a rationale for thermal-focused and community-scale wood energy as a way to enhance and develop the forest products industry, and I will talk about our work in the United States.

The Biomass Energy Resource Center is a non-profit organization based in Vermont. We do a lot of work in the state of Vermont, but we also work on projects and programs to use biomass resources at a local scale for thermal- focused projects all over the United States. We are an independent, unbiased organization that acts as a resource centre but also as a technical service provider to government agencies and the private sector.

The United States has a huge appetite, and this is a graph showing the J curve of our energy consumption over the last 150 years. Every time we find and develop a new energy source, it adds more to that curve. It is not replacing one energy source with a new one and keeping a more modest approach. This 150-year period of cheap and abundant energy has been the driver of our economy. At the same time, the large majority of these layers and the wedges in this graph illustrate not only fossil fuels but also from an increasing wedge of imported fossil fuels.

We are in a pretty dire situation. In the United States we have roughly one third electrical consumption of our energy, one third transportation or motive forms of energy, and one third of our total energy consumption is in the thermal arena, where we heat and cool buildings and process heat for industry.

Moving on to the next slide, which is a little bit more legible, is the renewable energy use matrix graph. If you look at all the forms of renewable energy of solar, wind, geothermal, hydro and biomass, there are certain things that can be used just for electric production or electric and heat. If you look at biomass, you can pretty much tell that there is a check mark in each of the boxes for heating, electricity, fuel gases and the production of fuel liquids.

Because biomass has many options, we need to develop policies and incentives that incentivize biomass energy to be a diverse energy source. However, also keep in mind, as Mr. Samson mentioned, the overall efficiency or energy return on energy investment. Thermal energy is, by far, the most commercially available technology and also the most efficient with the highest energy return on energy investment for the use of that resource.

Our national government is spending billions of dollars in the development of cellulosic ethanol to convert forms of biomass materials into liquid fuels for transportation. That progress is going very slowly and has proven to be very challenging.

While we are spending all this money on trying to crack the nut of converting cellulosic ethanol from biomass, we have an opportunity that has largely gone unnoticed and ignored in our policy incentives and that is the thermal arena. It is the ugly stepchild of renewable energy that really is not getting a level playing field in terms of the policy incentives.

Our forests provide a multitude of resources and values to us from clean air, water, carbon storage and sequestration, wild life habitat, biodiversity, recreation, aesthetics, fibre for traditional wood products, and energy. In different parts of the United States — you can see there on the map — the greatest forest cover in the United States is in the eastern part of the country, in the lake states of Michigan, Wisconsin and Minnesota, and then a concentration in the Pacific Northwest.

Our organization works all over the country where there is the wood resource and there is also a thermal load. We do a lot of work in the Northeastern United States, we do a fair amount of work in the lake states where you have a northern climate and a heating demand but also the wood resource, and then peppered throughout the Rocky Mountains and then in the Pacific Northwest.

On the next page a slide shows the conversion efficiency of various forms of commercialized biomass energy technology. At the far right-hand side there are 50- and 20-megawatt power plants which are in a darker shade. That shows the electrical output of those plants and their overall efficiency of taking a ton of wood with a given energy value and how much of that energy in the fuel is actually captured and transmitted into usable form. Those values do not reflect further line loss in the transmission of that electricity until it gets to a facility and it comes out as light in your lighting fixtures or whatever.

The real efficient use of biomass energy is for heating through these fully commercialized technologies. Those lighter shade bars, ranging upward to 75 per cent to 80 per cent efficiency, are the thermal uses.

I will then turn to the graph on comparative costs of heating fuels. I would like to just mention that in the greater scheme of things — these are in U.S. units, so they may not add up — on an-apples-to-apples, cost-per-million BTU basis, woodchips, cord wood and pellets are dramatically lower-cost fuels after combustion as compared to heating oil and propane as fuels. On the far left-hand column you can see that the price of natural gas has only been going down in the last 12 months. It is much harder to compete with natural gas on a price point with these wood fuels. Where you have facilities with oil or propane, the payback on the investment of installing a wood-fired heating system, whether it is chips or pellets, is the real driver in these price differences to recoup that capital cost.

I will skip down to the next slide, which is the Vermont experience. We have, nearly a 30-year history of using woodchips and wood pellets, to a certain extent, as a heating fuel. This is where my organization is based, but we are taking the programs and projects and this model of how to utilize these resources locally and taking that as a template and trying to export it to other regions in the country.

In Vermont we have two wood-fired electric generation power plants — one a 50-megawatt power plant and a 20- megawatt power plant. Those were both constructed in the 1980s. We have over 41 public schools that have received a little bit of state funding towards the overall capital costs of installing these systems, but the real driver has been the fuel savings over heating oil.

In the United States in 2006, when oil went to over $5 a gallon and over $150 a barrel, there was a huge push. We had another 10 or 15 schools, several more college campuses have recently installed woodchip heating systems, and some of this is due to some cost-share funds that have been available. However, I would say the biggest driver in the last five years has been the increased worry of price security and energy security when people heat with oil. A huge export of our local dollars is going out of our state and region and spent on oil and propane. When money is being spent on wood fuels, those dollars are being kept in those rural economies and recirculating rather than exporting it out, never to be seen again.

The low hanging fruit with a thermal-focused initiative, as we have been working on in the United States, is targeting larger facilities, hospitals, college campuses and correctional facilities where there is oil and propane heating, in some cases natural gas, and replacing those with a local renewable fuel. It has a tremendous benefit on that local economy and creates local jobs. It lowers those facilities' carbon footprint by using a nearly net neutral fuel source rather than introducing new carbon into the atmosphere. It keeps those dollars in the local economy, and it is a strong tool for helping and prolonging the life expectancy of an ailing forest products industry. As you have one here in Canada, we also have an ailing forest products industry in the United States. We have actually seen through the higher efficiency of the thermal uses more willingness to pay for the wood fuel that is at a higher price point, which delivers more value back through the supply chain to the loggers, the foresters and the private landowners. We have private land ownership in a large majority of the Northeastern United States, and those landowners depend on stumpage value to continue to afford their property taxes and maintain a working forest landscape.

Senator Mercer: I thank you all for your fascinating presentations. As we continue our study, we continue to learn more and I become more frustrated because we do not seem to be doing enough.

First, Mr. Thériault, you talked about the capital costs of the wood grinders, et cetera, that you need. You said about $3 million to start. I was fascinated by the fact that you are making these decisions pretty quickly. Entrepreneurs, while risk takers, do not normally like to take risk quickly because they like try to minimize the risk. You said you had a low- interest loan of $1 million. Was that under a federal or provincial government program?

Mr. Thériault: I believe it was federal, through the Northern Development Initiative. It was mountain pine beetle money. I am pretty sure it was federal money.

Senator Mercer: You mentioned your MP was involved; that is the purpose of the federal programs.

You also talked about silviculture and about your involvement in that process. Is there an incentive for you to practise good silviculture and, if so, where does that incentive come from? If there is no incentive, who is bearing the costs of the seedlings you are using?

Mr. Thériault: Currently in British Columbia, we pay.

Senator Mercer: You pay?

Mr. Thériault: Yes. Technically speaking, we should be making enough money with the fibre, whether it is saw logs, pulp wood or biomass, to pay for those seedlings to go in the ground.

Senator Mercer: You also made reference to a new type of pellet. Two days ago, witness from Quebec brought us a sample of torrefied pellets. We could see the difference in these pellets, and they seem like the way to go, although there is more energy used in the production. They are more versatile, because you can leave them outside, so storage is not a big problem as it is with other pellets. Senator Plett tried to dissolve them and it did not work as well.

Mr. Thériault: That is true. Right now, because of our holdings, because of our forest resources, we have many companies coming to us wanting part of it. We are dealing with a company that has patents in the U.S. for new technology for pellets.

They took a different approach, which we really like, and we hope it succeeds. Their approach will take them to the big power utilities in Europe that are burning coal and asking, ``What do you need to work with the coal?'' They are not trying to sell a product, but they are asking what is needed so that it blends with their system and works.

Many people have the misperception that if you are selling bulk pellets or something, that the quality is lower. In fact, it is the opposite. These big power plants use tons and tons.

This company we are doing business with are hoping to have plants running in the U.S. this year, and they are looking to make a significant investment in Canada as well, and we are hoping that something will come up this summer. Like I said, we are a little bit on the fast pace. We have the pedal to the metal because we have such a small window of opportunity.

With respect to the product samples they brought us, they left it in water for a year and it did not dissolve. If you leave a wood pellet in a glass of water, within five minutes it is pulp.

Senator Plett: It takes 25 minutes.

Senator Mercer: That is Manitoba time.

Mr. Thériault: It has some potential. Like I said in my presentation, it is hard for us as we are not chemists; we are entrepreneurs. We are not researchers so when companies come to us and say, ``You have the fibre, I have the technology,'' how can we tell if that technology has merit or not?

If you are building a plant, that type of investment would cost $50 to $70 million. It is a large investment. Now we are talking about higher risk. We are not talking about $3 million or $5 million to buy equipment any longer. We are buying even further into this business. It is difficult. Without groups like the National Research Council, it could be an impossible task for small entrepreneurs like us to accomplish. Please continue supporting those programs as they are really worth it.

Senator Mercer: Mr. Samson, I had mixed emotions. I heard you being concerned about the money that is being spent on oil going out of the country, so since we are your single largest supplier of oil and gas, we want you to continue to do that, although I am fascinated by the efforts being made, particularly in the state of Vermont.

In your chart on page 5, the one with the comparative costs of heat, you talked about natural gas, oil, propane, wood pellets, cord wood and woodchips. Coal is missing from that chart, which is one of the major subjects of this committee. If there is a competitor for wood, it is coal, but also the coal firing of wood is an opportunity for management of greenhouse gases.

Mr. Sherman: Yes, that slide is focused on heating fuels, and in the United States, we do not use a whole lot of coal for heating purposes. It is widely used for electrical generation. Given the lack of efficiency and the desire to use the forest resources as efficiently as possible, we have excluded coal from that graph because we do not advocate for its use as a heating fuel.

Senator Mercer: We have a supplementary brochure here called Vermont Fuels for Schools: A Renewable Energy Use Initiative. This is fascinating. You talk about 41 public schools.

Mr. Sherman: That is correct.

Senator Mercer: What are the savings per school? I know it will obviously not be the same for each school.

Mr. Sherman: For a typical sized regional high school, with 1,000 students, with the typical capital costs, square footage and the typical fuel savings, on an annual fuel savings basis over a number 2 heating oil in a given year, the savings have been, on average, somewhere in the $100,000 price range. In a school budget where things are tight, such a saving can be the difference between keeping or laying off two teachers, that is a savings of two salaries, which can go a very long way in a budget.

Senator Mercer: That is exactly the kind of measurement that we need. We continue to talk about dollars, et cetera, but when dealing with schools and hospitals the issue is how much money can be saved in order to put more teachers in the classrooms and nurses in the hospital rooms.

This is a fascinating program, and I will share it with the minister of education in my province.

You talked about prisons. Is it being used in prisons in Vermont?

Mr. Sherman: Yes.

Senator Mercer: I see the opportunity of reducing the cost of operating prisons, but I also see the opportunity of providing labour to keep the prisoners busy. Idle hands are the devil's workshop. Have there been savings in the cost of the prison system as well as in the management of prisoners?

Mr. Sherman: Yes. One prison in Vermont actually has, if you can believe it, a cord wood or hand-fired chunk wood system.

Senator Mercer: That will keep them busy.

Senator Plett: I think they should make wood pellets by hand.

Mr. Sherman: Most new installations in prisons are going the automated feed route with chips or pellets, perhaps because giving prisoners access to throwing things into a firebox is bad practice.

There are considerable savings. Several correctional facilities in the United States use wood chips. There is a recent installation in Carson City, Nevada. It is a very large prison that now has a wood chip fired combined heat and power system that uses forest stewardship thinnings to reduce catastrophic wildfire in that part of the United States. That material is being used as the fuel instead of natural gas.

Senator Ogilvie: We have had some very good presentations before this committee, but I am very enthused about the presentations we heard today.

Mr. Thériault, I admire your true entrepreneurial approach to issues. I wish we could clone that attitude more widely in Canada. You are talking about government support in areas where government has a real role to play as opposed to simply handing out money for inefficient businesses. The idea of the entrepreneur taking on risk in competitive areas is refreshing.

Mr. Samson, you used terms that until now I think I have been the only one to use. I have asked representatives of different forestry organizations about them, including the term ``hunter gatherer''. I have asked about elite species and fibre. I really enjoyed your presentation. In my opinion, it is exactly right. That is where we must go. The forest is a vast resource and it has to be looked at in its totality. We must look to the future for more applications.

Mr. Sherman, again, it was nice to hear a witness actually speak about the excessive enthusiasm for turning cellulose into ethanol. I have not understood the economics from the beginning, although I understand the chemistry well. I hope that we are beginning to move into a more realistic era, as opposed to rampant environmental enthusiasm about these issues.

I understand everything that you presented this morning and know a fair amount about the background. The issue that concerns me, which we currently see in Canada, and certainly in Nova Scotia, is the idea of harvesting the materials that you spoke of in particular, Mr. Thériault; the diseased wood, the waste wood from legitimate harvest and very low-value woody materials that naturally occur, those things that are destroyed by natural fire. We are seeing organized resistance against harvesting those based on the idea that those things should be left to lay on the forest floor to provide renewable nutrients for the forest.

Throughout history, forests have had to be renewed, and the only way to renew them was to burn them down. Natural forces such as lightning strikes renew them. Rather than forest fires being devastating, they provided renewal of the forest land mass. Today, we should be able to take a much more logical approach, to farm the resources and understand the nutrients.

How will we in Canada get through what is hopefully only a phase and help the public understand that the use of materials that you have described is actually a long-term benefit to renewable forests if done properly, rather than preventing it at all costs because it is feared that we will destroy the natural forest?

Can you give us any words of wisdom on that subject?

Mr. Thériault: In British Columbia, we have a huge environmental movement, and we are proud of it. We are pro- ecology and pro-environment. We have many parks.

When we started doing this, people thought that we would use huge rakes to rake everything from the forest. We do not do that. What we do is in the normal course of harvest. When we harvest trees, there is always breakage and coarse wood left in the field. We do not bring everything to the roadside. We are talking about the waste that on a normal logging operation would be piled and burned anyway. It is not profitable to rake the forest.

Many of my good friends said that if we take all the coarse wood debris away, which is the term they like to use in British Columbia, there be nothing left for the ground. I invited them to come and see our operation, and after a few field trips they understood that we are only taking what is normally burned. I have pictures of huge fires on the roadside. When the first snow comes, we go out there with ATVs and light the fires. That is something to see. It all goes to waste anyway.

Now it is not going to waste. It is burned in a good environment, and people like that. It is public perception, but it is easy to convince the public that it is a good thing, if you do not go to the extreme.

We have heard it said that forests that are ruined by beetles should be left to fall down. In the 1980s we had mountain pine beetles and the forests did fall down. Lightning strikes caused huge fires that cost millions of dollars to fight. Who pays for the silviculture? No one pays because, under our system, the one who harvests the land must pay for silviculture. If no one harvests the land and gets a return on it, where does the money come from? It comes from the taxpayer. If we salvage and sell logs for $40 a metre, $5 a metre goes to silviculture, as is the normal practice. It is good to salvage the forest; the concern is the scale of it.

Mr. Samson: I am trained as an agricultural scientist and a plant breeder, and I am an agricologist, so I have a fairly solid understanding of soils, both in the tropics and in the Canadian environment. We can take appreciable amounts of material off of certain soils and we should not take anything off of other soils. It is site specific. We should not think that if we repeatedly take energy away from the forest ecosystem and burn it the system will maintain itself, because it will not. My family owns woodlots in northern New Brunswick, and I can assure you that the overcutting in the region is not sustainable. On these podzol acidic soils, you just cannot take off appreciable amounts of biomass on a short harvest cycle or you will reduce forest primary productivity.

The most sustainable thing we can do is run longer rotations on our forests and produce solid wood timber products from them and use the residues as energy. In this way we can really minimize over-extraction, like forest floor recovery of biomass. This will cause problems with siltation. Fishers will not appreciate what you are doing in terms of siltation in places like British Columbia or Atlantic Canada.

I am a big believer, and I convince people in the environmental community, that biomass energy is a good thing in general but that if we overdo it or if we manage it in an unsustainable way, it is harmful. The Canadian government needs to work with the provinces and with the end users in coming up with a sustainable bio-energy forest policy.

Mr. Sherman: I echo Mr. Samson's comments and say that it is in highly site specific, forest type soils. One trend in the United States is that targeting the top in limb wood and with all the foliage you have a dramatically higher ash and mineral and nutrient content in the outer limbs where all the photosynthesis is happening, which is where all the nutrients are being diverted for growth. You want that material in the forest soil, and not in a boiler system. It causes slagging, fouling and technical issues of corrosion inside combustion systems, and creates mechanical operational issues of forming essentially glass in your boiler grates, large clinkers or moon rocks.

At one point people were really looking at this huge run on raking up the lowest quality material from the forest that has the greatest ecological value. As the technologies emerge and the markets come out, they are gravitating to lower quality main stem, smaller diameter material but not the needles, small twigs, branches and stuff that should be left behind. That is a movement where certainly in the United States, with the precipitous decline in the pulpwood market, where we have seen energy in chips and in pellets just backfill the niche left behind by the decline of the pulp and paper industry.

[Translation]

Senator Robichaud: Mr. Thériault, as far as the type of biomass used, did you start with wood pellets rather than with wood chips?

Mr. Thériault: No, we encountered more complications when using wood pellets. The wood needs to be of a higher quality, as Mr. Sherman has pointed out. The pellets cannot contain much bark, and pine needles greatly hinder the process, as well. In fact, we use wood chips in most of our work. The grinder does not work like wood-cutting scissors. The wood is broken down, resulting in chips. Because the plan was already in place in Williams Lake, where we are located, the best thing right now is to produce electricity, that is, to burn chips in order to fuel the heaters and produce electricity.

The plants are primarily set up to use plant-produced wood sawdust and wood plantlets. They are not really set up to use wood from the forest. These plants use such small fibres compared to what is produced in the woods that more time and money would be needed to adapt the plants to use forest wood. They are not equipped with wood rooms or even with timber yards. So, it is difficult for us to bring in logs for the chip mill, compared to plants that are equipped for using that kind of wood.

[English]

Senator Robichaud: Mr. Sherman, how difficult was it to convince schools to convert to wood chips. We hear that technology, the boilers and the holding facilities are major obstacles to conversion.

Mr. Sherman: I would say that in the early years it was very difficult. People are afraid of things that are new and different and we gravitate to what is familiar. As the first systems were built, they were successful for several years. I can go into a community and sit down with a school board and community members and say this is a good idea, but it is my job to tell them this is a good idea. When the other community tells them that they have been operating the system for five years and they talk to the business manager, the principal and the maintenance staff, and each one of them says that this was the best thing they could possibly have done, that speaks so much louder than hearing it from me.

Really, the obstacle is getting your first five to 10 new projects within a geographic region. Then, the obstacle is to pass that critical mass. They can kick the tire on it, so to speak, and when they see it in action and talk to their counterparts it is amazing how far and how effective that is in convincing other communities to follow that model.

Senator Robichaud: Were there incentives to help the first, like a demonstration project, so people have to see in most instances?

Mr. Sherman: There are two main focuses. One is support towards the capital cost, the bricks and mortar of the projects. There were some state-appointed funds through the Department of Education in Vermont. There has also been a similar model in other states but I will use Vermont as the example.

That was anywhere up to 50 per cent and at one point in time it was as high as 90 per cent of the capital cost was paid by the state. Therefore the amount of money that the local municipality had to either come up with themselves or bond for, using municipal bonding, was a smaller percentage. It improved the payback and made everything look a lot better. I would definitely say that the 90 per cent was excessive. They did not really have to put it that high. The project still would have moved forward and people would have done it at the 50 per cent threshold.

Concerning the other piece of public money, a modest amount of money has been put into funding an organization like ours to provide credible information to help feed that information to those decision makers, but also to help arrange tours to come in and see that facility. If there are three communities considering installing a wood chip system, we will hire a tour bus and drive an hour away and see a facility. We organize those types of events. That is another critical piece.

The last piece is doing the economic and technical pre-feasibility and feasibility work so that you are not just funding a project that would end up being a round peg in a square hole. You want to make sure that on each and every one of these projects there is a sound investment in public dollars. We do a 30-year life cycle cost analysis comparing the option of installing the system versus the option of continuing to do the status quo of heating with your fossil fuel systems, and which one will yield greater savings comparatively over that time period.

Senator Robichaud: How much of a factor was the use of local material, creation of jobs, in getting that material? How much of a factor was that, rather than just saving of dollars by the administration?

Mr. Sherman: I would like to say it was huge but I would not be entirely honest if I said that. In most communities, all of the environmental and community rural economic development benefits make people feel good about making that decision but it oftentimes is not the real driver. It is the payback on investment that is the driver in the majority of these systems. However, if you can piggyback on all the additional benefits that are hard to incorporate into the economic analysis as external factors, that is icing on the cake.

Senator Eaton: Mr. Thériault, your area of Williams Lake has been stripped by the pine beetle infestation. Once you take out those trees, can you reforest right away or is there a process of decontamination? Can you replant right away and it is fine; that is, the pine beetle has not stayed amongst the detritus on the ground?

Mr. Thériault: No. By the time the trees are dead, the pine beetle is gone. They kill the tree and then they die. We could plant right away. Our policy is that we harvest within the next year. We plant the next spring.

Senator Eaton: Do you replant the same trees, or do you make a mix, or do you change what you plant?

Mr. Thériault: We try to follow what was there at the beginning. In most cases, it would be 100 per cent pine so we would plant 100 per cent pine. In scenarios where there would be 30 per cent spruce, we would throw 30 per cent spruce in the mix to keep the same structure of the forest that was there before.

Senator Eaton: Mr. Samson, when we talk about growing trees in plantations for harvesting, what kind of trees are you talking about for our climate? Are you looking at trees such as willow, which I know they are doing experiments on now, for biomass?

Mr. Samson: I am not promoting the concept that we will be able to outplant the Brazilians or the Chileans in terms of doing plantation forestry. If you have radiata pine in Chile, or eucalyptus in Brazil, the breeders there are breeding better quality trees with improved fibre. The harvest costs and the growth environment are destroying our potential to become economically viable in the pulp and paper industry. I am suggesting to you that the traditional low-cost fibre industries are industries that we need to gradually transition out of and to expand new opportunities.

We can look at the agricultural sector. The beef industry in Eastern Canada is a sunset industry. We should not be putting money into Eastern Canada beef producers to keep them going because they are finished. We need to make a transition. With the pulp and paper industry today, one of the transition opportunities that we tried to introduce was to grow agricultural grasses like switchgrass or big bluestem to mix with wood residues to produce a lower cost pulp and paper product. We received some support from Natural Resources Canada for that work. That may be an opportunity, but that eucalyptus wood chip is a pretty cheap product.

Senator Eaton: I am not talking about pulp and paper; I am talking about biomass fuels.

Mr. Samson: For biomass fuels, if you look at the economics, the agricultural sector with our switchgrass, we did the first work in Canada in 1991 comparing fast growing trees to fast growing grasses. On a gigajoule basis, we could deliver a grass pellet at 40 per cent lower cost than a wood pellet. Much of the population of Canada is located in agricultural zones, for example, in Winnipeg, Calgary, Edmonton, and Toronto. The forest zones are not that heavily populated. That is why I am suggesting that the committee look at the idea of densified fuels as a way to accelerate the development of forest residues for utilization by the greater population.

In Williams Lake, it is obvious that you have to get that product out of there in a form other than wood clips because there is so much of it that you have to densify it and get it out of the country. The problem the pellet producers have today is that we do not have incentives in the Canadian system to utilize the product, so it is being shipped to Europe. We then have declining values in carbon credits and a declining euro. Consequently, they no longer can make a business exporting. We have surplus production capacity of the pellet industry and we have government supporting new plants as opposed to creating incentives to develop it. Vermont helped drive utilization. This is the way ahead.

Senator Eaton: That is to say, build infrastructure for heating and for encourage new developments to use wood burning stoves for domestic use, for instance?

Mr. Samson: Yes, like pellet stoves and pellet boilers. I suggested that we have incentives for densified fuels to help the heat market. On small-scale users, how do you help the heat users? You can give them a capital offset on the equipment, which would be good, but it would also be good if we had a $20-tonne incentive to sell their product. That would give them a modest subsidy to compete with the $40-per-tonne American subsidy that is happening right now.

The other thing would be the power applications; that is, if we put that one cent per kilowatt hour incentive back in. The federal government formerly had a 25 per cent incentive for offsets for capital equipment for the biomass combustion industry. They withdrew that because some consultant did a report that said that it was too profitable. We are not seeing an accelerated development of the industry. We have seen a crash in natural gas prices. We need support through the biomass capital offset for equipment.

Senator Eaton: I spent a day at Guelph University. They seem to be doing experiments there where they will encourage farmers to have a mixed basket. That is, where they will grow crops of willow between fields as hedge rows.

Mr. Samson: We support the environmental benefits of agri-forestry concepts in Canada. However, if you analyze what farmers want to plant, the last thing they want to plant is trees on farmland. Researchers have this project and promote this concept.

Senator Eaton: No, but you can harvest willow after three years. It stays in the ground for 20 years and you can keep harvesting it every year.

Mr. Samson: If you analyze the socioeconomic studies that are made of the choices that farmers make, it is the last choice for farmers. It is actually a four-year harvest cycle. You have an upfront investment of over $2,500 to $3,000 per hectare. You have to wait four years and you have no other markets for the material. For a crop like switchgrass, the upfront investments are one fifth and you get an annual harvest cycle. Effectively, you can ecologically clear-cut every year. Herbaceous biomass is much more efficient in terms of collecting solar energy and using less water as a solar battery. I consider tree farming for energy in Canada a permanent research project.

Senator Eaton: I am sorry that I do not have the scientific knowledge to argue with you, but one professor who is doing all his research would. I think switchgrass produces more ash. There are disadvantages to it.

Mr. Samson: I am not saying it is panacea, but farmers want to do it ahead of tree growing.

Senator Eaton: We are looking at all things. What would you recommend for this report? How could we get the use of biomass, wood pellets, more widely used? Why not housing developments in our climate looking to put it in domestic use, the way they do it in Sweden and Norway?

Mr. Samson: Canadian pellets are going into most new builds in Germany today for heating their houses.

Senator Eaton: Why are not we doing it here?

Mr. Samson: The federal government needs to provide more leadership. We understand that Canada has this great prosperity because of the fossil fuel sector, but we need to realize that, globally, we have to help all Canadian regions. Regions especially like Eastern Canada are paying more for fossil fuels and we do not have a lot in the area. We have problems with employment, with the forest sector and with the agriculture sector. This could be a prosperity opportunity when it is looked at globally. It does not need to be seen as a competitor for the fossil fuel sector.

Senator Eaton: It can be used as an environmental argument.

Mr. Samson: Yes. It has social, environmental and economic benefits when it is developed efficiently. I would be happy to work with the federal government in developing a more effective policy analysis of this into something more detailed.

Mr. Sherman: In Europe, their fossil fuels high and they subsidize the renewables. In Canada, you have comparatively low-cost electricity and low-cost fossil fuels. You have the resource base. It only makes sense that the resource is shipped to Europe. In a nutshell, that is the very simple answer.

Senator Mahovlich: You spoke about the cost of electricity. I assure you that my electric bill to heat my cottage is more than for my house in Toronto. My cottage is up north and even though I burn wood, my electrical bill is astronomical. I think the reason we do not have these pellets burning throughout Canada is because the hydro companies are making a good buck; they are making good money. A man retired last year with $3 million or $4 million. They are making so much money. We will have a tough time getting these pellets into our homes.

With regard to risk, is there any risk in this biomass? Where is the risk for the public, for the taxpayer? The Americans will pay a lot of tax to clean up the oil in the Gulf of Mexico. Where is the risk in biomass? Across America, all these forests have to be properly managed, and I think the government has to take a close look at this. However, there is no risk, is there?

Mr. Sherman: There are three fronts on which the public wants to ensure that biomass energy applications and industry build out is done the right way. We need to have a policy that steers it in the right direction. Such a policy must address air emissions, because when you combust anything, you are putting a whole suite of pollutants into the air. Biomass is not an exception to that rule. Particulate matter is probably the top priority issue where biomass can compete and mimic the emissions profile of fossil fuels systems if you use high efficiency boilers and back-end control technologies, such as baghouses, ESPs and cyclones. The other piece is the forest management and sustainability of what is the regional carrying capacity of these wood baskets given their multitude of other functions, including yield for other dimensional wood products. The last piece is what is the overall reliability of the infrastructure in place to get this? If I build a power plant, I can lay a pipeline, and more or less I know that I will get natural gas to my facility over the next 20 years. Where is the virtual pipeline for the loggers and truckers and for getting this material from the forest? Those are the three main areas that involve risk. The public and private sectors want to ensure that all of the pieces are in place.

Senator Mahovlich: Mr. Thériault, at the present time in British Columbia we have a catastrophe with the pine beetle. There is a lot to be done with these rotting trees. Should the government not stockpile this wood, turn it into pellets and maybe stockpile it for future use?

Mr. Thériault: I do not think we could do it fast enough. It is as simple as that.

Senator Mahovlich: Are we too late?

Mr. Thériault: We are too late. The area is huge. We will have some waste, for sure. We are doing what we can to salvage as much as we can.

Senator Mahovlich: Could we export the wood? If we look at Germany and France, I am sure they do not have the forests we do.

Mr. Thériault: No. Without a doubt, the big companies, such as Pinnacle Pellets, export most of their material to Europe in bulk. They are filling shiploads in Vancouver and Prince Rupert and shipping it to Europe. They are doing all they can. Right now, with the sheer amount we have, I do not think we are able.

Senator Mahovlich: There is no demand for this wood.

Mr. Thériault: I do not think we will be able to use it all.

Senator Plett: I would echo what Senator Ogilvie said about the presentations. You really had me sold here until Mr. Samson said we should not be helping the cattle farmers in the East anymore.

Mr. Samson: I used to be a cattle farmer.

Senator Mercer: That does not warm your welcome here.

Senator Plett: I am not sure that we should be subsidizing one industry over another. Everyone wants some help, and we need to determine why we are subsidizing. Is it to create jobs? If it is, there is some payback in taxes and so on. However, in your industry — and it has been said quite rightly — right now we may not have use for woodchips in Canada, but we are exporting. Senator Mahovlich just alluded to why are we not exporting more of our wood pellets. If we want to create jobs, that would also create jobs. If that is what we are trying to do, we do not need to burn the wood pellets here in Canada.

Let me suggest to you that I am probably as much or more in favour of using biomass for fuels as anyone. I have said it here many times. I have spent my lifetime in the heating business, and we have installed different heating plants of different fuels.

One of the problems we have found in the past is the inconsistency in being able to get the biomass that we need. We put in combination units, a wood-electric furnace. Just in case we do not get enough wood, we can turn over to electric. Then we find out that, in fact, hauling the wood and putting in the wood takes a lot of time, so we just ignored the wood part of it and we use electric.

In Manitoba, we have had numerous government programs, from which our company has benefited, where Manitoba Hydro has paid X number of dollars if someone converts to geothermal or to using wood-electric combinations, and so on. These programs all seem to take off and then they taper off.

You said quite rightly, Mr. Sherman, that there has to be a payback. I am not sure that many of these biomasses have the payback.

I have a geothermal heating system in my home. I believe that if I cannot pay it back within five years, it is not worth putting it in. I do not think I can pay back a geothermal heating system, when I installed it at my cost, in my home, let alone if I had to sell it to someone at a retail price. There is a problem, and that is why we need subsidies.

One of my questions is related to the long-term supply. We had a witness a couple days ago who suggested that one of the reasons people have problems getting capital to improve their businesses is because the banks are afraid of the lack of supply. You suggested that we have a short period of time to do this. I would like you to answer two questions.

First, you said that the forest is available to us, but you alluded in your presentation to 15 to 20 years of supply. I would like you to address that comment.

As well, is there a consistent supply, and is that supply consistent across Canada or is it consistent only in certain parts of Canada?

Mr. Thériault: In a way, it is regionalized. I am talking about a 15, 20-year supply in British Columbia, simply because the trees are dead. Before this epidemic, our supply was sustainable. The trees were growing. They are not growing anymore.

We have a huge surplus right now. We do not know what to do with it. As I just said, we will not be able to use it all. That is unfortunate.

Overall, the sheer vastness of our forest makes it sustainable, I believe. There will always be wood growing. We are using it as a by-product, not as a primary product. As long as sawmills are running, there will be a supply. We are using the waste.

As far as the waste goes, we are not using limbs and all these things. By the time the trees show up to the roadside, all those limbs are broken and are left on the ground behind us. We are basically using the wood part. Did I answer your question?

Senator Plett: No, I do not think you did. If you are saying we have 15 to 20 years, and again you confirmed that, but you said it is sustainable. Is there an inconsistency in that comment?

Mr. Thériault: There is for sure, at our regional market, because we are at the centre of this. It is a very different scenario on coastal British Columbia or Vancouver Island. Those forests are managed on a sustainable basis.

In our case, we are talking about salvaging a catastrophe. It is not sustainable when we salvage a catastrophe. That is why it is difficult to say, in the interior of British Columbia, I will spend $400 million to build a power plant with a pay-back period of 20 years when my wood supply is only supposed to last 20 years. That is a huge gamble.

As far as pellet mills, you could build them and move them around. After 10 years you could say, we tapped this market out, let us take it out, put it in the next town and keep going. Those are more mobile, but the power plants are not.

The Government of British Columbia came up with a call for power at BC Hydro. They had phase 1, and our company participated. We looked at the wood supply in the province. We saw that there was a surplus in the short term, but it was really hard to justify investing the amount of money necessary to do industrial power generation with biomass just because the wood supply will simply dwindle away with the pine.

There are regions in Canada. If we look at the East Coast, in Ontario and in Quebec and all that, they do not have the problem with the bugs, and I think it could be sustainable.

Senator Plett: That does not give me a warm, fuzzy feeling.

Mr. Thériault: It is true. There is a huge risk. In our case, right now we have a surplus. However, when you make your business case you had better make it in a short window because it simply will not be there for a long time.

Senator Plett: Is that why banks are afraid to touch these types of operations?

Mr. Thériault: No, I think banks are just scared of forestry altogether. It is the same situation if you are a saw miller or if you are in the pulp industry.

When we purchased a stake in Harmac Pacific in Nanaimo, no bank wanted to give us money, so we had to invest our own money and go to private investors. The pulp prices are climbing and the banks have approached us to invest. We have declined their offer; we said, no, sorry, you missed the boat. At the beginning, the banks shied away from anything that had to do with forestry.

Mr. Sherman: In the United States, one of the biggest hurdles to securing financing for larger biomass related projects is the lack of creditworthiness in the actual supply chain. When a big financial institution says it wants to put $100 million into this plant — whether it is a power plant, a pellet mill, whatever — the supply is oftentimes coming from many different suppliers all contributing to feed that one facility. Many of those loggers have second mortgages on their home to finance their skidders, their chippers and all their equipment.

There is not one single entity that is that Exxon or another supplier of coal or natural gas or a vertically integrated multinational entity with a huge balance sheet to have some sort of recourse if the facility does not get its fuel.

I think the financial industry is accustomed to financing fossil fuel projects and they are not accustomed to the nuance of funding biomass projects where you do not have that creditworthiness and the supply.

Senator Plett: I appreciate that, however I was for many years a small businessman, entrepreneur. I had second and third mortgages on my house a few times in my life and did not get government handouts or subsidies. Someone taking a second mortgage on his or her house to do something that they believed in would not sell me on anything.

It is not my role here to give answers or debate. However, I am supportive of government help. Do not get me wrong, but I think that at some point, it must be sustainable. So far, the heating with biomass, whether it is wood pellets, woodchips — or yesterday I read a presentation on landfill sites being used. To me, that is a wonderful thing except, of course, the costs of these plants are so enormous that we have to determine whether they are feasible.

At some point it must be able to run on its own. I think government should invest. Government should work with this, but at some point it needs to work on its own. I have natural gas available to me, and of course in many parts of the country we do not, so I can understand some of the dilemmas. However, where there is natural gas available, I cannot see this ever being something that will save me a pile of money.

Mr. Samson: We are doing an economic analysis of the densified fuel opportunity. The cost of densified fuel can be anywhere from $8 to $12 per gigajoule. The cost of heating oil for a homeowner is anywhere from $15 to $20 per gigajoule.

There are some strategic opportunities. Quebec is increasing its hydro rates. There is no reason that 60 per cent of Quebec homes should be heated with electricity as a primary power source when they could be heating with a lower inherent quality of energy and export that energy to Ontario as part of this great federation called Canada.

We have this situation I was mentioning earlier where the Eastern Canadian beef producer is not competitive because the Manitoba farmer can produce hay and straw at $50 to $60 per tonne and for the Quebec or Ontario farmer it is $100 per tonne. So we use CN rail and we import by rail.

Senator Plett: Now you are telling me that you want the money to come to Manitoba. That I support.

Senator Mercer: I did not hear anyone say that.

Mr. Samson: The pulp and paper industry in Canada is losing its competitiveness with Brazil and Chile, so we need to find a transition to use that land for a higher value. Whether it is the beef farmer or the forest producer in Eastern Canada, we need to find the best value. We need to do that together and think together and not subsidize something that is a sunset industry. We need to say, okay, computers are taking over. We cannot subsidize typewriter producers anymore.

We need to have a vision of what is coming. We must analyze the world situation and realize that we do not live in the world of 60 years ago where beef came from the local farmer in Northern New Brunswick. The situation has changed, and the forest products industry has changed, as I tried to express to you. We are losing our competitiveness in our traditional industries and we need to make a transition or we will go through the same misery that agriculture has gone through in the last 20 years.

Senator Fairbairn: This has been an extremely interesting morning. Four years ago, we decided to go across the country to each province and territory to have open hearings, to hear whatever was in the minds of the people of our great country.

The place we chose to go to was Williams Lake. I am from Alberta, so there is a certain friendship here about what had been happening at that time as your beetles were creeping across the border —

Mr. Thériault: The Rockies, yes.

Senator Fairbairn: — and into the northern part of Alberta.

What you are trying very hard to do is terrific. We flew into Williams Lake. I do not think a word was said as we looked out the window and saw this huge pile of pink all over the place. We had all read about it and everything else, but to see it in its enormity was not quite agitating but it certainly had us thinking a great deal.

We had a meeting at the school in town. We did not get people who were in this industry because they were too much in it to get away to see us. We had people who were running cattle and so on.

Then we received a phone call from Quesnel. There was a place in Quesnel that was taking all these pink things off the ground because they were a furniture place. They were turning it into every kind of furniture you could think of. It was very well done. They were good enough to give each one of us a gift as we left, which I still have. The last time I tried to call them, it turned out they had been shut down.

This is an awfully difficult subject, but there are also some things that you have all done very well. Could you give us an idea of how much is coming into the smaller communities, in this period of time that you are doing as well as you possibly can? I know it is not terrific where all the trees are, but in the smaller communities, where people were trying desperately to find a way to make do; they could not get out of it, but they wanted to figure out how to use it.

Could you tell us anything about that? I do not think this is 100 per cent negative about what you are talking about today. It is quite the opposite, given the hard work that you are doing. I thank you for that.

Mr. Thériault: In the short term, there will be opportunities. The wood is there. When you visited Williams Lake four years ago, the people were optimistic. The sawmills were running at full capacity. The B.C. sawmills can compete with any sawmills in the world. They are top of the line. Up to three or four years ago, big companies like West Fraser Timber were investing in those super mills. Canfor and others also did so. All those mills are very high end.

We never saw the problem. We thought everything was working. The beetles were there, but for the short term it is an opportunity. That was up until last year, when everything stopped. The people in those little communities realized how precarious the position was. It was right in front of us.

If you fly a plane or a helicopter around, you see it. However, people decide to turn a blind eye to it. They thought that particular economy would always be there; there is so much forest that we cannot run out of wood. With last year's crisis, people are now putting a lot of effort into finding alternatives.

There are challenges, for sure. In the last four years, the region probably saw construction of one major pulp mill. It is 500,000-tonne a year mill. If the sawmills are not running and producing that sawdust, then your economic model crashes.

It is the same with a power plant. What Mr. Samson said about the electricity is so true. In most parts, you cannot compete with hydro electricity. You may have big projects that support those towns, power plants and all, but if you build them and try to sell on the grid for hydro electricity, you simply cannot compete without a social decision and without the political will to make the changes. The government has to tell BC Hydro that it will have to pay a couple of cents more a kilowatt-hour to support it. If the government does not take certain measures, it will not get off the ground. We need some support that way. It is a social decision. We either watch it or say there is nothing we can do about it and be helpless, or we ask how we can help.

There are opportunities. We are in it to make money. We turned this biomass into a profitable business right now with minimal help, so we are doing it with our own money. We mortgaged everything to the hilt and tried to do it.

[Translation]

Senator Rivard: Mr. Thériault, in your presentation, you touched upon the subject of cogeneration and said that it is a possible market for biomass. You talked about what is happening in your province. You explained that in Quebec, when a company produces electricity through cogeneration, the electricity must be used for the company's needs, as in the case of a paper mill, and the surplus must be sold to Hydro Quebec.

One or two years ago, the government allowed a plant to produce electricity through cogeneration. However, since the cost of reselling electricity was too high, the plant had to close. Hydro Quebec had to pay exorbitant penalties because of its contract with the plant.

Is there a market in British Columbia for cogeneration in the biomass industry? If so, are operations subject to the same rules stating that, according to the cogeneration plan, the company itself must consume the electricity it produces, and the surplus must be sold to the British Columbia power company? Would biomass be a worthwhile option for other cogeneration projects?

Mr. Thériault: I will try to keep my answer brief. In Williams Lake, the generating plant sells electricity directly to BC Hydro; it does not use it locally.

This plant was built to replace wood chip burners. In the past, wood chips were stored or burned. There was probably an agreement reached with BC Hydro to take the cost of wood into consideration. All the projects currently under consideration in British Columbia involve pulp and paper plants.

The BC Utility Commission sets the sale price of the electricity produced by these plants. It is impossible to compete with hydroelectricity. So, this is the least expensive alternative.

Until the BC Utility Commission determines that the cost per kilowatt of biomass-produced energy is economically viable, we remain in limbo.

Senator Rivard: So we will not see any market opportunities for your biomass in cogeneration projects in the immediate future?

Mr. Thériault: We are lucky to have a market opportunity thanks to the existing plant.

However, there are no plants in places like Cornell, Vanderhoof and Prince George, and we will have to build them. As you have said, aside from pulp and paper plants, there are no facilities designed strictly for this purpose.

Senator Rivard: I have a question regarding Vermont plants. Are there any cogeneration plants in your State?

[English]

Mr. Sherman: In Vermont, there are two stand-alone electric generation plants. In New Hampshire, there are six, in Maine there are upwards of 10 power plants, and a handful peppered throughout the rest of the country. These tend to be stand-alone utility-scale power plants ranging from 10 megawatts to 60 megawatts in size. The power purchase contracts range greatly. In the 1980s, a PERPA contract provided a price premium for biomass power. Many of these contracts are due to expire.

Now the electrical generation market is mostly driven by some producer federal tax credits and the renewable energy credit market under which they receive a premium price per megawatt hour produced as part of the individual state renewable portfolio standards. That is the policy driver that makes those plants feasible.

At the same time, they have an added disadvantage for pure electrical generation over cogeneration because they are throwing all the thermal energy, which is about 75 per cent, out the window. The goal is to encourage combined heat and power where the thermal energy that is normally thrown off a power plant is captured and used in some way. Coupling the electrical demand and load to coincide with the thermal load that is nearby and cost-effective to deliver rather than just waste it is easier said than done.

The Chair: We thank you for being here this morning. Your presentations were certainly enlightening and very informative.

[Translation]

I would like to thank Mr. Thériault of New Brunswick, who manages a company of this kind. I am certain that with the leadership you have displayed this morning, you will achieve great success.

[English]

Mr. Samson and Mr. Sherman, thank you again. I hope that we can correspond with you to gather further information. As Chair, I can say that we may invite you here again.

(The committee adjourned.)