Financial Reports & Markets
May 1, 2008 By Pulp & Paper Canada
Whether by desire or arm-twisting, the Canadian forestry industry is pushing (or is being pushed) to become carbon neutral, or carbon balanced. Reducing CO2e (carbon dioxide equivalent) greenhouse gas…
Whether by desire or arm-twisting, the Canadian forestry industry is pushing (or is being pushed) to become carbon neutral, or carbon balanced. Reducing CO2e (carbon dioxide equivalent) greenhouse gas emissions has become a situation of carrot and stick.
The carrot: government incentives and subsidies such as the BC Hydro Power Smart and Hydro Quebec programs to help the industry reduce energy. Favourable public perception and the industry’s own desire to be environmentally sustainable and more efficient (read: profitable) are other benefits.
On the other hand looms the very big stick of “carbon caps” and taxes that impose strict limits on industries for CO2e emissions and tax what is produced.
Governments are warming up to the idea of carbon taxes. Quebec put a one-cent per litre carbon tax on gasoline back in 2007. That same year witnessed the pro-oil Alberta government passing a bill designed to persuade companies to cut CO2e emissions by 12% or pay $15 per tonne into an eco-technology fund.
On July 1, 2008, the British Columbia provincial government will implement its Greenhouse Gas Reduction (Cap and Trade) Act on all fossil fuel consumed in the province. Initially set at $10 per tonne of carbon-dioxide equivalent (CO2e) emissions, the BC tax will jump by $5 increments to rest at $30 per tonne by 2012. In 2008/09 the hit will be $340 million. By 2010/11 the tax is projected to have raised almost $900 million, or $1.8 billion over three years. The BC government vows the tax will be revenue neutral, meaning all capital raised through the tax will be returned to businesses and households through alternate tax cuts.
Additionally, BC Finance Minister Carole Taylor has confirmed her government’s commitment to a yearly $100 climate change tax credit that will be granted to all adult British Columbians and one-time $100 dividend or rebate. Meanwhile, a litre of gasoline and diesel will immediately jump by an extra 2.41 and 2.76 cents respectively, climbing by 7.2 and 8.27 cents by 2012. For certain industries and individuals in remote or chilly areas, the price hikes are problematic.
John Williamson, federal director of the Canadian Taxpayers Federation, fears the BC carbon tax is not only unfair, but ineffective. He says the BC carbon tax policy will cost provincial individuals and industries $1.5 billion over three years and $15 billion by 2020 -while reductions in CO2e are projected to be three million tonnes a year, or 7.5% of the BC government’s goal of a 40-million tonne reduction per annum by 2020.
Naysayers notwithstanding, in 2007 BC joined the Western Climate Initiative [WCI] with like-minded Manitoba and seven American states including, Washington, Oregon, California, New Mexico, Arizona, Montana and Utah. The WCI is developing a common cap-and- trade protocol. On the federal level, the Conservative Party under Stephen Harper is mulling climate-change legislation, yet remains publicly opposed to a national carbon tax. Liberal Opposition leader Stephane Dion now supports a carbon tax.
Learn to Live With It
Lumber, pulp and paper, pipeline, chemicals, cement, fabricated metals and similar industries rely on fossil fuels. Many compete on world export markets and are not able to pass on carbon-tax costs to trans-border and/or offshore clients. They must either reduce their own energy usage and/ or absorb the additional costs.
The developing world has little domestic pressure at its disposal to impose CO2e taxes on their own industries and level the playing field. It is possible that the implementation of import duties or penalties on goods and resources from noncompliant countries can serve as a tool for Western and green economies, but this has yet to be seen.
So, are carbon taxes and caps a crucial regulatory tool or a “tax grab” in disguise? While the debate rages on, their increased presence remains a reality. As an example, in 2006, Alberta-Pacific Forest Industries’ kraft pulp mill became North America’s first mill, and possibly the first globally, to achieve carbon neutrality.
Al-Pac substantially slashed its CO2e emissions, down from 187,236 tonnes in 1994 to 99,973 tonnes in 2006. The company simultaneously increased daily pulp production by more than a third to 1,802 tonnes on average. For each tonne of pulp, direct emissions fell from 0.4 tonnes CO2e in 1994 to 0.16 tonnes in 2006. Al- Pac was able to achieve this by transmuting the equivalent weight of atmospheric carbon into cellulose via 5,500 plus hectares of fast-growing hybrid poplars. By 2020, more than 20,000 hectares will ‘sequester’ 470,000 plus tonnes of CO2 per annum. Located on land previously without forests or had been cleared prior to 1990 and the Kyoto-Accord designated base year, the plantations are true carbon sinks -and money makers.
Shawn Wasel, Al-Pac ‘s director of environmental resources, says the mature plantations will contribute 300,000-400,000 cubic metres of fibre per annum to the mill. Meanwhile, the waste limbs, bark, sawdust and lignin pulp waste feeds the boilers to co-generate extra energy, while reducing outside electricity and fossil-fuel expenditures. This homegrown energy managed to further reduce Al-Pac’s carbon footprint by about 40,000 tonnes CO2e per year.
The company is also using more rail transport to haul harvested wood to the mill. (By the end of 2006 this reduced truck haulage by 60,000 truckloads there and back.) In turn, Catalyst Paper’s integrated land management (ILM) program within its timberlands avoids unnecessary tree removal for roads, exploration lines and the like, avoiding an estimated 320,000 tonnes of CO2e emissions since 1999.
Al-Pac is also investigating “home grown” bio-fuels for its log-transportation fleet. Meanwhile its process engineers continue to trim energy requirements throughout the entire operation. Less energy used translates to more energy available for sale in terms of carbon credits. Noted Wasel, “Anything we can do to conserve energy is being evaluated.”
Energy creation ideas are also being seriously considered. Wasel notes that “value products” might be extracted throughout the pulping process. While this possibility is still in its infancy, if products such as methanol and bio-diesel can be harvested in quantity and of sufficient quality, the bottom line will expand, and the carbon footprint will be reduced.
Conserving energy, value products and amassing carbon credits for resale are all part of the same package, and are all driven by competitive pressure in the forest sector that has put an emphasis on innovation, cost reduction and a push to improve profitability -and achieve the goal of carbon neutrality. “Any additional improvement or process we can put in place, can certainly help us get there,” says Wasel. “Focus on innovation, focus on conservation where it can be done. Viable methods, viable returns on capital expended.”
There is seldom one simple fix to reducing carbon emissions. The solutions are complex and intertwined. Just ask Catalyst Paper. Catalyst employs 4,000 people and produces 1.8 million tonnes per year of groundwood printing paper. It has embarked upon a multi-million dollar, multi-year and multi-pronged attack on its carbon output.
Stu Clugston, Catalyst vice-president of corporate social responsibility, says it’s simply the right thing to do. Noting that Catalyst is a “huge consumer of natural resources” Clugston says the company feels its “carbon footprint” is simply too big. “We can’t just brush the sand and make it go away, but we certainly can reduce our impact.”
Ninety-eight percent of Catalyst’s direct CO2e emissions come from natural gas and Bunker C oil. In 2004 this created 458,800 tonnes of carbon emissions. The other two percent comes from electricity bought from BC Hydro.
Catalyst has vowed to cut emissions by
15% in the next five years, while moving into the top quartile of the Canadian pulp and paper industry in terms of energy efficiency. According to Catalyst, it has already reduced its emissions by 61% since 1990, with three of its mills cutting emissions by almost a third between 1990 and 1999. Production in those mills rose by 12%.
Smart Energy Savings
More bottom line benefits: $20 million to $30 million in energy savings over the last ten years with the BC Hydro Power Smart program providing $2 million in awards and conservation incentives. Catalyst now co-generates approximately 80 megawatts of power -enough to run about 50,000 homes per annum. Recycling de-inked newspaper as opposed to using virgin fibre, extracting more energy from bio-mass, process changes involving the chemicals and fuels used in pulp production, biological sequestration (reforestation), reducing energy consumption on all levels are all methods designed to help the industry reduce its emissions.
In 1992 the $400-million upgrade of Catalyst’s Crofton mill went a long way towards cleaning up the air and water via its Environmental Effects Monitoring (EEM) program and secondary effluent treatment plant, improved scrubbers, particulate traps, burners and so forth. Since then, all of the company’s mills have won ISO 14001 Environmental Management Systems in place. Each site has its own environmental manager and environmental council working in tandem with the mill’s energy team. Each facility is rated on a monthly and quarterly basis, and the results are examined by Catalyst’s corporate energy council and CEO Russ Horner, who have made a public and personal commitment to reduce CO2e emissions.
The details are in the paperwork, and even the paper itself. Catalyst has continuously looked to reduce the weight of its paper across all product lines. Lighter paper equals less fibre used, more paper per roll and fewer rolls to transport, which further reduces greenhouse gases generated throughout the supply chain. In turn, the optimum transportation medium -rail, barge, truck or ship -is considered. Whenever possible, shipping containers do not return empty but rather, are “back-hauled” and filled with materials required by the mill.
In the old days, alchemists tried to turn lead into gold. Today, Catalyst looks to produce a carbon-neutral paper and what would be a first for the industry. It would be a high-value, unique premium product. Catalyst VP Clugston says such product innovations are part of the bundle of ethical, environmental and social attributes needed to create “a different kind of pedigree” for the company’s products, while improving corporate profitability while remaining in compliance with government legislation.
The company is nurturing innovation, building on existing programs, thinking green and thinking long-term. Call it a win-win. Clugston certainly does: “Then we will continue to reduce our greenhouse gas emissions, and see significant business benefits.”
You’re Not Alone
In late 2007, the Forest Products Association of Canada (FPAC) announced Canada’s forest product industry would achieve industry-wide carbon-neutrality by 2015 without having to buy carbon-offset credits. To get there, FPAC partnered with eco-federation WWF-Canada to advise and help guide the initiative.
Calling the goal of carbon-neutrality “the most significant step” the forest products sector can take to reduce the sector’s environmental footprint, FPAC president and CE Avrim Lazar said reducing the carbon footprint is only the first step to carbon neutrality. After that, the industry should pursue the proactive removal of more greenhouse gases from the atmosphere than it sector emits. “And, unlike other sectors that rely significantly on the purchase of offsets, we can get there without having to do so,” he noted.
FPAC says the industry has steadily reduced its fossil-fuel dependence over the last two decades to the point where nearly 50% of the energy needs of pulp and paper facilities are now self-generated from renewable resources. According to FPAC, since 1990 there has been a 45% cut in the use of fossil fuels, a 54% improvement in the intensity of greenhouse gas emissions and a 44% reduction in gas emissions themselves and a 40% reduction in landfill waste.
This is good for the environment and, says FPAC, positive for accountants too. According to the association, facility upgrades and fine-tuning have increased overall efficiencies, allowing FPAC members to increase production by 20% since 1990.
One way or another, emissions will cost someone. For industries such as pulp and paper it is far better to be proactive, step lively and reduce your carbon footprint … before government steps on you.
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