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Interview With Honourable Gary Lunn, Federal Minister of Natural Resources

It has not been a happy year for the forestry sector. The industry surely reached a low point when Abitibi-Consolidated closed five Quebec mills in October, the newsprint giant citing soft internation...


December 1, 2006
By Pulp & Paper Canada

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It has not been a happy year for the forestry sector. The industry surely reached a low point when Abitibi-Consolidated closed five Quebec mills in October, the newsprint giant citing soft international markets and overcapacity for its decision. The closures of the mills in Beaupr, Abitibi-Tmiscamingue, Lac Saint-Jean and the North Shore have put 1,600 employees out of work, sending shock waves of despair throughout the industry.

This followed previous mill closure announcements by Montreal-based companies Tembec and Domtar, capping a dismal 18-month period for the sector, in which more than 10,000 Quebecers have lost forestry jobs because of 116 mills closing temporarily or permanently. Politicians in Quebec and Ottawa have been scrambling for some long-term solutions, including the usual appeasements of injecting more money into the industry. In this regard, the Quebec government promised $300 million in new money, some of it to help older, laid-off workers.

To be sure, there has been no shortage of hand-wringing and finger-pointing from politicians, citing various economic and environmental policies of previous and current administrations as the root cause of mill closures and job losses. There might be some truth to these assertions. Nevertheless, over-all, most industry executives acknowledge that Canada is not an island nation, free of global competition from the likes of Brazil, India and China. Much has been written in Pulp & Paper Canada and elsewhere on the competitive pressures that the industry faces globally from low-cost producers.

There are no shortages of ideas, either. Some forward-thinking people, for example, have advocated that Canada could decidedly benefit from an emissions-trading scheme, whereby the forestry sector would greatly benefit from years of environmental work in making mills greener. For example, while Canada’s over-all emissions have risen 29% above 1990 levels — led by Alberta’s ambitious oil- and gas-production in the tar sands — the forestry sector has worked assiduously in the last two decades to reduce overall emissions to 30% below 1990 levels. Unquestionably, the forestry industry is a leader in environmental efforts. Moreover, there is little doubt that the industry can become a leader in an emissions-trading market, once the federal government sets emissions targets.

With that in mind, and against the backdrop of mill closures and job losses, increasing competitive global markets and the pressing need to develop an emissions-trading initiative, Pulp & Paper Canada interviewed the Honourable Gary Lunn, federal minister of natural resources, and the Conservative MP for the riding of Saanich-Gulf Islands in British Columbia.

What is the pulp and paper industry’s current importance to the natural resources portfolio?

The forest sector as a whole is very important to the natural resources portfolio and the broader economy. Clearly, the pulp and paper industry is a major component — accounting for nearly a third of total forest industry employment and playing an integral role in the industry’s value chain. The pulp and paper industry in Canada has faced tough times recently, and while this is a difficult transition period for the industry and the communities that rely upon it, I believe that the industry has the potential to emerge from this period as a world-class competitor, capitalizing on new products and diversified markets.

What importance do you attribute to the recent U.S.-Canada softwood lumber agreement?

I am very proud of this historic agreement that came into effect in October. I congratulate my colleague, [David] Emerson, minister of international trade, for his hard work on this agreement. Getting to this point has been complex and difficult, but the results are worth our efforts. The agreement eliminates U.S. duties, provides stability for the industry, and ends the long-running dispute and costly litigation. It also provides certainty in lumber trade with the U.S. for the first time in many years. The return of more than $4.4 billion (U.S.) to Canadian producers marks a significant infusion of capital for the industry that will benefit Canadian workers and communities. Now we can direct our energies toward building a stronger, more competitive forest industry that remains viable in the long term.

In your estimation, what is the agreement’s contribution to a viable, stable forestry industry?

The deal represents a carefully negotiated set of rights and obligations between Canada and the U.S., which will provide for a stable and predictable operating environment for the softwood lumber industry over the next seven to nine years. In a broader economic dimension, our government has enhanced our bilateral relationship with the United States and we can now direct our full attention to building a stronger, more competitive North America.

Are there any new federal programs planned to help the industry achieve profitability? If so, what are they?

In the 2006 federal budget, the government included a $400 million commitment to combat the mountain pine beetle infestation, strengthen the long-term competitiveness of the forest industry and support worker adjustment. Our government is working urgently to deliver on these commitments, including measures to invest in the long-term competitiveness of the industry.

While firms must make their own production, investment and human resource decisions to remain economically viable, governments have a role to play in creating the right conditions for industry to prosper. Innovation, market opportunities and human resource development are key areas currently under consideration.

What can the industry do to improve its productivity?

That is a very difficult question, one that I’m sure every executive in the industry struggles with on a daily basis. A very pertinent one as well, given the emergence of low-cost global competition. It is also a question that faces every sector in the economy, as we look to maintain our economic growth in the face of an aging population.

I believe the key is innovation — research and development, process improvements, investment in technology. We need to help move the sector from its traditional manufacturing focus to a knowledge-based economy. We need to find ways to be faster, smarter and more efficient than the competition. With the skills and knowledge inherent in this sector, I am confident that we can achieve this goal.

What are your thoughts on carbon-trading credits as an initiative to reduce GHGs and increase productivity? Are there any plans to implement such a plan in the current mandate?

I agree that we must find the most efficient ways to reduce air pollution and greenhouse gases. Addressing the environment — in particular air quality — is a key priority of this government. What we are putting forward is a comprehensive and integrated approach to tackle air pollution and greenhouse gases. The Clean Air Act that was introduced in the House of Commons in October 2006 identifies the trading of emissions credits as a possible option, but no decision has been taken as yet. We will be consulting stakeholders, including the forestry sector, on the development of the regulatory and compliant framework for industrial air emissions in the coming months.

Perry J. Greenbaum, a freelance business and technology writer, can be reached at pjgreenbaum@gmail.com.

BRIEF BIO

Prime Minister Stephen Harper appointed Gary Lunn minister of natural resources on February 6, 2006. Lunn was first elected to the House of Commons in 1997 as Conservative MP for the riding of Saanich-Gulf Islands in British Columbia. He was re-elected in 2000, 2004 and 2006.

While in opposition, he served as critic for public works and government services and for the Privy Council. Previously, he served as opposition crit
ic for various portfolios, including northern development, Mtis and non-status Indians, human resources development, international trade, national revenue and fisheries and oceans. He has also served as vice-chair of the Standing Committee on Fisheries and Oceans, and was a member of numerous other standing committees.

Lunn was born in 1957. He attended the University of Victoria where he completed a bachelor of law degree, and subsequently practised law in Victoria. He is a member of the British Columbia Law Society. He is a certified journeyman carpenter and worked as a construction superintendent in mines in British Columbia and the Northwest Territories, and as a safety officer in the forestry industry. He taught first aid for St. John’s Ambulance and CPR for the Canadian Heart Foundation and was a member of the Canadian Ski Patrol. He is an active member of the Knights of Columbus.

Minister Lunn resides in Sidney, BC, with his wife, Alexis, and their two children.

REDUCING TAXES AN URGENT PRIORITY

High taxation continues to plague the forestry sector, says Avrim Lazar, president and CEO of Forest Products Association of Canada. Lazar hammered home this point during his address to the House of Commons Standing Committee on Finance, part of its pre-budget consultations in October 2006. “Current Canadian taxation policies continue to discourage capital investments domestically,” Lazar said. “Tax rates in Canada are higher than those in virtually any other developed country.”

The fiscal policies of the federal government have become more onerous in today’s global marketplace, where a high Canadian dollar, rising energy costs and increasing competition combine to put pressure on companies to come up with a plan of action. Yet, Lazar said they have. “The industry has responded to these challenges by adjusting quickly in cutting costs, investing in productivity enhancements, and looking for new market opportunities. In this way, we are very much a representative industry of Canada’s manufacturing sector.”

Now is the time for the federal finance minister to act, essentially to support an industry that is the economic cornerstone of over 300 communities across the country, which produces an annual surplus of over $30 billion, representing nearly 60% of Canada’s merchandise trade surplus. As Lazar put it: “The industry becoming more competitive is not enough alone to attract investment and keep jobs in Canada — industry must also have competitive hosting conditions. It is vital that governments focus on creating a business climate that encourages Canadian firms to invest for the future — in capital equipment, in R&D and in renewable energy.”

DETAILS ON THE CLEAN AIR ACT

The federal government tabled the Clean Air Act in October 2006. The bill seeks to cut emissions from 2003 levels by 45% – 65% by 2050. In the meantime, the government will set so-called intensity targets, which would obligate industry to reduce the amount of energy used per unit of production, without implementing a set restriction on emissions. Industrial polluters would have until at least 2010 before they would face regulations, and the government is giving itself until 2020 to set national emissions-cutting targets for the pollutants that cause smog.

The proposed law makes no reference to the Kyoto Protocol, although Canada officially remains a party to the treaty. The government is moving forward with a three-phase consultation process on targets for large industrial emitters, which account for about half of Canada’s greenhouse gases. As well, the Clean Air Act will redefine a number of substances, previously labelled as toxic, to air pollutants.

The government also intends to align Canadian regulations with the rules of the U.S. Environmental Protection Agency, while there will be new rules for the fuel efficiency of cars and trucks by 2010. The Act is likely to be greeted by intense debate within the Commons environmental committee, which must study the Act before it can be approved.

Other highlights from the proposed Clean Air Act:

* By 2011, produce new regulations for vehicle fuel consumption;

* By 2025, set federal targets for smog and ozone levels;

* Harmonize vehicle emissions standards with those of the United States over the next 12 months;

* Align regulations with those of the U.S. for emissions of volatile organic compounds (VOCs);

* Work with provinces to create a system for mandatory reporting of air emissions and avoid regulatory overlap; and

* Introduce an environmental damages fund that applies non-compliance fines directly to cleanup.

Much of the reduction in emissions will have to come from Alberta, and notably in the oil sands, which will have to balance the needs of the province’s booming oil and gas sector with sound environmental policy. Alberta’s environment minister says it is too early to know whether Ottawa’s proposed clean air act will benefit his province, which in 2003 accounted for almost one-third of Canada’s total greenhouse gas emissions.


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