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Unformatted text preview: RESPONDING TO THE CHALLENGE OF THE MOUNTAIN PINE BEETLE A d iscussion paper prepared for Business Council of British Columbia and Council of Forest Industries Don Wright December 2007 The opinions expressed in this document are those of the author and do not necessarily reflect those of the Business Council of British Columbia or the Council of Forest Industries. Permission to use or reproduce this report is granted for personal or classroom use without fee and without formal request provided that it is properly cited. Copies may not be made or distributed for profit or commercial advantage. EXECUTIVE SUMMARY
The mountain pine beetle epidemic in the Interior forests of British Columbia is a forest health issue of unprecedented scope. It is estimated that by the middle of the next decade the epidemic will have killed almost 30% of the trees in the Interior. In some areas this percentage will be over 50%. It is projected that this will result in a contraction in the Interior forest industry over the next 5 to 25 years of between 20 and 40%, which should be a concern to all British Columbians. The Interior industry is the base for approximately 19% of all economic activity in the province, and any significant reduction in its economic contribution will have repercussions throughout British Columbia. Beyond the consideration of what such sweeping changes in the Interior industry would mean for the standard of living of all British Columbians, we should be concerned about the communities that will be disproportionately impacted in the central Interior of the province. We should be aware of what the beetle means for their future, concerned with what it means for our own, and prepared to support Interior communities as and where it proves necessary. Notwithstanding the serious scope and extent of the beetle’s impact, we have great latitude to mitigate the costs of the epidemic by making a series of informed, wise public policy choices. This paper suggests that there are six fundamental elements of a response to the beetle: 1. Ensuring that Harvest Levels of the Beetle-Killed Timber Stays as High and for as Long as Economically Practical There are a number of measures which can be taken to extend the “shelf-life” of beetle-killed stands, allowing the reduction in harvest levels to be postponed and made more gradual. Doing so will result in the generation of as much wealth as possible, and will help to make the transition challenges for Interior communities less abrupt and more manageable. 2. Maintaining Environmental Standards Despite the need to keep unnecessary costs to a minimum, maintaining environmental standards will be an essential part of any beetle strategy. Particularly, we will need to be attentive to watershed issues. 3. Protecting the Medium Term Timber Supply There are a number of measures that will help to ensure that as much of the non-pine Interior species as practical remains available for harvest after the salvage of beetlekilled stands is over. These measures may help to mitigate the eventual reduction of overall harvest levels, providing a higher level of non-pine harvest through the deepest part of the post-beetle harvest falldown. 4. Preparing for Changes in the Economic Contribution of the Interior Forest Industry to the Regional and Provincial Economies The provincial government should plan to receive less revenue from the Interior forest industry in the future. Further, communities that will be proportionately harder hit by the aftermath of the epidemic will need to prepare for the challenges, including through economic diversification measures and preparing their residents for change. Government has been providing, and should continue to provide assistance and support in this regard. 5. Developing a More Balanced Prognosis about the Future Prospects for the Interior Forest Industry There is significant latitude in terms of how great the reduction in harvest levels will need to be over the next 25 years. This will depend, in part, on decisions British Columbia society makes. A dialogue about what post-beetle harvest policy should be is necessary. Those communities most affected by the changes in harvest levels should be at the centre of that dialogue. 6. Learning the Lessons that the Beetle Has Been “Teaching” Us We should reflect on what the beetle signals in terms of our approach to forest management and as a harbinger of climate change. There are important questions to be asked about how we manage for fire, the age at which we should harvest Interior forests, and about the future forest landscape that may exist if the climate changes to the extent predicted. On the whole, government and industry have acted – and are acting – appropriately relative to the understandings and public values at the time when decisions were made. Looking ahead, the more British Columbians are able to discuss and appreciate the choices to be made, the better prepared we all will be to address the mid and longer-term consequences of the mountain pine beetle. TABLE OF CONTENTS I. II. III. IV. V. INTRODUCTION ............................................................................... 1 THE IMPACT OF THE MOUNTAIN PINE BEETLE EPIDEMIC . 4 1. The Extent of the Mountain Pine Beetle Epidemic ..................... 4 2. Implications of the Epidemic for the Interior Forest Industry..... 9 WHY THIS MATTERS FOR ALL BRITISH COLUMBIANS.......... 11 1. The Forest Industry Still Remains the Single Largest Driver of the British Columbia Economy ....................................................... 11 2. The Forest Industry Raises the Average Standard of Living in British Columbia ....................................................................... 13 3. What We Owe Our Fellow Citizens .......................................... 15 RESPONDING TO THE CHALLENGE ......................................... 18 1. Ensuring that Harvest Levels of Beetle-Killed Timber Stay as High and for as Long as Economically Practical ........................ 18 2. Maintaining Environmental Standards ....................................... 23 3. Protecting the Medium Term Timber Supply ............................ 25 4. Preparing for Changes in the Economic Contribution of the Interior Forest Industry to the Regional and Provincial Economies ................................................................................ 27 5. Developing a More Balanced Prognosis about the Future Prospects for the Interior Forest Industry ................................. 31 6. Learning the Lessons that the Beetle Has Been “Teaching” Us . 34 CONCLUDING COMMENTS.......................................................... 37 TABLE OF FIGURES Figure 1 - Pine Volume as a Percentage of Total Volume......................................5 Figure 2 - Projected Percent of Total Timber Volume Killed by 2015 ................6 Figure 3 - Projected Harvest Levels in Twenty Timber Supply Areas..................7 Figure 4 - Fibre Flows in the Interior Forest Industry ..........................................10 Figure 5 - Gross Domestic Product Generated per Employee, 2004.................14 Figure 6 - Labour Income per Employee, 2005 .....................................................14 Figure 7 - Provincial Government Personal and Corporate Income Tax and Natural Resource Revenues per Employee, 2005 ................................15 Figure 8 - Forest Sector Percentage of Communities’ Private Sector Economic Base ...........................................................................................................16 Figure 9 - Interior Timber Harvests Under the Ministry of Forests' Base Case Scenario.......................................................................................................32 Figure 10 - An Alternative Scenario for Interior Harvest Levels.........................33 I. INTRODUCTION The mountain pine beetle (MPB) epidemic in the Interior forests of British Columbia is a forest health issue of unprecedented scope and scale. To put it bluntly, by the time the epidemic has run its course by the middle of the next decade it is estimated that almost 30% of the trees in the Interior will have been killed by the MPB.1 In some parts of the Interior the equivalent percentage is estimated to be in excess of 50%. There will not have been such a dramatic and rapid transformation of British Columbia’s forest ecosystems in recorded history. While it is generally recognized that the consequences of the epidemic are of concern to forest companies, forest workers and forest-based communities in British Columbia’s Interior, there is not as widespread an understanding that the MPB epidemic should be of concern to all British Columbians. One of the purposes of this paper is to explain why this is so. The second purpose is to promote discussion about what the appropriate responses to the epidemic should be. Section II of the paper will discuss the extent of the MPB epidemic and examine what it will mean to the forest industry in the Interior. Section III will look at what this means for British Columbia, in terms of the impact on our economy and standard of living, and in terms of what it should mean about our obligations to those communities most adversely affected by it. Section IV of the paper discusses the major elements of the response to this challenge. Key priorities for this response are suggested, and the implications of following these suggestions are explored. Finally, some concluding comments are offered. 1 To be more technically correct, 28% of the “merchantable volume” in the Interior is estimated to be pine that will be killed by the MPB. Merchantable volume refers to the volume of trees which are available for harvest (i.e. excluding trees in parks and protected areas) and can be economically harvested and processed. Source: British Columbia Ministry of Forests and Range. 1 WHAT CAUSED THE PINE BEETLE EPIDEMIC?
The current epidemic is generally dated to have started in the late 1990s in and around Tweedsmuir Provincial Park, from which it spread. The beetle has always been a part of Interior forest ecosystems. What explains the historically unparalleled epidemic of the last few years? To understand the answer to this question, it is useful to briefly review the interaction of the beetle, lodgepole pine, forest fires and climate prior to the introduction of forest management in the twentieth century. The mountain pine beetle’s prime habitat is mature lodgepole pine forests. Mature pine is generally defined in British Columbia as pine trees that are older than 80 years of age. The greater the extent of mature pine, the greater the potential habitat for the beetle. The primary limits on the beetle population were the extent of mature pine, the occasional extremely cold winter which increases beetle mortality and forest fires. Lodgepole pine is a species that is particularly well adapted to an ecosystem with extensive fire, re-establishing itself rapidly after fire events. Historically, most fires were of natural origin, although First Nations also traditionally set fires as a means of creating favourable habitat for specific species of animals and plants. In addition to fire, the primary historical cause of pine mortality was the beetle. So, prior to the introduction of forest management, there was a type of “dynamic balance” between the beetle, lodgepole pine and fire. If the extent of mature pine got larger than the historical average it would tend to get reduced by an increase in mortality from a combination of more beetles and more extensive fires. On the other hand, if the beetle’s population got larger than the historical average it would soon run out of sufficient expanses of mature pine and would additionally be knocked back by the occasional extremely cold winter. With the introduction of modern forest management in the twentieth century, this dynamic balance was altered. On the one hand, suppression of forest fires was done quite successfully, so that the average forest area burned each year was reduced substantially. On the other hand, harvesting significant volumes of timber for commercial purposes added a new source of mortality for the pine. (Continued next page.) 2 WHAT CAUSED THE PINE BEETLE EPIDEMIC? (CONT.)
With the benefit of hindsight, it would appear that we suppressed fire to a greater degree than we harvested trees. Consequently, the Interior forests became “unnaturally old.” In particular, the Ministry of Forests estimates that the amount of mature pine in the Interior forests is 3 times what it was 90 years ago. Without planning to do so, we were “setting the table” for an unprecedented “feast” by the pine beetle. Compounding this is the fact that we have not had a winter with a sufficiently long period of extremely cold temperature to knock the beetle population back since 1994. In the absence of this, it was virtually inevitable that the beetle would reach the epidemic proportions we are experiencing. While there has always been a significant variation of weather patterns from year to year and decade to decade, it may well be the case that the absence of an extremely cold winter over the past number of years is an early symptom of global warming. As discussed later in this paper, the implications of global warming for forest management are something to which we need to give serious thought. 3 II. THE IMPACT OF THE MOUNTAIN PINE BEETLE EPIDEMIC
1. The Extent of the Mountain Pine Beetle Epidemic The British Columbia Ministry of Forests and Range2 provides extensive information on its website about the MPB epidemic, and the interested reader is encouraged to visit that site for additional information.3 For the purposes of this paper, I will focus on the essential elements. Mountain pine beetles attack pine trees by laying eggs under the bark. When the eggs hatch, the larvae mine the phloem area beneath the bark and eventually cut off the tree’s supply of nutrients. It is particularly adapted to pine trees, and to date has not shown any ability to survive based on other species in the Interior (e.g. spruce, fir, douglas fir, cedar and hemlock). The MPB has always been a natural part of the Interior forest ecosystem. For a variety of reasons, we are currently in the midst of an epidemic of unparalleled intensity (see discussion in the topic box on pages 2 and 3). The Ministry of Forests most recent forecast is that by 2015, 78% of all of the lodgepole pine in the Interior will have been killed by the beetle.4 Lodgepole pine accounts for 36% of the volume of merchantable timber in the Interior forests. There is a wide variation amongst different parts of the Interior behind this average. In some areas the pine percentage is less than 12%, while it is as high as 73% in the Vanderhoof area. Figure 1 at the top of page 5 shows the pine percentages in the twenty timber supply areas in the Interior which account for 87% of the pine in the province. Figure 2 on the top of page 6 shows the Ministry of Forests’ forecast of the total percentage of timber volume in each of these units which will be killed by 2015. Clearly, the impact of the beetle will be greatest in the Central Interior from Burns Lake over to Quesnel and down to 100 Mile House, but it will have a significant impact over virtually all of the Interior. For simplicity, I refer hereafter in the text to the Ministry as the Ministry of Forests. See http://www.for.gov.bc.ca/hfp/mountain_pine_beetle/ 4 http://www.for.gov.bc/hfp/mountain_pine_beetle/Pine_Beetle_Update20070917.pdf.
2 3 4 Figure 1 - Pine Volume as a Percentage of Total Volume Source: British Columbia Ministry of Forests and Range The economic and social challenge presented by the beetle is quite straightforward. Pine trees killed by the beetle are not as economic to process into lumber – currently the dominant and highest value use for most of the timber harvested in the Interior. The “shelf-life” of dead pine trees for the manufacture of lumber – i.e. how long they will be economic to harvest and process into lumber – varies depending on a host of biophysical and economic factors. It could be as little as 1 year or as long as 20 years. Once this shelf-life is over, it will take a long time – between 60 and 140 years with current technology and growth rates – before any particular stand will have trees from which lumber can be economically manufactured again. What this means is that it is virtually inevitable that there will be a significant reduction in harvest levels in the Interior over the next 25 years. How deep and how quick that reduction will be depends on many factors, some of them within our control and some beyond it. 5 Figure 2 – Projected Percent of Total Timber Volume Killed by 2015 Source: British Columbia Ministry of Forests and Range The Ministry of Forests’ recent forecast looked at harvest levels in the twenty timber supply areas most directly affected by the beetle. The base case scenario was that the total harvest in these areas would fall from 45.9 million cubic metres5 in 2006 to 25.1 million cubic metres over the next 5-25 years. This is shown diagrammatically in Figure 3 at the top of the next page. In these twenty areas in 2006, an additional 3.8 million cubic metres was harvested from tree farm licences and 2.6 million cubic metres was harvested from private lands and First Nation lands. If we assume that the pattern on the tree farm licences and private and First Nation lands is proportional to that in the timber supply areas, this would suggest a total reduction of 23.7 million cubic metres from 2006 levels. This would represent a reduction of almost 40% of the total Interior harvest in 2006. 5 In British Columbia timber volumes are measured in cubic metres. A conventional way to visualize a cubic metre is that it is approximately the volume of wood in a standard telephone pole. 6 Figure 3 - Projected Harvest Levels in Twenty Timber Supply Areas Source: British Columbia Ministry of Forests and Range For reasons I will go into later in Section IV.5, I do not believe the reduction in harvest levels needs to be, nor is likely to be, that great. But it would be doing no service to the communities that will be affected, nor to the broader British Columbia community, to sugar coat the implications of this. It is virtually inevitable that there will be a significant reduction in total harvest levels in the areas most affected by the beetle. A key feature in Figure 3 to note is the large “grey” zone with the big question mark on it. This represents the great uncertainty about how quickly harvest levels will fall from current levels. According to the Ministry’s forecast scenario it may be possible to raise harvest levels above 2006 levels and maintain them at those levels for as long as 15-plus years. On the other hand, it may be the case that harvest levels fall more than 15% within 5 years and by almost 40% within 10 years. There would be widely different degrees of economic and social dislocation depending on which scenario turns out to be a more accurate forecast of the future. What actually happens over time will depend fundamentally on what has been labeled dead pine’s lumber shelf-life – how many years after it has been killed by the beetle it remains possible to economically process it into lumber. The topic box on page 8 examines this shelf-life question. 7 WHAT IS THE SHELF-LIFE OF BEETLE-KILLED PINE?
As soon as it is killed by the pine beetle, pine begins to deteriorate in value because it becomes more difficult to produce lumber from it and the lumber produced is less valuable. At a certain point the dead pine trees fall over and then become virtually useless for any economic use. The rate of deterioration varies widely from one site to another, so the point at which dead pine becomes uneconomic to harvest and process into lumber – what is referred to as its sawlog shelf-life – can vary from as short as 1 year to as long as 20 years after death. This shelf-life is determined partly by biological and physical (biophysical) factors – i.e. the rate at which dead pine trees dry out and crack, begin to rot, and eventually fall over. While these biophysical factors are important, economic factors may be as, if not more, important in determining a stand of beetle-killed pine’s shelf-life. It may be physically possible to produce lumber from dead pine long after it is no longer economically feasible to do so. In general, beetle-killed pine’s shelf-life will be longer: • The higher lumber and byproduct (wood chips and sawdust) prices are; • The lower logging costs (including stumpage payments to government) and manufacturing costs are. The reality that shelf-life is, to a significant degree, a function of economic factors is important to understand because it means that there are decisions we can make to prolong beetle-killed pine’s shelf-life. For example, ensuring that there are no unnecessary costs imposed upon the forest industry, by ensuring that the government’s stumpage system properly reflects the reduced value of dead pine stands, and by investing in research and development to reduce costs or enhance values of wood products are all measures that will prolong dead pine’s shelf-life. This will serve to delay and, to some extent reduce, the eventual economic and social dislocation which the beetle will eventually cause. A final point to note is that this concept of shelf-life is essentially about sawlog shelf-life – i.e. how long dead pine trees can be economically harvested and processed into lumber. It may be possible, however, to prolong shelf-life by using the dead pine trees for other purposes – e.g. as feedstock for bioenergy production. We discuss this possibility below in Section IV.1 8 2. Implications of the Epidemic for the Interior Forest Industry If the reduction in harvest levels over the next 5 to 25 years is only half of that projected by the Ministry of Forests, it will still represent a reduction of almost 20% of the total Interior harvest. The percentage reduction in the areas most heavily affected – Burns Lakes, Vanderhoof, Quesnel, Williams Lake and 100 Mile House – will be significantly higher than the overall Interior average. To understand what such a reduction in harvest levels would imply, it is useful to examine how harvested trees are processed in the British Columbia Interior. The vast majority – 85% - of Interior timber is processed in lumber mills, a further 10% is processed in veneer or oriented strand board mills, and 4% is processed directly into wood chips for pulp mills. Of the logs processed in lumber mills, approximately 49% by volume ends up as lumber, approximately 38% ends up as wood chips, and the balance ends up as sawdust and shavings. Wood chips and sawdust6 are the primary feedstock for pulp and paper mills. This is all shown diagrammatically in Figure 4 on the next page. If the harvest levels in the Interior are reduced, we should expect a proportional reduction in the two largest (as measured by both value added and employment) components of the Interior forest industry – lumber and pulp and paper. Veneer and plywood will also experience a reduction, though perhaps of somewhat different proportion because the species mix used to make it is somewhat different than the overall Interior harvest (in particular, veneer uses a relatively large proportion of douglas fir). Lumber remanufacturing would also fall more or less proportional to the reduction in harvest levels. It is reasonable to expect then that the beetle will result in the reduction, over the next 5 to 25 years, of 20 to 40% of the traditional Interior forest industry. I turn next to consider the implications of a reduction of this order of magnitude. 6 A growing share of sawdust and shavings is being used in the production of wood pellets. 9 Figure 4 - Fibre Flows in the Interior Forest Industry
E stimated Primary Log Use - 61.1 Million m3 Veneer / OSB Mills 10% Lumber Mills 85% Other 1% Whole Log Chipping 4% Lumber 49% By-Product Chips 38% Sawdust and Shavings 13% Logs used in lumber mills – 51.9 million m3 Fibre used in pulp Mills equivalent to approximately 28 million m3 Source: British Columbia Ministry of Forests and Range 10 III. WHY THIS MATTERS FOR ALL FOR BRITISH COLUMBIANS
Recently, a Vancouver-based columnist wrote: “ There was far more concern expressed about a few thousand trees being blown down in this city’s beloved Stanley Park late last fall than there has been over the absolute devastation caused by the mountain pine beetle in the last several years. . . . And yet the destruction, economic and otherwise, being caused by the pine beetle is hundreds of times worse.” 7
Making all due allowances for rhetorical flourish, there is a key truth in that commentary. The major population centres of Southwest British Columbia by and large have not been seized with the issue of the beetle. This is likely less because people in Greater Vancouver and Southern Vancouver Island are indifferent to the fate of their fellow citizens in the Interior, and more because relatively few of them have any direct connection to the forest economy. There are three major reasons why all British Columbians, not just those living in the communities most directly impacted by the beetle, should be concerned about that impact. 1. The Forest Industry Still Remains the Single Largest Driver of the British Columbia Economy Despite the diversification and transformation of the British Columbia economy over the past 30 years, British Columbia’s economy remains more reliant on the forest sector than is generally understood. The most recent data available suggests that the forest sector accounts for 3.6% of British Columbia’s total employment and 8% of British Columbia’s total Gross Domestic Product (GDP).8 But stopping there underestimates the importance of the sector because it fails to reflect the fact that the forest sector is disproportionately important to the economic base of the economy.
7 8 Gary Mason, “Time Running Out to Crush Beetle Threat” Globe and Mail, September 20, 2007. This is for the year 2005. Source: BC Stats. 11 A sense of this greater importance is given by the fact that the forest sector generates approximately 40% of both British Columbia’s manufacturing shipments and its international exports.9 The most recent analysis of the British Columbia economy that fully takes into account the concept of the economic base was done by the Urban Futures Institute in 2005. That study explains the importance of the economic base: “There are three components to a regional economy. The first, and most obvious, component is the population-serving sector, which includes all economic activity within the region that is directed towards meeting, directly or indirectly, the consumption demands of the region’s residents. The second component is the importing sector, which includes all economic activities that drain money out of the region as a result of the importing of goods (e.g. herbal teas) or of services (e.g. Vancouverites going to Cabo for a week in the winter). The third component is the exporting or economic base sector, comprising all economic activity that brings money into the region, including both the export of goods (e.g. softwood lumber to the United States) and of services (e.g. tourists form the United States dining at Rosa’s in Penticton). Exports are the base of an economy because they are the only source of money to pay for imports and to facilitate transactions and taxation in the population serving sector. In this sense we are interested in “first dollar” produced by a specific activity.10” The Urban Futures Institute’s analysis showed that in 2001 the forest sector accounted for 32% of British Columbia’s economic base. The Interior’s share of this was approximately 60%11, so we can conclude that the BC Interior forest industry was responsible for something like 19% of British Columbia’s economic base in 2001. Updated numbers are not available at this point, but it is unlikely that number has changed significantly since 2001.12
9 Source: BC Stats. David Baxter, Ryan Berlin and Andrew Ramlo, Regions and Resources: The Foundations of British Columbia’s Economic Base. Available at http://www.urbanfutures.com/research.html 11 See Baxter et al, Table Six, page 29. Significant proportions of the exports from the Sunshine to Rockies, North Coast regions, and smaller proportions of the South Coast and Island and Lower Mainland regions are based on fibre originating in the Interior. Adjustments were made to the figures in that table to account for this. In 2001 70% of the total harvest (by volume) occurred in the Interior. On the other hand, average values on the Coast are higher than in the Interior, so the 60% estimate of value is not inconsistent with the harvest percentage. 12 Between 2001 and 2006 forest sector exports as a percentage of total British Columbia exports did fall from 47% to 41%. This largely reflects, however, the ongoing contraction of the Coast industry. Between 2001 and 2006 the value of Coast lumber shipments fell 17% while the value of Interior lumber shipments rose 11%.
10 12 It is worth emphasizing what this means. It means 19% of all economic activity, goods and services consumed, government services provided – 19% of all cars sold, 19% of all restaurant meals, 19% of teachers’ salaries, 19% of all highways built, etc. – can be attributed to the wealth generated by the Interior forest industry. It should be clear then, that if there is a significant contraction of the Interior forest industry, this will have a profound impact on the British Columbia economy. A 20 to 40% contraction of the Interior forest sector would translate into a reduction of British Columbia’s economic base by 3.8 to 7.6%. Unless there was a replacement to the economic base (i.e. activities that generate equivalent inflows of funds into the British Columbia economy), the level of total economic activity and income would be expected to fall by a similar amount. 2. The Forest Industry Raises the Average Standard of Living in British Columbia In addition to being an important component of the province’s economic base, the forest sector raises the average standard of living in British Columbia. The forest sector is more productive than the average of the rest of the economy in terms of Gross Domestic Product generated per employee, as shown in Figure 5 on page 14. Employees in the forest sector earn higher average wages and salaries than in the rest of the economy, as shown in Figure 6 on page 14. Finally, the forest sector generates more provincial government revenue per employee than the average for the rest of the economy. This is partly a function of the higher average wages and salaries, but is, in addition, a function of the significant level of revenue the provincial government collects by way of stumpage and other direct payments by forest companies. Figure 7 on page 15 compares the personal income tax, corporate income tax and natural resource revenue collected by the provincial government per direct employee in the forest sector to the equivalent figure for the rest of the economy. This estimate does not take into account other sources of provincial revenue (e.g. sales tax, property tax, medical plan premiums, etc). Given the higher average incomes in the forest sector, if anything the gap between the forest sector and the rest of the economy would be even larger if these other revenues were taken into account. In absolute terms, it is estimated that in 2005 the British Columbia forest industry directly contributed $1.9 billion to the provincial and municipal governments and $1.3 billion to the federal government in taxes and other payments.13 The Interior would have accounted for approximately 2/3 of those payments.
13 Source: PriceWaterhouseCoopers. 13 Figure 5 - Gross Domestic Product Generated per Employee, 2004 200000 160000 120000 80000 40000 0 Forest
Source: BC Stats Other Figure 6 - Labour Income per Employee, 2005 80000 60000 40000 20000 0 Forest Other
Source: PriceWaterhouseCoopers, British Columbia Ministry of Finance, 2007 Financial Economic Review 14 Figure 7 - Provincial Government Personal and Corporate Income Tax and Natural Resource Revenues per Employee, 2005 25000 20000 15000 10000 5000 0 Forest Other
Sources: PriceWaterhouseCoopers, British Columbia Ministry of Finance The gap between the average revenue collected from the forest sector and the rest of the economy is striking. There is only one other sector – energy and minerals – which also would be significantly above the average. What this all means is that if the Interior forest industry were to contract significantly, and even if it were possible to find a complete replacement for the lost economic base, it is likely that the net result would still be a reduction in our standard of living – lower average incomes and a reduced capacity to support health care, education and other public services without increasing taxes. 3. What We Owe Our Fellow Citizens I discussed above the importance of the Interior forest industry to the province’s economic base. For communities where that industry is located, it is an even more important part of their economic base. Figure 8 on the next page provides estimates of the forest industry’s proportion of the private sector economic base in the communities in the central Interior. 15 Figure 8 - Forest Sector Percentage of Communities’ Private Sector Economic Base 14
100 75 50 25 0
Houston Burns Lake Vanderhoof Fort St James Mackenzie Prince George CaribooChilcotin What this means, of course, is that those communities will experience a much greater proportional impact from the medium-term reduction in harvests than that identified for the overall provincial economy discussed above. And, in that context, I think those of us outside those communities should ask ourselves what we owe our fellow citizens. The success and resilience of our society is, in a very important way, grounded in a notion that we share opportunities and risks amongst each other. Individuals or regions which, at any particular time, are relatively more prosperous expect to contribute disproportionately to the costs of providing public goods and services. Individuals or regions which, at any particular time, are relatively less prosperous expect to benefit from government support and assistance. Which individuals or regions are on the contributing or receiving end of this “contract” can change over time. Individuals move from one stage of life to another. They can also experience twists of fate, some favourable, some unfavourable. A similar ebb and flow can happen with different regions. There is a mutual investment and insurance aspect to our society that supports us and protects us all.
14 Income derived from forest sector as a percentage of income derived from forest, mining, agriculture, tourism, high tech and “other” private sectors. Source: BC Stats 2001 Dependency Tables for MSRM/LRMP Areas. Available at: http://www.bcstats.gov.bc.ca/pubs/econ_dep/la_tabs.pdf 16 The discussion above in Section II shows that, at some point over the next 5 to 25 years many communities in British Columbia’s Interior are likely to be facing significant challenges when harvest levels fall from current levels. Arguably, for the past few decades those communities have helped generate greater government revenue than has been spent in them. A point will come when it would be fair for the rest of Canada (including the rest of British Columbia) to return the favour. Canadians living outside those communities need to be aware of the challenges those communities will face and should be prepared to support government assistance to help those communities deal with their challenges. 17 IV. RESPONDING TO THE CHALLENGE
The mountain pine beetle epidemic is not good news. It is causing, in essence, a major devaluation of our single most valuable public asset – British Columbia’s Interior forests. Having said that, we have great latitude to mitigate the epidemic’s costs. The key to doing so is making a series of informed, wise public policy choices. In this section I highlight what I believe are the most fundamental elements of getting this right. 1. Ensuring that Harvest Levels of Beetle-Killed Timber Stay as High and for as Long as Economically Practical Over the next 20 years or so there will be one primary determinant of how much economic and social dislocation occurs in the Interior communities most affected by the beetle epidemic. That determinant is the shelf-life of beetle-killed pine. The longer we are able to stretch out that shelf-life, the longer we will be able to postpone the reduction in harvest levels and the more gradual will be the eventual reduction. In doing so, we will generate as much wealth as possible and make the transition challenges for the Interior communities more manageable. An additional benefit of keeping harvest levels of dead pine stands as high as possible for as long as possible will be that a greater percentage of these stands will be reforested15. This will mean that new stands of trees will be re-established wherever harvesting has occurred. These new stands will mature approximately 30 years sooner than if the dead stands had been left to regenerate on their own. This means, other things being equal, harvest levels will be able to rise again sooner in the future. As discussed in the topic box on page 8, the shelf-life of any given stand of beetle-killed pine will depend on a host of biophysical and economic factors. There is little we can do about the former, but we have significant latitude with respect to the latter. In particular, there are three, possibly four, ways that public policy can extend the shelf-life of dead pine stands. First of all, government can ensure that logging costs are minimized subject to the essential constraint that environmental and safety standards are maintained. Lower logging costs mean that, other things being equal, more stands will remain economic to log and process into products for a longer period of time.
15 By law in British Columbia forest companies are responsible for ensuring that harvested stands are brought to a “free-to-grow” status within a defined number of years. 18 The government and industry working together over the past number of years have done an impressive job of reducing logging costs in the Interior.16 Going forward, the key need is to avoid adding unnecessary costs to this. Perhaps the biggest risk in this regard is the issue of “waste piles” on logging sites. Government needs to continue to be careful that, in responding to pressures to put the wood in these piles to “good use,” it does not put in place policies that have unintended negative consequences. This is a controversial issue, and is explored in more detail in the topic box on pages 22 and 23. The second way in which government can prolong the shelf-life of beetle-killed stands is to ensure that the stumpage system adequately reflects the reduction in value resulting from the pine beetle. Ownership of the bulk of the forests has been kept in public hands in British Columbia. As the owners of the resource, the people of British Columbia are entitled, through their government, to collect revenue which reflects fair value for their resource. To be clear, I am not advocating the public gets less than fair value for its resource. Rather, I am advocating that the stumpage system must set a price for timber harvested from beetlekilled pine stands that reflects its lower value. Otherwise, the stands will be uneconomic to harvest, the shelf-life of those stands will be over, and the public will receive no revenue from them. To the credit of the government, it implemented a new stumpage system in the Interior in July 2006 which is based on using market values to set stumpage rates. The ongoing challenge will be to keep this stumpage system properly updated. If this challenge is met, beetle-killed pine stands will remain appropriately priced over time. The third way the government can enhance shelf-life is to invest in research and development directed at enhancing the economics of beetle-killed pine stands. Such investments enhance understandings of the characteristics of beetle-killed timber, develop new technologies that can reduce costs and develop new products which may be economic to produce from dead pine when lumber production is no longer economic. The provincial government has been investing extensively in such research, primarily through Forestry Innovation Investment Ltd.17 Between 1997 and 2006 the average cost of logs, excluding stumpage, delivered to processing facilities in the Interior was reduced from $50/cubic metre to $40/cubic metre – a reduction of 20%. 17 See www.bcfii.ca/industry_resources/mountain_pine_beetle_information.htm . The federal government has also been providing funding for research. See http://mpb.cfs.nrcan.gc.ca/index_e.html
16 19 There is a fourth way in which the provincial government may prolong the harvesting of beetle-killed timber. That is through BC Hydro’s proposed call for bioenergy power sources, with particular focus on utilizing wood killed by the mountain pine beetle.18 This may be an economic use for some of the waste piles discussed in the topic box on pages 22 and 23. Depending on the price that BC Hydro is willing to pay for this power, it may also be possible to log beetle-killed stands that have become uneconomic for processing into lumber. To the extent this happens, the shelf-life of the dead pine stands will be extended. While there are potential benefits from extending the shelf-life of beetle-killed pine in this way, there are some public policy issues which require careful consideration before proceeding. One of these issues is ensuring that the bioenergy call does not have the unintended consequence of putting existing processing businesses at risk. If, for example, BC Hydro is prepared to pay a relatively high price for electricity generated from wood while there is no specification as to where the wood feedstock could come from, it is possible that independent power producers could bid away wood chips currently utilized by pulp and paper companies. That, in turn, might lead to closures of pulp and paper facilities with a net reduction in total employment and wealth generated from this wood fibre. Another significant issue is the price that BC Hydro should be willing to pay for power generated from beetle-killed timber. While the price required to make viable various power projects based upon beetle-killed timber will not be known with certainty until after BC Hydro’s request for proposal process is completed, early indications are that such power will be expensive relative to current BC Hydro rates. An argument can be made for BC Hydro paying some premium for this power – because it is considered a green source of power and because it diversifies BC Hydro’s energy mix. But there clearly is some limit to how much of a premium would be warranted. Just because we can generate electricity based on logging stands of beetle-killed stands does not mean that we should do it, or should do it to the point where we log all of those stands. If a very large amount of power at very high prices is purchased by BC Hydro, this could result in a significant increase in BC Hydro rates. There will be costs to that. The benefits and costs of such power generation must be carefully considered. BC Hydro, the Ministry of Energy, Mines and Petroleum Resources, and the Ministry of Forests are currently working through these and other public policy issues. It appears that these agencies are taking the time to get the public policy around bioenergy right.
18 See http://www.bchydro.com/info/ipp/ipp51371.html 20 In closing, this discussion of what measures can be taken to ensure that harvest levels stay as high and for as long as is economically practical, it is important to sound one cautionary note. It is extremely unlikely that all of the stands of beetle-killed timber in the Interior forests will be harvested, even if we ensure that our public policy choices are the right ones. While it will be physically possible to do so, it will not be economical to do so. This may be difficult to accept, particularly for those living in the communities most adversely affected by the beetle epidemic. In particular, there will be arguments that the government should fund the logging and reforestation of stands that would be otherwise uneconomic. The argument would be based on the notion that doing so would maintain jobs and will advance the point in time when the new forest is available again for harvesting. While there will be some areas where this will make sense to do, it will not be the general rule. It would be far better, in my opinion, to take the funds that would be spent in this way and provide them to the communities to pursue other economic development opportunities. I will have more to say about this below in Section IV.4. 21 SHOULD WE BE DOING SOMETHING WITH “WASTE WOOD”?
There is a story that, during the Mao-era, a development expert was visiting a dam project in China. He was struck by the fact that all of the work was being done with shovels. When he asked the Chinese officials why they were not utilizing any earthmoving equipment he was told that using such equipment would reduce the number of jobs the project would create. In reply to this, he said, “Oh, I thought the purpose was to build a dam. If the objective is job creation, why don’t you require the workers to use spoons?” Whether or not this exchange actually happened, it does underline a key public policy point that we should always keep in mind. Just because we can do something does not mean that we should do it. Rather we should ask whether or not any particular activity increases or decreases our standard of living. A typical forest harvesting operation in the BC Interior leaves behind a considerable amount of waste wood. The amount of waste wood has become larger recently for two reasons. First, the government implemented policy reforms in 2003 which gave forest companies greater latitude to leave behind wood they feel is uneconomic to process. (The companies are still obligated, under a policy known as “take-or-pay,” to pay the government for the wood left behind.) The second reason is the beetle epidemic, which has meant that a greater percentage of the timber in any particular stand is of lower quality and, therefore, depending on lumber prices uneconomic to process into lumber or other products. This change in policy, and the resulting waste wood piles, has been controversial and has led to various calls for changes. * At first glance, it does seem “wrong” that we would not try to make “good use” of this waste wood. But we must always keep in mind the fundamental question – would this raise or lower our standard of living? Suppose we could utilize the waste wood and make a product worth $200/unit, but that the cost of doing so would be $250/unit. In this case, compelling forest companies to do so would reduce our collective wealth by $50/unit. This reduction in wealth would be borne principally by the government in lower stumpage payments under the market-based stumpage system we currently have in British Columbia. This would mean lower government revenues for health care, education and other valuable public services. (Continued next page.)
22 SHOULD WE BE DOING SOMETHING WITH “WASTE WOOD”? (CONT.)
More significantly in the context of the beetle, however, such a change in policy would end the shelf-life of many stands of beetle-killed pine. Any beetlekilled stand that is marginally economic will be made uneconomic if additional costs are added on. Ironically, a policy change directed at increasing the utilization of wood could well result in less wood to utilize. Having said this, there are a number of questions around the waste wood issue that should be open for discussion. These include the following: • Where it is practical, should we encourage logging systems that leave more of the waste wood scattered on the logging site so that it can contribute to bio-diversity values and the maintenance of organic material for soil replenishment? • Should we revisit the notion that waste piles should always be burned? While there may be issues around fire hazard abatement and occupation of growing sites, these need to be balanced off against the benefit of keeping the carbon sequestered in the wood for longer if it is not burned.
• How do we ensure that other operators, which might be able to realize positive net value from some of the wood which major forest companies were not able to profitably process, have an opportunity to access waste piles without compromising costs and safety? * See for example, Ben Parfitt, “Overcutting and Waste: A Call to Rethink BC’s Pine Beetle Logging Strategy,” available at www.policyalternatives.ca. While I do not agree with all of the arguments and conclusions in the paper, it raises some important questions and is a useful addition to the analysis and debate about pine beetle policies 2. Maintaining Environmental Standards In the previous sub-section I suggested that logging costs should be minimized subject to the essential constraint that environmental and safety standards are maintained. There are three environmental issues that warrant specific discussion. One concerns the effects of the epidemic and harvesting of beetle-killed pine stands on water flows. Healthy trees intercept rain and snow, increase the amount of evaporation and slow the rate at which rain or melting snow flows into watersheds. Dead stands of
23 trees have a much reduced ability to do this, and thus may increase the risk of flooding, particularly during the spring thaw. Harvested stands generally have an even lower ability to regulate water flows until the reforested stands begin to cover the site again. What this means is that there may be an increased risk of flooding in the watersheds where the beetle epidemic is prominent. It is important to understand that this would be the case regardless of whether or not harvesting beetle-killed stands was undertaken. Harvesting beetle-killed stands will have a differential impact over time. Stands will have a reduced capacity to regulate water flow in the first years after harvesting. Over time, however, the harvested stands will be returned to a healthy mature forest more rapidly than if the stand were left to regenerate on its own. So, after the initial period, stands that have been harvested and replanted will have a higher capacity to regulate water flows than stands which had been left to regenerate naturally. There are also various practices to mitigate the short-term risks where harvesting does occur. Thus, as in so many aspects of forest policy, there are tradeoffs which require a careful balancing of risks and benefits of one course of action over another. The province’s Chief Forester has provided guidance to forest companies on appropriate practices, and the Ministry of Forests has an ongoing research program to better understand the issues and best practices to protect watersheds. The Ministry and forest companies need to be open to making changes in practices if and when that research suggests such changes.19 The second issue concerns the environmental value of beetle-killed stands. While these stands may not provide the same ecological services as live stands do, we should recognize that there will still be some environmental values attached to these stands. The pine beetle has always been part of the Interior forest ecosystem, and so, accordingly, have beetle-killed stands. Those stands provide habitat for some animal and plant species both at present, and over time as the forest naturally regenerates. What this means is that there is an environmental reason, over and above the economic reason discussed in the previous sub-section, why it is not desirable to harvest all of the beetle-killed pine stands left in the wake of the beetle epidemic.20 The final issue that warrants some discussion here is that we need to make a distinction between maintaining environmental standards and maintaining the Interior forests as they were. The beetle epidemic has unavoidably altered the forest ecosystems of the Interior.
For more information, see http://www.for.gov.bc.ca/hfp/mountain_pine_beetle/BKG_MPB_hydrology.pdf
19 The Forest Practices Board released a report earlier this year that examined these issues in a particular location. See “Lodgepole Pine Stand Structure 25 years after Mountain Pine Beetle Attack,” available at http://www.fpb.gov.bc.ca
20 24 Interior forests are different now than they were 10 years ago, and 10 years from now they will be different than they are now. There is nothing we can do to alter this. This phenomenon is partly the result of the beetle itself. But it is also a function of climate change. It presents us with a daunting intellectual challenge – what does it mean to maintain environmental standards in the context of a changing environment? This will require us to alter, in ways we are only beginning to glimpse, the scientific and practice framework which will guide us in environmental management. This is related to a theme discussed in Section IV.6 below. 3. Protecting the Medium Term Timber Supply As discussed above, it is a virtual certainty that there will be a reduction in harvest levels in the Interior in the medium term (e.g. 10 to 60 years from the present). This reduction will come when it is no longer economic to harvest the remaining beetle-killed pine stands. How large the eventual reduction in harvest levels is will depend on a host of factors, some of which are beyond our control (e.g. the eventual extent of the beetleinduced mortality, the extent to which the beetle attacks younger pine stands, the strength of the North American lumber market, etc.). There, are, however, factors over which we can exert control. One of these factors will be the decision in the medium term about how British Columbia society decides to allocate the remaining inventory of mature standing timber over time. I will discuss this below in Section IV.5. There is also something basic that we can do in the short term that will affect the medium term timber supply. That is to concentrate harvesting, as much as is practical, on lodgepole pine so that the inventory of other species (i.e. spruce and fir) which can make a similar product will be preserved for the medium term. The key qualification here is “as much as is practical.” It is not practical to harvest only lodgepole pine in the Interior for a number of reasons: • Stands of timber can include a mix of species so that stands that are predominantly lodgepole pine can still contain spruce and fir and other species; • As was noted above, and shown graphically in Figure 1, pine is not evenly distributed across the Interior. In areas where the pine percentage is relatively low, 25 it would not be possible to adequately supply sawmills if only pine were harvested.21 • Some mills are designed to specialize in producing products utilizing minor species in the Interior – most notably douglas fir and cedar. Restricting the harvest of those species would shut such facilities down, which would not make social or economic sense. So, this is essentially a question of proportions – are we focusing proportionally more on pine? At the aggregate level, the data suggests that is what we are doing. It was noted above that pine represents 36% of the merchantable volume of timber in the Interior. In the 12 months ending this September, pine represented 62% of the total Interior harvest. At a more disaggregated level, the story is much the same. The Ministry of Forests compared the percentage of harvesting in each timber supply area that was occurring in pine-dominated stands to the percentage of the land base in each area that was pinedominated stands. With one minor exception, the harvesting percentage was significantly higher than the land-base percentage.22 So, overall, it looks like we are doing what we should be doing. There is, however, one issue within the aggregate story that bears further examination. That has to do with pine dominant stands that have a significant “understory” of younger trees. Such understories, especially if they are composed of non-pine species such as spruce and fir, could be a useful addition to the medium term timber supply if they are allowed to reach maturity, either by not harvesting in those stands now or by selectively harvesting only the dead pine.23 It has been suggested that, in certain parts of the Interior, harvesting stands with significant understories has taken place.24 At the point of writing this paper, it was not clear how significant this may be. The Forest Practices Board is apparently undertaking a study of the issue in one part of the Interior. In areas where there is projected to be a significant reduction in the medium term timber supply, it would seem to make sense to take measures to protect all potential sources of that timber supply. Accordingly, this issue should be taken seriously. Given the high costs of transporting logs, it is not generally economically practical to haul logs great distances, so sawmills must get most of their log supplies from within their local area (i.e. within approximately 200 kilometres haul distance). 22 See http://www.for.gov.bc.ca/hts/MPB_Harvest_2007.pdf 23 There is evidence that once the pine in a stand is dead the growth of the understory accelerates because it no longer has to compete against the pine for sunlight, water and nutrients. Selectively harvesting only the dead pine in a stand is generally more expensive per volume of timber harvested, so requires the stumpage system to appropriately adjust to these higher costs. 24 See, for example, Parfitt, referenced above in the topic box on page 20 and 21.
21 26 I stress that it is not clear whether harvesting stands with significant understories is a widespread practice. If, however, it is occurring on a significant scale, it should be reduced to the practical minimum. I understand that the province’s Chief Forester is working on guidelines which will ensure this is so. 4. Preparing for Changes in the Economic Contribution of the Interior Forest Industry to the Regional and Provincial Economies Given the order of magnitude of the possible reduction in Interior harvest levels, it is important that we begin to get our minds around what that means, and start preparing accordingly. The Ministry of Forest’s base case suggests an approximate 40% fall in Interior harvest levels some time over the next 5 to 25 years. For reasons outlined in the next sub-section, I believe that is likely to turn out to be an overly pessimistic prognosis. But even if the eventual reduction is only half of that, its impact will be significant. The estimate in Section III was that the Interior forest industry currently accounts for approximately 19% of British Columbia’s economic base. A 20% reduction in harvest levels will lead to a proportional reduction in that – a 3.8% reduction in the province’s economic base. If such a reduction happened gradually over an extended period of time it could be absorbed relatively painlessly at the aggregate provincial level. If, for example, this reduction happened gradually over a twenty-five year period, it would be equivalent to a reduction in the provincial annual growth rate of 0.15%. If, on the other hand, the reduction were to happen more rapidly, it would have a much more pronounced effect on the provincial economy. Given that the forest industry is an extraordinary contributor to provincial government revenue, the proportional impact on the Province’s finances will be even greater. An order of magnitude estimate is that a 20% shrinkage of the Interior forest industry would result in a shrinkage of provincial own source revenues of approximately 4.5%. The pace of the impact on government revenue is likely to be faster than that on economic growth, even if we are successful in keeping harvest levels as high and for as long as is economically practical. This is because the value of beetle-killed timber drops off rather dramatically in the first few years after it is killed by the beetle. Revenue collected by the government through its market-based stumpage system will drop significantly to reflect this value slide. My best estimate of the order of magnitude of this reduction is approximately $300 million/year between now and 2010, with a further $300 million/year between 2010 and 2015. While such reductions are manageable within a 27 budget where own source revenues are in excess of $30 billion/year, they are significant enough to be built into the planning assumptions for constructing the provincial budget. The impact on the overall provincial economy and budget appear to be relatively easily absorbed so long as the reduction of harvest levels occurs gradually over time. For the communities in the areas most affected by the beetle – those from Burns Lake through Vanderhoof and then down through Quesnel, Williams Lake and 100 Mile House – even a gradual reduction in harvest levels will have a profound impact. It is not too extreme to suggest that a quick reduction in harvest levels would be catastrophic for those communities. This, in my mind, is the most compelling reason why we need to keep harvest levels as high and for as long as is economically practical. The concentration of lodgepole pine in the timber base in these areas means that the eventual reduction in harvest levels there will be proportionately greater than for the Interior as a whole. As outlined in section III.3, the communities in these areas have an extraordinarily high reliance on the forest sector and this means there is a potential for very substantial economic and social dislocation in those communities. And, as I suggested in that section, I believe we in the rest of British Columbia should care about this, and should be prepared to provide assistance to those communities in meeting the challenges this poses. Responding to these challenges will require a combination of measures: • As discussed above, ensuring that harvest levels of beetle-killed timber stay as high for as long as is economically practical; • Encouraging economic diversification initiatives. There are significant diversification possibilities, for example, in mining, oil and gas, bioenergy (as discussed above in section IV.1), agriculture and tourism. The topic box on page 30 discusses developments in mining and oil and gas; • Preparing the residents in those communities for changes, for example by putting a renewed focus on education and skills training that will enhance their mobility to other industries; and, • Transition assistance for workers displaced when post-beetle harvest levels start to fall. The provincial and federal governments have already committed significant resources to supporting such measures.25 On an ongoing basis, we in the rest of British Columbia should be prepared to provide additional support if it appears to be needed.26 We should
See http://www.for.gov.bc.ca/hfp/mountain_pine_beetle/sustaining_communities_bkg20070917.pdf I noted above in sub-section IV.1 that generally it would not be a productive use of public funds to pay for logging and replanting sites that had become uneconomic to log. While there would be some
25 26 28 also expect that the federal government’s participation in this support be consistent with the levels of support provided to other regions in Canada going through economic challenges.27 Studies throughout the world show that successful efforts in economic development and diversification have a strong community base. It is positive that regional beetle action committees have been set up to co-ordinate and spearhead the community response to these challenges. The Omineca Beetle Action Committee and the Cariboo-Chilcotin Beetle Action Committee represent the most highly affected communities.28 First Nations in the beetle-epidemic area also have a significant interest in the impact of the beetle and the response to that impact. The beetle impacts directly on their traditional territories and traditional uses in many ways, and will affect the potential economic base for their communities in the future. In addition, in particular since the forest policy reforms in 2003 and the New Relationship in 2005, First Nations hold tenures accounting for significant volumes of AAC. The awarding of these tenures comes at a particularly challenging time. For the most part these tenures are “market logging” operations – the First Nations sell most of the logs harvested on these tenures to major manufacturers. Notwithstanding the significant increase in processing capacity over the past 6 years, market conditions for log sellers have not been strong recently, as is evidenced by the fact that last year approximately 7 million cubic metres of AAC in the Interior went unharvested. This is compounded by the current downturn in the United States housing market and the high Canadian dollar. The government is working with First Nations to find solutions to these challenges.29 justification for doing so based on employment creation, such funds could generally be put to better use in supporting communities economic diversification efforts. 27 The federal government has committed to provide $1 billion over 10 years for the overall beetle action plan. It will be important to ensure that this commitment is maintained over time. 28 See http://www.OminecaCoalition.ca and http://www.c-cbac.com/index.php 29 In addition to individual First Nations, the Ministry of Forests works with the First Nations Forestry Council http://www.fnmpb.ca/and the First Nations Mountain Pine Beetle Initiative http://www.fnmpbi.com. 29 DIVERSIFICATION POSSIBILITIES IN MINING AND OIL AND GAS
Two potential sources of economic diversification in the heavily beetleimpacted areas in the central Interior are mining and oil and gas. Currently there are 6 operating mines in this area and 4 mines in the proposal stage. 12 major exploration projects are currently underway that could prove out the viability of additional mines. If a number of these proposed/possible mines were to come on stream, they could provide timely sources of economic diversification for the heavily impacted areas. In addition, in June of this year the provincial government and Geoscience BC announced a $5 million Quest Project directed at airborne surveys and geochemical sampling over an area of 40,000 square kilometers at the centre of the beetle infestation area. This project is expected to provide a significantly better understanding of the region’s mineral potential. This, in turn, will stimulate more on-the-ground exploration and may lead to new mineral discoveries in the area. On the oil and gas side, there is a virtually unexplored sedimentary basin – the Nechako Basin – which may have significant oil and gas reserves. Interestingly, this covers an area that almost exactly coincides with the most heavily beetle-impacted area. The provincial government, in partnership with the federal government and Geoscience BC, has begun a “Nechako Initiative” to undertake comprehensive research in the Nechako Basin. This project is a multiyear research program designed to generate new geoscience data and interpretation to facilitate oil and gas exploration. The principal goal of the project is to determine whether the essential components of a petroleum system exist in the region. 30 5. Developing a More Balanced Prognosis about the Future Prospects for the Interior Forest Industry Perhaps one of the most important, albeit intangible, elements of a successful response to the beetle in the communities most affected by it is maintaining the requisite degree of optimism. A notion of optimism in this context may seem counter-intuitive, but there is a difference between a realistic understanding of the challenges facing these communities and defeatism. A key element in staying on the right side of the realism / defeatism divide lies in developing a balanced prognosis of what the medium term timber supply is likely to be. At a number of points in this paper I have made reference to the base-case scenario of the Ministry of Forests’ recent report. That scenario has the Interior AAC falling by approximately 40% from the 2006 harvest level over the next 5 to 25 years. I believe this is an unduly pessimistic scenario, and I have implied that I think the eventual impact may be something like half of that over this time period. To be sure, even a 20% fall in Interior harvest levels would entail significant economic costs and social dislocation, particularly in the communities in the most impacted areas. But the difference between 20% and 40% may well be the difference between maintaining the requisite degree of optimism that this challenge can be met and defeatism. There are three major reasons why I believe the eventual reduction in harvest levels will be less than the Ministry’s base case forecast. The first has to do with economics. The estimate of timber supply depends on what portion of the available timber inventory is deemed to merchantable – economic to harvest and process. At any point in time the estimate of what is merchantable is based on recent experience. Broadly speaking, therefore, the current estimate of the merchantable volume reflects average log prices over the past 10 years or so. When Interior harvest levels begin to fall, however, average log prices will begin to rise, other things being equal. This will reflect two related factors. Within the context of the log market in the British Columbia Interior, reduced supply will lead to higher prices through the forces of supply and demand. In the broader context of the North American lumber market, lumber output from the Interior accounts for approximately 20% of total North American lumber production. A significant reduction of Interior lumber production will lead to higher lumber prices. These higher lumber prices mean that Interior lumber producers will be able to afford to pay the higher logs prices. The significance of these higher log prices is that they will mean that more of the remaining timber inventory will be merchantable than is currently estimated. This will mitigate the overall reduction in timber supply.
31 The second reason is the innovativeness of the Interior forest industry. Over the past 40 years the industry has shown a remarkable capacity to find ways to reduce costs and to make previously uneconomic timber economic to process into products that can be sold in the market place. I see no reason why this capacity should diminish in the years ahead. The third reason why I think the Ministry of Forests’ base case is too pessimistic is that it does not take into account the social and economic considerations that society will want weighed in determining the medium term AAC. After the economic salvage of the beetle-killed pine is over, there will be an inventory of mature timber available for harvest over the medium term. Over the medium term this inventory will be supplemented by stands that are immature at the start of the medium term but mature over the following 60 years or so. Within the constraints established by the need to protect key environmental values, the decision about how to meter out the harvest of standing mature inventory is essentially a social and economic decision, and should represent the social and economic interests of British Columbia society. Figure 9 at the bottom of this page represents, in somewhat simplified terms, the way the Ministry of Forests’ base case assumes that British Columbia society will want to meter out the available mature inventory. Note that I have extended the time frame along the horizontal axis by another 80 years. The increase over this extended period of time reflects the maturation of stands that will be too young to harvest over the first 60 years. Figure 9 - Interior Timber Harvests Under the Ministry of Forests' Base Case Scenario H arvest L evel 0 20 40 60 80 100 120 140 32 The key point to underline here is that there is nothing sacrosanct about that pattern. British Columbia society could well – in fact I predict will – decide that it wants to have harvest levels fall more slowly over the next few decades. Nature does not provide us with a free lunch, and there would be a cost to doing this. In particular, we would be “borrowing” mature inventory from the more distant future, so harvest levels in those decades would be less than under the Ministry of Forests’ base case. The dotted red line in Figure 10 below superimposes an alternative plausible pattern of harvest levels on the Ministry’s based case. The tradeoff should be clear. This alternative scenario allows for a much more gradual reduction in harvest levels, and consequently in economic activity and employment over the medium term. As a consequence, the theoretical harvest levels, economic activity and employment levels would be lower in the future. I say theoretical because it is important to recognize how much uncertainty there is about what the future will look like. What will be the demand for forest products 60 or more years hence? What will British Columbia society want the Interior forests dedicated to 60 or more years hence? In a world of climate change, what will those forests look like 60 or more years hence? In a world of climate change, will trees reach maturity sooner or later in the future than they have in the past? Figure 10 - An Alternative Scenario for Interior Harvest Levels Harvest Level 0 20 40 60 80 100 120 140 33 Now, there is nothing sacrosanct about the alternative pattern of harvest depicted in Figure 10 either. Furthermore, it should be re-stated that these figures simplify the choices that we will be facing. My basic point is that we need to have some dialogue about what the post-beetle AAC policy should be. The communities which will be most affected by changes in harvest levels should be at the centre of that dialogue. In the meantime, I believe it is important that we do not develop an overly pessimistic scenario for the Interior forest industry and the workers and communities reliant on it. One final point in this regard is that it is important that the current difficulties being faced by the forest sector not be confused with the medium-term challenges posed by the beetle. Recently there have been a significant number of sawmill curtailments announced in the BC Interior, and there are likely to be more in the future. These are a function of the severe contraction in the US housing market, starting last year, and the unprecedented recent appreciation of the Canadian dollar. It is unlikely that the US housing market will turn around before 2009, so economic circumstances are likely to remain challenging until then, but this will not be primarily because of the beetle. In fact, the BC Interior has, to date, been better able to deal with the current economic challenges than other parts of Canada. In the first 7 months of 2007 BC Interior production of lumber was down 4% over the same period in 2006. Quebec lumber production was down 18% and Ontario’s was down 10% over the same period. The impact of the beetle on the volume of Interior lumber production will begin to be felt sometime after 2009. 6. Learning the Lessons that the Beetle Has Been “Teaching” Us It is important to focus on how we need to respond to the exigencies of the beetle epidemic in order to minimize its social and economic costs to British Columbia. In addition, it is useful to take a bit of a step back and ask ourselves if there are not some broader lessons that we should be learning about our approach to environmental and forest management. To stimulate discussion, I suggest that we need to think seriously about three key lessons. The first lesson is, to use a baseball metaphor, “nature always bats last.” If we try to manage our environment in a way that is inconsistent with natural patterns we are likely to reap unintended negative consequences. In the topic box on pages 2 and 3 it was explained that the primary cause of the current beetle epidemic was that the Interior forests had become “unnaturally old.” This reflected a policy framework that involved suppressing forest fires and thus preserving forests – either for parks and protected areas or for eventual harvesting. In retrospect,
34 depending on one’s perspective, we either did too effective a job of suppressing forest fires or we did not harvest the mature trees as rapidly as we should have. In any case, our Interior forests became significantly older than historical norms, providing the ideal conditions for the current epidemic. One way of looking at this is that fire, commercial harvesting and the beetle compete to “harvest” lodgepole pine. One way or another, nature will bat last, and the Interior forests will be made younger again. Going forward, how should this affect our approach to environmental and forest management? Should we allow fire to regain more of its historical role in Interior forests? Should we be planning to harvest trees, at least lodgepole pine, at an earlier age? Should we do a combination of the two whereby commercial forestry is practiced on a smaller portion of the land base but with shorter rotation periods30, while natural processes (most notably fire) are allowed freer reign in the rest of the forest? These are challenging questions, but we need to start a dialogue directed at answering them. The second lesson is that the beetle epidemic is, in part, likely a harbinger of climate change. While the unnatural age of our Interior lodgepole pine forests is the primary cause of the current epidemic, the lack of extremely cold winters over the past decade and longer has contributed as well. It is not possible to say with complete certainty that this is a function of climate change, but it would be a remarkable coincidence if it were not. If climate change is indeed upon us, what are the implications for environmental and forest management? There are likely to be many, but two are particularly relevant. The first is that we need to think through what trees are likely to survive in the different parts of the province in the future31. At present, the current law is that forest companies are to re-establish the same species and types of forests that were harvested. But if average temperatures are going to be 2 degrees Celsius or higher at the end of this century, it is likely that this will result in the wrong species being replanted in many parts of the province. The second is that we need to think through what climate change portends in terms of average forest fires frequency and tree-mortality resulting from insects. What does this imply in terms of the “natural” ages of the forests in the future? And looping back to our lesson that nature always bats last, what does this suggest in terms of the need to change our environmental and forest management approaches? 30 The rotation period is the age at which second and subsequent growths of trees are harvested. In the Interior the currently planned average rotation age is in the 100 to 140 year range. There have been some suggestions that this could/should be shortened up to as little as 60 years in some areas.
31 Indeed, we need to think about the possibility that, where warmer temperatures are accompanied by arid conditions, some areas that are currently forested might be replaced by grassland. 35 The province’s Chief Forester has initiated an examination of the range of issues surrounding climate change in the Future Forest Ecosystems Initiative.32 The third lesson is that we must be prepared to manage with a conscious understanding that we are going to be consistently surprised. Forest ecosystems are dynamic, complex and subject to unpredictable change. Furthermore, society’s values change over time, sometimes in unpredictable ways. This does not mean that we take no action now. At any point in time we need to act on the best information and understandings available to us. But, at the same time, we need to build in a capacity and a process that has us periodically checking how the world has actually unfolded against what our previous assumption/forecasts were. As conditions deviate from those assumptions/forecasts we then need to be able to adjust our actions accordingly. 32 See http://www.for.gov.bc.ca/hts/Future_Forests/FFE_Update_070201.pdf 36 V. CONCLUDING COMMENTS Some will view the unprecedented damage being done to our Interior forests and seek to attach responsibility or blame for this. With the benefit of hindsight, it is always tempting to say “if only we had done something else back then, everything would be fine now.” The perspective of this paper is such an exercise would not be fair, but more importantly it would obscure perhaps the most important lesson that the mountain pine beetle should have “taught” us. Forests are part of dynamic, complex ecosystems. At any point in time human understanding of those ecosystems is imperfect. Climate, as we are currently being reminded almost daily in the news, is subject to change. Society’s priorities change over time. In such a context, it is almost inevitable that we will be surprised, sometimes unpleasantly, by the way things turn out. But this does not mean those responsible for forest management 10 or even 50 years ago were “wrong” or “shortsighted.” What it means, rather, is that we should have a better appreciation of the uncertainties that decision-makers face and an understanding that we must be prepared to constantly review our approaches to forest management and revise them in light of changing understandings of the dynamic factors affecting our forest and the changing values of society. On the whole, I believe government and industry have acted, and are acting appropriately relative to the understandings and values of the time. Looking ahead, the more British Columbians are able to discuss and appreciate the choices to be made, the better prepared we all will be to address the mid and longer-term consequences of the mountain pine beetle. It is my hope that this paper contributes to the discussion about the choices we will face in the future. 37 ...
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- Fall '08