WPAC – Making Pellets a Priority

The Southeast U.S. recently passed British Columbia to become the world’s largest wood pellet exporting region. Russian production is also growing rapidly. Unless the fibre supply situation improves for B.C.’s pellet producers, the province will soon slip into third place behind Russia and possibly even fourth place behind the Baltic countries.

Pellet producers continuously struggle for wood despite sights like this all across B.C.

The problem is that despite endless talk, the B.C. government, in its role as landlord over the province’s public forests, has not provided any meaningful way for pellet producers to obtain fibre supply security. Moreover, B.C.’s primary forest tenure holders – the large lumber manufacturers who control the majority of provincial forests – simply dictate the terms and conditions by which pellet producers may purchase sawdust and harvest residues. No negotiating is involved.

In the past two years, fibre costs have doubled for B.C. pellet producers, and despite millions of tonnes of harvest residues still being burned in B.C. by the lumber industry, pellet producers often struggle to obtain access to those residues. British Columbia’s leading lumber manufacturers boast about being responsible stewards of public forests, yet if B.C. pellet producers are not able to pay the price they demand for leftover logging waste, the lumber producers will simply burn such residues, putting pellet industry jobs up in smoke as the B.C. government stands by and watches.

In 1995 the B.C. government introduced regulations requiring sawmill waste-wood beehive burners to close as an initiative to reduce air pollution. At that time there was no commercial use for wood waste and most sawmill operators were unable to comply with the regulations. They repeatedly asked the B.C. government to delay enforcement of the new regulations until they could find an economic solution – threatening sawmill closures and job loss if the government would not agree.

In the late 1990s a few entrepreneurs – notably the Swaan brothers, the Johnston brothers, and the owners of L&M/Nechako Lumber – began using sawmill wood waste to make pellets for a small domestic market. This market quickly became oversupplied and pellet operators turned to the larger and rapidly expanding European power utility electricity generation market, with the first shipment of wood pellets being exported to Sweden in 1998. From 1998 to 2011, B.C.’s wood pellet industry grew to 13 plants and B.C. temporarily became the largest pellet-exporting region in the world. British Columbia’s lumber manufacturers were able to close their beehive burners and found a new source of much-needed revenue for wood waste during the recent lumber industry economic crisis. The B.C. government recognized the importance of the wood pellet industry in its 2008 BC Bioenergy Strategy, which stated that “the Province will promote wood pellet production and facilitate market development opportunities within the Province and around the world.”

Fibre supply issues faced by B.C. pellet producers
For the past hundred years, the B.C. government has used forest tenure as a policy instrument to encourage development of both the pulp and sawmill sectors. The province issued timber tenures to industry as an incentive for capital investment and employment, a strategy that has resulted in a substantial primary forest industry. Also, the government recognized that the forest-harvesting sector required security and created a regulation requiring major tenure holders to enter long-term contracts with logging contractors. Such contracts enabled loggers to justify large expenditures for equipment and thus the forest-harvesting sector was developed. As landlord over B.C.’s public forests, the government now urgently needs to take a similarly active role to enable pellet producers to obtain the same degree of fibre security that has enabled the pulp, sawmill, and harvesting sectors to develop. The pellet sector has invested some $500 million in B.C. without any fibre security. This situation can’t continue.

The wood pellet sector’s primary customers are large power utilities. Presently, several of these utilities – particularly in the U.K. – are holding back on investment decisions that would greatly expand our markets, due to regulatory and fibre supply uncertainty. It is frustrating for B.C.’s pellet producers to be unable to demonstrate to their customers that they have long-term fibre security.

To date the B.C. government has taken a hands-off approach with the pellet sector. This simply isn’t good enough. The government’s policy direction has been to leave it to the wood pellet sector to develop “business to business relationships” with primary tenure holders to obtain fibre. The government rationalizes that is a “free market approach” when in fact it is anything but. It is not a free market when the government has created a situation where the large lumber producers who control the majority of B.C.’s public forests have the power to simply dictate terms and conditions to pellet manufacturers and where they can refuse to enter long-term fibre supply contracts with pellet producers for material that the lumber producers would otherwise burn.

The government has given primary tenure holders the right to harvest public forest, but allows them to pick and choose whatever timber they wish to take. Then they can simply burn the rest if they choose, without any requirement to ensure that the bioenergy industry has the maximum opportunity to utilize the leftovers. There are no consequences to a primary tenure holder who simply chooses to burn post-harvest logging residuals along with the associated pellet industry jobs. What is particularly galling is that this deliberate wasting of fibre is being decided by B.C.’s professional foresters, who are supposed to have an ethical obligation to the public to
maximize the benefits received from public forests.

The B.C. government introduced the fibre licence to cut as a half-hearted tenure solution for the bioenergy sector. This tenure is ineffective. It is merely a small-scale, short-term salvage tenure. The fibre licence to cut puts the onus on the licence applicant (i.e., pellet producer) to prove that a primary tenure holder is unco-operative. If pursued, this would create a potential adversarial relationship that would eliminate any chance of a productive working arrangement and would only worsen the fibre supply situation for pellet producers.

The government and the primary forest industry (pulp and sawmill sectors) have jointly created a Bio-economy Transition Committee to plan the future of the forest bioeconomy. Unbelievably, the pellet sector is excluded from this committee. As I have been unable to find any public record of proceedings of this committee, it leads to the appearance of a secret group where the participants conspire to keep new entrants out and to make sure that the pulp and sawmill sectors maintain their monopoly over B.C.’s public forests.

Solutions
As the landlord and custodian over B.C.’s public forests, the B.C. government needs to take an active role to help solve the pellet industry’s difficulty in obtaining a secure supply of affordable fibre to ensure that our sector reaches its potential. The time for promises and rhetoric has passed. The following would help:

1. Recognizing that the business-to-business approach to obtaining fibre is inadequate and that it is necessary to become actively engaged in helping the pellet sector to obtain access to a long-term supply of affordable fibre.
2. Mirroring a similar style of commitment provided to the harvesting sector by requiring that tenure holders enter into long-term replaceable contracts with wood pellet producers for a component of their sawmill residuals.
3. Including the wood pellet sector alongside the primary forest industry on the Bio-economy Transformation Council and any other committees that have the mandate of developing fibre access strategies and policy.
4. Implementing a carbon tax on slash burning that creates an incentive for major tenure holders to make slash piles available to wood pellet producers and eliminates the opportunity for tenure holders to burn material without consequences. Slash burning should only be allowed to occur if all other options to use the slash have been exhausted, and the requirement should be for the primary tenure holder to prove that burning is the only viable option to eliminate harvest residues.
5. Making available to the pellet sector timber that has a true economic value – not just the marginal economic stands that are currently envisioned for the sector. This would enable pellet producers to bargain on an equal footing with primary tenure holders by trading access to sawlogs for sawmill and/or forest residuals.

The wood pellet sector has a proven record of accomplishment over the past 15 years. While second- and third-generation biofuels are sexy and exciting, they have not yet been proven to be viable. We are not asking that new technologies be abandoned. We are merely asking that the wood pellet sector be given at least the same priority – so that we may begin to regain some of the ground that we have lost to our U.S. and Russian competition.

Gordon Murray is executive director of the Wood Pellet Association of Canada. He encourages all those who want to support and benefit from the growth of the Canadian wood pellet industry to join. Gordon welcomes all comments and can be contacted by telephone at 250-837-8821 or by e-mail at gord@pellet.org.