Money doesn't grow on trees, but bioenergy might

Climate change. Recycling. Bioenergy. Sustainability. The agenda for PricewaterhouseCoopers' 22nd Annual Global Forest and Paper Industry Conference in mid-May read like it could have been written for a Greenpeace meeting.

Industry leaders from around the world gathered in Vancouver to discuss the issues facing the forestry sector. The consensus among those who attended was that they had better sit up and pay attention to ideas that were once the preserve of environmentalists.

"In these tough times that we have, this industry [bioenergy] is one sliver of daylight," said Michael Weedon, executive director of the BC Bioenergy Network.

"This is one of the few sectors that actually is alive with activity."

The central purpose of all this green talk among loggers and mill operators isn't just good public relations. It's about the survival of an industry. The game has changed - fossil fuels are running out, and global demand for renewable resources to replace them is increasing and the forestry industry is positioning itself to help meet that demand.

Biomass from wood waste is a renewable resource. And Canada has a lot of it. Bioenergy advocates think they can help revive Canada's forestry industry by turning its waste products into fuel.

The sawdust, heat and discarded branches from mills can be turned into electricity and biodiesel that could one day compete with oil, Weedon said.

Desperate for good news

Forestry profits have been declining since 2003, but figures released at the conference show the recession has delivered a near knockout blow. The global industry went from a $14-billion profit in 2007 to an $8-billion loss in 2008.

In Canada, the forestry sector has shed 50,000 jobs and closed more than 250 mills in the past two years alone, according to the Forest Products Association of Canada.

Canada is performing near the bottom of the industry from a global standpoint, and is home to "the only regions showing negative returns on investment," the Vancouver conference organizers said in a statement. The Canadian forestry industry is losing business to competition from South American and Asian countries where operating costs are lower.

Things are so bad that industry leaders have resigned themselves to pessimism. Craig Campbell, executive of accounting firm PricewaterhouseCoopers, has publicly called low prices and profits the "new version of normal" for forestry.

To make matters worse, the mountain pine beetle has been steadily devastating forests in Canada's western provinces for 16 years, eating into the industry's supply of raw material. For a while, logging boomed in a rush to harvest affected forests before the beetle killed them off. Today, forestry is so unprofitable that towns are filled with laid off workers as the beetle destroys the trees.

Major changes required

Governments and forestry executives have been coming to grips with the knowledge that they need to make major changes if they want to save an industry that accounts for 300,000 jobs and 12 per cent of Canada's manufacturing GDP. Traditional forestry is closely tied to a limited number of other industries - when the housing market collapsed, so did logging, for example. Falling demand for newsprint has hit pulp mills.

That's why forestry companies are interested in bioenergy, which has a more diverse base of potential customers.

Forestry executives have discussed the business potential of bioenergy for years, but it has recently become the focus of serious projects. With the United States trying to reduce its dependency on foreign oil, bioenergy emerged as a potential market where Canadian forestry companies can fill an increasing global demand for non-petroleum based fuel.

Bioenergy is harnessed by converting wood waste into a gas or liquid, which is then turned into electricity or biodiesel.

It's of particular interest in Western Canada, because it's one of a limited number of commercial uses for wood infected by the pine beetle.

Technology already exists to use gasified wood biomass to power the electrical grid and heat buildings, and liquefied wood biomass could one day be used to power cars, said Weedon.

"It could be a very interesting and exciting new form of energy."

The government is now backing programs to subsidize bioenergy projects. The federal government gave the Sustainable Development Technology Corporation a mandate to administer $500 million in funding for biofuel companies in 2007.

That same year, British Columbia announced its Innovative Clean Energy (ICE) fund, which has so far awarded $22.6 million in grants to companies producing various types of renewable energy (the program is funded by carbon taxes).

Is bioenergy just a bandwagon?

Despite the recent swell in interest and investment, even the people who make their living advocating biofuel caution against over-hyping it.

Biofuel is still largely in the research and development stage, and its ability to be competitive depends on high oil prices, said Weedon.

It's also important to keep employment as well as profit in mind, said Jim Savage, the executive director of the Quesnel Community Economic Development Centre. The economy of Quesnel, B.C., depends mainly on forestry and has been particularly affected by the pine beetle.

Savage's organization has been working to promote bioenergy startups in the area. But converting wood into bioenergy employs fewer people than traditional pulp or lumber production. For example, a bioenergy plant in William's Lake to the south of Quesnel employs between 25 and 30 people. A mill processing the same amount of wood for pulp could support more than 300 jobs, he said. The key, Savage said, is to think integration with the traditional forestry industry, not replacement. New plants should focus on harnessing energy from the heat and waste wood produced by the traditional forestry industry.

"Just burning it is not a solution on its own," he said. "But we consider it part of the puzzle."

Wood biomass is less controversial than many other sources of bioenergy. It avoids the debate plaguing ethanol about the wisdom of turning of crops that could feed people into a source of fuel. The UN also considers wood bioenergy carbon neutral, because the carbon absorbed by the tree offsets the emissions created by burning wood biomass.

But a report released in February 2009 by the Heinz Centre and the Pinochet Institute for Conservation, two American conservation associations, points out that it's only carbon neutral if every tree used for bioenergy is promptly replanted. Environmental concerns about over-logging apply to the bioenergy industry as well as traditional forestry.

The idea of big government grants for an industry that isn't contributing much to the economy yet also has its detractors.

An editorial in the Smithers Interior News, the local paper in the small logging town of Smithers, B.C., called the grants "green welfare." It pointed out last February that a bioenergy startup will often receive millions of dollars in grants from multiple government funds, despite the fact it may not contribute much to the economy yet.

If there's a market for bioenergy, these companies won't need the government's help to develop, the editorial said. "Corporate welfare programs hand out precious tax dollars to activities that probably would have developed anyway, while drawing money out of our pockets and businesses' coffers that would have otherwise been put to more useful purposes."

Investment in wood bioenergy is important, said Savage, but he agrees that governments should think carefully about whether the projects they fund are creating or eliminating jobs.

"I just think it's so important that communities realize there are very few jobs in it," he said.

"They need to be very, very careful."