Comments to Ontario s Climate Change Discussion Paper EBR POSTING 012-3452

Comments to Ontario s Climate Change Discussion Paper EBR POSTING 012-3452 March 27, 2015

EXECUTIVE SUMMARY Ontario s forest products sector, led by the Ontario Forest Industries Association (OFIA) contributes more than $12 billion of revenue to the economy and provides 200 000 direct and indirect jobs in the province of Ontario. As a cornerstone of Ontario s sustainable economy, the sector will play a critical role in helping the province achieve its fiscal objectives through economic development and its greenhouse gas reductions objectives by capitalizing on the renewable resource that is the foundation of the sector. Members of the OFIA are proud of their performance as it relates to reducing the carbon footprint of their products. The sector has invested significantly in energy efficiency and biomass cogeneration resulting in a 64% reduction of GHG emissions since 1990, significantly greater than the Government of Ontario s target of 15%. The ongoing sustainability of Ontario s crown forest use is ensured by a rigorous legislative framework in place that governs forestry practices, ensuring the long-term health of the forests for future generations. Sustainable forest management helps Ontario s forests remain healthy and productive, preserving and growing Ontario s carbon sink. The OFIA believes that in order for our sector to take full advantage of the opportunities in GHG reductions and low carbon contributions, it is critical that the government of Ontario develops a regulatory policy and framework that is effective and aligned with the business realities of our sector and the jurisdictions in which we must compete with and potentially trade with in the future. It should also recognize and reward companies that have made the necessary investments to improve energy efficiency reducing their carbon footprint and providing jobs in the province. The OFIA has developed the following Climate Change Policy Principles that we believe must be met in order to have an effective and successful greenhouse gas emissions reduction policy: 1. Recognition of Early Action 2. Reward for Good Performance 3. Acknowledgement of Biomass Carbon Neutrality 4. Recognition of the Advantages of Cogeneration 5. Regulatory and Cost Certainty 6. Ability to Trade Carbon Credits Outside of Ontario 7. Incentives of Improvement 8. Will Not Impede Industry Transformation The OFIA looks forward to continuing to work with the Ontario government and the Ministry of the Environment and Climate Change on the development of a Climate Change Policy that meets the above principles. 1

In the long term, a sustainable forest management strategy aimed at maintaining or increasing forest carbon stocks, while producing an annual sustained yield of timber, fibre or energy from the forest, will generate the largest sustained climate change mitigation benefit. IPCC Fourth Assessment Report: Climate Change 2007 INTRODUCTION Ontario s forest products sector, led by the Ontario Forest Industries Association (OFIA) contributes more than $12 billion of revenue to the economy and provides 200 000 direct and indirect jobs in the province of Ontario. The sector is positioning itself to rebound after one of the worst economic downturns in recent history. Forest products companies operating in Ontario have made significant investments in modernization to improve operational efficiencies, investments in new facilities and are selling their products in new and emerging markets. The forest products sector remains a cornerstone of Ontario s sustainable economy and will play a critical role in helping the province achieve its fiscal objectives through economic development, and its greenhouse gas reductions objectives by capitalizing on the renewable resource that is the foundation of our sector. Due to its rigorous forestry regime, Ontario is recognized globally as being a world leader in sustainable forest management, with the majority of operations on crown lands functioning under third party forest certification. Members of the OFIA are proud of their performance as it relates to reducing the carbon footprint of their products. The sector has invested significantly in energy efficiency and biomass cogeneration resulting in a 64% reduction of GHG emissions since 1990, significantly greater than the Government of Ontario s target of 15%. Pulp and Paper GHG Emissions - Ontario Forest Industries Association Year 1990 2009 2010 2011 2012 2013 Production (MT) 3162160 1486544 1693631 1837209 1480461 1616037 GHG Emissions (MT) 1496011 388289 387717 443168 347127 540531 CO2 Intensity (kg CO2/T) 473 261 229 241 234 334 % Total Reduction -74% -74% -70% -77% -64% % Intensity Reduction -45% -52% -49% -50% -29% Notes: Based on historical data fro 15 P & P Facilities representing 3 companies The OFIA is supportive of the Government of Ontario s plan to move the province towards a low carbon economy and asserts that the forest products sector is well positioned to take a lead in helping the province to meet its goal. However the OFIA believes that in order for our sector to take full advantage of the opportunities in GHG reductions and low carbon contributions, it is critical that the government of Ontario develops a regulatory policy and framework that is effective and aligned with the business realities of our sector and the jurisdictions in which we must compete with and potentially trade with in the future. It should also recognize and reward companies that have made the necessary investments to improve energy efficiency reducing their carbon footprint and providing jobs in the province. 2

PRINCIPLES FOR AN EFFECTIVE CLIMATE CHANGE POLICY The OFIA has developed the following Climate Change Policy Principles that we believe must be met in order to have an effective and successful greenhouse gas emissions reduction policy: 1. Recognition of Early Action The forest products sector has been investing in continued improvements in energy efficiency, bioenergy and cogeneration for the past 20 years (See Appendix A for sector data). Even in years of financial hardship, these investments were not made because of government policy or direction, but as a result of business imperative. The forest products sector is proud of its environmental performance, with members of the OFIA reducing their total GHG emissions by 64% since 1990, well below Ontario s 15% reduction target. While some of the reductions were as a result of industry downsizing, the majority of these emissions are real and tangible with the sector reducing their CO2e intensity per tonne of pulp by almost 30% since 1990. Please see Appendix A for supporting data. While the improvements done to date are significant further reductions will be faced with economic and technical challenges and will be difficult to achieve under business as usual conditions. Any climate change policy must take into account and recognize these voluntary investments and significant improvements in performance, including incorporating a reasonable baseline year that captures the positive past work and credit for early action. 2. Reward of Good Performance Compared to other energy intensive manufacturing sectors, the forest product s sector is a leader in low carbon manufacturing. We have facilities currently generating electricity and process heat using in excess of 85% renewable energy, which includes biomass and landfill bio-gas. Our sector must compete with operations in other jurisdictions that do not have strict regulatory frameworks or strong climate change leadership. For example, a number of Ontario s direct competitors in the United States currently burn large amounts of fossil fuels, including coal and petroleum coke. Some of these mills produce as much GHG emissions as all of the Ontario pulp and paper mills combined 1 and on emission intensity basis are double or triple the intensity of Ontario s forest products sector. A successful climate change policy will recognize and reward companies who continue to demonstrate leadership and good performance and help the industry to build on our success and further reduce our carbon footprint. 1 http://ghgdata.epa.gov/ghgp/main.do 3

3. Acknowledgement of Biomass Carbon Neutrality The forest products sector is based on the sustainable use forest-based biomass to create products and energy. In Ontario the supply of biomass comes primarily from forests owned by the province of Ontario, managed, harvested and regenerated under the Crown Forest Sustainability Act. These forests are also subject to third party certification to ensure sustainable practices above and beyond regulations. It is now accepted that large amounts of CO2 are removed from the atmosphere and stored in forest products for long periods of time. The World Business Council for Sustainable Development (WBCSD) describes carbon neutrality as carbon neutrality as a property of wood or other biomass harvested from forests where new growth completely offsets losses of carbon caused by harvesting 2. Given Ontario s stringent regulatory framework for sustainable forest management combined with the scientific literature and research endorsing Ontario s forest management practices as having a positive impact on carbon management, forest biomass harvested in Ontario meets the criteria of carbon neutrality. This carbon neutrality of Canadian and Ontario biomass and wood products is widely recognized by research and studies supported by a number of agencies and institutions. Please see Appendix B for supporting documentation on this subject. Additional consideration must also be made to the life cycle of residual biomass used in the process. The forest products sector produces a large quantity of biomass-based residuals including woody biomass (bark, sawdust), pulping black liquor and wastewater treatment residuals. Instead of landfilling, these materials are typically uses as fuel for energy production directly replacing fossil fuels. Research has shown that use of residuals for energy production produce up to 98% less GHG emissions than the alternative of landfilling these materials. 3 The OFIA supports the current treatment of biomass under O. Reg 452/09 Greenhouse Gas Emissions Reporting Regulation and the associated Guideline and would not recommend changes to this methodology. The OFIA would also like to see any forthcoming climate change policy that deals with forest management to recognize that the use of forest biomass where forest carbon stocks are stable or increasing provides long-term positive benefits. 4. Recognition of the Advantages of Cogeneration 2 Recommendations on Biomass Carbon Neutrality. WBSCD January 2015 3 National Council for Air and Stream Improvement, Inc. (NCASI). 2013. Greenhouse gas and fossil fuel reduction benefits of using biomass manufacturing residuals for energy production in forest products facilities. Technical Bulletin No. 1016 (Revised). Research Triangle Park, N.C.: National Council for Air and Stream Improvement, Inc. 4

Cogeneration (or combined heat and power) occurs when there are two major products produced from the combustion of fuel; thermal (heat) energy and electricity. The forest products sector has invested in significant amounts of cogeneration, with most pulp and paper facilities running cogeneration facilities or being supplied with heat and power from third party plants. The advantage of cogeneration is that there is at least twice the value from the combustion of fuel than stand-alone electricity or heat generating equipment. There are additional efficiencies with the electricity generated as result of no line loss from the transmission system as the power is typically used on site. Future policy must also take into consideration that as facilities invest in cogeneration, the electricity and heat produced needs to be recognized and credited as a product. Consideration also needs to be made for facilities that have third party supplied heat and power. These facilities have contractual arrangements for energy supply, including in some cases complex arrangements for the host facility to supply fuel and services in exchange for heat and electricity. Any additional carbon pricing that third party cogeneration plants may incur will be transferred to the facility via the price of energy, negating any of the benefits of cogeneration. These advantages and concerns must be recognized and supported through any climate change policy. 5. Regulatory and Cost Certainty The forest products sector is one of the most heavily regulated sectors in Ontario, in addition to facing some of the most expensive feedstock (wood fibre) and electricity pricing in North America. While the sector has weathered the recent downturn, it faces a number of significant business constraints and challenges that must be taken into consideration when developing a climate change policy. The sector is heavily trade exposed and subject to international commodity pricing which they have no control over for the products they manufacture. Forest products companies are under increasing market pressure from competing jurisdictions that have minimal regulatory structure and do not have any price on carbon (eg. Russia, Indonesia, Brazil). In addition to the high cost of fibre and rising energy costs, there are a number of provincial policy which significantly limit the forestry sector. Ontario s current forest policies regarding species at risk, and wildfire management are not aligned with the provinces goals around climate change, economic development and job creation. For example projected removal of harvest areas from the land base is estimated to be upwards of 50% on certain licenses to address a single threatened species using data and science that the government admits are deficient. Uncertainty around forest tenure is also impeding wood flow in the province. If the regulatory regime is in a constant state of flux and the costs of regulatory compliance are unknown, this can create business uncertainty leading to lack of competitiveness for Ontario business. It is for these reasons that the sector requires government policy to be aligned and any 5

climate change policy to be clear and stable in the long-term to provide certainty and a predictable cost to business. 6. Ability to Trade Carbon Credits Outside of Ontario Within the national and international scheme, Ontario is not a significant emitter of greenhouse gases and cannot support a stand-alone provincial emission trading market. Ontario has attempted in the past to create an emission market limited to the province (ie. SO2/NOx emission trading regulations) and due to the limited emitters, the regulation has failed to create a market resulting in significant stranding of emission allowances and creating regulatory burden. Ontario is already a signatory under the Western Climate Initiative that provides a framework to allow for carbon trading with those signatory jurisdictions (Quebec and California). The OFIA would encourage the Ontario government to enter into sub-national agreements to allow carbon emission trading with jurisdictions that have similar economic and manufacturing characteristics. This will provide the necessary fluidity to the market and will stimulate the best reductions at the lowest price for industry. 7. Incentives for Improvements As previously mentioned, the forest products sector has made significant progress towards the reduction of green house gases, beyond the government s 2020 goal (see Appendix A). In order to achieve this level of reduction the sector has moved beyond low hanging fruit and in many cases invested significant capital transforming the facility s energy footprint. The capital costs for the sector to meet the province s 2050 goal will be substantial and in many cases not only cost prohibitive but also technically challenging. A climate change policy that is most effective at providing the necessary incentives will be well designed and flexible to address a wide range of industry needs, stimulate additional reductions and projects using the money made from the trading and include flexible off-setting programs to bring new projects into the program adding to the liquidity of the market. Industry that has made energy efficiency and low carbon investments should also receive some benefit from these past investments in order to stimulate further improvements. 8. Will Not Impede Industry Transformation The forest products sector currently produces a wide variety of traditional low carbon products such as building materials, paper products and chemicals. There are opportunities for the sector to transform beyond traditional commodity products into new value added streams such as dissolving pulp products, biofuels, chemicals and next generation building materials. The sector can also play a critical role in generating renewable heat and power to industry and communities reducing their reliance on fossil fuels. There are already significant constraints for the sector such as costs, policy and availability of fibre that provide impediments to this potential transformation. Any climate change policy 6

cannot add additional burdens or constraints, but should be looking at what hurdles or roadblocks are facing the sector to transform and create the necessary opportunities. In addition any policy should be flexible enough to recognize that many facilities are integrated and can produce multiple products. Any policy that is limited to specific products, provides limits on intensity or defines processes may inadvertently penalize a facility that is attempting to produce new low carbon products, which in many cases are replacing higher carbon products such as fuels, chemicals or electricity. Any new policy must provide the opportunity for facilities to re-negotiate to reflect production changes and new product lines. CARBON PRICING DISCUSSION The Ontario government has committed to identifying an approach for carbon pricing and has proposed a number of options for carbon pricing in the Discussion Paper. The OFIA has been consistent in its position that we will only support an approach to carbon pricing if it meets our 8 Principles identified in the previous section. In addition to our 8 Principles, the OFIA has the following specific comments on the proposed carbon pricing mechanisms identified in the Discussion Document. Cap and Trade Since 2008 the MOECC and industry have been in ongoing discussions around the development of a cap and trade program for large emitters in the province. As recently as September 2013 the OFIA has submitted detailed recommendations on emission allowance methodology calculations to support a cap and trade program. Members of the OFIA also have facilities operating in Quebec and are involved in the Quebec market. There is generally support for the Quebec model, as it provides acknowledgment of early action, provides incentives for improvements and recognizes the trade exposure of the sector by providing free allocations. There is however several unforeseen impacts that have arisen during the implementation of the Quebec program and should be considered if the province moves forward using this model. The program is intensity based and does not provide enough flexibility for facilities to develop new products. For example if the site produces a new low carbon product the overall site emissions may increase and/or the traditional product may decrease without the energy footprint changing, resulting in the site being penalized. The program should allow sites to renegotiate limits as product lines change. As well the program has a 25 000 tonne threshold and if a facility achieves significant reductions which result in dropping below the 25 000 tonne threshold, they are automatically kicked out out of the program and are subject to being exposed to impacts of carbon pricing despite their low carbon performance. Facilities should be allowed to stay in the program in order to continue to get recognition and benefits of their performance. The Quebec program has also implemented offsetting programs that are too restrictive and do not meet the 7

needs of the province. The province should expand the number of offset protocols and recognize protocols from other jurisdictions to allow the necessary flexibility for them to be effective. The OFIA believes that a well-structured cap and trade program will provide the necessary recognition, reward and incentive for the sector to move forward with meeting the provinces 2050 target. Combined with a flexible off setting program, this option is the best means to accelerate emissions reductions for the province of Ontario. Baseline and Credit The information provided in the Discussion Document regarding the Baseline and Credit approach does not provide sufficient information to assess how it might be different from the cap and trade approach. As discussed in the Principles section, the OFIA does caution that providing limits on intensity of products can be difficult with integrated facilities and there may be opportunity to inadvertently penalize good performance. Carbon Tax Should the province decide to move forward with a carbon tax approach, the OFIA would recommend looking at the net positive impact of wood products, use of biomass sourced from sustainable forest management and low carbon performance of the sector when considering the application of a point of sale tax. The OFIA has significant concerns with a point of sale carbon tax approach. The carbon tax approach does not meet a single one of our identified Principles and will not provide the necessary recognition of performance, early action or provide any incentive to improve. Ontario is already a high cost jurisdiction to operate in, especially for forestry and forest products. As a result of the stringent regulatory requirements around management, planning, harvesting and silviculture of crown land forests, the cost of delivered wood fibre is amongst the highest in North America, while the manufacturing part of the business is subject to high electricity pricing. As a trade exposed and commodity priced product the forest products sector cannot afford additional harvesting or manufacturing costs that cannot be passed on to the customer. A carbon tax approach only guarantees that the price of energy will rise, it does not provide any guarantee that emissions will be reduced to a desired level. Regulations and Performance Standards The OFIA feels that the development of performance standard based regulations is not an effective means to control greenhouse gas emissions and does not meet our Principles. The approach is complicated to develop and provides limited flexibility for compliance. In addition, the approach does not reward companies for taking early action and pro-actively reducing their emissions. 8

ONTARIO SUSTAINABLE FOREST MANAGEMENT Canada has a proven record of sound forest stewardship, with much of its original forest cover remaining and a growing network of protected areas. Federal and provincial regulation ensures that sustainable forest management provides for the long-term health of our forests while providing social, economic and environmental benefits. More than 90% of Ontario s land is publicly owned and 44% of Ontario s publicly owned forests are managed for commercial purposes. The overall strategic context for forest management in Ontario is defined by the Policy Framework for Sustainable Forests (1994). The framework sets broad direction for forest policy and makes forest sustainability the primary objective of forest management programs. Ontario s sustainable forest management practices are based on the most up-to-date science and continuously improved. Ontario s key legislation governing forestry, the Crown Forest Sustainability Act describes forest sustainability and regulates the protection and sustainable use of Ontario s Crown forests, using: a comprehensive system of legislation, regulations, policies, standards and guides which direct all forest management activities, a forest management planning system, including provisions for public consultation, a compliance program and independent forest audits to monitor progress, public reporting on the status of all aspects of forest management, ensuring transparency in the management of Ontario s crown forests. On average each year less than 0.5% of the forest in the Boreal region is sustainably harvested and 44.2% of the forest in the Boreal is unavailable for harvest. Growing environmental awareness and consumer demand for more socially responsible businesses help enable third-party forest certification as a credible tool for communicating the environmental and social performance of forest operations. Canada has the largest voluntary sustainable forest management certification area on earth. The high standards of forest management and legal requirements for sustainable management in Ontario also facilitate forest certification. Ontario has over 32 million hectares of Crown forests, more than 24 million hectares of which are certified. Many forests are certified to more than one standard. Forest certification has generally become part of the Ontario forest industry s business practices and marketing approaches. North American regulations, legislation and third-party forest certification programs have strict reforestation requirements. Responsible forest management has resulted in more than 50 consecutive years of net forest growth that exceeds annual forest harvests. The deforestation rate in Canada is virtually zero. The sustainability of Ontario s crown forest use is ensured by a rigorous legislative framework in place that governs forestry practices, ensuring the long-term health of the forests for future generations. Sustainable forest management helps Ontario s forests remain healthy and productive, preserving and growing Ontario s carbon sink. 9

THE BENEFITS OF USING WOOD Wood is the only major building material that grows naturally and is renewable. Determining the true cost of a building material requires evaluating the product over its lifecycle, taking into account environmental impact as well as monetary costs. Over its lifecycle from harvesting raw materials through manufacturing, transportation, installation, use, maintenance and recycling wood outperforms other materials. Wood requires far less energy than other materials to manufacture into products, generates less air and water pollution, and has the lowest carbon footprint. In each case, the cycle begins again as the forest regenerates and young seedlings begin absorbing carbon. Innovative new products and building systems are expanding the possibilities for wood use in construction. In 2014, the Ministry of Municipal Affairs and Housing announced amendments to the Ontario Building Code (OBC) to allow the use of wood-frame construction in buildings of up to six storeys. Purely from a Climate Change perspective, this increase use of wood will have a positive impact on carbon storage. Wood is the only material with third-party certification programs in place to verify that products originate from a sustainably managed resource. Responsibly managed forests that carefully balance harvesting and replanting can maximize the amount of carbon stored over the long term. Forest products store carbon and growing trees absorb carbon dioxide from the atmosphere. Ontario s forestry companies are proud to play an important role as stewards of Ontario s largest carbon sink and as our society moves towards a less carbon intensive economy, forest products will play a crucial role in ensuring success. INDUSTRY TRANSFORMATION In 2011 the Forest Products Association of Canada (FPAC), FPInnovations and the Canadian Forestry Service completed the BioPathways Study 4, which looked at the opportunities for the Canadian forest products sector to transform and contribute to a low carbon economy. The study estimated that the Canadian forest products sector could contribute an additional $20 billion dollars to the economy by 2020 through the production of value added building products, bioenergy and new bio-based chemicals and products. As Ontario s forest products sector comes out of one of the worst economic downturn in history, the sector continues to embrace innovation and transformation and is positioning itself to take advantage of rebounding global solid wood markets as well as new low carbon products and chemicals. However, in order to capitalize on this $20 billion bio-economy opportunity for new products, the primary forest products sector that is the backbone of the industry must be healthy, vibrant and 4 http://www.fpac.ca/index.php/en/page/value- pathways 10

competitive. Despite recent investments in new mills, energy efficiency projects and cogeneration, the primary sector faces ongoing pressures and threats such as rising wood costs and threats to wood supply that are constraining investment in new technology and product lines. Companies looking to invest or partner with our sector to create new bio-based products require assurances that they will have a reliable, affordable and predictable supply of feedstock. Ontario s current policies around forest management and tenure do not provide those assurances, as seen by the recent investments in new bio-based product development occurring outside of Ontario. Ontario s climate change policies must recognize that a strong primary forest products sector has the opportunity to form the foundation for Ontario s new low carbon economy, contributing economic value, while helping to achieve climate change objectives. The OFIA in conjunction with our members and industry research partners is prepared to work with the Ontario government on identifying opportunities and solutions in order for the sector to further contribute to the low carbon economy transition. 11

APPENDIX A SECTOR GREENHOUSE GAS PERFORMANCE DATA 12

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APPENDIX B BIOMASS CLIMATE NEUTRALITY REPORTS 1) Recommendations on Biomass Carbon Neutrality: Final Report January 2015 - WBCSD Forest Solutions 2) Technical Bulletin No. 1015: A Review of Biomass Carbon Accounting Methods and Implications July 2013 - National Council for Air and Stream Improvement 3) Technical Bulletin No. 1016: Greenhouse Gas and Fossil Fuel Reduction Benefits of Using Biomass Manufacturing Residuals for Energy Production in Forest Products Facilities Revised August 2014 - National Council for Air and Stream Improvement 4) Carbon Storage in Ontario Forests 2000 2100: Climate Change Research Information Note #6 2007 Applied Research and Development Branch, Ministry of Natural Resources Ontario Government 5) Ontario s Forests and Forestry in a Changing Climate: Climate Change Research Report #12 2008 Applied Research and Development Branch, Ministry of Natural Resources, Ontario Government 6) An inventory- based analysis of Canada s managed forest carbon dynamics, 1990 to 2008. G. Stinson et al. Natural Resources Canada, Canadian Forest Service; Global Change Biology 2011. 13