Battered by the global economic downturn, Canadian forestry companies are looking forward to the balm of a $1-billion government tax credit program for energy and environmental upgrades.
But the relief, which was provided to counter an $8-billion (U.S.) biofuels subsidy in the United States earlier this year, comes just as the threat looms of two new proposed bioenergy programs in that country.
Montreal-based Domtar Corp., which yesterday reported a dramatic jump in third-quarter profit thanks to a big U.S. biofuel tax credit, says it's eligible for $143-million in tax offsets in Canada over the next two years under the Pulp and Paper Green Transformation Program. Another 23 companies - including AbitibiBowater Inc., which is restructuring under bankruptcy court protection - have qualified for tax credits under the terms of the green energy plan.
It's a welcome development. But Canadian forestry companies are at the same time assessing the potential damage from the competitive advantage their U.S. rivals would gain under new bio incentives.
Details are still sketchy about a U.S. biomass crop assistance program, which would include a forestry element, and a separate tax credit on fuels made from cellulose fibre.
"What's very clear to us is that, in the U.S., there is a massive availability of money for biomass. How it's going to affect the Canadian forestry industry, we don't know yet," said Avrim Lazar, president of the Forest Products Association of Canada.
Pointing to similar government programs in Europe and elsewhere in the world, Mr. Lazar says Canada needs to come up with a comprehensive national strategy to help its ailing forestry sector, which has shed thousands of jobs over the past few years, make the successful transition to bioenergy. "Our view is that the whole world now, led by government initiatives, is working at how to adjust to demand for biofuels and events like [the upcoming conference on climate change in]Copenhagen are intensifying that," he said.
Government officials have said that Ottawa is closely tracking the issue but there has been no commitment to a full-blown national strategy.
Mr. Lazar points to Finland as leading the way with its recent announcement of a national forest bioproducts strategy and investment program.
"We need to lay down a policy foundation," he said.
James Rowland, a consultant with Montreal-based Canadian Paper Analyst, says the two new biofuels subsidies in the U.S. might not end up being as crucial a threat as was the first tax break, which rewarded companies that mixed so-called black liquor, a byproduct of the chemical pulp-making process, with conventional fuel. "It doesn't sound as if there is optimism [south of the border]that there will be another big payday," he said.
Mr. Rowland said one thing is clear: There is growing pressure on forestry companies around the world to shift to bioenergy.
But he warns that the shift to bioenergy should not be viewed as the Canadian forestry industry's saviour. "These new plants tend to be highly automated. They are not great job creators," he said.
DOMTAR CORP. (UFS-T)
$45.34 up $3.25
***
Domtar
Q3 / 2009 / 2008
Profit / $183-million / $43-million
EPS / $4.24 / $1
Revenue / $1.5-billion / $1.6-billion
All figures in U.S. dollars
Source: Company reports
Bertrand Marotte