Quebec's Forest Regimes

RESEARCH PAPERS OCTOBER 2016 QUEBEC’S FOREST REGIMES: LESSONS FOR A RETURN TO PROSPERITY By Alexandre Moreau, with the collaboration of Jasmin Guénette The Montreal Economic Institute is an independent, non-partisan, not-for-profit research and educational organization. Through its pub- lications, media appearances and conferences, the MEI stimulates debate on public policies in Quebec and across Canada by propos- ing wealth-creating reforms based on market mechanisms. It does 910 Peel Street, Suite 600 not accept any government funding. Montreal (Quebec) H3C 2H8 Canada The opinions expressed in this study do not necessarily represent those of the Montreal Economic Institute or of the members of its Phone: 514-273-0969 board of directors. The publication of this study in no way implies Fax: 514-273-2581 that the Montreal Economic Institute or the members of its board of Website: www.iedm.org directors are in favour of or oppose the passage of any bill. The MEI’s members and donors support its overall research program. Among its members and donors are companies active in the forestry sector, whose financial contribution corresponds to less than 3% of the MEI’s total budget. These companies had no input into the pro- cess of preparing the final text of this Research Paper, nor any control over its public dissemination. Reproduction is authorized for non-commercial educational purposes provided the source is mentioned. ©2016 Montreal Economic Institute ISBN 978-2-922687-73-6 Legal deposit: 4th quarter 2016 Bibliothèque et Archives nationales du Québec Library and Archives Canada Printed in Canada Alexandre Moreau with the collaboration of Jasmin Guénette Quebec’s Forest Regimes: Lessons for a Return to Prosperity Montreal Economic Institute • October 2016 TABLE OF CONTENTS HIGHLIGHTS ...................................................................................... 5 INTRODUCTION ................................................................................ 7 CHAPTER 1 - THE MANAGEMENT OF PUBLIC FOREST LANDS: FROM “LAISSEZ-FAIRE” TO STATE CONTROL ................................. 9 CHAPTER 2 - CENTRALIZING RESPONSIBILITY AND OVERHARVESTING THE RESOURCE ...............................................15 CHAPTER 3 - REFORMING THE FOREST REGIME IN A TIME OF CRISIS .............................................................................................. 25 CHAPTER 4 - REFORM PROPOSALS FOR A MORE COMPETITIVE FOREST REGIME ............................................................................. 37 CONCLUSION ................................................................................. 45 ABOUT THE AUTHOR ..................................................................... 49 Quebec’s Forest Regimes: Lessons for a Return to Prosperity HIGHLIGHTS Over time, the Quebec government has modifi ed, on able portion of the population expressed a negative several occasions, the forest regime that governs the ac- attitude toward the forestry industry. tivities of the forestry industry. This Research Paper re- views the history of the forest concessions regime, the • Despite the fact that the determination of the vol- TSFMA regime, and the main events that infl uenced the umes of timber available to be harvested has ultim- new 2013 forest regime. It also proposes reforms in- ately been the responsibility of the Department and spired by the positive aspects of the former regimes not of private actors since the introduction of the and of practices that prevail elsewhere. TSFMA regime in 1986, many claimed that logging companies were responsible for the potential over- Chapter 1 - The Management of Public harvesting of public forests in the early 2000s. Forest Lands: From “Laissez-Faire” to State • As Quebec’s Auditor General revealed in 2002, it Control was indeed the Department of Natural Resources that was not living up to its responsibilities. • In 1826, we see the emergence of Quebec’s fi rst formal forestry regime, namely the forest conces- • The Coulombe Commission subsequently showed sions regime, whereby the government granted ex- that the government’s annual allowable cut esti- clusive logging rights to the trees located within the mates were much too optimistic, and consequently, limits of the concession. that the harvest objectives were too high relative to the forest’s capacity to regenerate. • Being almost the equivalent of owners, it was in the interest of concession holders to invest and to sus- • The government’s directives aiming to increase the tainably harvest the forests they were allocated timber harvest thus certainly contributed to the 22% since the long-term profi tability of their companies reduction in stocks of timber for softwood species depended on it. between 1970 and 2008, although this reduction in stocks was compensated for by a considerably re- • Although the forest concessions regime had many duced forest harvest in subsequent years due to the positive features, the government declared in the fi nancial crisis and the reduction in housing starts in early 1960s that the exclusive logging rights grant- the United States and Canada. ed to concession owners on all species did not allow for the public forests to be harvested to their • Surprisingly, even though the criticisms formulated full potential. by the Coulombe Commission and the Auditor General are directed toward the Department, they • In 1974, the government proceeded with the grad- led to the virtually complete centralization of forest ual revocation of forest concessions through its Act management in the hands of government agencies. to amend the Lands and Forests Act, and between 1972 and 1985, the total area of concessions dimin- Chapter 3 - Reforming the Forest Regime in ished by 36%. a Time of Crisis • By adopting the Forest Act in 1986, the government • Due to the softwood lumber dispute between put a defi nitive end to the forest concessions regime Canada and the United States, and the 2008 eco- that had prevailed for over 150 years, redefi ning the nomic crisis, thousands of jobs were lost in the for- division of responsibilities between companies and estry industry and many mills had to shut down. the government in such a way that the latter now played a predominant role in terms of the manage- • It is in this context of crisis that another major over- ment of public forests. haul of the forest regime was undertaken, culminat- ing in the adoption of the Sustainable Forest Chapter 2 - Centralizing Responsibility and Development Act in 2013. Overharvesting the Resource • A tiny proportion of the timber volumes in public • Quebecers’ discovery of the forest coincided with forests are harvested annually, amounting to slightly growing reservations about commercial forestry ac- less than 1% since 1990. tivities, and in a poll conducted in 1989, a consider- Montreal Economic Institute 5 Quebec’s Forest Regimes: Lessons for a Return to Prosperity • The short-term vision that characterizes supply guar- • Between 2010 and 2014, the government fees paid antees under the current regime and the often by Quebec companies more than doubled and are downward revisions of timber volumes allocated in now nearly twice as high as those paid by their public forests serve to discourage investments that Ontario competitors. require long-term planning. • In other countries, mills generally have greater lati- • Nine years after it came into effect, the Softwood tude in developing forestry management plans and Lumber Agreement between Canada and the a longer timeframe within which to plan their United States reduced Canadian softwood lumber investments. imports by an estimated 7.78% while tariffs were in effect. • This reduction cost the Canadian forestry sector over $2 billion, and American consumers lost $6.36 billion, whereas American softwood lumber produ- cers earned an extra $4.63 billion. • Quebec’s forestry regions have suffered through an economic situation that has been unfavourable to the timber industry since the early 2000s, but despite this decline, forestry remains an important sector of economic activity in Quebec’s regions. Chapter 4 - Reform Proposals for a More Competitive Forest Regime • The 2013 centralization of responsibility for the management of public forests was presented by the government as an improvement over the former TSFMA regime that would lead to economies of scale. • Timber volumes in public forests were allocated with no time limit under the forest concessions regime, and for a period of 25 years under the TSFMA regime, but currently, they are allocated only for periods of 5 years or less, at the discretion of the Minister. • Because of the short-term aspect of the new system, holders of supply guarantees must now plan their operations and investments over very short time periods, which makes it diffi cult to predict supply and exacerbates the risk associated with investment and with the hiring of labour. • According to a Groupe DDM study carried out more than a year after the new forest regime came into effect, it was found that there had been no savings, and that companies even saw cost increases. 6 Montreal Economic Institute Quebec’s Forest Regimes: Lessons for a Return to Prosperity INTRODUCTION The challenges facing Quebec’s forestry sector are num- erous and longstanding. There is of course the softwood lumber dispute between Canada and the United States that has persisted since the early 1980s; there are the contradictory hypotheses of under- and overharvesting of the resource; and for several decades, there

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