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May 2004 The BC Liberals “New Era of Sustainable Forestry”: A Progress Report George Hoberg with Adam Paulsen The forest sector in British Columbia has been in a protracted crisis for over seven years. The BC Liberals were elected in an extraordinary landslide in May 2001, receiving an unprecedented 77 of 79 seats in the provincial legislature, and decimating the New Democratic Party that had ruled the province for the previous decade. Under the leadership of Premier Gordon Campbell, the Liberals were sworn into office on June 5, 2001 with an ambitious mandate for policy change. In forestry, their New Era campaign document contained a 12-point plan designed to restore competitiveness to the sector. This issue brief provides an overview of the government forest policy agenda, and a report on their progress after three years of effort. The brief is an updated extract from a previous public lecture. The BC Liberal “new era” reform agenda Four forces drive the current forest policy reform agenda: the government’s “New Era” election platform, budget cuts and the associated core review, the softwood lumber trade dispute with the Americans, and forces of nature that are affecting forest health. Taken together, the initiatives, if enacted, would bring about a transformation of the role of the government in the forest sector. The Liberals campaign platform contained a 12-point plan for a “New Era of Sustainable Forestry”:
In addition to the campaign platform, the forest policy agenda was also strongly influenced by the massive budget cuts announced by the government shortly after taking office. For 2002/2003 the projected budget decrease to the Ministry of Forests was 35% over a three-year period (Ministries of Sustainable Resource Management and Water, Land and Air Protection were reduced by similar amounts). Through its Core Services Review, the government reconsidered how it could deliver its mandate with the available fiscal and human resources. Out of this review emerged the Defined Forest Area Management initiative, which is designed to transfer a significant amount of responsibilities, and the costs that go along with fulfilling those responsibilities, from the government to licensees. The two most important types of tenure in the province are Tree Farm Licences (TFLs), which give firms the right to manage a specific area of land, and Forest Licenses, which allocate a certain volume of timber. In exchange for more certainty and longer terms, the area-based TFLs come with much greater management responsibilities for forest companies. The consensus among scholars and forest policy analysts is that area-based management is a far superior arrangement, and royal commissions and forest policy reviews have been recommending shifting to far greater reliance on area-based tenures for decades. Nonetheless, 77% of the allowable annual cut in the province is still done through volume-based tenures. Rather than tackling tenure reform head on, the original proposal was to pursue a more moderate course called “Defined Forest Area Management.” Licensees in Timber Supply Areas (the administrative units for volume based licensees) would now be required to cooperate in delivering several management functions currently performed by Tree Farm License holders, most importantly strategic planning, timber supply analysis and public consultation as part of the allowable annual cut determination responsibilities, and forest health responsibilities. The third source of the new government’s forestry agenda has been the softwood lumber conflict with the United States. The provincial government, along with the federal government and other provincial governments across the country, have been engaged in on-again/off-again negotiations with the Americans since before the 5-year Softwood Lumber Agreement expired in April 2001. The pressures on policy reform from the softwood dispute have significantly expanded the Liberals agenda on pricing and market reforms. In addition to introducing a market-based pricing system, the government proposed the following measures · eliminate below-cost sales by increasing the minimum stumpage rate (now $0.25 a cubic metre) so that timber will not be sold at less than the Ministry of Forest administrative costs; · eliminate “blending” of blocks with significantly different stumpage values to reduce “cross-subsidies”; · award new timber rights competitively, by awarding them to the highest bidder; · allow Forest Licences and Tree Farm Licences to be subdivided; · reduce restrictions on the transfer of tenures, including eliminating the mandatory 5% AAC takeback; · eliminate “cut control” requirements that require a minimum amount of timber be harvested regardless of market restrictions; · eliminate utilization requirements; · eliminate appurtenancy provisions that tie harvesting rights to requirements to process the timber in company-owned mills; · eliminate government authority to take back AAC in response to mill closures. · eliminate company-specific assistance under the Job Protection Act. The final source of the government agenda are natural forces that have been a powerful influence on policy: the mountain pine beetle epidemic and the historic fire season of 2003. The mountain pine beetle has become a crisis for forest management and has required reorientation of government policy. While less significant in terms of forest management, the fire issue has generated a great deal of public concern, and the province appointed Gary Filmon to conduct an independent, comprehensive review. Taken together, the market and non-market reforms represent a significant decrease in government intervention in the forest sector. As a result, market forces should play a much larger role in decisions about harvesting and milling, and as a result potentially address many of the accusations of subsidy levelled by the Americans. One of the most important effects, both from the economic and environmental perspective, is that they would significantly reduce the incentives of companies to harvest when it is uneconomic to do so. Progress report on the New Era forestry agenda Non-Market Reforms In many respects, the Liberals have made significant progress on many important parts of their policy agenda. Tables 1 and 2 summarize the progress on each initiative.
The most significant action is the introduction of new legislation to create a results-based Forest Practices Code. Following an extensive public and private consultation process, the government introduced the Forest Range and Practices Act on November 4, 2002, and finalized its Regulations in January, 2004. Together the Act and Regulations present the framework for meeting the government’s goal of reducing industry costs while maintaining environmental standards, and being consistent with fewer government resources. Presently, no estimates of cost savings have been published and the maintenance of environmental standards is contested. The Liberal government has had some success on several other New Era promises. It succeeded in eliminating Forest Renewal BC, replacing it with a new fund, the Forest Investment Account, with a new structure of governance and administration. When Forest Renewal BC was eliminated, the “silviculture hiring hall” was eliminated. In the spring of 2002, the government created a $12 million marketing fund, and a $20 million research fund, all administered by Forest Innovation Investment. So there was substantial progress on these four New Era commitments. While unheralded, the Liberals have taken a vitally important action with widespread implications: they endorsed and followed through on the previous government’s April 4, 2001 commitment to the “Great Bear Rainforest.” They have maintained protections for areas set aside from development while the Land and Resource Management tables complete their work, created a “sustainability trust” to help fund mitigation efforts for affected communities. Further, they supported the creation of the “Coast Information Team” to attempt to address the unresolved issues regarding contested “option” areas and the development of standards for ecosystem-based management that will guide harvesting in the region. This commitment helped to placate, at least temporarily, international environmentalists. In December 2003, the Central Coast Planning Table reached consensus and forwarded their recommendations to government; but how far the agreement goes towards the goal of reaching a durable peace in the “war in the woods” remains unknown. The next initiative closest to completion is the working forest commitment, which was on the top of the industry’s wish list. A discussion paper was released by the Ministry of Sustainable Resource Management in January of 2003, with consultation completed in August, and legislation expected by June of 2004. Amendments to the Land Act through Bill 46 will facilitate the Working Forest designation and the establishment of land use zones and objectives necessary to guide the implementation of the Forest and Range Practices Act. The Ministry of Sustainable Resource Management (MSRM) has issued a paper describing a new Sustainable Resource Management Planning framework, but there has been no substantial progress on the development of landscape level zones and objectives. Moreover, a recent Forest Practices Board Report questions the ability of MSRM to complete planning for biodiversity objectives within a reasonable timeframe. Implementation of other aspects of the Liberal forest policy reform agenda are expected to occur over longer timeframes. The New Era commitment to increase the allowable annual cut is a long term objective, and it is therefore difficult to judge the government on specific actions related to this objective. The intention is to pursue this commitment through Forest Investment Account strategic initiatives (1, 2, 3). In the short term, the allowable annual cut has increased by several million cubic meters, largely to address mountain pine beetle concerns. Nonetheless, the province’s Chief Forester still foresees a reduction over the medium term (the next several decades) to around 60 to 65 million cubic metres from the current level of about 73 million cubic metres. The Defined Forest Area Management initiative arising out of the Core Review remains a work in progress. Legislation that details timber supply analysis obligations and forest health responsibilities has been tabled as parts of Bills 44 and 69 respectively. The decision to bring this legislation into force has been postponed until at least 2005, and licensees are voluntarily participating in proposed DFAM activities with BC Timber Sales using funds specifically designated through the Forest Investment Account. While it is a critical piece of the Ministry of Forests ability to deliver its mandates with dramatically fewer resources, industry concerns about the cost of downloading have apparently delayed its implementation. The government’s agenda to get First Nations more involved in the forest sector became entangled in the controversial referendum on the principles for treaty negotiation and a series of court cases that expanded government and industry obligations for consultation and accommodation of aboriginal rights and title. Because of the tensions over the referendum and the shifting legal ground, many negotiations over treaties and interim measures agreements were stalled. In addition, the court decisions in the Haida and Taku cases have forced the government to revamp its consultation guidelines. New government wide guidelines have been released, in addition to forestry-specific guidelines for consultation and accommodation, and the Ministry of Forests’ Aboriginal Rights and Title Policy. The government has taken some steps forward on the First Nations agenda with a direct award policy implemented through Bill 41, which gives the Minister of Forests the authority to invite First Nations to apply directly for tenures without competition. Through this Act, and the proposed changes outlined in the Forestry Revitalization Plan (FRP), 45 offers have been tendered and numerous agreements reached. Despite progress, many First Nations remain unconvinced that these events represent real change regarding their role in the management of forest resources. Market Reforms The entire package of market reforms listed in Table 2 was broadly addressed by the Forestry Revitalization Plan. Although certain issues remain unresolved, the FRP does represent significant progress in achieving many of the reforms outlined in the New Era agenda.
In many ways the Forest Revitalization Plan represents some of the biggest changes to forest policy in 50 years. The centerpiece of the plan is the reallocation of tenure achieved through a 20% takeback of AAC volume from major licensees facilitated through Bill 28. Half of this tenure will be redistributed to create new opportunities for First Nations, Woodlots and Community Forests and the remainder will be auctioned by BC Timber Sales as part of the Market Pricing System. Implementation of the takeback is ongoing as the recovery, re-apportionment, and redistribution of the recovered AAC is projected to occur over the next three years. In addition, the FRP introduces new elements of transferability and subdivision to the tenure regime where licensees can transfer, subdivide or sell any or all of their cutting rights without penalty. The initiative to create a market-based stumpage system fundamentally reforms the way government calculates the price for standing timber. The Market Pricing System has been implemented on the Coast although the timeline for its implementation in the interior remains unspecified. The highly complex Comparative Value Pricing System still in use in the interior, is subject to adjustment by government to meet its revenue objectives, a practice termed “waterbedding”. Under the terms of the FRP, 10% of the AAC taken back will be added to the 10% already available for auction to establish a market for crown timber, which will then be used to set stumpage throughout the province. Exactly how representative the auctioned timber will be, and how it will translate into stumpage across the province remains an ongoing challenge. Despite the uncertainties surrounding the implementation of a market-based stumpage system, once implemented (as is the case on the Coast) it will eliminate waterbedding, award new tenure rights competitively, and potentially to assuage American concerns regarding the market value of Canadian timber. The motivation for market reforms centers on restoring competitiveness to the forest sector by allowing the markets to play a greater role in where and when harvest operations occur. To this end the FRP eliminates low end cut controls that require licensees to harvest a minimum volume even when it is uneconomical to do so, but also prevents licensees from ‘carrying forward’ unused portions of their AAC Utilization requirements have been addressed through Bill 45 which removed “cut and remove” requirements. Appurtenancy requirements that oblige licensees to process logs at mills in the region where they were harvested have also been eliminated to enable timber too flow more freely to where it may command the highest value. Many view the market reforms as being in violation of the “social contract” that operators enter into when they receive the rights to harvest public timber. With relief from the appurtenancy and processing requirements and the repeal of all sections of the Job Protection Act, criticism has focused on the increased susceptibility of rural communities to loss of economic and employment opportunities as companies rationalize production over the short and medium term. Provided the introduced market reforms are able to restore competitiveness and profitability to the sector over the long term, opportunities for forest sector employment may represent an improvement over the current situation. The Liberal Government response to the forest health crisis stemming from the Mountain Pine Beetle Infestation and the worst fire season in the province’s history has been to update its Mountain Pine Beetle Action Plan and to conduct a comprehensive review of the province’s response to the 2003 wildfires. The size and extent of the Mountain Pine epidemic has many social, economic, and policy implications as the epidemic now covers approximately 4.2 million hectares. In some respects timber supply impacts are the most significant because if the epidemic continues at the current pace, a 20 to 40 percent decline in available timber is projected over much of the infected areas throughout the interior. Recent increases to the AAC in affected areas have targeted salvaging economic value from infested areas and containing the spread of the infestation as much is possible. Unfortunately the only possibility of halting the spread of the beetle is sustained cold weather; weather the interior has not experienced in roughly a decade. The 2003 fire season burned through nearly 260,000 hectares of forest and is estimated to have cost a total of $700 million including both damages to property the cost of fighting the fires. Drought in the southern half of the province, combined with past fire suppression and high temperatures contributed to the severity of the 2003 fire season. Interestingly, the 2003 Firestorm Review reached many of the same conclusions of previous reviews that went unimplemented with respect to forest management. Chief among these conclusions is the build up of fuels due to fire suppression resulting in fires of greater intensity than would occur in the absence of fire prevention. In response to the report, the Government recently announced it would implement all 42 recommendations of the Firestorm review, including prescribed burning to reduce the build up of fuels that lead to the severe fires experienced during 2003. Conclusion As a simple measure of the amount of progress the government has made on its agenda, a “completion rating” has been added to Tables 1 and 2. This rating is a subjective scale from 0-5, with 0 being no progress, and 5 being essentially complete. This rating is meant to measure new policy content in statute, regulation, or administrative practice, and not a measure of policy consequences as a result of implementation. Of the 18 items that can be comfortably rated, the average score is 4.0 out of 5. Care should be taken in interpretation of this measure, given the subjectivity of the completion rating and the fact that the scores treat each initiative equally. Nonetheless, it does provide a reasonable measure of the substantial progress the government has made on its agenda. Three years have passed since the 2001 election brought to power a Liberal government committed to revitalizing the forest industry. Progress has been made on many fronts of the Liberal forest policy reform agenda. The most significant changes are the 20% takeback of cutting rights, the removal of economic regulations, the Forest and Range Practices Act, and First Nations agreements. Several important agenda items have yet to be completed, including market-based pricing in the interior, the working forest, and defined forest area management. The province has yet to obtain a resolution to the softwood lumber dispute, and the uncertainty around unsettled land claims remains a significant problem.
Taken together, these changes transform the government’s role in the forest industry. The new pricing regime, especially if it is implemented in the interior, and removal of many economic regulations lead to an increased role for market forces. Thus far, there has been less change in environmental policies, although environmental groups are extremely concerned about the direction of change. Social policy objectives, historically pursued through the economic regulations, have shifted away from community stability towards First Nations. International forces are a primary driver of and constraint on change. The market-based reforms result from a combination of new government ideology and US trade pressures. But more change has not occurred in environmental areas because of domestic pressures, but especially international market pressures.
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