FPAC Presentation to: Greening Industry Network Conference Waterloo, Ontario June 16, 2007

FPAC Presentation to: Greening Industry Network Conference

Waterloo, OntarioJune 16, 2007

Presentation Overview

1) Industry Background

2) The Forest Industry. Climate change and Sustainability

3) Capital Investment: The Driver of Competitive and Sustainable Renewal

4) Enabling Renewal: The Role of Public Policy

• Shipments of $88 billion in 2006• Source of over 820, 000 jobs - 320,000

direct • Over 300 forestry dependent communities • High productivity, high wage sector• Leading source of business and economic

opportunities for Canada’s Aboriginal peoples

Canada’s Forest Industry – An Overview

Source: FAO February 2007

Forest Products Exports 2005 (CAN$ Billions)

4.96.47.07.17.88.1

9.59.9

15.817.2

21.822.1

38.4

0 10 20 30 40 50

Netherlands Belgium

Indonesia Brazil

Austria China

France Russian Federation

Finland Sweden

Germany United States of America

Canada

The Leading Exporter of Forest Products

Source: StatsCan March 2007

Industrial Contribution to GDP (2006)

2.7%

2.2%1.8% 1.6%

1.0% 0.8%0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

For

est

Pro

duct

sIn

dust

ry

Oil

and

Gas

Mot

or V

ehic

leM

anuf

actu

ring

Che

mic

alM

anuf

actu

ring

Min

ing

Pla

stic

s an

dR

ubbe

r

Rai

l Tra

nspo

rt

One of Canada’s Leading Industrial Sectors

Source: StatsCan April 2007

2006 Contribution to Canada's Manufacturing Employment: 12.3%

32.3% 30.3%

14.9%12.1% 11.8% 11.3% 10.1% 8.2% 7.6% 7.0%

0%5%

10%15%20%25%30%35%

New B

runsw

ick

British

Colum

bia

Quebec

Newfo

undla

nd

Nova S

cotia

Alberta

Manit

oba

Saskat

chewan P.E

.I

Ontario

Sh

are

of

Pro

vin

cial

Man

ufa

ctu

rin

g

Em

plo

ymen

t

Key Sector in Each Region of Canada



2) The Forest Industry. Climate Change and Sustainability



• The wealth and prosperity generated by the industry almost entirely dependent on the ecosystem.

• Significant risks and implications associated with a changing climate:

- Insect Infestations: Mountain Pine Beetle - Fires - Forest Management

Canada’s Forest Sector and a Changing Climate

• Climate Change Impacts & Adaptation: A Conspiracy of Silence?

• Changing practices today to minimize risks and take advantage of opportunities:

- Insect disturbances: can we anticipate the next epidemic?- Forest Fires: How a changing climate will impact on their frequency,

location and severity- Forest Management: Impacts at the stand level of a changing climate

on growth, yield and other variables• Need a climate change adaptation effort proportional to

the magnitude of the challenge

Critical Impacts and Adaptation Issues for Canada’s Forest Sector

• Industry takes pride in its record both of leadership in reducing emissions and proactive collaboration with government and other stakeholders:

- Since 1990, Canada’s pulp & paper sector has

reduced emissions 44% while increasing production volume 20%

- In November, 2003 the forest industry became the first to sign an MOU with the Government of Canada on climate change

Canada’s Forest Industry and GHG Emissions Mitigation

• Pulp & paper sector largest industrial energy user in Canada - 24% of Canadian total

• 60% of total self-generated from renewable sources – about 1700MW of installed biomass cogeneration capacity

• Potential to become net source of green power by 2020 through reinvestment & technological innovation

Canada’s Forest Industry and Bio-Energy Climate Change

Can Superior Sustainability Performance Confer Competitive Advantage



2) The Forest Industry. Climate Change and Sustainability



Research and Development Expenditures 2006

912

546 537

261 170 143 131 129 40

1293

0200400600800

100012001400

Ph

arm

ace

utic

als

Ae

rosp

ace

Fo

rest

Pro

du

cts

Mo

tor

Ve

hic

le

Min

ing

, Oil

an

dG

as

Co

mp

ute

r a

nd

pe

rip

he

ral

Pe

tro

leu

m a

nd

coa

l pro

du

cts

Pla

stic

s

Ele

ctri

cal

Tra

nsp

ort

atio

na

nd

Wa

reh

ou

sin

g

Mil

lio

ns

of

$ C

dn

Source: Statscan April 2007

Forest Industry an Major Source of Private Sector Innovation in the Canadian Economy

Source: PwC, CIBC World Markets, April 2007

Return on Capital Employed, 1998-2005 average

9.8

7.06.3 5.7 5.4

4.63.4

2.2

0

2

4

6

8

10

12

India LatinAmerica& SouthAfrica

OtherAsia

Europe USA Australia& New

Zealand

Canada Japan

RO

CE

(%

)

Typical Cost of Capital: 9-12%

Globally Canada’s Forest Products Companies are not as profitable as others

Source: StatsCan Jan 2007

4.94.5

3.8 3.6

4.7

2.7

3.63.1

3.5

4.74.9

5.4 5.5 5.6 5.65.1 4.9 4.7 4.5

3.43.1

5.3

0

1

2

3

4

5

6

7

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Bil

lio

ns

of

$Cd

n

Investment Depreciation

The Forest Products Industry is Making Significant Investments

Much of Canada’s Production Capacity is Older and Less Efficient Than That of

Leading Competitors

Source: Jaako Pöyry, March 2007



2) The Forest Industry Climate Change and Sustainability



• Attracting Capital Investment Ultimately the Responsibility of the Industry Itself

• But Public Policy Plays a Critical role in Shaping the Investment Climate

- Government determines the slope of the playing field

Renewal through Reinvestment

Source: CD Howe, OECD 2006

Ger

man

y

Canad

a

Finlan

d

Nethe

rland

s

Unite

d Kin

gdom

Switzer

land

Irelan

d Portu

gal Swed

en

Denm

ark

Austri

a

Norway

Italy

Franc

e

Spain

New Z

eala

nd

Austra

lia

U.S.

Japa

n

Korea

5

10

15

20

25

30

35

40

45

20 25 30 35 40 45 50 55

2006 total tax receipts (% of GDP)

20

06

ME

TR

on

Ma

nu

fac

turi

ng

In

ve

stm

en

t

Canada’s tax regime discourages manufacturing investment

• A robust emissions pricing regime, with appropriate recognition for early actors

• Market – based renewable energy incentives can contribute to the solution but have potential for unintended

consequences • Strengthened Public –Private Partnerships in Support of the

development of Breakthrough green technologies • Greater commitment of resources and policy focus to

impacts & adaptation issues

Priorities for Addressing Climate Change in a Pro-Competitive Manner

• Can we compete?

- Yes! We have done it in the past.

• The key is shifting our expectations to reflect the rigours of the new global market place

• If we shift- quickly– we can do it again

Conclusion

Documents

FPAC Presentation to: Greening Industry Network Conference Waterloo, Ontario June 16, 2007