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25 October 2016October 25, 2016

Quebec’s Forest Regimes: Lessons for a Return to Prosperity

Research Paper showing how the tendency toward centralization, which has characterized forest regime reforms for decades, has undermined the competitiveness of the sector

Quebec’s Forest Regimes: Lessons for a Return to Prosperity

Over time, the Quebec government has modified, on several occasions, the forest regime that governs the activities of the forestry industry. This Research Paper reviews the history of the forest concessions regime, the TSFMA regime, and the main events that influenced the new 2013 forest regime. It also proposes reforms inspired by the positive aspects of the former regimes and of practices that prevail elsewhere.

Media release: The competitiveness of the forestry sector threatened by the new forest regime
 

Links of interest

Un régime forestier à réformer (Le Quotidien, October 28, 2016)

L’arbre qui cache la forêt (The MEI's Journal de Montréal blog, October 31, 2016)
Interview (in French) with Alexandre Moreau (Des matins en or, Radio-Canada, October 27, 2016)  

Quebec’s Forest Regimes: Lessons for a Return to Prosperity

Highlights

Over time, the Quebec government has modified, on several occasions, the forest regime that governs the activities of the forestry industry. This Research Paper reviews the history of the forest concessions regime, the TSFMA regime, and the main events that influenced the new 2013 forest regime. It also proposes reforms inspired by the positive aspects of the former regimes and of practices that prevail elsewhere.

Chapter 1 - The Management of Public Forest Lands: From “Laissez-Faire” to State Control

 

  • In 1826, we see the emergence of Quebec’s first formal forestry regime, namely the forest concessions regime, whereby the government granted exclusive logging rights to the trees located within the limits of the concession.
  • Being almost the equivalent of owners, it was in the interest of concession holders to invest and to sustainably harvest the forests they were allocated since the long-term profitability of their companies depended on it.
  • Although the forest concessions regime had many positive features, the government declared in the early 1960s that the exclusive logging rights granted to concession owners on all species did not allow for the public forests to be harvested to their full potential.
  • In 1974, the government proceeded with the gradual revocation of forest concessions through its Act to amend the Lands and Forests Act, and between 1972 and 1985, the total area of concessions diminished by 36%.
  • By adopting the Forest Act in 1986, the government put a definitive end to the forest concessions regime that had prevailed for over 150 years, redefining the division of responsibilities between companies and the government in such a way that the latter now played a predominant role in terms of the management of public forests.

Chapter 2 - Centralizing Responsibility and Overharvesting the Resource

  • Quebecers’ discovery of the forest coincided with growing reservations about commercial forestry activities, and in a poll conducted in 1989, a considerable portion of the population expressed a negative attitude toward the forestry industry.
  • Despite the fact that the determination of the volumes of timber available to be harvested has ultimately been the responsibility of the Department and not of private actors since the introduction of the TSFMA regime in 1986, many claimed that logging companies were responsible for the potential overharvesting of public forests in the early 2000s.
  • As Quebec’s Auditor General revealed in 2002, it was indeed the Department of Natural Resources that was not living up to its responsibilities.
  • The Coulombe Commission subsequently showed that the government’s annual allowable cut estimates were much too optimistic, and consequently, that the harvest objectives were too high relative to the forest’s capacity to regenerate.
  • The government’s directives aiming to increase the timber harvest thus certainly contributed to the 22% reduction in stocks of timber for softwood species between 1970 and 2008, although this reduction in stocks was compensated for by a considerably reduced forest harvest in subsequent years due to the financial crisis and the reduction in housing starts in the United States and Canada.
  • Surprisingly, even though the criticisms formulated by the Coulombe Commission and the Auditor General are directed toward the Department, they led to the virtually complete centralization of forest management in the hands of government agencies.

Chapter 3 - Reforming the Forest Regime in a Time of Crisis

  • Due to the softwood lumber dispute between Canada and the United States, and the 2008 economic crisis, thousands of jobs were lost in the forestry industry and many mills had to shut down.
  • It is in this context of crisis that another major overhaul of the forest regime was undertaken, culminating in the adoption of the Sustainable Forest Development Act in 2013.
  • A tiny proportion of the timber volumes in public forests are harvested annually, amounting to slightly less than 1% since 1990.
  • The short-term vision that characterizes supply guarantees under the current regime and the often downward revisions of timber volumes allocated in public forests serve to discourage investments that require long-term planning.
  • Nine years after it came into effect, the Softwood Lumber Agreement between Canada and the United States reduced Canadian softwood lumber 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 producers 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 difficult 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.
  • Between 2010 and 2014, the government fees paid by Quebec companies more than doubled and are now nearly twice as high as those paid by their Ontario competitors.
  • In other countries, mills generally have greater latitude in developing forestry management plans and a longer timeframe within which to plan their investments.

Introduction

The challenges facing Quebec’s forestry sector are numerous 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 have been social demands for more government intervention in the management of public forests.

Over time, the Quebec government has responded to these pressures and challenges by modifying, on several occasions, the forest regime that governs the activities of the forestry industry. The gradual abolition of forest concessions starting in the 1970s was a turning point. From that moment on, the trend has been toward the centralization of responsibility in the hands of the government department responsible for the forests and the different agencies it oversees. Today, companies have hardly any responsibility left, and the competitiveness of mills depends in large part on the work of government officials.

The first chapter of this Paper reviews the history of the forest concessions regime in order to highlight some of its positive aspects and debunk some myths that were used to justify greater government involvement in the management of public forests. Chapter 2 focuses mainly on the TSFMA regime and the hypothesis of overharvesting. Chapter 3 demonstrates the economic importance of the forestry sector in Quebec’s regions by emphasizing the main events that influenced the new 2013 forest regime. Based on these observations, Chapter 4 targets the new forest regime’s flaws and proposes reforms inspired by the positive aspects of the former regimes and of practices that prevail elsewhere.

This Research Paper was prepared by Alexandre Moreau, Public Policy Analyst at the MEI, with the collaboration of Jasmin Guénette, Vice President of the MEI.

Read the Research Paper (in PDF format only)

This Research Paper was prepared by Alexandre Moreau, Public Policy Analyst at the MEI, with the collaboration of Jasmin Guénette, Vice President of the MEI.

Highlights

Over time, the Quebec government has modified, on several occasions, the forest regime that governs the activities of the forestry industry. This Research Paper reviews the history of the forest concessions regime, the TSFMA regime, and the main events that influenced the new 2013 forest regime. It also proposes reforms inspired by the positive aspects of the former regimes and of practices that prevail elsewhere.

Chapter 1 - The Management of Public Forest Lands: From “Laissez-Faire” to State Control

  • In 1826, we see the emergence of Quebec’s first formal forestry regime, namely the forest concessions regime, whereby the government granted exclusive logging rights to the trees located within the limits of the concession.
  • Being almost the equivalent of owners, it was in the interest of concession holders to invest and to sustainably harvest the forests they were allocated since the long-term profitability of their companies depended on it.
  • Although the forest concessions regime had many positive features, the government declared in the early 1960s that the exclusive logging rights granted to concession owners on all species did not allow for the public forests to be harvested to their full potential.
  • In 1974, the government proceeded with the gradual revocation of forest concessions through its Act to amend the Lands and Forests Act, and between 1972 and 1985, the total area of concessions diminished by 36%.
  • By adopting the Forest Act in 1986, the government put a definitive end to the forest concessions regime that had prevailed for over 150 years, redefining the division of responsibilities between companies and the government in such a way that the latter now played a predominant role in terms of the management of public forests.

Chapter 2 - Centralizing Responsibility and Overharvesting the Resource

  • Quebecers’ discovery of the forest coincided with growing reservations about commercial forestry activities, and in a poll conducted in 1989, a considerable portion of the population expressed a negative attitude toward the forestry industry.
  • Despite the fact that the determination of the volumes of timber available to be harvested has ultimately been the responsibility of the Department and not of private actors since the introduction of the TSFMA regime in 1986, many claimed that logging companies were responsible for the potential overharvesting of public forests in the early 2000s.
  • As Quebec’s Auditor General revealed in 2002, it was indeed the Department of Natural Resources that was not living up to its responsibilities.
  • The Coulombe Commission subsequently showed that the government’s annual allowable cut estimates were much too optimistic, and consequently, that the harvest objectives were too high relative to the forest’s capacity to regenerate.
  • The government’s directives aiming to increase the timber harvest thus certainly contributed to the 22% reduction in stocks of timber for softwood species between 1970 and 2008, although this reduction in stocks was compensated for by a considerably reduced forest harvest in subsequent years due to the financial crisis and the reduction in housing starts in the United States and Canada.
  • Surprisingly, even though the criticisms formulated by the Coulombe Commission and the Auditor General are directed toward the Department, they led to the virtually complete centralization of forest management in the hands of government agencies.

Chapter 3 - Reforming the Forest Regime in a Time of Crisis

  • Due to the softwood lumber dispute between Canada and the United States, and the 2008 economic crisis, thousands of jobs were lost in the forestry industry and many mills had to shut down.
  • It is in this context of crisis that another major overhaul of the forest regime was undertaken, culminating in the adoption of the Sustainable Forest Development Act in 2013.
  • A tiny proportion of the timber volumes in public forests are harvested annually, amounting to slightly less than 1% since 1990.
  • The short-term vision that characterizes supply guarantees under the current regime and the often downward revisions of timber volumes allocated in public forests serve to discourage investments that require long-term planning.
  • Nine years after it came into effect, the Softwood Lumber Agreement between Canada and the United States reduced Canadian softwood lumber 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 producers 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 difficult 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.
  • Between 2010 and 2014, the government fees paid by Quebec companies more than doubled and are now nearly twice as high as those paid by their Ontario competitors.
  • In other countries, mills generally have greater latitude in developing forestry management plans and a longer timeframe within which to plan their investments.

Introduction

The challenges facing Quebec’s forestry sector are numerous 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 have been social demands for more government intervention in the management of public forests.

Over time, the Quebec government has responded to these pressures and challenges by modifying, on several occasions, the forest regime that governs the activities of the forestry industry. The gradual abolition of forest concessions starting in the 1970s was a turning point. From that moment on, the trend has been toward the centralization of responsibility in the hands of the government department responsible for the forests and the different agencies it oversees. Today, companies have hardly any responsibility left, and the competitiveness of mills depends in large part on the work of government officials.

The first chapter of this Paper reviews the history of the forest concessions regime in order to highlight some of its positive aspects and debunk some myths that were used to justify greater government involvement in the management of public forests. Chapter 2 focuses mainly on the TSFMA regime and the hypothesis of overharvesting. Chapter 3 demonstrates the economic importance of the forestry sector in Quebec’s regions by emphasizing the main events that influenced the new 2013 forest regime. Based on these observations, Chapter 4 targets the new forest regime’s flaws and proposes reforms inspired by the positive aspects of the former regimes and of practices that prevail elsewhere.

Read the Research Paper (in PDF format only)


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