Ottawa’s new fund to back “green” forest industry capital spending

Sources say the plan to help Canadian companies compete will be announced by mid-week

Ottawa’s new fund to back “green” forest industry capital spendingThe federal government is preparing to announce a major fund to support capital spending by Canadians forest products companies—a measure designed to compete with a controversial multibillion-dollar U.S. subsidy scheme for pulp mills.

Government and industry officials familiar with the Canadian plan, which is being developed by Natural Resources Minister Lisa Raitt’s department, told Maclean’s they expect the plan to be announced by the middle of this week.

Final details were still being worked out. However, sources familiar with the file said Raitt’s new fund will be earmarked for energy-efficient expansions and upgrades undertaken by companies that own 35 pulp mills across Canada.

Those mills are now coming under what the industry complains is a grossly unfair competitive disadvantage compared to U.S. mills, which are reaping huge alternative-fuel tax credits. The U.S. government is paying the companies billions based on their use of so-called “black liquor,” a byproduct of pulp production that is commonly used as a fuel in the mills.

Raitt’s department has come under intense pressure, from both pulp and paper companies and unions, to offer a Canadian version of the subsidy. However, there will apparently be major differences between the U.S. tax credit and her plan.

Companies collecting the U.S. black liquor subsidy can use the money for anything, including normal operating costs. Companies in Canada will be able to draw from Ottawa’s new fund, sources said, only to offset capital costs, especially for “green energy” upgrades.

The amounts companies will be eligible to take from the fund will be calculated based on the amount of black liquor they produce at their affected Canadian pulp mills. However, the money will be eligible to offset capital spending, not just at the pulp mills directly hurt by the U.S. subsidy, but also at other operations in the same company.

It remains to be seen if forest products companies and unions will be satisfied with Ottawa’s response. The U.S. subsidy has hit some operations very hard. Quebec-based Tembec, for instance, is slated to close its Kimberly, B.C. pulp million at the end of this month, largely as a result of heightened competition from U.S. mills backed by Washington’s black liquor tax credits.