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  • Forestry definitely doesn't pay the bills, folks


    David Broadland
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    In the last two years, the cost of hidden subsidization of BC’s logging industry has been greater than the industry’s contribution to BC’s GDP. And it's going to get worse.

     

    IN 2020 I WROTE A STORY titled “Forestry doesn’t pay the bills, folks.” It looked at the costs and revenues of the ministry of forests over a 10-year period and found that, over that time, the ministry spent about a million dollars a day more than it took in through stumpage revenue and the BC Logging Tax.

    While many people appreciated that analysis, others found it flawed. The skeptics noted that costs were based on entire ministry costs, not just forest-related costs. The Ministry of Forests, Lands, Natural Resource Operations and Rural Development, they believed, had many costs that were not related to forest management. Take those out and the picture would change, they hoped. Others noted that my analysis didn’t include export, corporate or municipal taxes paid by forestry companies or the income taxes paid by forestry workers, and so forth.

    Others observed that the analysis didn’t include costs such as the $24 million paid by the community of Peachland, which needed to install an expensive water treatment facility to take out the sediment that clearcut logging has introduced to its watershed; it didn’t include the estimated $100 million cost to the community of Grand Forks where flooding attributed to logging in the Kettle and Granby watersheds has cost people their homes and overturned their lives. Nor did it include the cost of fisheries lost as a result of increased sedimentation and rising water temperatures caused by clearcutting over 250,000 hectares of forest each year. And so on.

    In other words, there were two kinds of objections: 1. You didn’t credit the forest industry for all the revenue it provides for government, and 2. You didn’t include all the costs.

    This is an update of my first analysis, starting with the objections about not including all the revenue to government that the forest industry generates. I am interested in your objections to this report. I’ll include them when I update this story down the road. So let’s start with a brief reexamination of the numbers in my first report.

     

    The forest management subsidy

    Although the ministry publishes an Annual Service Report that provides generalized breakdowns of costs and revenues, it doesn’t specify which are forest-related expenses and revenues. So I filed FOIs with the Ministry of Forests, Lands, Natural Resource Operations and Rural Development aimed at clarifying what ministry revenue and expenses were forest-related. The documents released (attached at end of story) show the vast majority of its expenses are forest-related. The ministry’s account of its forest revenues increased the value of those revenues slightly over what I had estimated from their Annual Service Plans. In the graph below I show the net deficit for each year, 2010 to 2019. The cumulative operating deficit of the ministry over 10 years was $3.44 billion rather than the $3.65 billion identified in my earlier story. That works out to $942,466 a day.

     

    2035730718_Forestmanagementsubsidizationofforestindustry2010-2019.jpg.c657360baefcb9c21653a7b68ac8b320.jpg

     

     

    Taxes paid by workers and corporations don’t pay ministry bills, they pay for services used

    So what about the question of the personal income taxes paid by forestry workers and the municipal and corporate taxes paid by forest companies? Shouldn’t those be included, somehow, in determining whether “forestry pays the bills”?

    The ministry of forests, of course, doesn’t include corporate or municipal taxes paid by forestry companies or the income taxes paid by forestry workers in its reckoning of revenue, and for good reason. In each case, the taxes collected by some level of government, like municipal taxes collected from a sawmill operating within a municipality, or income taxes collected from a feller-buncher operator in Quesnel, go to pay for a host of services provided by that government that have nothing to do with the ministry of forests. These are services that are consumed, in part, by that sawmill or that feller-buncher operator.

    For example, the healthcare services provided to residents of a community with a mill operating in it are paid for by such revenue streams as corporate and income taxes. When the feller-buncher operator needs a hip replacement as a result of a work-related injury, the cost of that surgery is paid for by such government revenue streams. When the home of the head sawyer at the local sawmill is burglarized, the police that investigate are paid for by such revenue streams. The mill manager’s children are educated in a school that is partly funded by property taxes collected by the municipality, including from the mill. Forestry workers, and the companies they work for, aren’t just paying for government services through their taxes. Like the rest of us, they are also consumers of those services. Their taxes pay for their own use of myriad government services, just like every other kind of taxpayer.

    By the way, for various reasons, people who live in forestry-dependent communities have notoriously high health costs compared with urban populations.

    In general, all the arguments from the forest industry and its supporters about how much they contribute to the provincial economy are half true; they always fail to include in their analysis all the costs to government that are incurred to keep them housed, warm, fed, clothed, educated, employed, policed, healthy, mobile, governed and defended from enemies, both internal and external.

    The same principle applies to corporate income taxes. Those taxes go to pay for a host of government services those corporations consume, as well as the cost of the burdens their operations impose on the rest of the community.

    All workers and corporations in BC pay taxes, not just forest industry workers and corporations. In fact, in 2019, 98.2 percent of the workers in BC who paid taxes were not forest industry workers. Only a tiny fraction of BC companies that paid corporate income taxes were forestry companies.

    Another aspect of the ministry’s costs that people questioned was the “direct fire management” cost, the cost of fighting forest fires. To what extent is this cost actually attributable to the logging industry?

    All of BC’s largest fires in 2021 included large areas of clearcuts and plantations. Those clearcuts and plantations raise fire hazard to “high” for up to 30 years. They create fuel conditions in which fires are easier to ignite and harder to control, and so we are experiencing larger fires more frequently than would be the case had there been no logging. Moreover, much of the money spent fighting those fires is paid to logging companies and allied businesses. The logging industry needs to man-up and acknowledge its role in causing and benefitting from these fires. Forest fires destroy structures, damage community economies, harm human health and kill people. None of those costs have been included in the ministry’s accounting of “direct fire management costs,” and so attributing all of the ministry’s cost of fighting forest fires to the logging industry is likely a significant undercount of the true costs.

    Now let’s consider some of the costs I left out of my first analysis. Here, there’s plenty of room for improvement over my previous assessment.

     

    What constitutes a subsidy?

    First off, let’s define the term “subsidy.” The World Trade Organization does that in detail. Here, I paraphrase that organization’s definition of “subsidy.” A subsidy is deemed to exist when a government makes a direct transfer of funds; or government revenue that is due is foregone or not collected; or a government provides goods or services other than general infrastructure; or a government makes payments to a private body to carry out the type of functions that would normally be vested in government; and, as a result of any or all of these circumstances, a benefit is thereby conferred to an industry.

    The “forest management subsidy” illustrated in the graph above is an example of government revenue that is due but not collected. The BC government sets stumpage rates, yet those stumpage rates—even after all other sources of forest revenue are included—consistently do not cover the ministry’s operational costs for managing the industry’s operations on public land. As a result of the BC government’s failure to require the logging industry to pay for the cost of managing forest removal on public land, a benefit is conferred to the industry. That constitutes a public subsidy of the industry.

     

    Public subsidization of the forest industry’s consumption of electricity

    Now let’s consider other benefits conferred on the forest industry, starting with public subsidization of the electricity it consumes. Over the 10-year period for which we gathered data, the public subsidization of the cost of electricity used by forest companies amounted to $5.1 billion.

    You won’t find a record of this public subsidy anywhere in the forest industry’s or the ministry of forests’ public accounts of their operations. It occurs entirely as a result of BC Hydro’s inequitable rate structure. Here’s how we calculated it:

    Residential consumers of electricity in BC—who, as a class, are BC Hydro’s largest customer—pay a two-tiered rate for electricity. If a residential customer keeps their consumption to less than 675 kilowatt-hours per month, they pay 9.3 cents per kilowatt-hour. If they go over 675 kilowatt-hours, they pay 13.94 cents per kilowatt-hour.

    The principle applied to residential consumers is this: If you consume more than a set amount, you pay a higher rate. BC Hydro uses this strategy in order to encourage consumers to conserve electricity. Why? Because supplying additional capacity is very expensive. Consider the estimated $16 billion cost of Site C to understand just how expensive supplying additional capacity can be.

    But this principle of applying a higher rate for higher consumption is flipped on its head when it comes to forest industry consumers of electricity.

    BC Hydro’s current rate for “Large General Service” users—those customers whose average monthly consumption is at least 45,833 kilowatt-hours, and that would include all BC pulp and paper mills and virtually all sawmills and veneer/panel mills—is currently 5.96 cents per kilowatt-hour, no matter how much electricity is consumed. If a mill uses less than 45,833 kilowatt-hours, they pay a higher rate.

    Why wouldn’t the same principle of higher rates for higher levels of consumption be applied to the forest industry if the rationale for higher rates for consumers is to get them to conserve expensive capacity? Over the last 5 years, the forest industry has consumed an average of 6000 gigawatt-hours per year of BC Hydro’s output. Site C will generate 5100 gigawatt-hours of electricity per year. If the forest industry consumes the equivalent of Site C’s capacity, why aren’t there rates in place that would encourage industry consumers, like residential consumers, to conserve? And why should the industry pay less in any case? This preferential treatment amounts to a public subsidy.

    The magnitude of the subsidy can be determined from the difference in the rates for residential consumers and forest industry consumers.

    Since BC Hydro does not apply the same principle to forest product mills as it applies to residential consumers, the forest industry is being subsidized by BC Hydro residential consumers. That subsidy amounted to 4.81 cents per kilowatt-hour in 2010 and rose to 7.98 cents per kilowatt-hour by 2020.

     

    815163963_BCHydroratecalculation.jpg.a0a8e495092f51b588619b8e658bd74a.jpg

     

    We obtained records through an FOI request for BC Hydro records that show the electrical energy consumption of BC forest industry companies for 5 years in that 10-year period (attached at the end of the story). Based on those numbers, and other data that allowed extrapolation for the years we didn’t have, we calculated that the public subsidization of the forest industry’s use of electricity amounted to $5.1 billion.

    Some of you will question whether the lower electricity rates given to the forest industry by publicly owned BC Hydro can actually be considered a public subsidy. You might point to WTO rulings in the Softwood Lumber Dispute regarding US claims that two BC forest companies were paid excessive rates for electrical energy they sold to BC Hydro. Those claims were rejected by the WTO, but not because differences in electricity rates can’t constitute a subsidy. The resolution of that issue by the WTO, in fact, confirms that electrical rates can constitute a subsidy. But the WTO’s mandate isn’t to consider the public interest. It’s only interest is in promoting international trade. For the average British Columbian, who has long been told by the industry and its promoters that “forestry pays the bills, folks,” the important issue is how much of the logging industry’s electricity bills are actually being paid by the excessively high rates of ordinary folks. Over the past ten years that has amounted to $5.1 billion.

     

    827000277_Electricityratesubsidizationofforestindustry2010-2020.jpg.ea18253df5149f3d4a5a5a8455543b12.jpg

     

    Public subsidization of the forest industry’s release of forest carbon emissions

    When an area of BC forest is clearcut, it is immediately transformed from being a carbon sink into a carbon source. While the forest industry and its supporters argue that the carbon in all forests will eventually return to the atmosphere anyway, the acceleration of this return caused by clearcutting creates an immense surge in carbon emissions that would never have occurred naturally, especially in the time frame in which this is occurring.

    Moreover, turning primary forests into plantations, where the intention is to log the plantation in 45 to 80 years, creates a large carbon debt that will never be repaid.

    Carbon that enters the atmosphere as a result of the forest industry’s activities has the same physical effect as carbon coming from a car’s tailpipe; they both cause global heating.

    In response to the climate emergency, the BC government introduced a carbon tax in 2008 which applied only to fossil fuels. The BC government acknowledged that carbon emissions needed to be reduced in order to avoid damage that could be expected as the result of climate change. They were thinking of such events as those that overwhelmed BC in mid November 2021, in which communities were flooded and transportation infrastructure was badly damaged. The fires in the summer of 2021 caused similar losses, with Lytton burned to the ground. These events will be very costly to BC taxpayers.

    By not applying the Carbon Tax to the forest industry’s forest-removal activities—which cause far greater carbon emissions than the burning of hydrocarbon fuels in BC—a financial benefit was conferred on the forest industry. That is, the public is subsidizing the forest industry’s carbon emissions. For the period 2010 to 2020, that subsidy is shown in the graph below:

     

    994596029_Carbonemissionssubsidizationofforestindustry2010-2019.jpg.4fa4fa35a7aadbb77dfc930a70173b94.jpg

     

    We calculated this subsidy based on the rate of the Carbon Tax for each year and the estimated biomass of forest removed in each of those years. We used the ministry of forests’ Harvest Billing System to determine the volume of logs removed from public land for each of the 10 years, and used the results of a scientific study conducted by Suzanne Simard and Jean Roach to estimate the original forest biomass those logs came from. The summary of how that biomass was estimated can be found here.

    We determined the value of annual forest carbon emissions by using the value of the BC Carbon Tax that was applicable in each of the 10 years. The total 10-year value of carbon emissions subsidization was $31.5 billion, or an average of $3.15 billion per year. In 2019, the BC Carbon Tax was $40 per metric tonne. Since the carbon tax is set to increase to $170 per tonne by 2030, this annual subsidy will rapidly increase in size.

     

    Public subsidization of the loss of carbon sequestration capacity caused by the forest industry

    Lastly, we calculated the subsidy related to the loss of carbon sequestration capacity caused by logging in the period 2010 to 2019. To calculate this subsidy we used the Province’s own account of net carbon sequestration capacity loss and the applicable level of the Carbon Tax for each of those years.

    Through the 1990s the province’s carbon sequestration capacity—the net amount of carbon BC forests could take out of the atmosphere each year—held relatively steady at about 90 million tonnes of CO2-equivalent. Beginning in 1999, as a result of logging and forest loss from other causes, the capacity of BC forests began to fall. The Province has estimated that capacity each year. Here’s what that decline looks like:

     

    1432407442_CarbonSequestrationcapacity1990-2019.jpg.ab945a9d3022e03b1e67ca3309037a47.jpg

     

    To calculate the cumulative amount of this loss, we used the difference between the level in the 1990s and the level estimated by the Province for each year between 2010 and 2019.

    We then calculated a dollar value for the carbon sequestration that didn’t occur each year, using the value of the Carbon Tax that was applicable in each of those years. That totalled close to $22 billion over 10 years.

     

    1488128087_Losscarbonsequestrationcapacity.jpg.2059b13900b35442988df59e2e822440.jpg

     

    How much of this should be attributable to logging and how much to the Mountain Pine Beetle and forest fires? We compared the volume of forest lost to each since 1999 and found that logging accounted for about 60 percent of the total forest loss. To be on the conservative side, we dropped this to 50 percent. So we attributed one-half of the cumulative monetary cost of carbon sequestration loss over the period 2010 to 2019 to logging—$11 billion.

     

    evergreenalliance_ca.jpg.72009d3e353dc5263a6457a9add53508.jpg

     

    For those of you who don’t think this is a real cost, consider the efforts of Carbon Engineering, the Squamish-headquartered clean tech company that has created a machine that removes carbon dioxide from the atmosphere—like trees do—and turns that into a hydrocarbon fuel. The goal of the company is to build equipment that can do that at a cost of $100 per tonne. The company’s efforts have attracted investors and media attention from around the planet. The function of Carbon Engineering’s machine amounts to what trees do naturally—for free.

    In our calculation of the value of lost carbon sequestration capacity, we used Carbon Tax values ranging from $20 in 2010 to $40 in 2019. But at $100 per tonne—Carbon Engineering’s ultimate target—the cost to the forest industry for causing the loss of just this one forest function would be valued at $36 billion over a 10-year period. As noted above, the carbon tax is set to increase to $170 per tonne by 2030, so like the carbon emissions subsidy, the annual carbon sequestration subsidy will rapidly increase in size.

    If someone destroyed one of Carbon Engineerings’ privately-owned machines, there would be a huge bill to pay. But a logging company destroying a publicly-owned forest that provides exactly the same function? Well the public is paying the logging companies, through the various subsidies outlined here, to do just that.

    The total cost of all these subsidies is astounding. The graph below shows the total cost by year. The cumulative cost of just these four subsidies is $50.6 billion over those 10 years.

     

    1137904390_PublicsubsidizationofBCforestindustry.jpg.86bae4eb1ad9e897e2a3ed1d7ae1ad94.jpg

     

    The last thing to show you is how the total cost of these subsidies compares with the GDP of the forest industry, which is calculated by the provincial government. You can see in the graph below that in the last two years, the cost of the subsidies is actually greater than the industry’s contribution to BC’s GDP. This may now be a permanent condition since the largest of these subsidies are based on the value of carbon, which is rapidly rising. In 2019 it was $40 per tonne. By 2030 this will rise to $170 per tonne. At that point public subsidization of the forest industry will far exceed the industry’s contribution to GDP. Unless, of course, the provincial government’s approach to managing BC forests begins to recognize the role BC’s forests must play in mitigating climate change.

     

    579925316_GDPandpublicsubsidizationofforestindustry2010-2019.jpg.dc8157474e180b5682f5299b3d4b8f4e.jpg

     

    The bottom line, though, is that forestry doesn’t pay the bills, folks. You pay the logging industry’s bills.

    In the next iteration of this story, we will consider the cash subsidies taxpayers provide the logging industry—like the Bridge to Retirement program and the BC Forest Enhancement Society—as well as offer an estimate of the cost of damage done to communities and public infrastructure by the floods and fires that have been, in part, caused by BC’s over-exploitation of its forests.

    David Broadland is happy to have finally launched the Evergreen Alliance. He hopes readers will register on the site so they can receive The Forest, the Alliance’s weekly newsletter, which will begin circulating through cyberspace after the new year.

    Forests ministry response to FOI request FNR-2021-10554.pdf

    Forests ministry response to request for records of forest-related revenue and costs FNR-2020-07123 records.pdf

    BC Hydro response to FOI request for energy consumption by forest industry 2021-232_Records.pdf

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