| File: 12434-60/KBLUP
TITLE: Economic Objective in the Higher Level Plan for Kootenay-Boundary
SUBMITTED TO: Honourable Jim Doyle, Minister
SUBMITTED BY: Lee Doney, Deputy Minister
DATE: June 29, 2000
By way of this report, I am responding to your direction, as outlined in a
letter to the Interior Lumber Manufacturer’s Association (ILMA) dated
March 16, 2000, “to work with the ILMA to oversee the development of an
economic objective for the Kootenay Boundary higher level plan” (Appendix
1). The ILMA has proposed a timber supply (volume) objective, a cost objective,
and a timber profile objective for inclusion in the HLP. The ministry invited
limited stakeholder comment on the ILMA proposal. This report outlines the ILMA
request, summarizes the stakeholder input, and presents options and my
recommendations for your consideration.
Background
- A regional land use planning process was conducted in the Kootenays
between 1991 and 1995 under the direction of the British Columbia Commission on
Resources and Environment (CORE).
- Government announced two land use plans for the area in 1995: the East
Kootenay Land Use Plan and the West Kootenay-Boundary Land Use Plan. The plans
included recommendations on general land allocation, resource management
practices and socio-economic transition measures.
- The government’s 1995 land use decisions also committed provincial
agencies to further processes to refine land allocations and develop
geographically-specific resource management objectives across the region. Work
was undertaken to finalize those aspects by:
i. establishing the Revelstoke Minister’s
Advisory Committee (RMAC) in 1995 to provide the West Kootenay community of
Revelstoke the opportunity to advise on specific resource management guidance
for the Revelstoke area. As a result, the remainder of this discussion is
focussed on the area to be covered by the HLP, which excludes the area north
and immediately south of Revelstoke.
ii. developing the Kootenay-Boundary Land Use Plan Implementation Strategy
(KBLUP IS). The KBLUP IS translates the broad direction of the Land Use Plan
into more specific and measurable direction by providing strategic guidance for
operational land and resource planning and day-to-day administrative
decision-making. Cabinet adopted the KBLUP IS in 1997.
- In fall 1999, the ministers responsible for Higher Level Plans(1) (HLPs), in consultation with Cabinet, confirmed their desire
to see a HLP under the Forest Practices Code to establish certain provisions of
the KBLUP IS as legal requirements. A draft legal order for a Kootenay-Boundary
HLP has been finalized. Ten objectives have been drafted including biodiversity
(old and mature forest conservation, grizzly bear habitat, and connectivity
corridors), green-up and patch size, caribou habitat, consumptive use streams,
enhanced resource development zones - timber, scenic areas, and fire-maintained
ecosystems. Limited stakeholder consultations were conducted while the order
was being drafted, including both environmental non-government organizations
(ENGOs) and industry through the ILMA.
- In March 2000, the ILMA met with Minister Doyle to request the inclusion
of an “economic framework” in the HLP. In response to the ILMA,
Minister Doyle confirmed by letter that he supports including economic
objectives in Higher Level Plans. Minister Doyle directed me to consult with
the ILMA to formulate an economic objective while giving consideration to the
following principles:
“the economic objective will not compromise the
environmental objectives previously agreed to by ministers as warranting status
as higher level plan. It should, however, serve as an important tool is
assuring balanced implementation.
The Land Use Plan has assumed a reduction in harvest levels for the region.
Government is prepared to treat this reduction level as a threshold impact,
which cannot be exceeded as a result of plan implementation.
In the event that the identified level of impact is exceeded, it is presumed
that ministers will review on a priority basis and provide further
direction.”
ILMA Proposal
The ILMA has proposed a timber supply (volume) objective, cost objective,
and a timber profile objective for inclusion in the HLP.
- The ILMA’s proposed timber supply objective reads as follows:
To ensure economic, social and environmental balance is maintained, a
timber supply threshold of (see list below) m3 will be established. There will
be an annual review, conducted jointly between the licensees and the Ministry
of Forests, of the total volumes contained in approved operational plans to
ensure that the threshold is being attained. If the annual review indicates
that the threshold cannot be met in that year or any year in a five year
planning horizon by Timber Supply Area (TSA) or Tree Farm License (TFL), there
will be an immediate review by the ministers to ensure achievement of the
thresholds.
The timber supply threshold values by TSA and TFL will be reviewed by the
Ministers at least once every five years from the date this order takes effect.
These thresholds would be individually written into each RMZ as
follows:
Arrow – 600,000 TSA plus TFL 3 – 80,000 plus TFL 23 –
600,000
Boundary – 700,000 TSA plus TFL 8 – 145,000
Cranbrook – 850,000
Golden – 540,000
Invermere – 590,000 TSA plus TFL 14 – 164,000
Kootenay Lake – 700,000
Spatial timber supply analyses for the TSA and TFLs within the RMZ, with a
minimum 20-year planning horizon, will be completed within 3 years of this
order taking effect. If the timber supply threshold, by TSA or TFL cannot be
met in this planning horizon, there will be an immediate review by the
Ministers to ensure achievement of the thresholds.
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- ILMA’s proposed harvesting costs objective reads as follows:
To ensure that economic, social and environmental balance is maintained,
the magnitude of the difference in average delivered log cost (excluding
stumpage) in comparison to the rest of the southern interior will not be more
than 3% higher in any one year, or 5% higher in any one quarter than the annual
trend, or quarterly trend for that quarter, over the last five years. If the
cost trend exceeds the 3% threshold in any one year, or 5% in any one quarter,
there will be an immediate review by the ministers to ensure these thresholds
are not exceeded in the future as well as corrective action to reduce the
current costs to below the threshold.
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- ILMA’s proposed timber profile objective reads as follows:
In an annual review of each major licensee, if the harvest profile
changes by more than 10% in species composition and/or if the average piece
size drops by more than 10% from the previous five year average, there will be
an immediate review by the ministers to ensure actions are taken to reduce the
change in species composition and/or average piece size to below the threshold
value.
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Stakeholder Input
Given the commitment of the minister to move quickly to address the
ILMA’s proposal, it was not possible to undertake extensive stakeholder
consultation during the development of this report. In this process, a very
limited stakeholder consultation took place involving regional contacts from
ENGOs and Industrial Wood, and Allied Workers of Canada (IWA) and their
comments are summarized below. There will be opportunity for a broader range of
comment on the proposed HLP order during the sixty day review and comment
period.
ENGO comments
ENGO comment was strongly opposed to the inclusion of an economic objective
in the HLP. ENGOs suggested that ILMA’s proposal could be accommodated by
declaring government’s intent in the delegation letter, with no need to
legalize a review triggered by cut impact or a change in delivered wood costs.
ENGOs could support a review of inter-license equity and costs as part of
implementation monitoring, in a covering letter or some other implementation
document, but not as an HLP objective. This commitment would extend to
monitoring both environmental and economic indicators. It was noted that
government accepted the KBLUP-IS based on the 4.7 to 5.2 million cubic metres
per year range that has been on the table for several years, and that it is
reasonable to expect that government be committed to a review if the regional
cut level falls below 4.7 million cubic metres per year. ENGOs also suggested
that there should be no commitment to equalize impacts between management units
(TSAs and TFLs); any considerations of volumes should be regional. ENGOs would
also strongly oppose a cost threshold, but government could commit to review
Allowable Annual Cuts (AACs) and chart areas (operating areas) in the next year
and immediately re-assign chart areas among licensees if necessary. ENGOs will
be very concerned about any further delays in implementation of the HLP.
IWA comments
IWA representatives commented that they are encouraged that there appears to
be an understanding in the ministry that economics should play a role in the
planning process. IWA endorses the proposal of a timber supply (volume)
threshold. They are supportive of the proposed spatial analysis to prove out
wood supplies. IWA would like to see economic objectives defined to ensure
forest products workers remain gainfully employed in their communities.
Options
I have been asked to examine the merits and implications of including one or
more economic objectives in the HLP order. This is not without precedent. For
example, in establishing the Cariboo-Chilcotin Land Use Plan as a HLP in 1996,
government committed to balancing economy and environment, by providing for
forest industry access to 70% of the timber from the productive forest land
base in special resource development zones. Subsequently, additional access
targets for other zones in that land use plan were established through
amendments to the HLP. Although this timber access-to-area approach has been
applied successfully in the Cariboo-Chilcotin area, I have been advised that
sufficient data and analyses are not available at this time to extend this
specific approach to the Kootenay-Boundary area.
My discussion below is focussed on the issues of “volume”,
“cost”, and “timber profile” and the options to deal with
them as either an objective (i.e. expressed in the legal HLP), or, as a
“threshold” (i.e. a target value expressed in a letter of agreement).
Objectives and Thresholds
In considering the content of a Higher Level Plan it is important to
appreciate the difference between an objective and a threshold. By definition,
an objective is a target, something to be achieved if possible given other
objectives and constraints. A threshold, on the other hand, is a parameter
which, if it is surpassed, triggers some kind of reaction.
The proposal by the ILMA is more in the nature of thresholds than of
objectives. The proposal is that the HLP itself commit government to
revisiting, and possibly amending, the HLP if its impacts exceed specified
thresholds related to timber supplies, costs, and timber profiles. The proposal
speaks more to potential administrative process than it does to objectives
per se.
Volume
With the distinction between objectives and thresholds in mind, I have
considered what would constitute an appropriate volume objective or threshold
based on the following:
- The current AAC for the Nelson Forest Region is about 5.5 million cubic
metres per year (see Appendix 2). Under the first round of Timber Supply
Reviews (TSR1), from 1992 to 1996, the AAC for the region dropped over 9
percent, from 6 million cubic metres per year (pre-TSR1) down to 5.5 million
(post-TSR1). The regional harvest level for the past five years is also about
5.5 million cubic metres per year. Note that these figures are for the region
as a whole, including both the Kootenay-Boundary HLP area, and the RMAC area.
- The ILMA has proposed that the HLP order should include an economic
objective that establishes a timber supply threshold for each management unit
(TSA or TFL) in the KB HLP area. The volume thresholds proposed by the ILMA
total approximately 5 million cubic metres per year. This is essentially the
status quo; the current AAC for the area covered by the HLP area is also about
5 million cubic metres (see Appendix 2). Establishment of the proposed
thresholds would mean that a reduction in AAC for any of the management units
in the KB HLP area would trigger a review by the ministers. However, the 1997
KBLUP-IS was approved by government with the recognition that there would
likely be harvest level reductions and economic impacts for the region. Again
in 1999, government considered the potential economic and environmental impacts
of establishing the KBLUP IS as a higher level plan. A number of analyses (see
Appendix 3) have shown that a reduction in harvest level may be required in
order to achieve the environmental objectives in the proposed HLP.
Consequently, a volume objective which simply reflects the status quo is likely
to conflict with the HLP’s environmental objectives and with
government’s previous expectation. In this context, an objective and
threshold which provides for no impact on the current harvest levels is
difficult to support at this time.
- Having concluded that it would not be appropriate in the circumstances to
establish an objective and threshold that are in essence the “status
quo” harvest level, I then examined the implications of an objective and
threshold that falls within the range of potential impacts as expressed by
previous analysis. For the area subject to the proposed HLP, this range is 4.3
to 4.8 million cubic metres per year (i.e. not including 0.4 million cubic
metres per year in the RMAC area).
- Establishing an objective and threshold at 4.3 million cubic metres per
year equates to an impact of 700,000 cubic metres below current harvest levels
for the HLP area. It seems inappropriate to contemplate such dramatic economic
and social impacts on the region before government seriously reviews the
situation and evaluates options for addressing the problems.
- I have also examined the option of establishing an objective and threshold
at 4.8 million cubic metres per year. Recent analyses suggest that it will be
feasible to achieve this timber supply objective in the short term while still
meeting the environmental objectives of the HLP (see Appendix 3), although
spatial analysis will be required to confirm this assessment (see below). This
objective would accommodate significant timber supply impacts (up to 200,000
cubic metres per year) in the event that this proves necessary to meet the
environmental objectives proposed in the draft HLP. Finally, as noted, this
harvest level would represent the high end of government’s previous
expectations regarding impacts, and a government review of options appears
warranted should this threshold level be reached.
A volume objective and threshold would not bind the statutory authority of
the Chief Forester to determine AACs as per the Forest Act. However,
ongoing AAC determinations and supporting analyses would be a principal means
of monitoring the attainment of the volume objective. Timber supply could also
be analyzed by means of a spatial analysis as described below. Including this
volume-denominated objective in the HLP would carry considerable weight and
should provide a reasonable degree of comfort to those who have advocated
formal recognition of economic factors in the HLP.
In light of the above, I have concluded that it would be reasonable to
include a volume objective in the legal HLP order. I also recommend that the
same volume be defined as a threshold, as a companion piece to the legal HLP.
This threshold could be expressed in a letter from the ministers to the ILMA,
or in a communications package released with the HLP. The volume objective and
corresponding threshold are mirror images of each other: one to guide licensee
proponents and statutory decision-makers, and the other to serve as a
commitment by government to trigger a process if the objective is not reached.
The threshold, if and when it is reached, would trigger a review of several
inter-related issues, including the HLP, in order to determine whether changes
are necessary. It should be noted that this recommendation is subject to
further legal review to assure that the legal ramifications and operational
implications of a HLP objective of this nature are fully understood.
I do not recommend disaggregating a regional volume objective and/or
threshold into a series of individual objectives and/or thresholds for each
management unit (TSA or TFL). I have concluded that Cabinet’s intention in
1997 was to deal with timber supply impacts on a regional basis, not management
unit by management unit. In addition, it would be difficult, contentious, and
very time-consuming to determine appropriate timber supply objectives for
individual management units, given the unique timber supply and environmental
pressures in each unit.
Cost
I do not recommend including a cost-denominated objective in the HLP, nor do
I recommend specifying a mirror-image threshold that would cause government to
revisit the HLP. There are several reasons why I recommend against either of
these:
- A licensee’s costs do not necessarily flow through to “the
bottom line”. For example, one feasible scenario is that costs will rise,
but market prices will rise even more, resulting in better, not worse,
financial performance.
- In the normal course of events, stumpage rates reflect changes in costs,
albeit with a not-insignificant time lag between when costs change on the
ground and new appraisal formulas take effect. If indeed costs arise in any
particular operating circumstance, they will ultimately be captured in annual
cost surveys and used in the development of updated appraisal formulas. All
else being equal, stumpage rates in the relevant circumstances will fall.
- Tracking costs within the area covered by the HLP and separately within
the rest of the Southern Interior would be very problematic, particularly in
terms of somehow standardizing for differing operating circumstances (e.g.
timber profile, terrain, haul distance). It would be very difficult to make a
statistically valid comparison between those two sampled populations, at least
not at the level of refinement proposed by the ILMA.
My expectation is that, if a given licensee ultimately faces significant
financial difficulty as measured by profitability and not just costs,
government will, as a matter of course, investigate the causes and assess what
regulatory or policy changes are warranted. This has always been the case, and
will continue to be the case. I do not feel that creating a cost-denominated
objective or threshold would materially change the situation. It would,
however, set the stage for very onerous and contentious data tracking and
analysis that would add little if any to government’s routine
administration of forest tenures.
Timber Profile
My recommendation regarding a timber profile objective, whether measured as
a change in species mix or a change in piece size, is the same as for a
cost-denominated objective. Timber profiles are in constant flux throughout the
province. I do realize that the licensees in the area to be covered by the HLP
fear more dramatic change than has been typical in the region. However, even if
such changes have a significant impact on costs, that is but one element that
determines financial viability. Without repeating the discussion above, I have
concluded that it makes more sense to rely upon normal licensee dialogue and
tenure administration to handle such eventualities if they arise. I believe
that there would be little gained by including either of the timber profile
objectives requested by the ILMA in the HLP, or in committing to revisiting the
HLP if a given licensee’s species mix or average piece size were to change
by more than some amount.
Spatial Analysis
I recommend that government and licensees jointly assess future timber
supplies by way of a regional spatial analysis. I feel that this is very
important in order that all parties can comfortably predict with significant
lead time what the timber supply is going to be. This would be in contrast to
assessing supply solely on the basis of changing AACs, or on the basis of
volume contained in approved forest development plans. A high-quality spatial
analysis would allow government to intervene, if it chose, well before serious
problems arose on the ground.
I am told that a proper spatial analysis would take two to three years, and
would cost as much as $1 million. I recommend that the Ministry of Forests and
the Ministry of Environment, Lands and Parks jointly approach Treasury Board,
possibly with this issue as part of a broader submission on land-use planning
across the province. I recommend that government funding of this nature be
contingent upon licensees in the area funding an equal amount of this project.
A 50/50 cost share approach is appropriate given that both industry and the
public will benefit equally from a spatial analysis initiative.
Five Year Review
I recommend that the higher level plan be reviewed in five years time. The
spatial analysis results would provide valuable information to construct a
“report card” that would assess the implementation of the higher
level plan objectives generally as well as the timber supply implications.
Summary
In summary, I recommend that ministers give consideration to including in
the pending Higher Level Plan, a regional timber supply objective of 4.8
million cubic metres per year for the area to be covered by the HLP. I also
recommend that this number be defined as a threshold, in a companion piece to
the HLP. This threshold could be expressed in a letter from the ministers to
the ILMA, or in a communications package released with the HLP, such that if it
becomes clear that timber supply will drop below this number, the Province will
be committed to assessing whether the HLP should be amended. This
recommendation is subject to further legal review to assure that the legal
ramifications and operational implications of a HLP objective of this nature
are fully understood.
I do not recommend including a cost-denominated or a timber
profile-denominated objective in the HLP. Nor do I recommend either type of
threshold being specified as cause for assessing whether the HLP should be
amended. I recommend instead that the ministers commit to normal process for
any argument a given licensee might make in relation to HLP impacts on its
financial viability.
I also recommend that the Ministry of Forests and the Ministry of
Environment, Lands and Parks approach Treasury Board for funding of a regional
spatial analysis over the coming two to three years, contingent upon licensees
funding a significant share of such a project.
Finally, I recommend that government review the higher level plan in five
years time.
____________________________
Lee Doney, Deputy Minister
Ministry of Forests
Appendix 1
File: 12090-01
March 16, 2000
W. G. Crooks
President
Interior Lumber Manufacturers’ Association
360 – 1855 Kirschner Road
Kelowna, British Columbia
V1Y 4N7
Dear Gary Crooks
I would like to thank you and your members for taking the time to meet with
me on March 14th, to discuss your concerns regarding the proposed higher level
plan for Kootenay-Boundary. I appreciated your clear expression of views.
I would like to strongly reaffirm my personal concern for the economic and
social health of the communities in our region. A strong forest sector is
clearly essential to assuring strong and stable communities. I support
including economic objectives in higher level plans.
I should also take this opportunity to stress government’s ongoing
commitment to the implementation of the Kootenay-Boundary Land Use Plan. As you
and your members are clearly aware, the land use planning process in your
region represents a significant investment by stakeholders and government
alike. The plan represents a careful balancing of environment and economy, and
various stakeholders continue to hold strong views about the plan and its
implementation. We simply must continue to move forward to implement the land
use plan in a meaningful and balanced way.
In our meeting, we spoke of the need to actively explore the potential for
an economic objective for the higher level plan. We also discussed the need for
staff and industry to examine several recent timber supply analyses, to more
clearly describe what insights they offer regarding potential impacts of the
proposed higher level plan.
I am prepared to commit my Deputy Minister to work directly with you over
the next month to oversee the development of an economic objective for the
Kootenay-Boundary higher level plan. I will be asking the Deputy Minister to
apply the following principles in this work:
- The economic objective will not compromise the environmental objectives
previously agreed to by ministers as warranting status as higher level plan. It
should, however, serve as an important tool in assuring balanced
implementation.
- The Land Use Plan has assumed a reduction in harvest levels for the
region. Government is prepared to treat this reduction level as a threshold
impact, which cannot be exceeded as a result of plan implementation.
- In the event that the identified level of impact is exceeded, it is
presumed that ministers will review on a priority basis and provide further
direction.
This process to develop an economic objective for Kootenay-Boundary will be
completed no later than April 14, 2000. Work will continue on other aspects of
the higher level plan, but it will not be released for broader public review
before that date. During this period, and in a spirit of mutual cooperation, I
expect you to continue to honour the confidentiality protocol regarding the
details of the proposed higher level plan. A breach in protocol may seriously
affect our ability to work with you on this matter.
Ultimately, given a successful outcome to discussion over the coming month,
I am prepared to recommend to my colleagues that an economic objective be
included in the Kootenay-Boundary higher level plan.
Yours truly,
Original signed
Honourable Jim Doyle
Minister of Forests
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Honourable Dan Miller, Minister of
Energy and Mines
Honourable Joan Sawicki, Minister of Environment Lands and Parks
Lee Doney, Deputy Minister, Ministry of Forests
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Appendix 2
Table 1. Current AAC for the Nelson Forest Region, Kootenay-Boundary Higher
Level Plan (KB HLP) area, and Revelstoke Minister’s Advisory Committee
(RMAC) plan area.
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