Deciphering The Source Of Technological Change: Greenhouse Gas Emission Reductions In The British Columbia Forest Industry Between 1990 And 2005 Kyle Aben B.B.A., Thompson Rivers University, 2000 Thesis Submitted In Partial Fulfilment Of The Requirements For The Degree Of Master O f Arts in International Studies The University of Northern British Columbia December 2006 © Kyle Aben, 2006 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. 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Conformement a la loi canadienne sur la protection de la vie privee, quelques formulaires secondaires ont ete enleves de cette these. While these forms may be included in the document page count, their removal does not represent any loss of content from the thesis. Bien que ces formulaires aient inclus dans la pagination, il n'y aura aucun contenu manquant. i*i Canada Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. ABSTRACT Canada ratified the Kyoto Protocol in December 2002. For Canada to meet its greenhouse gas (GHG) emissions reduction commitments under the Protocol, actions by numerous industries will be required. The forest industries of British Columbia are the largest producer of GHGs in the province. In recent years, the industries have experienced an impressive drop in GHG emissions even though overall production has increased. In this thesis, I seek to explain the technological reasons for these decreases. Specifically, I analyze the source of technical change that led to GHG reductions in the British Columbia forest industry over the 15-year period from 1990 to 2005. My results demonstrate that technical change was induced by factors such as provincial government regulations, staying competitive through reducing energy costs, the opportunity to be carbon neutral through biomass utilization, and consumer demand. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. TABLE OF CONTENTS ABSTRACT ii TABLE OF CONTENTS iii LIST OF ACRONYMS v LIST OF TABLES vi GLOSSARY vii ACKNOWLEDGEMENTS xi Chapter 1: Introduction 1 1.1 S o u r c e s o f T e c h n o l o g i c a l C h a n g e 4 1 .2 R e s e a r c h M e t h o d o l o g y 6 1 .3 T h e s i s O v e r v i e w 8 Chapter 2: Climate Change and the Promise of Technological Change 10 2 .1 I n t r o d u c t i o n 10 2 .2 T h e E n v i r o n m e n t a l P r o b l e m o f C l i m a t e C h a n g e 12 2 .3 D e v e l o p m e n t o f I n t e r n a t i o n a l P o l i c y R e l a t e d t o C l i m a t e C h a n g e 15 2 .4 C a n a d a , K y o t o a n d T e c h n o l o g i c a l C h a n g e 22 Chapter 3: Methodology for Researching the Source of Technological Change 31 3 .1 I n t r o d u c t i o n 31 3 .2 T h e I m p o r t a n c e o f t h e S o u r c e o f T e c h n o l o g i c a l C h a n g e 33 3 .3 T h e o r i e s o f t h e S o u r c e o f T e c h n o l o g i c a l C h a n g e Path Dependence Evolutionary Theory Induced Technological Change 34 35 36 38 3 .4 IT C a n d C l i m a t e C h a n g e M i t i g a t i o n 40 3 .5 R e s e a r c h M e t h o d o l o g y 46 Description o f Research Methodology Research Steps Chapter 4: Research Results 4 .1 In t r o d u c t i o n 46 47 50 50 4 .2 B r it is h C o l u m b i a F o r e s t C o m p a n i e s : R e p o r t A n a l y s i s a n d I n t e r v i e w R esu lts 50 Canfor C orporation 50 Pope and Talbot Incorporate - Harmac Pulp Mill Weyerhaeuser Company and MacMillan Bloedel Howe Sound Pulp and Paper Limited Catalyst Paper Corporation Tolko Industries Limited 54 58 61 63 67 4 .3 S u m m a r y o f C o n t e n t A n a l y s i s a n d I n t e r v i e w D a t a 70 iii Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. When did British Columbia forest companies start reducing; GHG emissions and why? What technologies were used to reduce GHG emissions in the industry? What was the motivation behind utilizing these technologies? What would stimulate further GHG reductions in the forest industry? Chapter 5: Conclusions and Recommendations 5 .1 I n t r o d u c t i o n 70 71 73 77 79 79 5 .2 B r it is h C o l u m b i a F o r e s t I n d u s t r y a n d t h e T h r e e T h e o r i e s o f t h e S o u r c e o f T e c h n o l o g ic a l C h a n g e 80 Path Dependence Evolutionary Theory Induced Technical Change 80 81 82 5 .3 B r it is h C o l u m b i a F o r e s t I n d u s t r y : A u t o n o m o u s o r In d u c e d T e c h n o l o g ic a l c h a n g e ? 5 .4 L i m i t s a n d R e c o m m e n d a t i o n s Limitations Recommendations REFERENCES 85 86 86 87 90 iv Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. LIST OF ACRONYMS AEEI Autonomous Energy Efficiency Improvement AGGG Advisory Group on Greenhouse Gasses CER Certified Emission Reduction CETA Carbon Emissions Trajectory Assessment COP Conference Of the Parties CRTM Canadian Recursive Trade Model DGEM Dynamic General Equilibrium Model DIAM Dynamic Integrated Assessment Model DICE Dynamic Integrated Climate and Economy FPAC Forest Products Association Canada GDP Gross Domestic Product GHG Greenhouse Gasses ICAM-3 Integrated Climate Assessment Model IPCC Intergovernmental Panel on Climate Change ITC Induced Technological Change LFE Large Final Emitter OSB Oriented Strand Board UNEP United Nations Environment Program UNFCCC United Nations Framework Convention on Climate Change UNGA United Nations General Assembly VCR Voluntary Challenge Registry WMO World Metrological Association Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. LIST OF TABLES TABLE 2.1: British Columbia Forest Company Reductions From 1990 Levels. TABLE 4.1: When did British Columbia forest companies start reducing GHG emissions and why? TABLE 4.2: What technologies were used to reduce GHG emissions in the industry? TABLE 4.3: Motivations cited for technologies resulting in GHG emission reductions in the British Columbia forest industry. TABLE 4.4: What was the motivation behind utilizing these technologies? TABLE 4.5: What would stimulate further GHG reductions in the forest industry? Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. GLOSSARY Beehive Burner: A large conical steel shell with an opening in the top in which woodwaste is burned. Beehive burners are considered to be a major source of air pollution, in addition to contributing to greenhouse gas (GHG) emissions, and are being phased out in most areas. Biomass: Living and recently living biological material that can be used as fuel or for industrial production. Biomass includes plant matter used for production of fibres, chemicals or heat. Bunker C Oil: Thick sticky residual oil produced as part of the crude oil refining process. Carbon Credits (GHG Emission credits): Are measured in units of certified emission reductions (CERs). Each CER is equivalent to one tonne of carbon dioxide reduction. Countries or businesses that have exceeded specified GHG emissions levels can either cut down emissions, or buy carbon credits. Cogen (Cogeneration): A power station that simultaneously generates (cogenerates) both heat and electricity. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Frequency Drive: A system for controlling the rotational speed of an alternating current (AC) electric motor by controlling the frequency of the electrical power supplied to the motor. Gasification: A process that converts carbonaceous materials, such as coal, petroleum, petroleum coke or biomass, into carbon monoxide and hydrogen. GHG emissions credits (Carbon Credits): Are measured in units of certified emission reductions (CERs). Each CER is equivalent to one tonne of carbon dioxide reduction. Countries or businesses that have exceeded specified GHG emissions levels can either cut down emissions, or buy carbon credits. Heat Exchangers: A device built for efficient heat transfer from one fluid to another, whether the fluids are separated by a solid wall so that they never mix, or the fluids are directly contacted. Hog Fuel: Biomass fuel that has been prepared by processing through a "hog" - a mechanical shredder or grinder. It usually consists of a mixture of bark and wood and is generally wet and fibrous with a high ash content. viii Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Hog Fuel Press: Machine that reduces the water content in the hog fuel produced by exerting large amounts of pressure. Kraft Pulp: The Kraft process is the world's predominant chemical pulping process because of the strength of pulp it produces. The process involves cooking (digesting) wood chips in an alkaline solution of sodium hydroxide and sodium sulphide. The term "kraft" is interchangeable with "sulphate" and is derived from a German word that means "strong." Kraft Paper: Strong wrapping paper made from pulp processed with a sulphur solution. Bio-sludge (Organic): Sludge formed (in the aeration basin) during biological wastewater treatment or other biological treatment process. OSB (Oriented Strand Board): An engineered wood product formed by layering strands (flakes) of wood in specific orientations. In appearance it has a rough and variegated surface with the individual strips (around 2.5 by 15 cm each) lying vaguely oriented across each other in the direction of their grain. ix Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Veneer: In woodworking, refers to thin slices of wood, usually thinner than 3 millimetres (1/8 inch). Veneer layers are usually glued and pressed onto core panels of different materials (such as wood, particle board or medium density fibreboard) to obtain doors, tops and side panels for cabinets, and parquet floors. x Reproduced with permission o f the copyright owner. Further reproduction prohibited without permission. ACKNOWLEDGEMENTS It is hard to overstate my appreciation for the guidance, assistance, and patience Dr. Ken Wilkening has provided as my supervisor. He exemplifies high quality scholarship and without his encouragement this work would not be possible. I remain an idealist because people like him exist. For these reasons, I reserve this acknowledgment for one person. Thank you Dr. Wilkening. XI Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Chapter 1: Introduction Canada ratified the Kyoto Protocol to the United Nations Framework Convention on Climate Change (UNFCCC) in December 2002. The Protocol primarily focuses on reducing greenhouse gas (GHG) emissions that are strongly believed to be causing global climate change. Canada agreed to cut emissions 6.0% below 1990 levels by the first commitment period (2008-2012) of the Protocol. Canada has experienced a substantial increase in GHG emissions since 1990 (Environment Canada 2004); thus, achieving this targeted reduction will require significant effort. Canada has taken an approach to GHG reduction that is based on voluntary action. Yet to meet its obligated reductions, many believe a stronger national effort and stricter targets and regulations for GHG producing industries will be necessary. In Canada, jurisdiction over natural resources rests with the provincial governments. Large portions of the country’s GHG emissions result from resource extraction and related manufacturing industries. As a result, the federal government will have to work together with the provincial governments to find solutions and efficient regulations to meet the international commitments Canada has agreed to under the Kyoto Protocol. Negotiations between federal and provincial governments to reduce GHG emissions will vary province by province since the level of emissions varies widely by province. Alberta, for instance, emits 22 times more GHGs than British Columbia to generate heat and electricity (Jaques 2002). It is now time for Canada, along with other countries, to articulate solutions, within their own borders, to the global climate change 1 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. problem. It is apparent that further steps must be taken to address the problem at provincial and industrial levels. Canada is too vast and varied in industry and geography to attempt to produce a single and homogeneous national GHG reduction policy, and therefore, must address its responsibilities at a provincial level. This thesis examines GHG reductions in one province—British Columbia—and one industry—the forest industry. In British Columbia, forestry is the largest industry and a major economic driver of the provincial economy. It is also the largest contributor of GHG emissions (Environment Canadal). However, despite continued growth since 1990, the industry has been able to reduce its GHG emissions. As an example, Canada’s largest forestry company, Canfor, which is based in British Columbia, reduced emissions to 4.3% lower than its 1990 levels by 2000 while experiencing increased production. The company expects its emissions to be 10 to 15% below 1995 emissions levels by 2005 (Hoekstra 2003). The British Columbia forest industries and their efforts at GHG reductions provide an illustration of the local (province and industry) results that are needed to meet the commitment Canada has made to the Kyoto Protocol. How and why have these decreases in GHG emissions been accomplished in the forest industries of British Columbia? There are two explanations for the decrease— technological and non-technological changes. Non-technological change relating to GHG reductions includes, for example, changes in management practices such as deciding to shift overall production to the least GHG polluting method. Technological change related to GHG reductions is oriented towards innovation; for instance the use of new, more efficient or innovative equipment that reduces GHG emissions without sacrificing output 2 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. levels. It is the potential technological change has in reducing GHG emissions and meeting the goals mandated by the Kyoto Protocol that is the focus of this thesis. Although non-technological change may hold promise, it is rarely cited as a panacea for GHG reductions. Technological change, on the other hand, is often cited as a panacea. Many stakeholders working to reduce GHG emissions cite technological change as the path that holds the greatest promise. Non-technological change is rarely afforded this accolade. For this reason, the focus of this thesis is technological change: specifically, technological change as a source of reduced GHG emissions in British Columbia forest industries. Technological change may be one of the few recipes by which pollution can be reduced while still allowing for continued economic growth. “Technical change is generally acknowledged to be an extremely important factor in addressing major environmental issues, particularly large-scale and long-term problems like climate change” (IPCC 1996, 142). The sources of technological change that have led to reductions of GHG emissions in the British Columbia forest industries have not yet been researched and remain unclear. This thesis seeks to fill this gap. The central question of this thesis is: What was the source o f technological change that resulted in GHG reductions in the British Columbia forest industry between 1990 and 2005? The year 1990 represents the base year for GHG emission inventories agreed to within the Kyoto Protocol and 2005 is the year the Protocol became legally binding on signatories. 3 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. 1.1 Sources of Technological Change There are two general approaches explaining the source of technological change—induced and autonomous. Induced technological change is directly stimulated (induced) in response to specific needs; for instance, corporations invest in the development of new technologies in response to changing market conditions. In the case of GHG reductions, induced technological change implies that a firm adopts or develops a new technology because it will specifically decrease GHG emissions. Autonomous technological change is based on disinterested scientific invention and a predictable rate of increase. Autonomous technological change occurs without a specific need in mind; for instance, corporations replace aging equipment with newer equipment and as a side benefit GHG emissions are reduced. If the source of technological change in the British Columbia forest industry is autonomous, then based on the accomplishments to date in the industry, current policies or business practices may be sufficient for further GHG reductions. If the source of technological change has been induced, then government policies that create incentives to reduce GHG emissions are the best choice to promote further reductions. These policies, such as the introduction of a carbon tax, removing taxes paid on research and development work on GHG reductions or subsidizing GHG reduction research through collected carbon taxes will all be effective in reducing GHG emissions further by coercing or inducing technological change. Most policy makers consider incentive-based regulations the most efficient option for GHG reductions. Policy makers’ decisions rely heavily on economic models to predict the costs that each policy option would impose, although not all models and 4 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. forecasts agree in their predictions. In fact, most models used to assess the costs of meeting a particular GHG mitigation objective tend to oversimplify the process of technological change failing to consider many of the dynamic effects. Such models classify technological change as autonomous. The failure to include the dynamic effects of technological change results in higher estimates for the cost of GHG reductions. In recent years, induced technological change (as opposed to autonomous) has received increased attention. Several studies incorporating induced technical change suggest that it could make addressing climate change—including atmospheric stabilization—quite cheap in the long run (IPCC 1996). Induced technological change usually increases the benefits of early GHG reductions, which accelerate development of cheaper technologies. This is the opposite of the result from models with autonomous technological change, which often implies waiting for better technologies to become available. The importance of technological change is significant for policy makers trying to meet the challenges posed by climate change and to businesses that must reduce the GHG emissions that are produced. Even though many are placing their faith in technological change to reduce GHG emissions, more needs to be learned about the sources of technological change. “Technical change is perhaps the single most important source of uncertainty in forecasting the macroeconomic cost of limiting GHG emissions” (Wing 2003, 2). “Indeed, incorrect modeling of technical change can lead not only to wrong conclusions about the capacity to solve big environmental problems, but to policy recommendations that are in fact counterproductive” (Grubb and Koehler 2000, 6 ). The case study contained in this thesis is designed to reduce some of the ambiguity surrounding the source of technological change. 5 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Determining the source of technological change as autonomous or induced has important repercussions for the British Columbian forest industry and future policies intended to reduce GHG emissions. Thus, the central question asked in the previous section can be elaborated as follows: Have the technological changes resulting in GHG reductions in the British Columbia forest industry between 1990-2005 been induced, autonomous, or a combination o f the two? 1.2 Research Methodology To determine if changes that have resulted in GHG emission reductions in the British Columbia forest industry have been induced, autonomous, or a combination of the two, officials from companies who have already reduced GHG emissions were interviewed. Since these companies have firsthand experience with GHG reductions, I was able to gather information on the actual sources of technological change rather than projected sources from companies who have not yet experienced GHG reductions. In British Columbia there are many forest industry companies who have reduced GHG emissions. Some have done so under the auspices of the federal Voluntary Challenge Registry (VCR). Those British Columbian forest companies registered with the VCR are the focal point of this research and make up the group of companies interviewed regarding their GHG emission reductions between 1990 and 2005. The VCR was established in 1997 as part of Canada’s National Action Program on Climate Change. “Our purpose is to encourage organizations from all sectors of the economy to accept greater accountability for GHG emissions, serving as a catalyst to 6 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. ensure that Canada's overall climate change objectives are addressed by both private and public sectors through voluntary actions” (VCR 2004). Twenty-six forest companies have registered with the VCR including ten based in British Columbia. These ten companies are the major contributors of GHG emission in the British Columbia forest industry, accounting for approximately 75% of total industry emissions. Officials from each of these ten companies were interviewed for this thesis. The research strategy used in this paper follows a narrative and historical approach. I use the success these companies have had in reducing GHG emissions as a process case study. Process case studies “are useful because they recognize the need for collecting information over time, for understanding interactions among various policy actors, and for appreciating changing dynamics” (White 1999, 118). The central focus of the case study are the ten British Columbia forest companies involved in the VCR and the process being followed is the reduction of GHG emissions between 1990 and 2005. This type of research methodology allows for questions regarding actions by the forest companies in different time periods. Questions are asked about the companies actions from 1990 to 2002, preceding Canada’s ratification of the Kyoto protocol, and subsequent actions in the years between the ratification in 2 0 0 2 to the commencement date of the Kyoto Protocol February 2005. This is one of the changing dynamics for which a process case study is suited to examine. My goal is to add to the pool of knowledge related to climate change economic development, GHG reductions, and technological change within the framework of the Kyoto Protocol. This research deals with one specific industry and focuses on technology related to reducing GHG emissions only. Information on the sources of technological 7 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. change in the British Columbia forest industry is crucial to any future attempt at rousing further technological change to reduce GHGs. 1.3 Thesis Overview Chapter 2 of the thesis introduces the global environmental problem known as climate change and outlines the historical development of international policy to address the problem. Special attention is given to first, the debate on the relationship between economic development and climate change, and second, the role of technological change in addressing climate change without significant economic costs. In addition, Canada’s domestic polices related to climate change, economic development, and technological changes are highlighted. Industrial advancements and technological change have been the cause of much of the global GHG pollution that is resulting in climate change and yet technological change and innovation are also now being relied upon to reduce GHG emissions. Chapter 3 introduces the three main theories related to sources of technological change that informed the methodology used in this research—path dependence, evolutionary theory, and induced technological change. The difference between autonomous technological change and induced technological change is described, and the reasons why I pay greater attention to induced technological change are explained. An explanation as to why determining the source of technological change is critical to solving environmental issues such as climate change is also covered. The chapter then outlines the methodology that is used to answer the research question posed at the end of section 1.3 above. 8 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Chapter 4 describes the results from my data collection from reports and interviews with companies who have experienced GHG reductions and presents a synthesis and summary of the data. The final chapter relates my research results to the three theories of the source of technological change presented in Chapter 3, and, based on this analysis, allows me to answer my central research question: Was the source of technical change autonomous or induced. The chapter also discusses some limitations of my research and makes policy recommendations based on my findings. 9 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Chapter 2: Climate Change and the Promise of Technological Change Humanity is conducting an unintended, uncontrolled, globally pervasive experiment whose ultimate consequences could be second only to global nuclear war. The Earth’s atmosphere is being changed at an unprecedented rate by pollutants resulting from human activities, inefficient and wasteful fossil fuel use, and the effects of rapid populations growth in many regions. These changes represent a major threat to international security and are already having harmful consequences over many parts of the globe. Statement by WMO, UNEP, and Environment Canada at the Changing Atmosphere: Implications for Global Security Conference, Toronto, June 1988. (Dauncey and Mazza 2001, 2) 2.1 Introduction Of all the environmental problems currently facing the world, climate change is arguably the most significant because it will affect virtually all life on the planet; it is a long-term global problem that involves complex interactions between climatic, environmental, economic, political, social, cultural, and technological processes (IPCC 2001). A scientific consensus has materialized that indeed our climate is changing rapidly, and that the cause of the change is GHG emissions produced by human and other activities (Rahmstorf 2002). As scientific evidence confirming climate change has accumulated, debate on the issue has increasingly shifted to non-scientific dimensions of the problem; for instance, the costs of GHG abatement strategies and the role of technology in these strategies. This chapter outlines the historical development of international policy on climate change with special attention given to first, the debate on the relationship between economic development and climate change, and second, the role of technological change in addressing climate change. In addition, Canada’s domestic polices related to climate 10 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. change, economic development, and technological changes are highlighted. The triumvirate of climate change, economic development, and technological change provide the context for understanding the research presented in this thesis. Climate change has created an international quandary because of the seeming trade-off between environmental protection and economic development. Many believe that a choice has to be made either to protect the climate and sacrifice economic prosperity or to ‘protect’ economic development and sacrifice the climate. However, technological changes hold promise of being able to mitigate climate change without undermining economic development. In fact, some stakeholders hope that technological change can bring dramatic GHG reductions at a low cost. Section 2.2 of this chapter contains a brief overview of climate change as an environmental problem. Section 2.3 provides a summary of the development of international policy related to climate change, including economic policy related to technological change. In particular, the reasons why technology has become a critical factor in policy development are explained. Section 4 examines Canada’s national responsibilities as a signatory of the UNFCCC and the Kyoto Protocol. As a signatory of the Kyoto Protocol, Canada committed to reduce GHG emissions from 1990 levels. These sections provide the overall context for the research described in this thesis; namely, the role of technology in GHG reductions in the forest industries of British Columbia, Canada. 11 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. 2.2 The Environmental Problem of Climate Change The UNFCCC defines climate change (as an environmental problem) as “a change of climate that is attributed directly or indirectly to human activity that alters the composition of the global atmosphere and that is in addition to natural climate variability observed over comparable time periods” (UNFCCC 1992, 3). This definition highlights the centrality of human activity. The vast majority of scientists conducting research on climate change agree that human activities are increasing atmospheric concentrations of carbon dioxide (CO2), methane (CH4) and nitrous oxide (N2 O), the three main greenhouse gases after water vapor. It is estimated that human activities are adding the equivalent of 10 billion tonnes of carbon to the atmosphere every year (Dauncey and Mazza 2001), and that they have increased CO2 concentrations by one-third over the past 100 years (Pearson and Palmer 2000). Consequently, by the year 2000, CO2 levels had reached 370 ppm, the highest level in 20 million years (Pearson and Palmer 2000). As a result of increased GHG emissions, temperatures in the Arctic have risen more than 4°C in the last 30 years (Dauncey and Mazza 2001). Also, of the ten warmest years on record since 1860, eight have occurred since 1990 with 2005 being the hottest ever recorded (Black 2005). “Scientists have concluded that there is only a 1-in-20 chance that the current string of high temperatures is a result of natural phenomenon; the evidence points overwhelmingly to human activities as the cause” (Karl 2000, 720). The impacts of climate change include rising sea levels, extreme weather events, reduction of freshwater supplies, increased desertification, and altered plant and animal migration patterns. The number of weather related disasters, for example, during the 12 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. 1990s was four times that of the 1950s, and cost 14 times as much in economic losses (David Suzuki Foundation). Both natural and social systems are at risk of significant and irreversible damage. Entire ecosystems are at risk and one such ecosystem is the world’s forests. Changes in the world’s forests will affect people and industries dependent upon forests. For instance, changes in the forests of British Columbia will almost certainly dramatically affect the British Columbia forest industry, the focus of research in this thesis. This is because forests are especially susceptible to a number of problems caused by climate change. The following outlines some of those problems facing the forests in British Columbia and globally. One of the central problems climate change creates for the forests is an increase in disease and infection rates. The variability in temperature caused by climate change creates habitable areas for many pests that previously found the forest too cold or too warm and allows other plant or tree species to compete with traditional forest cover (Environment Canadal). The gypsy moth, Dutch elm disease, the spruce budworm, and the mountain pine beetle are a few of the infestations that damage the forests of British Columbia. The risk of forest fires also grows substantially due to warmer weather caused by a drier climate and greater variation in the amounts and times of precipitation. The problem of forest fires is compounded in British Columbia by the unprecedented amount of dead forest cover caused by the infestation of the mountain pine beetle. This dead forest represents a tremendous amount of fuel for sustaining and spreading forest fires. The number of forest fires in British Columbia has continued to grow over the past 13 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. decades and in 2003 the province lost 255,466 hectares to fire and spent $545 million on fighting the forest fires (BC Ministry of Forests). Possibly the most detrimental effect of climate change on the world’s forests is rising tree lines. Climate change is predicted to cause tree lines to rise to higher elevations in order to offset the increase in global temperatures. The result of a rising tree line is a reduction of total forest mass, which also results in a smaller alpine environment for the habitat that thrives there. A reduction in total forest cover caused by climate change has multiple negative effects. By reducing the forest cover, the size of one of the few natural, large-scale systems for recycling CO2 will decrease. The forests are very efficient at absorbing and sequestering CO2 while they grow and reducing the amount of CO2 being absorbed means an increase in the amount entering the atmosphere, thus compounding the problem causing climate change. Given the impacts of climate change on forestry enumerated above, are forest industries making changes in their behaviour because of these potential impacts? My research is designed to help answer this question relative to the British Columbia forest industry. As more homes are built, televisions are produced and automobiles are driven, more human-made GHGs are entering the world’s atmosphere and continue to change the climate. The possible catastrophic effects as a result of climate change, such massive changes in forest ecosystem, combined with continued economic growth and increasing GHG emissions, make the need for a response to this environmental problem essential. The next section outlines this response. 14 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. 2.3 Development of International Policy Related to Climate Change Climate change is an international issue because the atmosphere is shared by all; it is nearly impossible to exclude anyone from using the atmosphere as, for instance, a storage ground for GHGs resulting from human activities. Climate change is also an inter-generational issues because changes to the atmosphere today will continue decades or even centuries into the future. Thus, “the damage caused by GHG pollutants is an externality in both space and time. Emitters impose costs not only on residents of other countries, but on subsequent generations as well” (Tietenberg 1996, 393). Because the international and inter-generational costs associated with climate change may be severe, they have prompted massive efforts to construct international policy. The development of international policy related to climate change is outlined in this section. In particular, the place of technology in this policy development is highlighted. The first major international effort to address climate change was a conference, The Changing Atmosphere: Implications fo r Global Security held in Toronto, Canada in 1988. Over 300 scientists and policy makers from over 46 countries attended. At the time it was the largest gathering to discuss the issue of climate change. Canada not only hosted the conference but also was proactive in climate change research and policymaking. “Although Americans and Europeans were also prominent, Canadians and Swedes in particular displayed leadership disproportionately to their states’ international position” (Bernstein 2002, 219). Scientists from Environment Canada were leaders in climate change research. Even before the Toronto conference, a Canadian chaired the first independent Advisory Group on Greenhouse Gasses (AGGG) in 1986. “The AGGG was mandated to monitor climate research data, conduct assessments of increases in GHG 15 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. concentrations and effects, advise governments on possible mitigation measures, and possibly initiate consideration of a global climate convention” (Bernstein 2002, 219). In 1988, the needs of policy makers to have authoritative and up-to-date scientific information was recognized; thus, the World Meteorological Organization (WMO) and the UN Environment Programme (UNEP) established the Intergovernmental Panel on Climate Change (IPCC). The IPCC was created to synthesize and summarize for policy makers the relevant scientific, technical and socio-economic information on climate change, its potential impacts and options for adaptation and mitigation. “The parallel activity of the Brundtland Commission established by the United Nations General Assemble (UNGA) and the 1988 Toronto Conference on the Changing Atmosphere lifted the profile of the global threat of human induced climate change and reinforced the urgency of the work of the Intergovernmental Panel on Climate Change (IPCC)” (Zillman 1997, 8). In 1990, the IPCC issued its first report. The report stated that human-induced climate change was a threat and called for a global treaty to address the issue. On December 11, 1990, the UN General Assembly responded to this report by organizing a negotiating committee to draft a convention on climate change. In 1992, in Rio de Janeiro, Brazil, the United Nations Framework Convention on Climate Change (UNFCCC) was signed. The UNFCCC acknowledges that changes in the Earth’s climate and its adverse effects are a common concern for all humankind and that the majority of GHG emissions result from human activities in developed nations. As well, the convention stresses that the natural ecosystems of the world are risk if nothing is done to address the issue. 16 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. To date, the UNFCCC has almost universal membership with 188 signatories (UNFCCC 2005). Among other goals, the Convention sets an ultimate objective of stabilizing atmospheric concentrations of GHGs at levels that would prevent dangerous human interference with the climate system (UNFCCC 2002). The Conference of the Parties (COP) is the Convention’s highest decision-making authority. It is an association of all the countries that are Parties to the Convention. The COP meets every year, unless the Parties decide otherwise. The COP meetings are open to all concerned. The first of these conferences (COP1) was held in 1995 in Berlin, Germany. COP1 resulted in agreement to initiate a process to set quantifiable reduction targets for GHG emissions within a specific time frame. COP1 also identified that the costs of mitigating climate change could be substantial and that technological development and transfer would be essential between parties. The final report of COP1 also acknowledges that all parties have a right to, and should, promote sustainable development (IPCC 1995). Also in 1995, the IPCC released its second report stating: “The balance of evidence suggests a discernable human influence on global climate change” (IPCC 1995, 22). In 1996, the Second Conference of the Parties (COP2) was held in Geneva, Switzerland. COP2 worked to produce agreement on commitments and to produce actions to mitigate climate change (UNFCCC 1996). Such agreement was not reached until the Third Conference of the Parties (COP3) in Kyoto, Japan in December 1997, at which the Kyoto Protocol was signed. The protocol mandates international commitments to reduce GHG emissions within specific commitment periods (UNFCCC 1997). This commitment to take action was a significant step beyond merely agreeing to discuss the 17 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. problem of climate change. It obligated nations to account for their GHG emissions and take actions to reduce levels relative to their 1990 emissions. The Kyoto Protocol’s GHG reduction targets intensified the debate surrounding the costs of climate change mitigation. It was even argued “a treaty based on targets asks countries to give up some of their sovereignty and commit themselves to a policy of unknown and possibly very high cost” (McKibbin and Wilcoxen 1997, 1). The common perception at this time was that a choice had to be made between mitigation and economic growth. It was thought that reducing GHG emissions would lead to less production and manufacturing. “Alberta premier Ralph Klein at one point early on said that Kyoto ratification would cost Canada a trillion dollars” (Sierra Club, 1). Also, efforts directed at GHG reductions would have opportunity costs; in other words, time, energy, and money focused on reducing GHG emissions preclude their use toward increasing economic growth or maximizing profit. Over the next annual COP meetings in Buenos Aires, Argentina in 1998 (COP4), Bonn, Germany in 1999 (COP5), and The Hague, The Netherlands in 2000 (COP6), it became evident that most nations expected that technology would be the primary tool for reducing GHG emissions. The development and transfer of technologies, for instance, was now a constant topic of discussion included on most agendas during these meetings (UNFCCC 2000). The increased attention to technology was in part due to studies that investigated the possible effects of technology on lowering GHG mitigation costs. One study (Hourcade and Robinson 1996) examined European Union countries’ use of technology and concluded that the cost of emission reductions decreased over time due to an increase 18 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. in available technology. One specific example in the European study focused on fuel cell technologies in the Netherlands and found sizeable cost reductions due to unexpected technological advancements in the process of research and development (Hourcade and Robinson 1996). Another study (Edmonds and Dooley 1997) focused on the relationship between atmospheric CO2 concentrations and levels of technological change. They analyzed three scenarios relative to technological change—no technological change, some technological change, and advanced technological change. They found that the costs of reducing GHG concentrations in the atmosphere were lower when there were higher levels of technological change. At the same time that the above studies were being conducted, technological change was being incorporated into economic models. Numerous models attempted to determine the costs of GHG emission reductions, part of which involved including technological change. Early models include the Dynamic General Equilibrium Model (DGEM) (Jorgenson and Wilcoxen 1990), the Carbon Emissions Trajectory Assessment (CETA) (Peck and Teisburg 1992), the Canadian Recursive Trade Model (CRTM) (Rutherford 1992), and the Dynamic Integrated Climate & Economy Model (DICE) (Nordhaus 1994). All of these models considered the progress of technological change to be autonomous. Thus, they treat it as an exogenous variable. In other words, they treat it as independent of the other variables affecting the cost of GHG mitigation. However, there is now overwhelming evidence that technological change is not an exogenous variable but to an important degree endogenous, induced by needs and pressures (Loschel 2002; Grubb 1995). 19 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Technological change is a complex and dynamic process; one that is difficult if not impossible to fully understand, let alone model. However, technological change is not purely random. In other words, technological change can happen as a response to external conditions such as an increase in energy price, fall in commodity prices, reaction to government policies, or change in consumer preferences. Thus, technological change can be induced in response to market conditions. Experts agree that this important characteristic must in some manner be captured in economic models costing climate change policies (Grubb 1995). Models, therefore, appeared that included technological change as an induced, or endogenous, variable; for example, the Dynamic Integrated Assessment Model (DIAM) (Grubb 1995), the Goulder and Colleagues model (Goulder and Mathai 1998), the Integrated Climate Assessment Model (ICAM-3) (Dowlatabadi 1998), and the Grubler and Gritsevskii model (Grubler and Gritsevski 1999). Although, the results of these models differed they demonstrated that technological change was a critical variable in analyzing the economics-climate change relationship. The modeling of induced technological change will be discussed in greater detail in Chapter 3. By COP7 in Marrakech, Morocco in 2001, technology dominated the discussion and all parties were encouraged to promote, facilitate and finance the transfer of environmentally sound technologies to other parties (UNFCCC 2001). The discussions regarding the importance of technology continued through COP8 in New Delhi, India in 2002 (UNFCCC 2002), COP9 in Milan, Italy in 2003 (UNFCCC 2003), COP 10 in Buenos Aires, Argentina in 2004 (UNFCCC 2004), and at COP11 held in Montreal, Canada in 2005 (UNFCCC 2005). “Climate change policy analysis is fraught with 20 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. uncertainty and controversy, but at least one thing is perfectly clear: technological innovation is the key to addressing climate change. Moving the economy to a greenhouse-friendly future will necessitate a profound economic transition - a transition that simply cannot come to pass without technological progress” (Claussen 2000, ii). Internationally, the development and transfer of technologies became a major policy objective. Despite the uncertainty surrounding the source and impact of technological change, Canada and many other nations moved forward in the faith that technology can mitigate climate change without damaging their economies. However, the largest GHG emitting nation in the world, the United States, did not share this view, arguing instead that the costs of reducing GHG emissions would hurt its economy. Thus, the U.S. withdrew its support for the Kyoto Protocol on March 18, 2001 (BBC 2001). Without the support of the U.S., the fate of the Protocol was in question for some time. The Protocol required that to become binding 55 parties had to ratify (approve, accept, or accede to) the Protocol, including Annex I Parties accounting for 55% of that group’s CO2 emissions in 1990. Annex I Parties are the industrialized nations who have committed to adopting national policies in an attempt to reduce GHG emissions. Since the U.S. contribution to global GHG emissions in 1990 was 27% (UNFCCC 2004), it was a challenge to reach the 55% target without U.S. ratification. Eventually, eight years after it was signed, the Kyoto Protocol was ratified on February 16, 2005. A total of 141 nations have signed it. Together, they account for 61.6% of Annex I parties’ CO2 emissions. Thus, signatories were now obligated to make 21 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. efforts to reduce the GHG pollution within their borders. One of these signatories was Canada. Canada’s commitments are discussed in the next section. 2.4 Canada, Kyoto and Technological Change This section reviews Canada’s national policy related to climate change, highlighting the debate over an economics-environment tradeoff and the role of technology in reducing GHG emissions. As one of the world’s largest per-capita producers of GHG emissions, Canada has promoted polices to reduce its emissions. As already mentioned, Canada was an early leader in the development of climate change policy; however, its leadership has waned over time. Despite its waning leadership role, there have been some bright spots in Canada’s efforts to reduce GHG emissions. This thesis focuses on one of those bright spots—the British Columbia forest industry. However, before discussing the British Columbia forest industry, the evolution of Canadian climate change policy is outlined. This is followed by a discussion of the place of the forest industry in the British Columbia economy. Domestic constraints limit Canada’s climate change related actions. These constraints include limitations imposed by the constitutional relationship between the federal and provincial governments, the rapid recent growth in the energy sector in Canada, and domestic policy norms (Bernstein 2002). Each of these three points is discussed below. In Canada, jurisdiction over natural resources rests with the provincial governments. Since large portions of the country’s GHG emissions are being produced by resource extraction and related manufacturing industries, the federal government must 22 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. work with provincial governments to formulate industry level and community based policies to meet Canada’s federal obligations. The geographic size of Canada and the differences in the provincial resource bases and central economic activities creates a sizable policy headache for the federal government, especially if the federal government is to try and avoid burdening one province more than another with the costs of GHG reductions. The second constraint is Canada’s booming energy sector. Growth in oil and gas revenues implies an increase in GHG emissions. In 2003-2004, Alberta oil and gas royalty revenues amounted to $7.8 billion and accounted for over 30% of its total revenue for the year (Alberta Government). Alberta is not the only province in Canada to see an increase in the energy sector, British Columbia, Saskatchewan, Nova Scotia, and Newfoundland and Labrador have all experienced an increase. In fact, corporate profits in Alberta, Saskatchewan, Newfoundland, and the Northwest Territories have increased from 5 or 6% in 1992 to between 15 and 25% in 2002 (Laurent). The booming oil and gas sector in Canada produces another dilemma for the federal government—on the one hand, gas and oil revenues bring money into the federal government; on the other hand, oil and gas production (and oil and gas consumption within the county) results in ‘booming’ GHG emissions. Thus far, Canadian policy has failed to solve this policy dilemma. The third constraint limiting Canada’s climate change efforts is policy norms adopted to reduce GHG emissions. Canada’s first national policy related to climate change was its 1997 National Action Program on Climate Change. This program focused on promoting GHG emission reductions through voluntary actions. One part of the 23 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. program was the Voluntary Challenge Registry (VCR), the main vehicle used for voluntary GHG reductions among organizations. The purpose of the VCR was to “encourage organizations from all sectors of the economy to accept greater accountability for GHG emissions, serving as a catalyst to ensure that Canada's overall climate change objectives are addressed by both private and public sectors through voluntary actions” (Canada’s Climate Change Voluntary Challenge 2004). The VCR had a mandate “to provide through leadership, the means for promoting, assessing, and recognizing the effectiveness of the voluntary approach in addressing climate change” (VCR 2005). Participants in the challenge submitted a letter of intent confirming a commitment to limit or reduce GHGs from their operations. This was followed by submission of an action plan and subsequent progress reports. The VCR lacked enforcement mechanisms other than the ability to collect files and reports. In January 2005, the VCR was closed down. Information and registries were transferred to the Canadian Standards Association and are now called the Canadian Standards Association GHG Registries. Both independent and government reviews of the VCR suggest that despite some success stories, such as the British Columbia forest industries, its impact was negligible on Canada’s emissions (Pembina Institute 1998). Many companies’ participation was limited to submitting a letter of intent. The program lacked sufficient incentives and penalties to be effective. The failure of the VCR has forced the Canadian government to re-examine the voluntary action programs. Between 1992 and 2001 Canada’s GHG emissions increased by more than 18% (Environment Canada2) while during the same time period its economy grew by over 58% (DFAIT 2005). Increasing emissions have become a major source of embarrassment 24 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. internationally. Furthermore, increased resistance, especially by industry, surfaced during this period. In 1996 and 1997, Prime Minister Jean Chretien faced intensive lobbying from the oil, gas, coal, and automobile industries opposed to the signing of a protocol legally mandating national emission reductions. For example, the Canadian Coal Association ran a public campaign to discourage ratification. The campaign included fear-based advertisements warning of “economic suicide” if Canada signed a deal in Kyoto (Russell and Toner 1998). Several of the provinces including British Columbia, Alberta and Ontario, also expressed resistance to policies to reduce GHG emissions. Despite such opposition, Canada signed the Kyoto Protocol. However, domestic resistance weakened political will to meet domestic GHG emissions reductions. With so many uncertainties in cost projections, many Canadian businesses continued to believe that a choice had to be made to either protect the climate or protect the economy. Even so, Canadian citizens seemed to strongly favour the Kyoto Protocol. One poll (EKOS 2001) showed that 67% of those interviewed stated they would still support the Kyoto Protocol even if it cost the national economy a 5% reduction in GDP. The federal government noticed this strong public support for the Protocol and pressed forward towards domestic ratification. Despite the fact that Canada’s policies to reduce GHG emissions were not successful, that emissions in the country continued to rise, and that economic cost remained uncertain, Canada ratified the Kyoto Protocol on December 17, 2002. Canada agreed to a 6.0% reduction in GHG emissions from its 1990 levels by the first commitment period (2008-2012). Soon after ratification, the government issued The Climate Change Action Plan (Government of Canada 2002) that outlined a 25 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. comprehensive strategy to meet its Kyoto Protocol obligations. The report outlined Canada’s initial approach to addressing climate change and stressed the need for a madein-Canada approach based on collaboration, partnerships, and respect for jurisdiction. The report did not clearly specify how climate change would be addressed within Canada but used terms like “minimize mitigation costs and maximize benefits” and “promote innovation” without details on how to do so (Government of Canada 2002, 10). Soon after the release of the initial report the central focus of the climate change strategy shifted noticeably towards technological change and the development of clean technologies. On August 12, 2003, the Canadian Government released a paper, Moving Forward on Climate Change: A Plan fo r Honouring Our Kyoto Commitment, outlining how one billion dollars will be spent “to support the development of environmental technologies, including climate change technologies” (Government of Canada 2005). This substantial financial commitment is in addition to $1.7 billion already spent. Despite the investment in technological innovation, details as to how to spur this technological change were not spelled out in the government’s plan. The ruling Liberal party continued to financially support the Kyoto Protocol; however, GHG emissions in Canada continued to rise. The government’s plan to increase total climate change spending to $3.6 billion and the climate change program announced in 2004 were met with considerable criticism. Even former Liberal Environment Minister David Anderson was critical of the plan saying it lacked clear direction. “Anderson said it's unacceptable that the government is spending billions of dollars on climate change while greenhouse gas emissions continue to rise” (CTV.ca). 26 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. The government responded to the critics by stressing the seriousness of climate change and our duty to do our part as a nation. It highlighted the money spent on research and development and the time it takes to have an effect. They also said the increases in GHG emissions in Canada could have been much more severe without the efforts of the government so far (CTV.ca). The Liberal government said they would not retreat from their climate change plan but acknowledged that it had relied on voluntary action by industry rather than regulation, and that negotiations had dragged on too long. On January 23, 2006, the Liberal party, which held power for 12 years, was defeated by the Conservative party. The Conservative government had been a critic of the Kyoto Protocol and the Liberal government’s climate change platform for many years preceding their election win. Since taking office the Conservative government has cut climate change funding by more than 40% and has ended the one-tonne-challenge and Energuide program. The Conservative government has said they do not want out of the Kyoto Protocol, however, with Canada’s emissions at 35% over the Kyoto target, the Honourable Environment Minister Rona Ambrose announced on May 11, 2006 that Canada would not meet its emission targets. Minister Ambrose has also suggested removing targets in the next period of the Protocol (Environment Canada3). On October 19, 2006 the Conservative government announced their environmental agenda called Canada’s Clean Air Act. With respect to GHG emissions the act calls for a move away from voluntary compliance to strict enforcement and an absolute reduction of GHG emission between 45% and 65% from 2003 levels by 2050 (Environment Canada4). “The Honourable Gary Lunn, Minister of Natural Resources, said new and emerging 27 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. technologies will play a significant role in helping industry achieve the targets” (Environment Canada4). The proposed legislation, bill C-30, is currently in its first of three parliamentary readings. Regardless of how the final legislation reads the federal government acknowledges that short-term intensity based GHG reduction targets need to be set in consultation with the provinces and territories and all affected industry sectors. The dynamics between federal and provincial governments will continue to pose challenges for addressing climate change. For this reason the success of the forest industry of British Columbia in reducing GHG emissions remains significant. Forestry is the largest industry in British Columbia and is the province’s major economic driver. It is also the largest contributor to GHG emissions in the province. However, despite continued growth since 1990 and an increase in overall production, the industry has been able to reduce its total GHG emissions. This next section first overviews the forest industry and its importance to the province of British Columbia. The section then presents the performance of several British Columbia forest companies with respect to GHG emission reductions. Following this, the reason why the voluntary reduction of GHG emissions during a time of economic growth provides a valuable data set for studying the relationship between technological change and the climate change issue is discussed. For instance, a tradeoff between environmental protection, GHG reductions, and economic production does not appear to have been necessary. The provincial forest industries of British Columbia are also one of the few success stories of Canada’s voluntary emissions reduction approach. Yet the reasons for their GHG reductions are not clear. 28 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Forests cover about two-thirds of the provincial landmass in British Columbia and are the most abundant resource found in the province. Almost all of the wood harvested from British Columbia forests is used to produce lumber, plywood, shakes, shingles, newsprint, and pulp and paper products. British Columbia wood producers supply about half of the total Canadian production of softwood used to produce the items mentioned. In fact, forest products are the province’s most important export commodity, accounting for $15 billion or 52% of the province’s total exports in 1999 (Hallin). Thus, the economic importance of this industry to the province is significant, and, reducing GHG emissions while production levels have increased is also significant. TABLE 2.1: British Columbia Forest Company reductions from 1990 levels. Company Reduction Time Span Riverside Forest Products -29% 1990-2002 Canfor Corporation 4.3% 1990-2001 Howe Sound Pulp and Paper 12% 1990-2001 Pope and Talbot (Harmac Mill) 21% 1990-2001 MacMillan Bloedel 47% 1990- 1999 Catalyst Paper Company 71% 1990-2005 As shown in Table 2.1, there has been significant GHG emission reductions by several British Columbia forest companies. Technological changes have been key to both GHG reductions and increased production in the British Columbia forest industry. The use of co-generation facilities to produce electricity and steam from previously discarded wood waste, the adoption of new technologies to make production more efficient and less 29 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. energy intensive, and the expansion of natural gas lines to replace the use of bunker C oil are all examples of such technological change. Most of these changes were undertaken voluntarily. What prompted these technological changes? Were the reductions in GHG emissions that occurred as a result of technological innovations simply an autonomous by-product of changes made for other, non-GHG related reasons? Were they, for instance, adopted to speed production but also happened to contribute to a reduction of GHG emissions? Or were the technologies induced by a decision to reduce GHG emissions? Whether the source of technological change is autonomous or induced has profound implications for climate change policy and the forecasted cost of GHG reductions. To the best of my knowledge, there has been no empirical research on the source of technological change in the British Columbia forest industries. 30 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Chapter 3: Methodology for Researching the Source of Technological Change 3.1 Introduction In climate change policy, technological change is often referred to as the development and transfer of technologies (UNFCCC 2000). My definition of technological change follows Schumpeter (1950). Schumpeter was one of the first researchers to investigate technological change and formulated the evolutionary theory of technological change to be discussed later. He described three central processes occurring in successful technologies; 1) invention, 2) innovation, and 3) diffusion (Schumpeter 1950). Invention is the original creation of a brand new item or product; innovation is the improvement of current ideas or processes; and diffusion is the adoption of these new items and ideas. Technological change, as used in this study, includes all three components. Specifically, it is the invention of new products or processes, innovation of already existing products or processes, and the diffusion or adoption of invented or innovated technologies that result in GHG emission reductions. Technological change is certain to be one of the dominant solutions to the problem of climate change over the next century. However, there is intense debate as to how to foster such technological change because the source of technological change remains unclear. “The process of genuine, original innovation [and technological change in general] is not understood - it has been characterized as ‘the triumph of action over analysis’. But viable, commercial technologies certainly do not appear as ‘manna from heaven’” (Grubb 2000, 9). 31 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. This chapter describes the methodology I used to investigate the source of technological change related to the GHG reductions that have occurred in the British Columbia forest industries. My methodology, and the theoretical foundation upon which it is based, is laid out in the next four sections. Section 3.2 outlines why it is important, relative to the climate change issue, to understand the sources of technological change. How technological discoveries and innovations are created and dispersed is not an exact science but understanding the source of these changes is critically important to, for instance, predicting the costs of climate change policies. Section 3.3 reviews the three main theories that attempt to explain the sources of technological change—path dependence, evolutionary theory, and induced technological change (ITC). These theories provide broad perspective on the roots of technological change, and add substantial insight into the origin and choice of new technologies. However, all three theories lack the ability to fully explain technological change. In this thesis, I do not seek to prove the validity of one theory over another but instead use them as the baseline from which to judge which theory or combination of theories best explains GHG reductions in the British Columbia forest industry between 1990 and 2005. Section 3.4 discusses ITC in greater detail and explains why it has come under intense scrutiny in climate change policy development. “Climate change is thus the litmus test of ITC, because the costs of mitigation policies and the potential for technology to alleviate them dwarf those of other environmental problems” (Wing 2003, 2). Because of all the attention devoted to ITC, my research can in a sense be framed as a 32 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. test of the applicability to ITC to the British Columbia forest industry and its technological changes. Section 3.5 explains my research methodology and the four steps used to decipher the source of technological change that resulted in GHG reductions in the British Columbia forest industry from 1990 to 2005. My methodology relies primarily on document analysis and interviews. 3.2 The Importance of the Source of Technological Change Long-term environmental problems like climate change create a need for reliable models that can forecast the costs of different mitigation policies. Such economic models contain multiple variables, a key one of which is technological change. How technological change is represented in models can have a profound influence on the model outcomes, and hence the policy initiatives. This has led to intensive research on the source of technological change. Incorrect assumptions about the source of technological change can lead to policies that will be counterproductive to reducing GHG emissions and may be very costly to individuals, organizations, and economies. Indeed, the source of technical change is perhaps the single most important source of uncertainty in forecasting the cost of GHG reductions (Wing 2003). If technological change is modeled in a way that assumes the source of change is reliant on scientific inquiry and disinterested discovery, then forecasts predict high costs for GHG reductions. If technological change is modeled in a way to capture the source of change as induced by needs and market pressures, then the forecasted costs of GHG reductions become 33 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. much lower and manageable for economies and organizations. Many forecasts attempting to cost GHG mitigation assume the first, autonomous, source of technological change. But many other researchers now strongly argue that the source of technological change can be induced and should be accounted for in forecasts of GHG mitigation. The ability to ‘induce’ or direct technological change has been given a great deal of attention in the past decade by forecasters and policy analysts. This resurgence in interest is due not only to the fact technological change intended to reduce GHG reductions may be much cheaper than previously forecasted, but also to the fact that most studies seeking to uncover the source of technological change have concluded that it can be induced and directed by needs and market pressures. In a recent study, Carraro et al. (2003) concluded: 1) the source of technological change can have a profound impact on the nature and extent of the tradeoffs that frequently have to be made between economic performance and environmental quality goals, and 2) policy choices may change the constraints and incentives that influence technological change. Understanding the forces that drive not only the level but also the direction of innovation is therefore crucial if environmental policy is to be efficiently employed to foster GHG related research and development (Jaffe 2003). 3.3 Theories of the Source of Technological Change There are three main theoretical traditions explaining the source of technological change—path dependence, evolutionary theory, and induced technological change. All have added insight into the sources of technological change but none is considered a full or complete theory. One researcher even suggests the three traditions should be 34 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. incorporated into a more general theory (Ruttan 2002). In this section, I provide an overview of the three theories, for they form the foundation for my research methodology. Path Dependence Path dependence portrays technological change as occurring in small sequential advances that lead to larger significant innovations or technical changes. Path dependence acknowledges that our present choices are conditioned by choices we have made in the past. W. Brian Arthur and colleagues advanced the argument that technological change is ‘path dependent’ in the late 1970s and early 1980s after carefully tracking the development of the typewriter keyboard, the electric light, and electric power supply (Ruttan 2002). They concluded that small historical or chance events that give one technology an initial advantage over another can, but need not, drive the process of adopting that particular technology (Arthur 1989). Highlighting the importance of sequential events (the path) is the strength of path dependence theory. The most famous example of path dependence theory is Paul David’s (1985) explanation of why the inefficient QWERTY typewriter keyboard was adopted and why, despite its inefficiency, it persists even today. We know that nothing in the engineering of computer terminals requires the awkward keyboard layout known today as ‘QWERTY’ and we all are old enough to remember that QWERTY somehow has been handed down to us from the age of typewriters. Clearly nobody has been persuaded by the exhortations to discard QWERTY which apostles of DSK (the Dvorak Simplified Keyboard) were issuing in trade publications such as Computers and Automation during the early 1970’s. Why not? Devotees of the keyboard arrangement patented in 1932 by August Dvorak and W.L. Dealey have long held most of the world’s records for speed typing. Moreover, during the 1940’s US Navy experiments had shown that the increased efficiency 35 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. obtained with DSK would amortize the cost of retraining a group of typists within the first ten days of their subsequent full-time employment. (David 1985,1) David’s analysis clearly showed that small, sequential steps were more influential to the design and proliferation of the QWERTY keyboard than other factors such as efficiency. “There can be no question that technical change is path dependent in the sense that it evolves from earlier technological development” (Ruttan 2002, 23). However, other than sequential steps that are noticeable for some technologies, path dependence lacks the ability to explain brand new or totally original innovations or inventions. Scholars now generally acknowledge that the problems of the theory outweigh its strengths. For example, rather than sequential steps the cost of factors of production may be more influential in determining technological change. Over time, cost fluctuations could bend the path of technical change moving it away from the expensive factors towards the least costly factors. Thus, path dependence cannot account for external costs altering the direction or rate of technological change. Alone the theory does not seem to define the source of technological change but is a good tool in beginning to peel back the layers of complexity involved with the source of technological change. Evolutionary Theory Evolutionary theory and the idea of ‘creative destruction’ was formulated in 1950 by Joseph Schumpeter who said that creative firms bring new products or better technology into the economy, and that this destroys stagnant ideas and firms (Schumpeter 1950). As an example, the Digital Video Disc (DVD) is ‘destroying’ the Video Cassette 36 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Recorder (VCR) as a medium for watching movies. Incremental steps of change from the VCR did not create the DVD as would be postulated by path dependence. Instead, a creative company introduced an entirely new technology with better features and higher quality to meet the same need. Ultimately, the demand created by the desire to play movies at home was the source of technological change that prompted the jump from VCR to DVD. It was not small, sequential, steps. Nelson and Winter (1982) further advanced evolutionary theory in their highly acclaimed book, An Evolutionary Theory o f Economic Change. According to Nelson and Winter, the three fundamental mechanisms in evolutionary theory are, first, the search for better techniques by a firm; second, the selection of successful innovations by the market; and third, the satisfaction of individuals and organizations that make up the market and purchase the product (Ruttan 2001). The strength of evolutionary theory is that it tries to uncover the specific processes that lead to technical change. “It builds on the behavioural theory of the firm in an attempt to provide a more realistic description of the internal working of the black box” (Ruttan 2001, 23). Again, evolutionary theory has its weaknesses. In addition, it has not been strongly supported by empirical research. The complexity of the theory has been an impediment to empirical research and can result in a loss of understanding in what the theory is attempting to do or what leads to what conclusions. As the theory attempts to delve into the specifics of how technological change occurs the methodology used lends itself to the easy proliferation of plausible results (Ruttan 2001). This is due to complexity of the theory allowing for so many options or possible causal effects. “It is clear that a number of the evolutionary theories put forth by economists in recent years 37 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. are difficult to follow in terms of their cause-effect logic, and some may be logically incoherent” (Nelson 1995, 85). Induced Technological Change Induced technological change, or ITC, is based on an observation by Sir John Hicks (1932). He noticed “a change in the relative prices of factors of production is itself a spur to innovation and to inventions of a particular kind - dedicated at economizing the use of a factor which has become relatively expensive” (Hicks 1932, 125). Thus, according to the theory of ITC, technological change is directly stimulated (induced) in response to specific needs. For instance, corporations invest in the development of new technologies in response to changing market conditions such as rising energy prices. In the case of GHG reductions, ITC implies that a firm adopts or develops a new technology because it has a need or reason to decrease GHG emissions. It was several decades before empirical studies tested Hicks’ hypothesis. One of the first and most famous of these studies investigated the invention and diffusion of hybrid corn (Griliches 1957). Griliches wanted to determine if it was the state of science or demand for such a product that was the main driving force in its discovery. He concluded that demand played a greater role in determining the timing and location of the invention than the state of scientific knowledge. Jacob Schmookler (1962) also tested the theory by studying patent statistics for inventions in the railroad, agricultural machinery, paper, and petroleum industries. He concluded that demand was more important in stimulating inventive activity than advances in the state of knowledge. Raymond Vernon (1966) also attempted to model the initial invention and diffusion of consumer durable 38 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. technologies such as automobiles, televisions, refrigerators, and washing machines through a demand induced point of view. Vernon’s studies demonstrated that demand affected the rate and direction of technological change. Another study, conducted by the U.S. Office of the Director of Defence Research and Engineering, seemed to show that “the significant ‘research events’ contributing to the development of 20 major weapons systems were predominantly motivated by military need rather than disinterested scientific enquiry” (Ruttan 2002, 3). Thus, numerous studies provided evidence that demand is a greater influence on technological change than other factors, such as the state of scientific knowledge. Thirtle and Ruttan (1987) reviewed 20 empirical studies of ITC in agriculture and another 39 studies from the industrial sector. The effect of ITC was most pronounced in the industrial sector but also affected the rate and direction of technological change in the agriculture sector. “As of the mid-1980s the evidence of tests of the induced technical change hypothesis in agriculture, both in the U.S. and abroad, was sufficient to support the view that changes (and sometimes differences) in relative factor endowments and prices exert a substantial impact in the direction of technical change” (Ruttan 2002, 13). Like the two other theories, ITC has its critics. Mowery and Rosenberg (1979) argued that the concept of demand used in studies such as Raymond’s and the U.S. military’s was too general. “[Mowery and Rosenberg] insist that the concept of demand employed in many of the studies has been so broad or imprecise as to embrace virtually all possible determinants” (Ruttan 2001, 3). Thus, ITC, like path dependence and evolutionary theory, has not been accepted as a complete theory. However, it is ITC rather than the other two theories that is currently receiving concentrated attention 39 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. relative to climate change policy. Thus, the next section provides a fuller explanation of ITC and its relationship to climate change policy. 3.4 ITC and Climate Change Mitigation According to its advocates, ITC has the potential to substantially lower, and perhaps even offset, the costs of GHG mitigation policies. In part, this is because ITC offers a partial explanation and economic formalization of the so-called “Porter Hypothesis,” which hypothesizes that environmental regulation can improve economic competitiveness by stimulating the development of better technologies, as well as institutional and other responses (Grubb 2000). Economic modellers of climate change mitigation policies are driving the renewed interest in ITC, not theorists of the sources of technological change. As previously mentioned, ITC cannot explain all sources of technological change. However, because its central characteristic—the ability for technological change to be stimulated or directed by pressures or market conditions— seems to suggest that the costs of GHG mitigation can be dramatically reduced, it is drawing major research attention. Models that represented the process of technological change as autonomous predicted high costs for climate change mitigation but new models incorporating ITC predict much lower costs. The new ITC models are more complex than those assuming technological change as autonomous; however, increased computational ability has removed this as a significant modelling obstacle. In the remainder of this section the differences between autonomous and induced technological change in climate change 40 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. related forecasting models are described, followed by a chronological review of the ITC literature. As previously mentioned, since 1990, numerous models that characterized technological change as autonomous (i.e, they treat it as a variable independent of the problem of climate change) have attempted to determine the costs of GHG emission reductions. Price shocks, market demands, government regulations, and other pressures influencing the direction of technological change are not taken into consideration. These models include the Canadian Recursive Trade Model (CRTM) (Rutherford 1992), the Dynamic General Equilibrium Model (DGEM) (Jorgenson and Wilcoxen 1993), the Carbon Emissions Trajectory Assessment (CETA) (Peck and Teisburg 1994), and the Dynamic Integrated Climate & Economy Model (DICE) (Nordhaus 1994). Most of these models use the Autonomous Energy Efficiency Improvement (AEEI) method to characterize technological improvement. AEEI represents the effect of technological progress, assuming a steady rate of change determined in advance by the modeller. Modellers set the AEEI as a percentage of Gross Domestic Product (GDP) growth, thus the value changes over time. Although the AEEI approach allows for some energy improvements it has two major limitations. First, it ignores price-induced technological progress completely. “In reality, a great deal of technical change is led by the private sector, and is induced in response to market conditions, investment and expectations” (Grubb and Koehler 2000, 6). Second, the AEEI rate that should be used for climate change is not clear. Even small changes in the rate can dramatically change the results of the model. Overcoming the limitations of the AEEI approach triggered a 41 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. resurgence in work on ITC starting around 1990. The following is a review of the studies that contributed to this resurgence. Jorgenson and Wilcoxen (1993) produced one of the first models, the Inter­ temporal General Equilibrium Model (IGEM), that was used to investigate the effects of ITC. The model used an extensive data set of inter-industry transactions in the U.S. between 1947 and 1985 that was originally used to determine the effect of the oil shocks in the 1970s on technological change. The model thus implicitly captures the effects of ITC. “IGEM can portray the economy-wide adjustments to the energy changes arising from climate change” (Edmonds 2000, 55). The model demonstrated that the effects of ITC on reducing the cost of climate change mitigation were significant. This stimulated further research. Intrigued by the IGEM results, Grubb, Chapuis and HaDuong (1995) studied the penetration of I0 W-CO2 technologies into the French energy system. “These authors find that induced technical change is indeed extremely important: this case results in optimal scenarios that lead to stabilization of atmospheric concentrations within a few decades, and the costs of deferred mitigation are dominated by the lost opportunities of starting to adapt the energy system to CO2 constraints” (Grubb and Koehler 2000). Another study by Newell, Jaffe and Stavins (1996) of the U.S. energy sector, emphasized capturing the dynamic effects of technological change such as invention, innovation, and leaming-by-doing. Data were used on air conditioner and gas water heater sales between 1958 and 1993 to estimate changes in cost and energy efficiency. The authors found that technological change responded significantly to the economic and regulatory environment. They concluded that, in the last two decades, fully one-fifth to 42 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. two-fifths of efficiency improvements were induced by historical changes in energy prices; thus, a notable portion of the technological change was caused by ITC. Dowlatabadi and Oravetz (1997) modelled ITC using empirical observations of past energy price and policy changes using energy efficiency trends in the U.S. from 1954-1994. The effect of ITC was significant and the researchers argued that their model should now replace the AEEI parameter in other models to capture the effects of ITC. Nordhaus reworked the well-known DICE model to include ITC (Nordhaus 1999). He incorporated ITC into his original model to replace the autonomous function for technological change originally used. In the new model, R-DICE, Nordhaus found the opportunity costs associated with GHG mitigation to be very large (in other words, if money, time and skills are devoted to reducing GHG emissions then that money, time and skill cannot be used for business development purposes). Under certain policy regimes the opportunity costs can mean the influence of ITC is insignificant. However, under a regime of fixed emission targets, similar to those required in the Kyoto Protocol, Nordhaus shows the effects of ITC to be large in reducing the cost of GHG mitigation even after accounting for opportunity costs of mitigation. Goulder and Schnieder (1999) also developed a model to study how ITC might affect the costs of achieving given emissions targets. The model explicitly considers the links between policy changes and technological change. The cost of achieving certain GHG mitigation targets is actually higher in the presence of ITC in this model. Despite this, the researchers predict a greater net benefit to society as a greater amount of GHG mitigation occurs if ITC is present. In 2000, Goulder and Mathai in a study focused on 43 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. the opportunity costs associated with GHG mitigation argued that under most conditions ITC considerably reduces the costs of achieving a concentration target. Specific studies regarding ITC within the forest industry are very limited. I was able to uncover only four publications specifically related to forestry and technological change. In the earliest publication I know of, Rosenberg (1973) describes how the abundance and then relative scarcity of lumber was in part the cause of the industrial revolution in Britain. He argues that vanishing timber resources led to the discovery and proliferation of coal for power and iron for building and this in turn spurred even more technological innovations. Rosenberg argued that similar changes occurred when the price of timber products dramatically increased in North America through from 1870 to 1950. “This increase has triggered off substitution of other inputs, including minerals, and appears to have induced significant technological changes which have limited the utilization of timber” (Rosenberg 1973, 115). He said that plastic and fibreglass were created as a wood substitute as were other innovations such as glass and aluminium foil. Unlike the research in this thesis, Rosenberg focused on the technological changes triggered in other industries by the price of timber products. This research seeks to explain the sources of change within the forest industry itself. The next study which investigated the idea of ITC within the forest sector was done by Avi J. Cohen (1987) who focused specifically on the pulp and paper industry in the U.S. He argued that the rapid increase in productivity during the 1920s was due to a booming market for newsprint that in turn supported the growth of other industries such as electric power. Cohen clearly identifies technological change as being induced by changing demand for newsprint. However, similar to Rosenberg’s work, it is the forest 44 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. industry (pulp and paper) that is identified as a trigger to technological change elsewhere. Cohen’s work did not investigate the sources of change within the pulp and paper industry itself. The third publication, Rosenberg et al. (1990), analyzed adoption of technology within the forest products industry. Their study focused on adoption rates rather than what caused the adoption of technologies. Yet the researchers identified the possible significance of ITC to forestry in their findings. “The work on induced innovation in agriculture also provides an approach to technological change that might well be replicated in the forest products industry. In fact, the induced-innovation hypothesis has been tested in agriculture and other fields and it is surprising that this approach has not yet been fully tested (as far as we know) in the case of forest products” (Rosenberg et al. 1990, 18). The fourth study to mention ITC within the forest industry was done by Stier and Bengston (1992). The goal of their work was to review technical change in the North American forest sector. Although ITC is mentioned in the study, the researchers focus on establishing an index number for the rate of technical change in the forest sector. They were trying to estimate a rate similar to an AEEI and did not investigate the source of the change. In summary, very little work has been done on the relationship between ITC and the forest industry. My research will add insight into this relationship relative to the climate change issue. 45 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. 3.5 Research Methodology The main goal of my research is to identify the source of technological change that has resulted in GHG reductions in the British Columbia forest industry between 1990 and 2005. My research focuses only on one industry (British Columbia forest industry) and only on technological change related to reducing GHG emissions. (It does not, for instance, address technological change relative to carbon sinks.) The first part of this section describes the overall research methodology and the second describes the specific steps in my research. Description o f Research Methodology My research is a process case study. “A process case study examines a series of events surrounding a decision or action” (White 1999, 118). I selected this approach because it allows an investigation into several events and points in time as possible stimulants of technological change. A process case study can capture market pressures to be environmentally sound, ISO 14000 certification requirements, cost savings, foreseeing government regulations in the future, or speculation on the value of emission credits that are all possible inducers of technological change in the British Columbia forest industry. In my research I follow the progression of GHG reductions between 1990 and 2005. This time span represents the baseline date for GHG inventories in the Kyoto protocol of 1990 to the date the Protocol came into force, February 2005. 46 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Research Steps My central research question is: Have the technological changes resulting in GHG reductions in the British Columbia forest industry between 1990 and 2005 been induced, autonomous, or a combination o f the two? I used the following four steps to answer this question: 1) identification of companies, 2) analysis of companies reports, 3) interviews, and 4) analysis of data. Each of these steps is explained below. The first step was to select the companies. In British Columbia, there are many forestry companies who have reduced GHG emissions, but only a few did so under the auspices of the VCR. Twenty-six forest companies registered with the VCR including ten based in British Columbia. These ten companies have now merged or been bought out by others and there are only six remaining. These are the companies I chose to interview. They were chosen not only because of their efforts to reduce GHG emissions, but also because their submissions to the VCR regarding their GHG reductions are publically available. The six companies interviewed are the largest forest companies in the province and contribute a significant portion of industry GHG emissions. They provide a representative sample of companies for investigating the source of technological change in the British Columbia forest industry. The second step in my research was content analysis of the VCR reports submitted by the six companies. This was necessary to identify those technologies that were utilized in reducing GHG emissions. The VCR submissions, however, did not included reasons for selecting these technologies. Interview questions were then constructed so as to determine the reasons for choosing these technologies. The questions were informed by the three theories of technological change. The VCR reports were also 47 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. helpful to identify the correct people to speak to within each organization. Several of these engineers who submitted reports on behalf of their organization were interviewed. Step three was semi-structured interviews. These were employed to trace the process of GHG reductions within each company investigated. To begin an interview the changes listed in the reports that were cited as leading to GHG reductions were outlined and the person being interviewed was asked “Is there anything else that contributed to GHG reductions within your organization?” This was followed by the question: “When did your company’s GHG emissions start to decrease?” “How were the reductions accomplished?” I then noted some of the possible technical and non-technical factors contributing to GHG reductions and sought to identify all the technological changes that the company made that led to GHG reductions. Following this, I asked, “What was the motivation behind incorporating these technological changes?” This question was not needed in some of the interviews as the technologies and their motivations were already discussed following the initial questions. Since the interviews were semi-structured, I let the person being interviewed include anything they believed relevant concerning their GHG reductions. Some interviewees addressed possible inducers of technological change, and others did not. If not, then I listed several possible triggers, like the signing of the Kyoto Protocol, concern for corporate image, or saving money, and asked if any of these had an effect on their company’s efforts to reduce GHG emissions. The final step of my research methodology was to analyze the data from the content analysis of company VCR reports and the interviews. I first synthesized and summarized this data, and then compared it to the theories of technological change to 48 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. determine the source of technological change in the British Columbia forest industry between 1990 and 2005; in particular, to determine if it was autonomous or induced. The results from my research into the British Columbia forest industry GHG reductions, using the above four steps, are laid out in the next chapter. 49 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Chapter 4: Research Results 4.1 Introduction This chapter discusses steps two and three of my research—content analysis of company reports and interviews. Step two, the content analysis of the company reports detailing their GHG emissions and emissions reduction strategies, was done in preparation for the interviews (step three). Through this analysis I gained an initial understanding of the technologies the companies used to reduce GHG emissions and ascertained the level of reductions each company had achieved at the point of submission of the reports. In section 4.2, I present the results for each company in the following order: 1) an overview of the company, 2) discussion of the company reports, and 3) discussion of the interviews. The results are presented in the order in which the interviews were conducted, as follows: Canfor Corporation, Pope and Talbot Limited (Harmac Pulp Mill), Weyerhaeuser Limited, Howe Sound Pulp and Paper Limited Partnership, Catalyst Paper Company, and Tolko Industries. In section 4.3, the data gained from the reports and interviews are summarized. This sets the stage for drawing final conclusions relative to the source of technological innovation in the British Columbia Forest industry in Chapter 5. 4.2 British Columbia Forest Companies: Report Analysis and Interview Results Canfor Corporation Introduction. Canfor, based in British Columbia with its headquarters in Vancouver, is Canada’s largest forest products company. It produces lumber, Kraft pulp, 50 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. plywood, and Oriented Strand Board (OSB) for markets around the globe, and employs over 7300 people worldwide. Canfor’s last submission to the VCR was made in October 2001 (Emerson 2001). By 1999 Canfor was able to reduce its overall GHG emissions by more than 4.3% from 1990 levels. The increase in production in that time is not known but for the period between 1999 and 2005 Canfor’s financial reports show that sales grew by over 118% (Canfor 2005). Even with this substantial increase in sales, Canfor is committed to, and on target to, reach a 6% reduction from 1990 levels by 2010 (Canfor 2005). Report Analysis. According to reports submitted to the VCR, Canfor utilized numerous technologies for reducing its GHG emissions. The most significant were two Cogen plants constructed in Prince George, British Columbia (15 MW and 50 MW). Canfor also invested in a hog fuel press that reduces the amount of water in the bio-fuel used by the Cogen plants and greatly increases the Cogen plants efficiency. Canfor has also made extensive technological changes in their operations in order to share steam that was previously discarded with other heat requiring processes such as heating buildings. This greatly reduces the need for purchased fuel sources. Canfor has also altered many of their machines and equipment to use cleaner burning natural gas instead of heavy oil fuels. In their reports, Canfor lists numerous technologies that led to the reduction of GHG emissions but mentioned nothing as to why these changes were undertaken. It is because Canfor and other companies do not discuss the motivation behind their technological choices that interviews were conducted. 51 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Interview. Due to scheduling difficulties it was not possible to meet the Canfor representative in person so a telephone interview was conducted. Canfor started to reduce its GHG emissions in the mid-1990s at the time of its early participation in the VCR process. Since their last submission to the VCR, the company has constructed an additional Cogen plant at Northwood Pulp in Prince George (55 MW). Canfor has focused its efforts on the utilization of wood residue-fuelled energy plants to displace fossil fuel use (e.g., natural gas). This was their main method of GHG reduction. The commitment to use as much biomass fuel as possible to reduce purchased energy consumption is central to their emission reduction strategy. The company also has a $55 million energy system/pellet plant project in the works. This new technology is a joint venture with Pinnacle Pellet and the Moricetown First Nations Band and utilizes wood waste. As a result, the beehive burner in Houston, British Columbia will no longer have wood waste to burn and thus will be shut down. Since the pellets will be sold to third parties, Canfor is not able to count or collect emission credits for them but the end users (Asia and U.S. markets) will be burning a cleaner fuel source than their current options and therefore fewer emissions will be produced. The Canfor corporation representative interviewed emphasized that the primary motivation behind incorporating these technological changes was economic; namely, the financial savings associated with reductions in energy purchases. The need for GHG reducing projects to be economically viable was mentioned several times during the interview. The representative also indicated that when an opportunity presents itself through CO2 emission neutrality or use of biomass fuels, it is the “right thing” for the company to 52 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. do. Emission neutrality in the forest industry refers to the CO2 sequestering attributes of trees. The Kyoto Protocol and IPCC rules state that any emissions created from wood waste are offset by the sequestered carbon in the growth of new forests managed in a sustainable way. Therefore, emissions created from wood wastes are not counted by the organization in their submissions. Canfor’s representative said that third party certification of sustainability is not required for the Kyoto Protocol rules to apply but that most of Canfor’s forests are certified to a Sustainable Forest Management Standard. If Canfor can save money and reduce GHG emissions through complete utilization of the harvested trees, then it is a ‘win win’ situation. Canfor’s goal is to become more sustainable wherever possible and the utilization of the entire harvested tree is a large step towards that goal. Currently, Canfor does not consider CO 2 credits in its economic return calculations. Under the rules of the Kyoto Protocol, if a company is successful in reducing GHG emissions below a certain threshold then those additional reductions are counted and can be sold to others not able to meet their threshold of reductions. Unfortunately, the representative lamented that currently there is no established market to trade these credits within Canada. If there was a market system developed in Canada for these credits then more value would be placed on reductions and there would be greater incentive to embark on emission reduction projects. The rising costs of purchased energy such as natural gas and electricity was cited as a motivation for technological change. If biomass utilization and energy efficiency improvements can be made to reduce rising purchased energy costs, then those changes are welcome and encouraged. Canfor’s representative said that biomass generated from 53 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Canfor operations may allow it to reduce external gas consumption to zero and substantially impact external electricity needs. However, Canfor does not have the biomass resources to completely eliminate both purchased natural gas and electricity. The Canfor representative also stated that global warming is a reality whether from natural or anthropogenic causes or a combination of the two and that early action to reduce GHG emissions “just makes good business and environmental sense.” Neither the ratification of the Kyoto Protocol in 2002 nor its coming into force in 2005 had a significant impact on Canfor’s decision to reduce GHG emissions. Canfor has tracked its GHG emissions since the mid-1990s and is confident that if and when GHG emission reductions are legislated it should be in a good position to meet the mandates. Canfor’s representative also stated there are uncertainties about what the current federal government will do in regards to GHG emissions and the Kyoto Protocol. Pope and Talbot Incorporate - Harmac Pulp Mill Introduction. Pope and Talbot Harmac Pulp Mill is one of the largest producers of market pulp in Canada. Their mill is located near Nanaimo, British Columbia on a deepsea port on the east end of Vancouver Island, and manufactures a wide range of high quality pulp made from custom blends of wood chips from Douglas-fir, Western Hemlock, Balsam, and Western Redcedar. The mill can produce up to 400,000 metric tonnes of pulp yearly and supplies markets throughout the world. Pope and Talbot’s last report to the VCR was submitted in September 2002 (Bossons 2002). It stated that by 2001 the Harmac Pulp Mill reduced its GHG emissions by more than 21% from 1990 levels. 54 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Report Analysis. The technological changes the company reports as leading to reduced GHG emissions include an extensive move to cleaner burning fuels. This included converting three lime kilns and power boilers from heavy fuels to natural gas. The conversion resulted in an immediate reduction of 27%. In the late 1990s, other energy reduction projects reduced overall energy consumption by 8% and allowed the company to shut down two of their mill’s wood waste-powered boilers. The mill also incorporated changes to encourage heat recovery in a number of production areas, and employed the most modem computer controls in all of their wood waste boilers to maximize their efficiency. Interview. The interview took place at the Harmac Mill on Vancouver Island’s Duke Point. I was very impressed with the size of the mill and the sophistication of its technological operations. To avoid time-consuming security measures required to enter the facility, the interview took place outside the front gate in the company’s staff recognition garden. The mill started to reduce its GHG emissions in the early 1990s when there was a strong push to bring natural gas to Vancouver Island. At that time, the consumer base on the island was not large enough to justify the cost of a natural gas line and the government decided to regulate coastal mills to change from bunker C oil to natural gas through the Sulphur Content o f Fuel Regulation (Government of British Columbia 1989). This is the change that led to the conversion of the mill’s three lime kiln boilers. Therefore the largest reduction the mill has had in GHG emissions was due to provincial government legislation enacted in 1989. 55 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. In addition to the technologies listed in the reports, the mill has also utilized electricity saving frequency drives on their production engines, installed computer automation equipment in their recovery boilers, and increased the electricity produced from organic residual wood chips. In fact, the mill now produces 32 MW of electricity per day which supplies the mill with 70% of its electricity needs. The mill is also equipped with a power boiler and a turbo generator fuelled by tree bark. In addition, the mill produces from 16 to 18 tonnes of bio-sludge per day from treatment of mill effluent and bums it for steam and electricity, further reducing its needs for fossil fuel based energy sources. If the mill incorporated one more bio-waste boiler, it could be completely off the electrical grid and self sufficient in its electricity needs. However, for Pope and Talbot bio-waste in the form of chips or residue is not as readily available as it once was. With many coastal sawmills shutting down and more and more raw logs being exported there is less by-product waste to utilize. In fact, the mill has had to import chips from the interior of British Columbia for pulp production because over one-half of the sawmills have shut down on the coast in the last 20 years. When asked about motivation for the GHG reductions, the company representative emphasized three. The first was the legislation passed in 1989. This forced the mill to use cleaner burning fuels. The second was the desire to reduce energy bills. Reducing energy costs is essential in the highly competitive forest products market. The company’s main competition now comes from Brazil, Indonesia, and South America; locations where trees grow three times as fast, and energy, fibre, and labour costs are lower. The third motivation was consumer demand. Many consumers are very concerned 56 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. about the environmental impacts of pulp production. Through their GHG reducing and other measures, Pope and Talbot is able to label their products “green.” Their mill is certified to ISO 14000 and participates in a forest stewardship program. In addition to its customers, ISO 14000 requirements demand continuous environmental improvement. Pope and Talbot’s marketing department is constantly communicating with the engineers at the mill in regards to what has been accomplished and what they can report in the way of improved environmental performance and GHG emission reductions. The VCR itself was not a factor for Pope and Talbot in spurring technological change to reduce GHG emissions for the VCR only demanded a report on GHG emissions. The representative reiterated that previous legislation, reducing energy costs, and market demand were the main motivators, not the VCR. Canada’s ratification of the Kyoto Protocol in 2002 and its coming into force in 2005 were not motivating factors for the company; in particular because these events were not accompanied by Canadian legislation. It is the company’s reading that the current Conservative government is not likely to draft such legislation, especially because there have been many shutdowns in the industry. The government is not likely to impose any legislation that will increase costs for the industry at this time. The mill representative also suggested that even without Canadian legislation, further motivation for reductions could come from an emission-trading scheme and firm rules on carbon credits. This would make many more projects economically viable. In fact, now that the Sulphur Content o f Fuel Regulation from 1989 requiring the use of cleaner fuels is no longer in place, the mill chose to burn bunker C oil again in the summer of 2005 when natural gas spiked in cost. This would not have occurred with an 57 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. emissions trading scheme in place. The representative said it was difficult to get information from the federal government about a possible trading system or their expectations and plans surrounding GHG emissions. Since the new Conservative government took office, there has been almost no action or even discussion about GHG plans. The representative indicated that motivation for additional technological changes to reduce GHG emissions could come from federal legislation mandating use of cleaner biomass fuels, provided the government aided industry with the initial capital costs. In the representative’s opinion, clear rules, well-communicated legislation, and financial incentives would result in further large-scale GHG reductions. Weyerhaeuser Company and MacMillan Bloedel Introduction. In June 1999, Weyerhaeuser, based in Seattle, Washington, took over MacMillan Bloedel. The takeover occurred a few months before MacMillan Bloedel’s final submission to the VCR was to be made in December 1999. The following is an overview of both companies and their reports. MacMillan Bloedel was started in Powel River, British Columbia in 1908. It became Canada’s largest forest products company in 1959 when it merged with three smaller companies (Powel River Company, Bloedel Stewart Welch Company, and the H.R. MacMillan Company). Weyerhaeuser Limited was established in 1909, and is the world’s largest producer of softwood lumber and market pulp. Weyerhaeuser generates revenues of over 58 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. $22 billion annually and employs 54,000 people in 18 countries. As mentioned earlier, U.S.-based Weyerhaeuser purchased MacMillan Bloedel in 1999. Report Analysis. MacMillan Bloedel’s GHG emission reductions to 1999 within British Columbia are remarkable—the company cited a 47% drop in emissions from 1990 levels (Chmelaukas 1999). Although technological change was cited most often as the means GHG reductions were achieved, the company also stated that reduced production in British Columbia contributed to the decrease. The technological changes listed in MacMillan Bloedel’s reports are similar to those previously mentioned for Canfor and Pope and Talbot. These include switching to cleaner burning fuel and seeking energy improvements. The company also installed state-of-the-art log processing technology which allows the maximum amount of timber to be utilized and reduces the waste from production. The 1999 VCR report submitted by Weyerhaeuser represents MacMillan Bloedel’s final report. Weyerhaeuser made no further submissions following this. However, because I interviewed a Weyerhaeuser representative, not a MacMillan Bloedel representative, I reviewed Weyerhaeuser’s 2005 Sustainability Report. This report cites Weyerhaeuser’s public commitment to reduce its GHG emissions by 40% from 2000 levels by 2020 (Kendall 2005). The utilization of wood waste to produce electricity is the main source of GHG reductions for the company. Having the carbon neutral ability to utilize bio-wastes generated from forest products, made from a sustainably managed forest, is an opportunity the company says it has and will make the most of. Interview. The corporate head office for Weyerhaeuser is in Seattle, Washington. Due to the distance, scheduling, and cross border travel constraints, it was not possible to 59 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. meet a representative in person. However, a telephone interview with a representative in Seattle was conducted. Weyerhaeuser started to reduce its GHG gasses in 2000, the year the company uses as its baseline for emissions. This is different than Canadian companies included in this study, all of which use a 1990 baseline. The reason is that the U.S. government has not only not adopted the Kyoto Protocol, but also, as discussed in Chapter 2, has withdrawn from the agreement. Thus, unlike Canadian companies, U.S. companies are not bound by the Protocol’s requirements. Even so, there has been a push in the U.S. forest industry since 2000 to reduce GHG emissions by switching to biomass fuel. As a result, approximately 60% of all industry boilers are currently biomass fuelled. The company might actually be in a position to sell back to the electrical grid if such GHG reduction legislation unfolds in the U.S. Other than the biomass boilers, Weyerhaeuser is utilizing a new gasification technology, what the representative labeled as ‘biomass on steroids’. Weyerhaeuser’s motivations for reducing GHG emissions were tied to their triple bottom line (economic, social, and environmental). The company states that it is concerned not only with the economics of its operations but also with their social and environmental impacts. This dedication to a triple bottom line makes good business sense, according to the representative. As well, the representative said that the forest industry is unique in having the ability to sequester carbon in their products and to make use of wood waste from production as fuel. This carbon neutral ability of forest companies was a motivating factor for why biomass technologies have been chosen over other options. U.S. forestry companies were also taking the carbon neutral approach to 60 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. calculating emissions. The last motivating factor for Weyerhaeuser was the economic incentive behind reducing GHG emissions. The emission reductions go hand in hand with energy savings. With the price of traditional fuels on the increase, any option that can reduce costly consumption and reduce environmental impacts at the same time is a welcome choice to Weyerhaeuser. Since Weyerhaeuser is a U.S.-based company, the question regarding the impact of the signing of the Kyoto Protocol in 2002 or its inception in 2005 was not relevant. In regards to regulations, the representative explained that since the U.S. pulled out of the Kyoto Protocol there has been no government-directed push to reduce GHG emissions. However, state level programs and regional initiatives are unfolding quickly and carbon trading could be happening very soon. Weyerhaeuser does follow all possible legislation very closely and feels that they are in a good position for any legislation that may be enacted since they have reduced their GHG emissions 13% since their 2000 baseline. Howe Sound Pulp and Paper Limited Introduction. Howe Sound Pulp and Paper Limited Partnership has been producing pulp and paper products on the coast of British Columbia since 1908. Their facility is located near Gibsons, British Columbia, and employs over 600 people. The company is a limited partnership and is equally owned by Canfor and Oji Paper Company of Tokyo, Japan. Report Analysis. Howe Sound Pulp and Paper’s last submission to the VCR from was made in May, 2001 (Strang 2001). The company was able to reduce its GHG emissions by more than 12% from 1990 levels. The technological changes cited as 61 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. leading to the reductions are numerous. The company installed an 85 MW Cogen plant in the early 1990s and also invested in a hog fuel press to increase the efficiency of the Cogen plant. The fuel press technology was even more costly ($1.6 million) than the Cogen plant itself ($1.3 million) but the additional electricity generated is substantial and the dry wood waste also helps to reduce the amount of natural gas needed to fire the Cogen plant, further reducing GHG emissions. Howe Sound Pulp and Paper has also made extensive efforts to change its operations to cleaner fuel. The change from bunker C oil to natural gas required extensive technological changes in equipment but has been cited as one of the most effective ways the company has reduced its emission levels. The company writes that it is committed to continuous energy efficient improvements and continues to look for ways to collect and further reduce GHG emissions. Interview. The interview took place within the Howe Sound Pulp and Paper facility. I was very impressed with the size and technological sophistication of such an operation. Due to the clarity and candour of the representative, this interview was ‘short and sweet’. Howe Sound Pulp and Paper started to reduce its GHG emissions in 1988 when a plant modernization took place over a four-year period. Changes have continued since that time and have resulted in a reduction of GHG emission by 2005 of more than 58% from the 1990 baseline. In fact, on a per tonne basis the company has been able to reduce GHG emissions by 90%. In addition to plant modernization, optimizing boilers to accept biomass instead of burning natural gas further reduced GHG emissions. The next step is to change the lime kilns from fossil fuel to biomass. 62 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. The two main motivations for technological change at the facility were made crystal clear by the representative—government regulation and cost saving. Howe Sound Pulp and Paper’s first set of GHG emissions reductions were a result of provincial government regulations requiring the facility to adopt clean fuel use in the early 1990s. Ever since the early 1990 regulations the motivation behind GHG reductions has been to save money. Other than regulation and cost savings, the representative cited no other reasons for the reductions. In fact, the only reason Howe Sound Pulp and Paper tracked GHG emissions and submitted a GHG emission report is because they were asked to when the VCR was originally established. The ratification of the Kyoto Protocol in 2002 and its becoming binding in 2005 had no effect on company efforts to reduce GHG emissions. Catalyst Paper Corporation Introduction. Catalyst Paper Corporation, formerly known as Norske Skog Canada, is a leading produced of printing paper in North America. Catalyst Paper operates five mills on the south coast of British Columbia, employs over 3800 people in the region, and has sales of over $1.8 billion annually. It is perhaps the most successful forestry company in British Columbia in reducing GHG emissions. Report Analysis. Catalyst Paper’s last report to the VCR was submitted in June 2001 (Horner 2001). By 2000 the company had reduced its GHG emissions by more than 30% from 1990 levels. Their submission details the installation and use of a Cogen facility, the use of a hog fuel press, the technological changeover required for using 63 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. cleaner fuel sources, the use of heat exchangers, and a number of other energy efficiency and process improvements. Since 2001, Catalyst Paper has continued its impressive improvements and in its 2005 Accountability Report was able to boast a 71% reduction in GHG emissions from 1990 levels (Catalyst 2005). “For a company focused on efficiency, combating climate change is natural - by making smart choices about fuel use we reduce greenhouse gas emissions, improve air quality and reduce operating costs” (Catalyst 2005, 28). In 2005, Catalyst Paper became one of only nine companies worldwide to meet the stringent requirements of the World Wildlife Fund’s Climate Savers program. The requirements of the program are to achieve and sustain a 70% reduction in GHG emissions over 1990 levels by 2010. Catalyst Paper was the first Canadian company to meet the requirements of the Climate Savers program. “In November 2005, Catalyst paper president and CEO Russell Horner joined other Canadian corporate leaders in asking the federal government to take stronger action to fight climate change. In a letter to the prime minister, the CEOs came out solidly in support of the Kyoto protocol [sic] and urged that Canada’s climate-change plan extend beyond the protocol’s 2008-2012 timeframe” (Catalyst 2005, 29). Interviews. Two interviews were conducted with representatives from Catalyst Paper at their head office location in Vancouver, British Columbia. The two representatives were from different areas and management levels of the company and provided an extensive company perspective into GHG reductions. Catalyst was one of the coastal companies that first instituted GHG reductions in the early 1990s. Government legislation required coastal mills to regulate the sulphur 64 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. content in their fuel choices and they were made to choose a fuel with less than 1.1% sulphur content (Government of British Columbia 1989). The only choice of fuel that would meet that requirement economically was natural gas. This legislation prompted the technological changes required to use natural gas. Four main sets of changes resulted in GHG reductions at Catalysts Paper’s operations: The first was not a technological change; it was the result of reducing production, the second was converting processes from dirty burning fuels to cleaner burning fossil fuels (from bunker C oil to natural gas); the third source was reducing the consumption of fossil fuel by utilizing biomass as a source of fuel; the fourth source was improving energy efficiency. Approximately 12% of Catalyst’s reductions came as a result of shutdown, 66% from fuel switching (change two and three), and 21% from energy efficiency improvements. Catalyst recognized early that fossil fuel costs would unavoidably rise, and is proud that it has been able to insulate itself somewhat from price shocks. In fact, the company “enjoys” seeing the cost of energy rise, as they know this hurts their competitors. Thus, economic reasons (good business sense), acceptance of the reality of climate change, and a recognition that business must work with governments and individuals to find solutions were cited as the greatest motivators behind Catalyst’s reductions. Further motivation could be provided by emission trading and Canadian climate change legislation. In emission trading markets in Europe the emission credits Catalyst has accumulated could be valued at millions of dollars. In fact, the emission reductions 65 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Catalyst has achieved is equivalent to one quarter million cars being taken off the road permanently. Neither the ratification of the Kyoto Protocol in 2002 nor its coming into force in 2005 had any effect on Catalyst’s GHG efforts. The company had already achieved substantial reductions by those dates and was confident any regulation or legislation would not affect them negatively. Catalyst watches government regulation and legislation closely and lobbies through Forest Products Association Canada (FPAC) for the early action on GHG emissions. The company feels that when legislation does materialize, the forest industry will have a 15% baseline for reductions. This means that the government will not credit the first 15% of reductions made in the industry. This is due in part to the oil sands inability to dampen their substantial increases of GHG emissions. The strong economic engine that the oil sands are in Canada and the visceral resistance movement to the 6% target released by the petroleum industry seems to have created a possible early inequity in Kyoto Protocol regulations. Catalyst said the lobbying by FPAC seems to have gone unheard and the forest industry, because it has shown the ability to reduce GHG emissions, will be forced to take on a greater share of reductions than the 6% target Canada has agreed to as a whole. To encourage further GHG emission reductions, Catalyst believes that first and foremost clear and specific government regulations are needed. Certainty is what business is all about and clear rules, firm targets, and penalties are needed to promote further reductions in the industry. When such transparency exists then cost benefit analysis can be done on projects related to GHG reductions and the additional incentives such as emissions credits can be properly valued. According to the Catalyst 66 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. representative, an established carbon trading system will also encourage behaviour to reduce GHG emissions in organizations that have not yet seen the value in reducing fossil fuel use. The green company label is now starting to play a larger role for companies and their markets but GHG reductions must still be viewed as good business for substantial further reductions to take place. Tolko Industries Limited Introduction. Riverside Forest Products was started in 1968 and became one of Canada’s largest producers of softwood lumber, plywood, and veneer. Tolko Industries Limited, based in Vernon, British Columbia, purchased Riverside Forest Products in October 2004. Tolko is a major producer and marketer of softwood lumber, plywood, veneer, OSB, and Kraft papers. It has not reported to the VCR and currently does not track their GHG emission output. Therefore the report analyzed was that of Riverside Forest Products before the acquisition. Report Analysis. Riverside Forest Products submitted its final report to the VCR in October, 2002 (Kaneda 2002). In the report, the company states technological changes to reduce GHG emissions have come as a result of upgrades in efficiencies of existing equipment including boiler plant systems, furnaces, dryers, and kilns. The report also mentions the use of Cogen. Riverside Forest Products did not achieve reductions similar to the other forest companies in this study. In fact, by 2001 Riverside Forest Products had a 29% increase in emissions from 1990 levels. In that same time period the company experienced a 47% increase in production and therefore cited a 7.3% reduction in GHG 67 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. emissions based on output from 1990 levels. No other reports or publications have been released by Tolko Industries regarding their GHG emissions. Interview. The interview took place at the Tolko facility in Armstrong, British Columbia, one that produces lumber and plywood for markets in North America. Many of Tolko’s facilities were first built to utilize biomass; therefore, no significant reductions have been possible as very little GHG emissions are being generated from fossil fuels. The Armstrong facility is one of those built to utilize biomass for much of its power. To produce lumber and plywood, biomass is incinerated to create steam and electricity for the facility. The excess steam from this process is also captured and used elsewhere in the facility, greatly reducing energy needs. With the addition of the Cogen plant in 2002, Tolko is now able to sell certified green energy back to BC Hydro as they create more than they need. The only GHG emissions the Armstrong operation now produces are from the mobile loaders and transport trucks. New gasification technology was installed at their Hefley Creek operations. This technology has been working so well to reduce the need for natural gas Tolko may use it elsewhere within the company. The company also changed its veneer dryer to utilize biomass completely eliminating its need for natural gas in that process. Tolko has worked to upgrade loader and truck engines to the most efficient possible, in turn reducing GHG emissions. The Tolko representative indicated that energy costs savings was the primary motivating force behind the company’s technological changes. The company philosophy is “it is only waste until we can find a use for it.” An example of putting this philosophy into action is the invention of a piece of equipment called a de-stoner. In log yards there 68 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. is always unwanted bark on the ground from moving and storing the logs. Historically this bark has been sent to landfill. Tolko now runs this bark through a de-stoner that separates the dirt and stones from the bark. As a result the bark can now be used to fire the Cogen plant. Thus, a waste became a valuable fuel that contributes to excess in production of clean electricity that is then sold to BC hydro. Emission credits were not an incentive for Tolko’s technological changes, in part because the company would generate too few credits to sell. The green energy Tolko produces is far more profitable as BC Hydro is willing to purchase clean power. More effort towards GHG reductions would probably happen as a result of an established carbon trading market but the concern is the regulations and rules around credits. The company is eco-certified for green power and feels confident it has third party attestation to that fact but is worried about less stringent rules diluting the market with emission credits. Neither Canada’s ratification of the Kyoto Protocol in 2002 nor the Protocol coming into force in 2005 influenced Tolko’s technological decisions in relation to GHG emissions. Cogen would have happened for Tolko regardless of international rules, as the abundance of wood waste would have been capitalized on regardless. It was their company policy to find a use for any waste possible and this is what led to Cogen. The other incentives surrounding GHG emissions such as emissions credits or a green products have not yet become valuable. The Tolko representative said that specific government regulations would be a significant first step towards further GHG emission reductions in the industry. If the 69 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. industry knows what needs to be done they can then work towards it. Until that certainty exists it would be irresponsible business practice to act by guessing about possible regulations. Rising energy costs were also said to motivate further reductions. The representative thought that more competition would also have the effect of lower GHG emissions. Companies must become more cost efficient as competition grows. The final factor was to have a reliable source of biogas, or alternative fuel, for their forklifts, loaders, and trucks. 4.3 Summary of Content Analysis and Interview Data This section synthesizes and summarizes the data collected through content analysis of company reports and the interviews with company representatives, providing an overview of the British Columbia forest industry’s GHG-related technological changes and motivations for making these changes. This is the foundation for answering my research question in the next chapter. The information in this section is organized (following the order of my interview questions.) When did British Columbia forest companies start reducing GHG emissions and why? The start of GHG reductions was similar for all companies in this study with the exception of Weyerhaeuser. Canadian-based companies all started in the early 1990s, but for different reasons; see Table 4.1 for a summary of the start dates and motivations. The coastal companies—Pope and Talbot, Howe Sound Pulp and Paper, and Catalyst Paper Company—were legislated to change their fuel source. This provincial legislation was cited by company representatives as the most significant factor in the early 1990s. It had 70 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. an immediate influence on technological changes. The beginning of GHG reductions in the forest industry of British Columbia was most strongly influenced by legislation directed specifically at the industries fuel use and was the initial influence that led to considerable GHG reductions in the British Columbia forest industry. The early 1990s also marked the start of GHG reductions for the two other Canadian companies in the study. For Canfor, it appears that the VCR itself may have caused notice of the issue of GHG emissions. For Tolko, an early push for energy efficiency and the utilization of vast amounts of biomass caused initial GHG reductions. For Weyerhaeuser, it appears that the company focus on a triple bottom line (economic, social, and environmental) intensified and prompted GHG reductions starting in 2000. TABLE 4.1: When did British Columbia forest companies start reducing GHG emissions and why? Company Canfor Pope and Talbot, Harmac Mill Weyerhaeuser Howe Sound Pulp and Paper Ltd. Catalyst Paper Company Tolko Industries Start Date Early 1990s Early 1990s 2000 1988 - 1992 Early 1990s Early 1990s Motivation Involvement with VCR Provincial legislation Commitment to triple bottom line Provincial legislation/Modemization Provincial legislation Utilization of available biomass What technologies were used to reduce GHG emissions in the industry? The forest industry in British Columbia has utilized an im pressive array o f technologies. Table 4.2 provides a company-by-company listing of technologies used to reduce GHG emissions. The manifold technological changes in the industry range from the very simple, such as installing motion sensors on lighting to save power, to the 71 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. extremely complex, such as generating eco-certified electricity from bio-waste. The industry first altered equipment from dirty fuels to cleaner fossil fuels and then again altered equipment to utilize biomass. Cogen plants, and the technologies that have been used to ensure all of the energy and steam produced by these facilities are captured, have also permeated the industry. For example, the industry has utilized fuel presses to remove water content and invented de-stoning machines to create a valuable fuel out of previously discharged bark. Another relatively new innovation is the emergence of biomass-based gasification technology. Efficiencies and technologies are constantly being developed in the industry to reduce the fossil fuel based energy consumption and the GHG emissions created by their use. TABLE 4.2: What technologies were used to reduce GHG emissions in the industry? Company Canfor Pope and Talbot, Harmac Mill Weyerhaeuser Howe Sound Pulp and Paper Ltd. Catalyst Paper Company Tolko Industries Technology used resulting in GHG emission reductions Biomass utilization, Cogen, Conversion to cleaner fuel, Fuel press, Other energy efficiency technology. Biomass utilization, Computer automation, Conversion to cleaner fuel, Other energy efficiency technology (frequency drives on motors). Biomass utilization, Cogen, Gasification, Other energy efficiency technologies. Biomass utilization, Cogen, Conversion to cleaner fuel, Other energy efficiency technology. Biomass utilization, Cogen, Conversion to cleaner fuel, Fuel press, Other energy efficiency technology. Biomass utilization, Cogen, Conversion to cleaner burning fuel, De-stoner, Gasification, Other energy efficiency technology (engine upgrades). 72 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. What was the motivation behind utilizing these technologies? Numerous motivations were given in the interviews. Table 4.3 shows the most commonly cited motivations, and Table 4.4 provides a company-by-company listing of their motivations. Only the five motivations that were covered or discussed by more than one company are included. They are listed and discussed below in order of how frequently they were mentioned in the interviews, from most often cited to least often cited. TABLE 4.3: Motivations cited for technologies resulting in GHG emission reductions in the British Columbia forest industry. 1) Economic (Save money and stay competitive by reducing energy costs). 2) Provincial government legislation in the early 1990s. 3) The carbon neutral opportunity in the forest industry. 4) Consumer demand for environmentally sound products. 5) It is the right thing to do acknowledging climate change. I will begin this discussion by emphasizing what was not cited as a motivation for technological change resulting in GHG emission reductions. One intriguing finding of this study is that the Kyoto Protocol and the various events related to the Protocol (its ratification by the Canadian government, and entry into force) had no direct influence on company technological decisions to reduce GHG emissions. The response to questions related to the Kyoto Protocol was virtually identical for every company interviewed. The Kyoto Protocol has had no effect on their operations or on their efforts to reduce GHG 73 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. emissions, in particular because past or present governments have not legislated reductions. This inaction is not likely to change and it would be poor business for a company to act by guessing at regulations. It was also a very common opinion that the already achieved GHG emissions reductions put forest industry companies in a favourable position if and when legislation and regulations do unfold. Even if a forest industry reduction targets are set much higher than the 6% baseline for the Kyoto Protocol, to accommodate other struggling industries in Canada, most of the companies have achieved GHG emission reductions far below the 6%. In fact, most of the companies are below the 15% reduction expected of large final emitters (LFEs) in the Canadian forest industry. 1) Economic reasons. The most often cited motivation for the technological change in the British Columbia forest industry was an economic decision to save money and stay competitive. Any technology that could reduce the use of costly fuels or make processes more efficient was undertaken. For the companies interviewed, the desire to save money was usually referred to as a way to stay competitive in a aggressive global market for forest products. For some in the industry, saving money was the sole motivator for technological changes resulting in GHG emissions reductions. The increasing cost of traditional fuels was also cited as an economic factor leading to technologies that resulted in GHG emissions reductions in the British Columbia forest industry. Reducing the dependence on external fossil fuel has significance to those companies within the industry who have embraced reducing energy costs and reliance. Rising energy costs can actually benefit those companies who have reduced their need for 74 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. purchased energy as they are more insulated from rising price shocks where their competition may not be. 2) Provincial government legislation. The next most cited motivation for the technological change was the Sulphur Content o f Fuel Regulation enacted in 1989. The government at the time left the coastal mills no option but to make the technological changes necessary to burn cleaner fuel and as a result reduce GHG emissions. Although government regulation regarding GHG emissions is watched closely, no other legislation regarding GHG emissions or energy consumption was cited to have motivated further reductions. 3) Carbon neutrality. The ability for the forest industry to be carbon neutral was also a motivating factor for technological change. Two main reasons prompted the industry shifts to biomass related energy production. First, the ability to be a carbon neutral industry allows the use of biomass to produce energy as long as the forest from which the wood was grown is sustainably managed; and therefore represents a store of carbon equal to or less than that being released through the production of energy. Second, the amount of biomass waste material available in the industry makes the transition to biomass-produced energy logical. The abundance of wood chips, bark, and wood residue that was once a waste transported to the landfill is now being utilized. The international rules allowing for biomass fuel to be carbon neutral was considered a motivating factor related to the pervasiveness of biomass use in the industry. 4) Consumer demand. Consumer demand for environmentally sound products was mentioned by two of the six companies as a strong influence on their efforts to reduce GHG emissions. Other companies said that their markets were not really concerned with 75 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. GHG reductions. Even if the market demanded environmental management, GHG reductions were only a small and sometimes insignificant portion of that demand. Consumer environmental concerns are focused on forest management and GHG reductions have not yet become a tangible issue for those concerned with environmental stewardship in the forest industry. Those in the industry who did cite a demand from their final markets for environmental management, including GHG performance, were those selling to the European market. The major markets for the forest products of British Columbia continue to be a North America market without a strong demand for environmentally conscious production. 5) The right thing to do. The last motivating factor cited by more than one company in the study was climate change itself. If climate change is acknowledged to be the severe problem that scientific evidence suggests, then the right thing for the industry to do is to reduce their contribution (GHG emissions) to the problem. Although this motivating factor was not as strong as the others it was suggested that over time it will become more important in the decision making of the British Columbia Forest industry. 76 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. TABLE 4.4: What was the motivation behind utilizing these technologies? Company Canfor Pope and Talbot, Harmac Mill Weyerhaeuser Howe Sound Pulp and Paper Ltd. Catalyst Paper Company Tolko Industries Motivation for technologies change Carbon neutral opportunity, Economic sense, Right thing to do acknowledging climate change, VCR. Economic sense, Government legislation, Market demand for environmentally sound products, Rising cost of energy. Carbon neutral opportunity, Company triple bottom line (economic, social, environmental). Economic sense, Government legislation. Carbon neutral opportunity, Economic sense, Government legislation, Market demand, Right thing to do acknowledging climate change, Rising cost of energy. Abundance of wood waste, Economic sense. What would stimulate further GHG reductions in the forest industry? Transparent federal and provincial government regulations were cited to be the most likely factor to influence further GHG reductions. Two specific components of government regulatory policy related to GHG emissions were mentioned by industry representatives. The first is to have clear targets for GHG reductions. The second is to create a carbon emissions trading market with clear rules. Most of the interviewees mentioned the need for certainty with respect to GHG emission legislation. Other suggested inducers of technological change included the use of direct government legislation to force forest companies off fossil fuels and onto biomass and establishing financial incentives to help companies move away from fossil fuels to biomass. Alternative fuels for use in mobile loaders and transportation would also result in further GHG reductions. 77 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. TABLE 4.5: What would stimulate further GHG reductions in the forest industry? Company Canfor Pope and Talbot, Harmac Mill Weyerhaeuser Howe Sound Pulp and Paper Ltd. Catalyst Paper Company Tolko Industries Stimulus for future reductions Certainty on government intentions for GHG emissions Emission trading, Government legislation forcing the use of biomass (and a greater availability of biomass), financial assistance/incentives to help industry move to cleaner fuels No response Continual effort to reduce costs by reducing purchased energy Emission trading, Certainty of and transparency in government regulation, Increase in market demand for green products, Recognition the Kyoto Protocol and GHG emission reductions are needed. Emission trading, Certainty of government legislation, higher energy costs, alternative fuels made available for mobile equipment This completes the synthesis and summary of content analysis and interview data, and established the foundation for the final step of my research—to answer my research question. This is taken up in the next and final chapter. 78 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Chapter 5: Conclusions and Recommendations 5.1 Introduction If technology is to be relied upon to mitigate climate change, it is critical to understand the source of technical change. The source of technical change is considered the greatest source of uncertainty when predicting the cost of climate change mitigation. Assumptions made about the source of technical change have significant repercussions in determining the nature, degree, and timing of GHG emission regulations. The uncertainty surrounding the source of technical change must be reduced if effective and meaningful legislation is to be developed in Canada and elsewhere globally for GHG emissions. Understanding the source of technical change behind the success of British Columbia forest companies in utilizing technology to reduce GHG emissions may aid other organizations and industries in Canada and elsewhere globally in their attempts to reduce GHG emissions, meet Kyoto Protocol obligations, and address global climate change. My research aimed to decipher the source of technological change in the British Columbia forest industry between 1990 and 2005. Section 5.2 relates my research results as presented in Chapter 4 to the three theories of the source of technological change presented in Chapter 3. This then positions me to answer my central research question— Was the source of technical change in the British Columbia forest industry over the 15year period from 1990 to 2005 autonomous or induced?—in Section 5.3. Section 5.4 discusses limitations of my research and presents policy recommendations related to the source of technological change and GHG emissions reductions. 79 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. 5.2 British Columbia Forest Industry and the Three Theories of the Source of Technological Change My data show that the technological change in the British Columbia forest industry was overwhelmingly that of adoption of technology, not invention (creation of a new technology), nor innovation (improvement on old technology). Thus, adoption of technology was the dominant source of technological change in the British Columbia forest industry between 1990 and 2005 resulting in GHG reductions. In my study, I did not differentiate between invention of a technology and adoption of a technology—both were considered “technological” change. However, it turned out that adoption of technology, not creation of technology, was the dominant mode of technological change in the British Columbia forest industry. Thus, this study could have benefited from extending the interviews beyond the forest industry companies to the producers of the technologies that were adopted by the industry. I could then determine if the same reasons listed for adoption of technical change were applicable to technological invention. I do not underestimate the amount of creativity and skill within the industry that led to a considerable amount of GHG emission reductions but this research could benefit from including all those involved with the technical changes that occurred in the British Columbia forest industry. Since the study did not include external groups or individuals I cannot include commentary as to their source of technical change. Path D ependence As outlined in Chapter 3, the central characteristic of path dependence theory is that small sequential steps lead to new innovations and technical changes. In this study, it is evident that Path Dependence does not explain a great deal of the source of 80 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. technological change between 1990 and 2005. Path dependence might have been applicable if, for example, innovations reducing sulphur content in bunker C oil had allowed the continued use of this fuel to meet the provincial government regulations in the early 1990s. Since continual efficiencies were only cited as a very small part of overall GHG reductions, the theory was not applicable for the majority of technical change that happened. Another reason that Path Dependence does not explain the British Columbia forest industries technical change is that the changes that occurred in the industry were not small and sequential. The changes occurred in large leaps, not incrementally. These steps included changing fuel use from bunker C oil to biomass fuels, and to the development of cogen and gasification. The changes and types of technology listed in Table 4.2 involved major not incremental changes. There were smaller steps made towards energy efficiency, such as upgrades on motors and utilizing previously wasted steam; however, these measures made only a small contribution to the overall GHG reductions in the industry. Hence, path dependence does not explain the major source of technological change in the British Columbia forest industry. Evolutionary Theory Based on the results of this study, evolutionary theory explains a portion of the source of technological change in the British Columbia forest industry. The concept of “creative destruction” (i.e., creative firms eliminating old technologies and bringing new or better ones into use) is evident in the British Columbia forest industry. Examples include the change to natural gas from bunker C oil, biomass and cogen adoption to 81 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. alleviate the need for purchased electricity, and gasification adoption to replace natural gas. All of these changes represent the introduction of entirely new technologies with better features and processes to meet the same need. Provincial government legislation required lower sulphur content in fuels so the affected companies reacted creatively and changed their processes to bum natural gas and biomass instead of bunker C. As shown in Table 4.4, in addition to government regulations, each of the companies studied cited economic reasons as a source of technical change. This behaviour of the firm in a competitive environment is the main concept behind evolutionary theory. The evolutionary theory may help explain a firm’s behaviour but does not add insight into the direction or choice of technology employed. Thus, evolutionary theory can point to legislation or market demand as causing technological change but does not explain why biomass, cogen, or gasification were the chosen over other technologies. Induced Technical Change The theory of ITC as formulated by Sir John Hicks hypothesizes that a change in the relative prices of factors of production itself is a spur to innovation. This largely explains the technical changes in the British Columbia forest industry. A significant amount of the technology resulting in GHG emission reductions was “induced” as a result of efforts to reduce or economize the use of ever-costlier purchased energy; specifically natural gas and electricity, two central factors of the cost of production in the forest industry. From Hicks’ original observation, the theory has been extended to other 82 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. factors such as government legislation, industry competition, and market demand. These factors can be seen at work in the British Columbia forest industry. ITC adds insight not only into when technology was stimulated but also into what specific technology was developed or adopted. For example, in the British Columbia industry, fuel use change was chosen to save money and stay competitive, but the choice of biomass technology was induced by the availability of biomass and IPCC rules creating a carbon neutral opportunity for the industry. As another example, it may have been first stimulated by a desire to save money through reduced purchased energy but a market demand for clean power was a deciding factor in the eco-certified choice of production. As mentioned in Chapter 3, Grubb (2000) suggests that ITC offers a partial explanation of the “Porter Hypotheses” (i.e., environmental regulations can improve economic competitiveness by stimulating the development of better technologies). This study demonstrates the validity of this hypothesis. The companies that were directly influenced by the provincial legislation in 1989 were the most successful companies in reducing GHG emissions. Provincial government legislation was clearly a stimulus to the development and adoption of technologies and is largely responsibly for the significant reductions of GHG emissions by coastal forest companies. Two of those companies, Catalyst Paper Company and Howe Sound Pulp and Paper, achieved GHG emission reductions of 73% and 58%, respectively. In addition to reacting to government legislation, both cited a strong business case for reducing costs through energy use reduction and energy efficiencies. The other companies in this study who did not have to react to the same provincial legislation were not as successful in reducing GHG 83 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. emissions. Catalyst Paper Company believes the technologies they adopted created a competitive advantage because it reduced purchased energy more than its competitors. Some may argue that since there was no direct motivation to reduce GHG emissions by some of the companies studied, that the technical change should not be considered induced and were in fact autonomous. The Pope and Talbot representative indicated that the sole intention that led to GHG reductions was to reduce energy consumption, and that GHG emissions were not considered in their decision; they were merely a by-product of energy saving measures. However, GHG emissions and fossil fuel energy consumption are intrinsically linked and technical changes that resulted in GHG reductions (and motivated by a desire to save energy) were not autonomous changes. I argue that in relation to GHG emission reductions, technological changes were indirectly induced in Pope and Talbot. There was purposely-directed action taken as a response to rising fuel costs in a competitive market and a need to reduce costs where possible. The technologies that resulted in GHG reductions, even if they were not intended to reduce GHG emission, have been induced and cannot be considered purely autonomous changes. It is clear that Pope and Talbot’s technological changes, although not directly related to GHG reductions, were not an accident. They were stimulated by the desire to reduce the use of fuel inputs that are rising in cost (consistent with Hicks’ observation). In conclusion, of the three theories of technological change, it is clear from my research that ITC best explains the source of technological change in the British Columbia forest industry. Evolutionary theory offers some insights; however, path dependence is not applicable. My research results demonstrate that legislation, demand, 84 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. and market forces (as predicted by the theory of ITC) were more influential than small sequential steps in the development of technology (as predicted by path dependence theory) or organization’s behaviour in a competitive market (as predicted by evolutionary theory). 5.3 British Columbia Forest Industry: Autonomous or Induced Technological change? Based on the above conclusion, I am finally in a position to answer the research question posed at the beginning of this thesis: Have the technological changes resulting in GHG reductions in the British Columbia forest industry between 1990 and 2005 been induced, autonomous, or a combinations o f the two? My research shows that the source of technical change in the British Columbia forest industry was predominantly induced. The British Columbia industry was “induced” to develop and use a variety of technologies that resulted in a reduction of GHG emissions (see Table 4.2). The “inducing motivators” were government regulations, economic reasons (to save money and stay competitive), an opportunity to be carbon neutral through biomass use, and consumer demand for environmentally sound products. If these factors did not exist the industry may still be using bunker C oil, and biomass use, cogen, and gasification would m ost likely not be as w ell developed nor as pervasive in the British Columbia forest industry as they are today. While technological change was predominately induced, my results also show an autonomous component. Some technological change was autonomous (i.e., change 85 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. occurring without a specific need in mind in which GHG reduction was a side benefit of the change), such as replacing old equipment which was unrelated to GHG reductions. However, the changes were not “mindless” as would be asserted under a pure form of autonomy. The change did not follow a steady rate of improvement or autonomous disinterested trends as would be suggested by forecasting with an AEEI model. Hence, I argue that the majority of technological changes, if not directly induced, were indirectly induced. 5.4 Limits and Recommendations Limitations My research (document analysis and interviews) allowed me to clearly answer my research question. However, there are improvements that could be made to my methodology. My research could have benefited by including British Columbia forest companies that reduced GHG emissions but were not party to the VCR. The VCR stated that companies reporting represented 75% of GHG emissions for the industry, but other companies with reductions could have added additional insight into the challenges of small to medium sized companies. In addition, it could have benefited from a more refined analysis of the three components of technological change (invention, innovation, adoption or diffusion). It was not until the final stages of my research that I realized how important it was to make this distinction. While assessing my research results I was able to distinguish the three 86 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. components; however, during interviews I did not ask questions to specifically distinguish them. Recommendations This study removes some of the uncertainty surrounding the source of technical change by showing that within the British Columbia forest industry technical change was induced between 1990 and 2005. Based on the study, a simple but powerful recommendation can be set forth—governments should not overlook the power of inducing technological change when creating GHG emission legislation. Legislation encouraging ITC will provide certainty to organizations capable of technological change. Until legislation is implemented encouraging ITC, actions may not be taken. As shown in this research, the British Columbia forest industry wants certainty regarding legislation and would embrace many of the regulations that can best stimulate technical change such as emission trading and financial incentives to reduce GHG emissions. A carbon tax may also encourage further technological change by artificially increasing the cost of carbonbased fuels. The money collected from the tax could also be used to support the development and adoption of clean technologies. ITC was effective in British Columbia, it may prove effective for other industries. Policy makers in Canada should be confident in regulations promoting technical change for GHG emissions. Provincial regulations were effective in the past. With company GHG emissions reductions of up to 71% and clear evidence that GHG emissions reductions were induced, the industry should stand as an example for others while Canada attempts to meet its obligations of a 6% reduction of GHG emissions by 20082012. The current federal Conservative government believes that Canada cannot meet its 87 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. obligated GHG emissions reductions agreed to in the Kyoto Protocol and proposes bill C30 setting reduction targets for 2050. My research shows that induced technical change should not be underestimated in its ability to result in large-scale GHG emission reductions. Economic-related climate change models depend on assumptions about technical change to come to their conclusions about the price of mitigation and policies related to GHG emission reductions. Many models have used an autonomous representation of technical change but these models do not capture the dynamic effects of technical change and therefore predict high costs for mitigation. Models that have represented the source of technical change as induced predict much lower costs for mitigation policies. The high costs predicted in the autonomous models not only perpetuates the debate of economics over environment in climate change, it misrepresents the process of the critical tool in climate change mitigation; technological change. Governments around the world who now forecast the costs of attempting to mitigate climate change by meeting the Kyoto Protocol obligations of GHG emission reductions should rethink using outdated AEEI models that treat technical change as autonomous when forecasting the costs of possible regulation options. Although the British Columbia forest industry is only a small portion of global GHG emissions, the results of this study point to a pattern that should not be overlooked. In my estimation, autonomous representations of technical change would have missed capturing the dynamic effect of ITC as experienced in the British Columbia forest industry and would not have correctly predicted the significant reductions between 1990 and 2005. The Kyoto Protocol does not force a choice between economics versus environment. This 88 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. study shows that in the British Columbia forest industry this trade-off was not evident. Organizations were able to succeed and stay competitive while making considerable reductions to their GHG emission outputs. Many of the mechanisms of the Kyoto Protocol are meant to stimulate, encourage, and diffuse technology to reduce GHG emissions. If national governments embrace those mechanisms such as emission trading, Kyoto Protocol obligations can be met and surpassed without economic demise. The world’s governments negotiated the Protocol over many years with a great deal consultation. The mechanisms of the Protocol must be given a chance before governments like Canada should claim that GHG reduction targets called for cannot be reached. To many, there is no longer any doubt that human-induced climate change is happening and that unless the world reacts by reducing the amount of GHGs entering the atmosphere the consequences could be dire. I have shown that in a coastal province in Canada a multi-billion-dollar industry was able to reduce GHG emissions by significant amounts while increasing production and staying competitive in a global market. Technology is the key to mitigating global climate change and avoiding the staggering penalty that may result if it goes unabated. Everything possible should be done to encourage, direct, and speed the technical change needed to combat what many call the world’s greatest environmental problem. 89 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. REFERENCES Alberta Government. Energy facts, http://www.energy.gov.ab.ca/1899.asp. Arthur, Brian W. 1989. Competing Technologies, Increasing Returns, and Lock-In by Historical Events. 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