Facts On Ground Contradict BC Auditor General

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By Steve Zwick

22 May 2013 | The Kootenay Land District – or “the Kootenays”, as people there call it – is the heavily-forested southeastern part of British Columbia. More than 90% of it is government-owned, which keeps logging to a minimum. 

The privately-held land is mostly tree farms, but the provincial Office of the Auditor General(OAG) says these tend to be harvested on a “sustained yield” basis, which is to say slowly over time. That’s one reason the OAG slammed the Nature Conservancy of Canada’s (NCC) Darkwoods Forest Carbon Project for claiming to have rescued more than 2/3 of the 54,792-hectare Darkwoods forest from “liquidation logging” – which is to say from being harvested as soon as it's economically viable to do so - when it purchased it in 2008

Before making that claim, NCC followed step-by-step procedures laid out by the Verified Carbon Standard (VCS) so that it could earn credits for the carbon that stayed in those trees it saved. The OAG, however, dismissed the procedure and the project on two grounds: first, the OAG claimed that NCC hadn't factored carbon finance into its purchase and was instead cashing in after the fact (an argument that quickly proved to be built on false premises and incomplete information) and, second, the OAG claimed that NCC had exaggerated the number of trees it had saved – or, in carbon lingo, it had exaggerated the baseline. If the OAG's two-man team was right, then the VCS and its hundreds of experts and years of review were wrong, and the carbon sector was in need of a major rethink. 

But most of the OAG’s conclusions on the baseline front have proven just as ill-founded and poorly-reasoned as its conclusions on the additionality front. Chief among its baseline arguments is its contention that "most private forest land owners in the area" don't employ liquidation logging, and a commercial buyer would probably also not have done so, either. 

The OAG offered no evidence to support this claim, so we started calling timber consultants, contractors, landowners, and local authorities in the Kootenays to find out what the common procedures were. We quickly learned that liquidation logging is, in fact, the norm – just as NCC said it was. We even found two properties adjacent to Darkwoods that had been liquidation-logged, and we learned that the owner of one of those properties had shown an interest in purchasing Darkwoods. The OAG’s response offers some insight into how they drew their conclusions.

Which Properties are "Typical"?

Lead auditor Morris Sydor told us we had been looking at the wrong properties, and he directed us to four that he assured us were more representative of the types of properties most likely to purchase Darkwoods: specifically, he told us to look up Beaumont Timber, Almforest Timber, Erie Creek Timber, and Kelly Creek Timber. All of them, he said, follow the Private Managed Forest Land Act (PMFLA) to earn tax credits, and none of them, he assured us, practice liquidation logging. 

“They've got a long-term outlook in mind,” he said. “I had a phone conversation with a consultant a while ago and he basically confirmed the same thing: If you look at small properties, yes, people are going to liquidate because it is a small property, but if you're looking at the larger ones people tend to have a longer view in mind.” 

At 28,000 hectares, Beaumont is by far the biggest of the four, and it’s just over half the size of Darkwoods. If it was, in fact, practicing sustained-yield harvesting and was, in fact, typical of the types of entities that would buy Darkwoods, then maybe the baseline was, as the OAG claimed, too aggressive.

But when we contacted British Columbia's Corporate Registry and other authorities, we learned that all of the properties Sydor referenced are owned by German aristocrats like Prince and Princess of Wied (see "Beaumont Ownership", right). These aristocrats are cut from the same cloth as Duke Carl von Württemberg, who had owned Darkwoods for 40 years before selling it. They are the last remnants of a wave that came over in the 1960s, and they have been divesting since the 1990s. What's more, every property they’ve sold has been liquidation-harvested

So, yes, the owners of these four properties take a longer-term view than other private timberland owners in the area, but that’s because they are completely different from other private timberland owners in the area. 

“These properties are far from typical,” says Rainer Münter, who has served as General Manager of Almforest and currently owns Monticola Forest Ltd, a consultancy that does business with three of the four properties. “The families that own them view these investments more as a form of capital preservation than capital appreciation, so their expectations are much more modest than are those of typical investors.” 

Granted, that doesn’t preclude one of them buying Darkwoods, but we’ve learned that the owners of Darkwoods offered it to all four properties and were turned down. 

“We looked at it,” says Münter. “But we concluded that there was no way we could make it work financially if we were to log sustainably – not at the price they were asking.” 

And here’s the kicker: Beaumont – the largest of the four properties – has been harvesting at a rate consistent with the baseline that NCC picked, and every timber dealer in the region knows it, which means the OAG should have known it. That rate, it turns out, doesn’t violate the PMFLA, and neither does the baseline analysis that NCC’s developing partner, 3GreetTree, created. In fact, while the Project Description Document does say that a commercial owner would probably opt out of the PMFLA to avoid the cost of replanting, the actual baseline that 3GreenTree constructed did, in fact, model for tree planting, which meant the baseline itself was consistent with the PMFLA. The reference to the PMFLA is, therefore, irrelevant. 

What's truly bizarre about the OAG's report is that, on re-reading it after knowing the facts, you repeatedly see the auditors mostly (but not completely) understood the facts but wrote about them a way that appears intentionally vague and misleading, giving themselves the wiggle room to claim they weren't technically wrong, even though they were, once again, very far from being right. Take, for example, this paragraph from the report:

The project assumed a “liquidation logger” would not follow the requirements of the Private Managed Forest Land Act(PMFLA), even though the project plan identified that most private forest land owners in the area followed these requirements. This is common practice in the area, as significant tax benefits are gained by registering a forest under the Act. The project documentation provided no explanation for omitting such registration from the baseline calculation. By not registering under the PMFLA, a liquidation owner would not follow the minimum forest management objectives for private land (e.g. for soil conservation, protection of water quality, fish habitat and critical wildlife habitat, and reforestation). The baseline assumed that areas classified as environmentally protected by the previous owner such as sensitive habitat for mountain caribou and other at-risk species, would be logged, and not replanted by a liquidation owner.

Well, yes – it's mostly true, but it's completely meaningless. The "areas classified as environmentally protected by the previous owner" are parts of the property that the Duke had set aside for his own use, and not areas that were protected for any scientific environmental reason. Furthermore, the project documentation does actually provide an explanation for omitting the registration (they mentioned that a liquidation logger would probably try to save the cost of replanting), but then 3GreenTree still factored that cost into its baseline calculation.

What About Wildlife and Activists?

Interestingly, in our interviews, Sydor quickly conceded the irrelevance of PMFLA on harvesting levels, but then said local people wouldn’t tolerate the destruction of valuable habitat. 

“The problem with the baseline scenario is it wipes out all the habitat for mountain caribou and grizzly bears,” he says. “It has no consideration for environmental values." 

That, of course, is why NCC was so keen to buy the property, but he says it also makes the baseline scenario untenable because no one will do business with a company that chops down trees in environmentally-sensitive areas. 

“There was a forest company five years ago that went public with some logging plans that it was going to log in mountain caribou habitat,” said Sydor. “What happened was there was such uproar that its major purchasers in the US went public and said, ‘We're not going to buy from this organization if this goes ahead.’ They had to pull back.” 

Mike Vitt, who managed the project for 3GreenTree, points out that neighboring Porcupine Creek has chopped down more than 70% of its trees, and there has been no protest from the green community. What's more, he says, the baseline scenario he chose doesn't really decimate the caribou habitat. 

"Caribou are high-altitude animals," he says. "The two things that caribou care about are that you're not logging the really high-elevation stuff and you don't have open roads, because then wolves and other predators can get them." 

Finally, in cases where a green protest has emerged, logging has tended to increase rather than decrease. Take, for example, Stump Lake Ranch – a property on Salt Spring Island, near Vancouver. Like Darkwoods, Stump Lake Ranch had been owned by a German aristocrat, Prince Johannes von Thurn und Taxis. When he died in 1990, his heirs started looking for a buyer. In stepped Robert J. MacDonald and Derek M. Trethewey, who announced plans to start logging. Local nature-lovers put together an incredibly well-organized and well-documented community action, but instead of stopping, the owners sped up the logging until the government stepped in to buy the land at an inflated price. 

Stump Island matters, because the same two men who own it also own Porcupine Creek. We don't know if they bid on the Darkwoods property, but we do know that everyone who did show an interest in buying it either practiced liquidation logging or developed real estate.

That's partly because the asking price was based on an assessment of the timber value conducted by Jim Thrower, one of the leading timber consultants in British Columbia. He looked at the timber on the land and concluded that a commercial operator would harvest between 180,000 and 380,000 cubic meters per year, depending on external factors. 3GreenTree then used a mid-range figure to come up with its asking price. Any commercial venture that paid the asking price would, therefore, have had to push the limit of timber extraction to make a profit. 

And that brings us to an issue we'll explore in our next installment: namely, how timber assessments are made, and where timber consultants say baseline analysis can be improved. 

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Steve Zwick is Managing Editor of Ecosystem Marketplace. He can be reached at szwick@ecosystemmarketplace.com
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