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The Atlantic Canadian forestry sector is in the middle of one of its most important restructuring periods in history, a new report states, and government and the industry must look to co-generation, robust research and private woodlots to come out on top.

"In the medium- to long-term, there are some real opportunities here," said Don Floyd, University of New Brunswick researcher who co-authored the report with Rajendra Chaini of Natural Resources Canada.

"Forests in New Brunswick are becoming more valuable every year. The key to that value is not just the traditional wood products; it's all of the value-added products and renewable resources."

But Floyd said industry and government must act fast to realize those opportunities before the sector plunges further into economic uncertainty.

The medium-term future of New Brunswick's forestry sector hinges on energy policy development, he said. The sector, suffering from soaring costs, could turn its fortunes around in part with the advent of robust co-generation capacity, he said.

Co-generation, in this case, would involve forestry firms, likely pulp and paper mills, generating electricity from wood fibre to fuel their own operations and sending excess energy to the provincial grid.

While co-generation mills would help the forestry sector diversify, the move would come with considerable costs. Fraser Papers, which operates a co-generation plant at its paper mill in Edmundston, has seen its power bills triple in the past 12 years, said Terry Noble, Fraser's general manager of wood procurement. Fibre costs have increased over that period due to a decrease in supply from New Brunswick sawmills and an increase in demand from co-generation mills in the United States.

The new forestry report, funded by the Canadian Institute for Forest Policy and Communication, calls for a multi-government feasibility study for more co-generation capacity in the province.

"This could be a potential help for our mill sustainability and self-sufficiency as we move forward," said Mark Arsenault, president and chief executive of the New Brunswick Forest Products Association.

"Energy is one of our highest cost centres, and if we could make money off it, rather than paying high costs, it could go a long way for our community."

Turning to research and development, the forestry report's authors state other jurisdictions across North America are outspending Atlantic Canada, and New Brunswick, in technology development to diversify the forestry sector.

Several projects have led to new products and jobs, the authors write, but there is no sustained program for the region.

To fill this gap, the authors propose alternative sources of funding for research, including Crown forest royalties and carbon taxes.

"A lot of people have observed that the forestry industry is the subject of under-investment, and that is true in this region," said Floyd.

"We lack a stable funding resource for research and development, and technology transfer."

The forestry report's authors make a final pitch for the sector's survival with an emphasis on finding ways to leverage the capacity of private woodlots. Much of New Brunswick's private woodlots are under-utilized, said Floyd, in part because of the expense to achieve international certification.

The province is in a unique position, he said, by having just under half of its forests allocated to private hands. If private woodlot owners are encouraged to band together to cut the costs of the certification process, which has been done south of the border, they could be in a position to put their wood into production, said Floyd.

"The forest products sector in Atlantic Canada is in the midst of one of its most important restructurings in its 300-year history," the forestry report states.

"We remain cautiously optimistic about its future because of the forest's growing value of a variety of uses beyond the traditional industries of lumber and pulp and paper manufacturing."