Proceedings of the Standing Senate Committee on
Agriculture and Forestry

Issue 6 - Evidence - Meeting of June 1, 2010


OTTAWA, Tuesday, June 1, 2010

The Standing Senate Committee on Agriculture and Forestry met this day at 5:04 p.m. to examine the current state and future of Canada's forest sector.

The Honourable Percy Mockler (Chair) in the chair.

[Translation]

The Chair: Honourable senators, I see we have a quorum. I would like to call the meeting to order.

[English]

I welcome all of you to this meeting of the Standing Senate Committee on Agriculture and Forestry.

Witnesses, thank you for accepting our invitation. I would like to introduce myself.

[Translation]

I am Senator Percy Mockler from New Brunswick, Chair of the Committee.

[English]

Today, we welcome witnesses from two organizations.

[Translation]

From Enerkem, Mr. Vincent Chornet, President and Chief Executive Officer. Mr. Chornet is accompanied by Ms. Marie-Hélène Labrie, Vice-President of Government Affairs and Communications.

[English]

We also have a third witness, from Capital Power Corporation, Mr. Kelly Lail, Director, Commercial Management.

To you witnesses, thank you for accepting our invitation and being part of the Standing Senate Committee on Agriculture and Forestry and its mandate to examine the causes and origins of the current forestry crisis.

[Translation]

We also promote the development and marketing of value-added wood products.

[English]

The committee is continuing its study on the current state and future of Canada's forest sector and looking more particularly at biomass.

[Translation]

Before I ask the witnesses to make their presentations, I would like the senators to introduce themselves, starting on my left and ending on my right.

Senator Chaput: I am Senator Maria Chaput from Manitoba.

[English]

Senator Fairbairn: Joyce Fairbairn, from Lethbridge, Alberta.

Senator Mahovlich: Frank Mahovlich, from Ontario.

Senator Lovelace Nicholas: Senator Sandra Lovelace Nicholas, New Brunswick.

Senator Plett: Senator Don Plett, just down the road from Senator Chaput in Manitoba.

Senator Ogilvie: Kelvin Ogilvie, from Nova Scotia.

[Translation]

Senator Rivard: Senator Michel Rivard from Quebec.

[English]

Senator Eaton: Nicole Eaton, from Ontario.

Senator Segal: Hugh Segal, from Kingston-Frontenac-Leeds, Eastern Ontario.

The Chair: Thank you, senators.

I am informed that Mr. Lail will make the first presentation, to be followed by Mr. Chornet. We are eager to hear your comments and recommendations.

Kelly Lail, Director, Commercial Management, Capital Power Corporation: We welcome this opportunity to discuss our experience with biomass power generation at two of our plants. One is in Williams Lake, British Columbia, and the other one is in Hearst, Northern Ontario.

Biomass power generation is renewable and helps forestry companies to become more cost competitive and productive. It creates long-term jobs at good wages and uses sawmill and forestry waste to create value-added product — electricity. Generation with biomass is environmentally clean. It is neutral from a carbon perspective and helps the forestry industry to become more sustainable.

I will start with a brief introduction of Capital Power. Capital Power is a growth-oriented North American independent power producer. Currently, it has a capacity of 3,500 megawatts. In addition, we have approximately 700 megawatts that are in the development or construction stage with two windmill farms, one in British Columbia and one in Ontario. Approximately one quarter of the current generation in operation is from recycled and renewable resources. That includes biomass, which constitutes approximately 4 per cent of the total. We currently have 31 facilities in eight U.S. states and three Canadian provinces, and we have approximately 1,100 employees in North America.

Capital Power operates the 66-megawatt Williams Lake power plant located in Williams Lake. It is one of the largest, if not the largest, biomass project in North America. Capital Power also operates the Calstock power plant, in Northern Ontario, which is smaller at 35 megawatts. I will focus most of the discussion on the Williams Lake power plant. However, the characteristics are also applicable to the Calstock power plant with some small local differences.

The Williams Lake power plant was constructed during in 1991-92 and began commercial operations in 1993. It sells electricity to B.C. Hydro under a long-term 25-year agreement. The construction cost of the plant was $150 million. The construction period created 250 local jobs. Approximately $12 million in salaries went to the local trades and skilled workers. In addition, several contracts were awarded to local contractors.

The plant operates 24 hours a day, seven days a week. On average, it produces approximately 65 megawatts, which are sent to the grid. It is fuelled by hog, also known as brown wood or bark, from the local sawmills. It also uses sawdust and chips from the local mills. On an annual basis, the plant uses approximately 700,000 tonnes of hog fuel. Almost all of the supply has been from the local mills in Williams Lake. However, more recently, due to the severe downturn in the forest industry, we have had to rely on salvaged roadside logging debris and processed forest residuals supplied to us by Pioneer Biomass. I understand they appeared before the committee a couple of weeks ago.

Prior to the construction of the plant, wood waste was either land filled or burned in local beehive burners. Prior to start-up of the plant, there were some 11 beehive burners in Williams Lake. The smoke and particulate matter from these burners impacted the air quality in Williams Lake. After the power plant came into operation, there was a significant improvement in local air quality. The particulate matter was reduced by some 90 per cent. This improved visibility and reduced risk to human health.

With the plant in operation, the sawmills experienced a reduction in the cost of their lumber production and became more competitive. This is because they did not have to worry about the waste that they previously had to burn or landfill at a cost. The operation of the plant and the local sawmills hummed along quite nicely until late 2008, when we experienced our first fuel supply issue such that we were not getting enough fuel from the local sawmills.

Even though Williams Lake is one of the most productive sawmill regions in British Columbia, to make up this shortfall we supplemented it with roadside logging debris from Pioneer Biomass. In order to do that, we entered into an agreement with Pioneer Biomass, which bought the equipment, hired local labour and went into the forest to salvage roadside logging debris. They used mobile grinders to grind the salvaged material in the forest and then transported it to the plant.

In doing so, both Pioneer and Capital Power were able to create some jobs for the idled loggers and truckers. At the time, those jobs were sorely needed in the community. If the forest residual were not processed and supplied for power production, it would have been collected, piled up and set afire to burn, which is the normal practice. Instead, the wood waste from the sawmills and salvaged logging debris was used to generate power, a value-added, carbon-neutral product created locally from waste. The operation of the plant also makes a significant contribution to the local economy.

Approximately $25 million is spent annually in the local region. It consists of $18 million in wages, approximately $5 million to the local sawmills for chips and shavings, and approximately $2 million to the local and regional governments for services and taxes. On average, the plant employs about 30 people plus four or five summer students every year. Salaries for technicians and trades range in the order of $30 to $40 per hour. In addition, the plant receives approximately 350 business visitors who contribute an estimated $350,000 to the local economy.

The Calstock plant in Ontario is similar to the Williams Lake plant in that it uses biomass as a primary fuel. In addition, it uses the waste heat from the Trans-Canada Pipelines compressor stations as secondary fuel. Similar to the Williams Lake plant, due to the downturn in the forestry industry, the plant has had insufficient fuel to run at normal operating levels. In fact, the plant has been shutting down during off-peak hours. The Calstock plant requires a long- term fuel supply in order to continue to produce bio-energy, sustain local jobs and contribute to the local economy. To that end, Capital Power has applied to the Ontario Ministry of Northern Development and the Ontario Electricity Financial Corporation seeking timber cutting and forest residual rights. If that is granted, then Calstock will be able to use less desirable wood species and provide higher-grade logs to the local sawmills, thereby making them more competitive. In addition, it will create about 25 jobs and additional expenditures of $7 million to $10 million.

In summary, biomass power generation helps the forestry industry to become more competitive as it allows wood waste to be used for a value-added product. It also allows the use of the right logs for the right purposes. It creates long-term good wage jobs, is environmentally clean and creates a product that is value-added and local.

I am pleased to answer any questions.

The Chair: Mr. Chornet, please proceed with your presentation.

[Translation]

Vincent Chornet, President and Chief Executive Officer, Enerkem: Good day, Mr. Chair. I represent Enerkem, a Quebec company based in Montreal and Sherbrooke. Thank you for giving us the opportunity to speak to you today about an important topic that is very dear to us: the future of Canada's forest sector.

[English]

These hearings are important to us as a company, but they are most important for the future of the biofuels industry, the bio-energy industry and the renewables industry in Canada. I would like to use this time today to discuss four key issues.

I would first like to introduce our company and then explain what we do and the technology that we have developed over the past decade that is now emerging as some economies, including Canada and the Unites States, are transitioning to biofuels and biofuel mandates.

[Translation]

After I introduce you to Enerkem, I would like to explain to you how our new-generation biorefineries can help transform Canada's forest sector.

[English]

Third, I will share with you some of the practical business challenges that we face in commercializing a technology that can add significant value to the forestry sector. Finally, we will suggest some policy options for your consideration.

[Translation]

Enerkem is a world leader in developing and producing new-generation clean transportation fuels. For instance, we use all kinds of residual materials to produce second-generation ethanol. We use biomass to do this, but we also use ultimate waste, which is currently being buried in landfills.

[English]

The company manufacturers, owns and operates advanced bio-refineries based on the proprietary thermal-chemical technology that we have developed in-house since 2000. Enerkem's unique technology converts residual materials, such as non-recyclable municipal solid waste, forest residues and agricultural waste into second-generation or cellulosic ethanol, other biofuels and green chemicals.

[Translation]

Enerkem is a burgeoning Quebec company that currently employs 75 people. I believe that the company itself is a reflection of what we now call clean technology and an example of an emerging business in this new economy.

The company currently has two plants in Quebec. One is a pilot plant in Sherbrooke, and the other is the first commercial plant in Westbury in the Eastern Townships.

[English]

In addition to its two plants currently in operation, in July, Enerkem will break ground for what will be the world's first municipal waste-to-biofuels commercial plant, and that will be in Edmonton, Alberta. All of the city's non- recyclable waste will be transformed into ethanol. We have entered a 25-year agreement with the City of Edmonton. We will convert what they currently landfill into ethanol and will help this province meet its renewable fuel standard.

The Government of Alberta has contributed $23.5 million to this project. This is an $80 million facility. We are bringing the balance of funds. The company is also developing a similar project in Mississippi, for which we have received $50 million in funding from the Obama administration as part of their stimulus package. That is managed by the Department of Energy in the United States.

[Translation]

Plant-tested since 2003, Enerkem's technology is now being deployed on a commercial scale. The company is a perfect example of innovation arising from the Canadian research community, in particular, from the research community of the Université de Sherbrooke.

[English]

Enerkem is one of the leading clean-tech companies in Canada. We have raised $70 million in private equity in the financial markets, and we have received upwards of $90 million in government support, on both sides of the border, in Canada and in the U.S.

In addition to helping Canada meet its renewable fuel standard, as well as reducing greenhouse gas emissions, Enerkem contributes to reducing waste landfilling. In addition, it provides a great opportunity to transform our forest industry by using forest residues to produce clean transportation fuels and green chemicals, as well as other materials.

[Translation]

Owing to the diversity of raw materials Enerkem can use, its plants can be set up not only in rural but also in urban areas, such as the City of Edmonton. Our plant currently operating in Westbury is located in a rural area, very close to East Angus. We can create job opportunities in urban as well as in rural areas.

One plant can use both forest residue and residential waste, which helps us to ensure a guaranteed and secure supply of raw materials.

[English]

Flexibility on the feedstock side is a key issue, as my colleague has also mentioned and which we will go into a little further in a few seconds.

[Translation]

Enerkem plants hold tremendous potential for transforming the forest sector. Enerkem can produce 360 litres of ethanol from one tonne of dry forest biomass residue. According to the 2008 numbers provided by Canbio, by processing paper mill and forest operations residues, we could produce 13 billion litres of ethanol, with a market value of over $6 billion in Canada alone.

[English]

Considering that Canadian ethanol production is expected to be around 1.3 million litres in 2010, forest residues will present a significant market potential. They reduce our dependency on foreign oil, as well. These residues can come from sawmill production and forest operations. They include sawdust, bark, needles, thinnings, tree limbs and tops.

[Translation]

The positive aspect of using residual forest biomass is that we can avoid having to farm additional land, since these materials have already been harvested and are not all needed to provide green cover nutrients.

[English]

Today, residues from pulp and paper mills, as well as sawmill production, are the most accessible, both economically and geographically. However, access to this biomass is dependent on industry activity. The primary challenge of building a strong domestic biofuels and bio-energy sector using forest biomass is access to a stable, bankable source of wood fibre at a competitive price. Leveraging existing under-utilized assets and working with those who have easy access to forest biomass at a competitive price represents an opportunity in the short term.

However, for the long-term, access to biomass on Crown land is essential to realize the full potential that these technologies can contribute to this sector. Accessing biomass on Crown land remains a complicated process for potential bio-energy producers, and this is across Canada. We face the same issue in every province. The forest tenure system must be modified to accommodate this value-added industry. In the end, a process needs to be emerge that streamlines access to biomass yet is fair to existing forest companies that already hold licences for Crown lands harvesting.

From a policy perspective, there are challenges for utilizing wood fibre for bio-energy because of the perception that forest harvesting can have negative effects on the environment. This is an area where the federal government can do more to clearly illustrate the benefits of using wood and wood residues for biofuels production and to show this can be done sustainably while creating employment and much-needed fuel and green products in our economies.

Finally, access to capital to build these new plants remains a challenge, given that these technologies are still pre- commercial but emerging. The only program available for advanced bio-refineries in Canada is the sustainable development technology Canada, NextGen Biofuels Fund, but this fund only allows for one project per company. We have a plant to build in Edmonton; we will be announcing a facility with the Government of Quebec, probably in the fall; we have a facility in Westbury; there is a second plant the City of Edmonton would like us to do; and we are developing more than 300 acres of sites across the country. We need more assistance than a fund that can simply fund one project.

We agree with the committee's conclusion that any government intervention must take into account how the various sub-sectors of the forest system interact with one another so as not to create any undue bias towards a particular user. We would caution, however, that there needs to be some guiding principles, including considering the unique challenges of commercializing new technologies, remaining technology neutral, and promoting continued R & D and innovation in our country.

[Translation]

In conclusion, we are on the verge of accomplishing something remarkable by combining the bioenergy and forest sectors through technologies developed here, in Canada.

We currently have 75 employees, and many of our engineers are young. They either could no longer find jobs or had to leave their previous positions in the conventional petrochemical sector. We are witnessing a thorough restructuring and transformation of the economy, so the Government of Canada must regulate this sector properly.

[English]

If we are successful in driving the right policies, companies like Enerkem will become world leaders in the development of clean energy technologies and will make a material impact on our economy as well as our environment.

Senator Plett: Mr. Lail, for your company it seems that one of the biggest problems with biomass is lack of supply. You have said that in some instances you are not getting enough product and that is why some of your plants are not running at full capacity.

We have been studying Wood First in this committee for quite some time and encouraging people to use more wood in their buildings. Are we working at cross-purposes with you? If we use more wood in buildings, are we taking away fuel that you need, or in creating these plants are you taking away wood that we need in Wood First? Tell me about your supply issue.

Mr. Lail: No, we are not working at cross-purposes. In fact, the opposite is true. The more lumber the mills produce, the more waste there is available to our plant. They create more bark, more sawdust and more shavings. We face fuel supply shortages when mills are curtailed or not operating. We had to go into the forest to make up for lost supply due to downturn and curtailment of mills. Once again, we did not use product that is suitable for milling into lumber. We use waste left in the forest.

Biomass plants use wood that would otherwise be wasted. Power generation is a complementary business rather than being in competition with lumber production. If more lumber is used for building materials, the mills have higher operating rates and produce more lumber. As a result, we have more waste available to us.

Senator Plett: I will take that a step further. If you had the complete tree to burn, would that not be beneficial for you as far as creating biomass?

Mr. Lail: You could do that, but it would be very uneconomic. We can have roadside logging debris processed and delivered to our plant for about $50 a tonne. Burning a log would cost more than twice that. The electricity we would produce would be very expensive. It would not be competitive.

Senator Plett: We have many forest fires right now in Quebec, and perhaps in some other areas. Is there value in these burned trees for your type of operation?

I have learned through this committee that we are not supposed to clean up everything in the bush, that there is value to leaving some waste laying there. I have also heard that there is value to having the odd forest fire. Tell me a bit about that. Do burned trees have some value?

Mr. Lail: I am not a forester, so I am speaking from a power generation perspective. Logging companies go into the forest and take logs out, and there is waste left in the forest. Under the forestry code, they are required to gather up that waste and get rid of it in some way within two years. They collect it into a pile and set it on fire. Leaving the waste in the forest does not help with re-growth. It must be cleaned up.

We have not looked at what the heating value of burned trees would be and whether it would be economic to bring them in to burn at our plant.

Senator Plett: Mr. Chornet, what you are doing in Edmonton and the United States is very exciting. You suggested that you need some government input to get going. I do not want to debate that, but if you are successful in Edmonton, would other cities not be clamouring to have you come in and set up? I am from just outside of Winnipeg in Manitoba. I would think that the city of Winnipeg and all other major cities in Canada would be thrilled if this would work and that there should be no need for any government intervention or government money.

Mr. Chornet: You are partly correct, and this has already started. We have demand coming from Halifax and a number of municipalities elsewhere in Canada, as well as from Asia, Singapore and a number of municipalities in the U.S. We currently have to push back demand because we cannot support all that activity.

That being said, we still need our share of the money to finance these facilities. We need to provide at least 50 per cent of the capital for each project. The project in the city of Edmonton costs about $80 million, so we need to come up with $40 million.

The financial markets are still a little hesitant about investing in biofuel companies, particularly in Canada as opposed to the U.S., because the regulation is not clear here. It does not give a status to advanced biofuels as opposed to corn-based, first-generation biofuels.

There is a law here in Canada, Bill C-33, that requires refiners to blend 5 per cent ethanol with gasoline starting in 2010. Most of that can already be fulfilled with corn-based ethanol. If we do not extend this percentage to 10 per cent, the financial markets will not be satisfied that there is a demand for further ethanol in this country and therefore may not finance companies like ours for additional facilities in Canada.

Senator Mercer: I also found your presentations extraordinarily interesting. Yours are a couple of great Canadian success stories, or at least partially successful stories.

The fact that we have a company headquartered in Edmonton with 31 facilities across North America, many of them in the United States, and a Quebec-based business doing business in Quebec and also in Alberta, are signs of some great innovation. That you have been able to involve both the Alberta Energy Research Institute and the City of Edmonton in the project is a good use of capital across the country, including Sustainable Development Technology Canada.

You have a plant in Williams Lake, British Columbia. It struck me, as you were talking about the difficulties with supplies, that there is a big supply of what some of us would call waste wood in British Columbia, in the pine beetle destroyed trees. Are they not available to you, or are they too far away?

Mr. Lail: They will be available to us. In fact, when the mills are required to start making lumber out of the pine beetle deadwood, there will be more waste. We expect our fuel supply to be more than sufficient for the next few years, but as the pine beetle deadwood is used up, we expect the supply to go down.

Senator Mercer: We know, on the other side, that the milling industry is down, which you have acknowledged. It would seem to me that the price of a pine beetle destroyed log would go down. Would that not bring it into range for your operation? I understand you need to keep the costs down, but the price of that dead log is going down, I assume; the longer it lies on the ground, the less value it would have for premium wood, if you will.

Mr. Lail: That is correct. The Government of B.C. is taking action, encouraging existing forestry companies that have rights to that wood to use those dead pine stands first before they are given other rights.

As to whether or not it is economic in the long term, it would depend on the transportation and logging costs of that standing dead timber. At the end, if the lumber mills continue to operate at very low levels, we need the fuel; we will use that fuel as long as it is economic.

Senator Mercer: Mr. Chornet, you mentioned casually the interest from the city of Halifax. I happen to be from Halifax so I am eager to hear a little more about that matter. You also talked about an ongoing problem in dealing with Crown lands across the country. Could you give us a little more background on that subject? Does that vary from jurisdiction to jurisdiction, from Quebec to Alberta to Nova Scotia? Is the dealing in Crown lands different from province to province?

Mr. Chornet: It is different from jurisdiction to jurisdiction. The issue we face, particularly in Quebec, for example, is that the type of agreement that one needs to enter into with government is to some extent convoluted in that it calls for a sequence of operations with the wood, preparing the wood, trying to extract as much value as possible, which requires a number of front-end activities before the wood residue actually comes to us. To develop a project around a Crown land agreement requires that we have a pulp mill, a sawmill and a number of other operations. It becomes very complicated from a developer's standpoint.

Senator Mercer: You need the pulp mill and sawmill and people doing their thing before you can do yours.

Mr. Chornet: We cannot just go into the forest and, while proceeding with best practices, prepare the tree as we would prefer to do it and make that operation as lean and practical as possible for us.

Senator Mercer: Is the Halifax project just an expression of interest or is it serious?

Mr. Chornet: We have entered into discussions with Halifax. It is still at the preliminary point. They wanted to do testing at our pilot facility in our commercial facility in Westbury, Quebec. We have had to push back because we were not able to host them and their tests. There is only so much we can do. You have to understand the renewable fuel standards, particularly in the United States. While we have Bill C-33 in Canada and a five per cent ethanol mandate, the Americans have what they call their renewable fuel standard number 2, which calls for 36 billion gallons of biofuels by 2022. Corn will supply only enough biofuel, I understand it is 15 billion gallons, so that the bulk of that mandate will have to be met by other feedstocks than traditional corn and crop feedstock. There is a race towards technologies that can harness these feedstocks and the carbon and hydrogen in those feedstocks to produce ethanol and other fuels. Therefore, financial markets are very demanding and require clear and specific regulation to cover companies like ours and we do not have that in Canada at this point. We are departing a little bit from a number of Canadian projects, unfortunately.

Senator Mercer: Perhaps we should increase the 5 per cent ethanol requirement to 10 or 15 per cent. I understand it is very high in Brazil. This is one thing government can do that does not cost government a lot of money. By increasing the ethanol requirement, it then demonstrates a stronger market so that you can raise more capital. It seems to me to be a relatively simple solution, or am I oversimplifying it?

Mr. Chornet: You are not oversimplifying it. This is what we are debating in the Canadian Renewable Fuels Association. Corn would provide probably enough ethanol to meet the existing 5 per cent mandate. If we pushed that mandate to 10 per cent, then half of the ethanol in this country would have to come from other residues and would require tapping into technologies such as ours in projects like the one we have with the City of Edmonton.

Senator Mercer: You made an interesting statement about the attitude that using wood as biofuels is not environmentally sound. There is a one thing that is a constant in this city. It does not matter who sits on that side or this side of the table. We always criticize the other guy's advertising. We criticize theirs; they criticized ours; it goes on forever. It would be better if we advertised something that everyone agreed to. It would be a good use of government advertising to demonstrate to Canadians that using wood as biofuels is economically and environmentally sound.

Mr. Chornet: Absolutely. There are studies produced recently by a gentleman by the name of Don Roberts, at the CIBC World Markets, who is ranking the value chain of what a pulp and paper mill could do with wood. It concludes that if the pulp and paper mills were to transition towards producing, for example, acetates, synthetic diesel and ethanol, it could completely change the dynamics of the forest industry and could make wood quite a compelling commodity and would increase its value substantially.

[Translation]

Senator Rivard: Mr. Lail, you use residual forest biomass for cogeneration. We know that cities have a problem disposing of municipal and industrial waste. Do you currently have any Canadian projects in which forest biomass is used along with waste?

[English]

Mr. Lail: Our plant in Williams Lake is able to use municipal waste. However, currently, it is only licensed for wood waste.

We do have plants in the U.S. that use municipal waste for power generation. Currently, we do not have any plans in Canada to use municipal waste for power generation, primarily because you need a secure supply of fuel. When you are putting capital in the ground for 25 years, you want to ensure that the fuel is there for 25 years.

[Translation]

Senator Rivard: In the provinces where you operate, do you have to sell the electricity produced to, for instance, BC Hydro? In Quebec, the electricity has to be sold to Hydro-Quebec. For that to happen, your production costs have to be lower than those of Hydro-Quebec, for instance, which produces electricity using water. Hydro-Quebec sets its own rates, so they have to be able to turn a profit in order to buy from you. I know that in Quebec, there is one cogeneration plant in the Montreal region, which is now closed, as it cost taxpayers a fortune because the electricity produced was more expensive and Hydro-Quebec was not buying it.

Are you obligated to sell the electricity to the provinces or to energy-producing companies where you work? Are you faced with the same problem as us?

[English]

Mr. Lail: Senator Rivard, thank you for that important question. You must have a revenue stream to support the investment.

We operate in three provinces: British Columbia, Alberta and Ontario. We are an Edmonton-based company. Previously, we were owned by the City of Edmonton, but we are now traded on the Toronto Stock Exchange. I will address each of the provinces one by one.

In British Columbia, we sell electricity to BC Hydro under long-term power purchase agreements. That goes for hydroelectric power plants as well as for the biomass plant in Williams Lake. The biomass plants are generally not cost competitive with the lowest cost type of generation, which tends to be based on the gas prices, currently, gas-fired generation. However, it was because of environmental reasons and forestry industry competitive reasons that the government directed BC Hydro to enter into an agreement for Williams Lake. That agreement has been good for BC Hydro, relatively speaking, compared to other options available to them, for the forestry industry and for Capital Power. In fact, BC Hydro, just yesterday, toward the end of the day, came out with a request for proposals where they are looking for 1,000 gigawatt hours of biomass energy. The bids are due within the next few months, and they will have a decision by February.

That electricity that is bid in will likely cost more than the best option that may be available to BC Hydro at this time. However, the government and BC Hydro are doing it for public policy reasons, and in the long term, it is good for the forestry industry and for the province, both from a jobs and an industry perspective.

In Alberta, as most of you may know, the generation portion of the electricity industry is deregulated, and the electricity is sold on an hour-by-hour basis. The prices can range, just to give you an example, in the last week, from about $20 a megawatt hour to almost $1,000 a megawatt hour, depending on the supply and demand situation.

In that kind of volatile market — in fact, some would say that Alberta has probably the most volatile commodity market in the world — it is very difficult to build a biomass plant that would compete and earn a return for investors. We have no biomass plants in Alberta at this time.

In Ontario, similar to BC Hydro, electricity is sold to a subsidiary company of Ontario Power Authority, called Ontario Electricity Financial Corporation. In the future, it will be sold to the Ontario Power Authority. We have five plants in Ontario that are owned by the LP, and we have one wind farm. It is a single buyer. You bid into a system, you compete with everyone else, and if you win, you get a contract.

There is no exported power from the plants in B.C. at the moment, although that may happen, nor is there an opportunity to do so in Ontario at a competitive rate.

We do not operate in Quebec at this time, and I am not completely familiar with how electricity would be bid into some sort of market there.

[Translation]

Senator Rivard: Mr. Chornet, I would like to know what you think about biomass cogeneration using household waste. Do you have any such projects in Canada?

Mr. Chornet: Not in Canada. We have electricity projects, cogeneration projects, using ultimate waste in Europe, where the price of electricity is a little bit higher. In Quebec, doing this would be very difficult.

Senator Rivard: This is because of Hydro-Quebec.

Mr. Chornet: Yes, that is why. It is very difficult to compete with hydroelectricity rates. In addition, we have developed a technology that enables us to use the gas generated from these residues in the development of higher value- added products, such as chemical products — ethanol, which we are discussing today. It is much more justified to use these raw materials for their chemical value, the hydrogen they contain, rather than to simply burn them to produce electrons.

Senator Rivard: Mr. Chornet, regarding the pilot plant in Sherbrooke, are you receiving financial assistance from either the municipality, the Government of Quebec or the federal government? Could you also tell us a little bit about your pilot project?

Mr. Chornet: In fact, we have been operating a pilot plant since 2003. Its total cost was $8 million. We financed it for the most part, but we also received federal and provincial assistance. Twenty-five minutes away from this facility, we built, close to East Angus, a $20-million commercial plant, which is expected to produce five million litres of ethanol. It uses Hydro-Quebec's utility poles. The poles are currently buried because they contain arsenic, PCP and creosote. They are converted to syngas—in ten seconds—which is then cleaned. The end product is as clean as natural gas. That gas is converted to ethanol.

This is what will now be done in Edmonton. The Westbury plant is ten times larger than the pilot project plant, and the Edmonton plant is three times larger than the Westbury one. Our plant in Mississippi is identical to the one Edmonton.

To answer your question more specifically, for the Westbury plant, we put up $15 million of our own money, which was borrowed on financial markets by putting up the $20 million as equity. The Edmonton project cost $80 million, and we injected about $60 million into the venture. We have to turn to financial markets and convince them that there is a market for our second-generation ethanol. To do that, we stress the importance of second-generation fuel and what it derives from.

Senator Rivard: Thank you very much and good luck!

Senator Chaput: Thank you, Mr. Chair. I have a question in addition to those asked by my colleague, Senator Rivard. Since we are on the subject of ultimate or non-recyclable waste, I would like to know if you have already looked into straw as an option.

Mr. Chornet: That is a good question. We actually have a project using straw in Rimbey, Alberta.

[English]

Rimbey is halfway between Calgary and Edmonton.

We are developing a project with Mayor Dale Barr in the Town of Rimbey using straw as feedstock.

[Translation]

Senator Chaput: I ask because in Manitoba, we had a straw plant near Elie. It bought straw for building furniture and all sorts of boards. The plant is now closed, and there are tonnes of straw left over collecting dust. I was wondering if you have already considered straw.

Mr. Chornet: We have tested straw. We have a project in Rimbey, and straw is a raw material that interests us. We will take note of what you just said.

Senator Chaput: In order to ensure that the bioenergy and forest sectors are ultimately combined, who is conducting research, who is ensuring that you are always at the technological forefront, that you are constantly increasing your focus on potentially useful materials? Do you have a research team?

Mr. Chornet: We do have a team.

[English]

We have 75 employees and a small team of about a dozen researchers. We have our internal research. At Enerkem, our research is in the form of pilot projects and trials. We subcontract fundamental research to the University of Sherbrooke and others throughout Canada, including McGill University in Montreal.

Senator Chaput: Do you use pilot projects in your research?

Mr. Chornet: We have pilot projects with pulp and paper companies and with Paprican and FPInnovations. These organizations have good research, but they tend to be a little slow for the demands placed on us from the financial markets. That might be considered at this table.

Senator Chaput: My last question pertains to the workforce. Is there a qualified workforce ready to embark on this kind of work?

Mr. Chornet: It is a daily challenge. In Montreal and other urban centres, we can find specialized engineers. In the regions, it is more challenging.

Senator Chaput: What do they need?

Mr. Chornet: They need a chemical engineer with a background and experience in petrochemical companies, which are now concentrated in Alberta and, to some extent, in Sarnia. Montreal is losing most of its refineries. Often, they do not come to us with the petrochemical background that we would like to see. We need to train them.

Senator Plett: My supplementary question pertains to the straw feedstock. What do you have in Whitby? Is it an electrical or heating plant? In my previous life as a mechanical contractor, our company installed a large heating plant on a chicken farm where we heated about eight or ten barns via underground piping. The best thing to happen to that operation was it burned down.

What are you doing with the straw in Whitby and how successful is it?

Mr. Chornet: We have a gasification process. We are probably the only company in the world that uses a non- plasma bubbling fluidized bed reactor gasifier process. We heat up the material without giving it enough oxygen to burn. Imagine a vessel, such as a boiler, that is heated to 700 degrees C. atmospheric pressure. We put in the straw with one third of the oxygen you would need if you wanted it to burn. In ten seconds, our machine converts it to a synthetic gas, which is a mixture of hydrogen and carbon monoxide. We are recognized internationally for being good at cleaning the synthetic gas to the point where we have a gas that has a specific balance of two parts hydrogen to one part carbon monoxide. This is essentially what refineries do with oil. They get it to naphtha and from there, you can do a number of things: chemicals, alcohols, hydrocarbons, et cetera. Then we apply petrochemical technology.

Senator Plett: I will try to take the opportunity to visit that plant the next time I am through.

Senator Eaton: Mr. Lail, is there such a thing as clean coal?

Mr. Lail: Yes. We have such a project, as you may know. It is called the Pioneer Project at our Keephills plant, which is under construction, in Alberta. We capture the carbon dioxide and try to sequester it into salt caverns.

Senator Eaton: I am thinking of the production of clean coal for commercial purposes. Over the last year, we have been looking at value-added products for mainstream commercialization. Will the production of clean coal be cheaper than biomass?

Mr. Lail: Not at this time. There is only one plant that I am aware of — it is in the U.S. — that uses clean-coal technology. They are basically pilot plants. The project we are talking about in Alberta, supported by the Alberta and federal governments, is a pilot project to prove the technology for clean coal.

Resources such as wind, hydroelectric and biomass will not be sufficient in the short term to meet the growing electricity needs, so we will continue to need fossil-based fuels to meet that demand.

Senator Eaton: Mr. Chornet, tell me more about Edmonton. I find it fascinating. We heard last year about the Chinese taking waste from pulp mills in the United States to burn as fuel in China. This is the first time that we have heard of a Canadian operation. I understand that you will take the garbage from the city of Edmonton and create ethanol from it. Is that right?

Mr. Chornet: Correct.

Senator Eaton: Will it be used in cars?

Mr. Chornet: That is correct.

Senator Eaton: Have they given you a specific expected quantity or will you simply turn it out from the garbage that you pick up?

Mr. Chornet: The City of Edmonton has a municipal recycling facility so they have a two-stream collection system. Households put their recyclables in a blue box or a green box.

Senator Eaton: We do it that way in Toronto.

Mr. Chornet: Exactly. The material is sent to the MRF where the material and the box are recycled. Adjacent to the MRF is a large compost facility. It is not well known to most Canadians that Edmonton has the largest compost plant in North America.

Senator Eaton: Compost means food waste and garden waste.

Mr. Chornet: Yes. Households have a second bag, which we call the black bag. What does not go in the box goes into the black bag as garbage. The bags are delivered to that same centre, opened and sent into the composter. The food material — putrescent material — rots and converts to compost. Unfortunately, about 40 per cent of what we put in the garbage is not material that digests and does not convert to compost. This is an aggregate of non-recyclable plastics that came with food, so did not get put it in the box — fibre, wood, textiles and carpet. That is our material.

This is simply shredded. We have an agreement for 100,000 tonnes per year on a dry basis of that material for the next 25 years. That material we convert to gas, clean the gas and the gas is converted to ethanol.

Senator Eaton: Do you have to use any biomass to supplement any of that?

Mr. Chornet: Absolutely not.

Senator Eaton: It is waste?

Mr. Chornet: Correct. This is richer than wood biomass because some of the plastics and textiles have some hydrogen, so they are higher in BTUs than wood. The city had to shut off its landfill after 20 or 25 years of using it. There was no space left. Citizens did not want a new landfill or incinerator, and the option the city had were essentially to send this end waste to a private landfill that is about 60 miles north of their current landfill. This was an expensive operation. We came in at a lower price point for our operation and they decided to go with us.

Senator Eaton: It would be wonderful were all cities to use that approach.

Where and in what capacity do you use biomass?

Mr. Chornet: We currently have several projects with pulp and paper companies that are trying to enhance their revenue profile with new products and are looking to transition towards products like wood pellets, or they may still have their bark, sawdust and even their wood chips, but producing fibre may no longer be a good product. Therefore, they are looking at transitioning or investing in their facilities to transition to technologies like ours and convert their wood, whether or not it is residue, into ethanol.

Senator Eaton: Biomass commercialization into the general population is still quite a few years away; is that right?

Mr. Chornet: First, it is a more expensive feedstock than waste. Second, we have to deal with pulp and paper companies that are not necessarily in good shape. Finally, Crown agreements are a little convoluted. It is a more complex arrangement for us at this stage than going with the City of Edmonton, for example.

Senator Eaton: Doing just waste?

Mr. Chornet: Correct.

Senator Segal: I want to try to understand the financial framework here, because it is not clear. Capital Power is a public company, as I understand; Enerkem is not. Perhaps it might be some day, but as we speak it is not. I assume there is a presumption about the amount of energy you can sell and the demand for the energy you are producing. Also, I assume there is a presumption that the ethanol market, in your judgment, is sufficiently elastic and robust to generate the confidence that, however much you can produce, you essentially can sell, or do I misunderstand?

Mr. Chornet: This is a key question and a question we get from the financial markets. The answer to that question would be as follows: Yes, the market is deep enough in the U.S. because of how the Americans have shaped their renewable fuel standard. It is a very aggressive one that will require substantial volumes and which has us in discussions with refiners to the extent that it is clear to us that we will not have any issues in selling our ethanol. It is not the case currently in Canada because of what I have mentioned.

Senator Segal: The 5 per cent?

Mr. Chornet: The 5 per cent.

Senator Segal: I recall a conversation I had in the early days of the 5 per cent rule, because I used to ask the question of my auto mechanic. This is about seven years ago, and that shows you how long I keep my cars. He says if you want to void your guarantee, you put in ethanol gas. It was a seven-year-old car. The car company would not respect their guarantee if I put in a high ethanol mix.

That has obviously changed. Are you arguing that we would be in better shape if we had a regulation that said 10 per cent ethanol? In other words, you want to push the mix process higher so you have a bigger domestic market into which you might sell?

Mr. Chornet: It would indeed, as we have seen in the U.S., force gas retailers to adjust their pumps and car manufacturers to adjust their engines. This is not an issue in Brazil, where ethanol is mixed with 40 per cent gas.

Senator Segal: It is a sugar cane-based ethanol there, I think.

Mr. Chornet: Correct, but the molecule at the end is the exact same. It has to comply with what the ASTME standards.

Marie-Hélène Labrie, Vice-President, Government Affairs and Communications, Enerkem: The U.S. EPA, the Environmental Protection Agency, has allowed up to 10 per cent blending and they are considering increasing to 15 per cent. For sure, 12 per cent is possible, but they are even looking over the next few months to moving to 15 per cent.

Senator Segal: For better or for worse, as we harmonize our emissions standards with our friends across the border, which appears to be the approach of the present administration, you are arguing that we should be raising the ethanol percentage requirements in our vehicles because that will make it easier for us to meet those emissions standards; is that a fair construct?

Mr. Chornet: This is a fair assessment. I would add that ethanol is becoming a very liquid commodity —

Senator Segal: No pun intended.

Mr. Chornet: — in North America, and we are bringing distortion to that market by not having a renewable fuel standard that matches the one south of the border.

Senator Segal: Do you mean it in the sense of `` liquidité''?

Mr. Chornet: No, in the sense of value and arbitrage and so on. We need to harmonize with the U.S.

Senator Segal: If I understand you correctly, one of the recommendations we might consider as a committee, to be of assistance in propelling the use of waste wood and related products, would be to move that particular standard higher.

Mr. Chornet: Absolutely. We think this is not only a requirement but a need to make our ethanol market in Canada as attractive to investors, funds, companies, et cetera, that invest in our facilities as the U.S. market. This is required.

I do not want to get too intimate with our company here, but we have raised $70 million. We are probably ranked number two in Canada in terms of clean-tech companies that have raised money in the financial markets. Most of it is from American companies, and they have invested on the basis of our products finding a home and a clear market in the U.S.

Senator Segal: I understand.

Mr. Lail, do you have whatever the green certification is for the product of your Capital Power plants? There are now energy retailers who are selling renewable or green power, and essentially people in apartment buildings in downtown Toronto or Calgary can pay a little more if they are buying natural gas or electricity. They get a certification that the company selling them the material has purchased renewable energy in an equal amount at whatever the cost.

Are you certified as a producer of that kind of power based on your input?

Mr. Lail: Yes, we are, and we are actually selling them. Unfortunately, most of the sales have been from B.C. to the U.S. Those things are called renewable energy certificates, and they are traded.

Senator Segal: I understand they are audited to ensure they are what they purport to be.

Mr. Lail: Yes. Therefore, our Calstock plant in Ontario is not yet eco-logo certified, for one reason only: We have not been able to get the normal wood waste we get from sawmills. We have been using landfilled wood, which has lower heat value and creates more emissions. Also, the plant has not been operating. However, as soon as we get back to normal production, that plant will be certified, and we already have a buyer waiting who is ready to pay us $5 to $6 a megawatt hour for the renewable energy certificates.

Williams Lake is probably one of the cleanest biomass plants in North America. It is EcoLogo certifiable. However, there are some questions as to whether it qualifies for a renewable energy certificate due to the vintage of the plant. The plant was built in 1993 and it may not qualify because the requirement is 1998 or newer. However, it is definitely an ancillary service that we are selling and trading.

Senator Segal: I want to understand the biomass cycle in the context of those of us who care about the lumber, the wood and the forestry industry. Are you telling us that as long as plants are replacing wood telephone poles with something else — which of course we would never approve of here — that produces stock that is of value? The old poles are of value in terms of input, and all the pieces that are associated with milling, that is, bark, sawdust, et cetera, are beneficial to the industry because you add to their value chain by paying a fair price for it and then value adding by the technology you are putting into the business?

Mr. Lail: That is correct.

Senator Segal: Therefore, the assumption is that biomass is endlessly renewable. Whatever else may be associated with it, plus or minus, there will always be more biomass to feed your plants. We have no fear of waking up one morning and finding there is a shortage of biomass because you and others in the industry are so wildly successful that you are sucking it all up? That is not a fear, as I understand what you are saying.

Mr. Lail: Our two biomass plants depend on the forestry industry. They would not be economic if we were logging trees, chipping them and burning them.

Senator Segal: I understand.

Mr. Lail: Also, as I said, biomass is considered carbon neutral. It is considered carbon neutral because you assume that there are sustainable forestry practices, that the trees that we cut are replaced over time.

Senator Segal: The biomass would have been burnt for no purpose if you did not take it away, as I understand.

Mr. Lail: Exactly.

The Chair: Yes, it is renewable as long as we have proper plantation and silviculture, and some senators at this table have had the experience of planting trees. It is renewable as long as we all have the sustainable vision of increasing our wood basket.

Senator Mahovlich: You mentioned wind farms. What province in Canada is the leader in wind farms?

Mr. Lail: That would be Ontario.

Senator Segal: There is no need to be apologetic. You are allowed to say something good about Ontario. The flag does not come down if you mention Ontario in a positive way.

Senator Mahovlich: Can Ontarians look forward to cheaper hydro bills in the future?

Mr. Lail: I am from British Columbia and cannot speak to Ontario. However, I can tell you that —

Senator Mahovlich: If the government is going to invest money, they have to invest it in something that is for the people.

Senator Plett: There are people outside of Ontario, senator.

Senator Mahovlich: That is the problem. We are exporting all the time. If Canada were Ontario, we would be all right.

I read that for the manufacturer of ethanol-type biofuel, sugar cane grown in Brazil offers an ethanol yield of 4,500 to 5,500 litres per hectare. Maize grown in the United States offers an ethanol yield of approximately 3,800 litres per hectare. What is the yield of fast-growing trees in Canada in terms of litres of biofuel per hectare?

Mr. Chornet: Unfortunately, I cannot answer that question, because we are not on the agricultural side. We do not calculate our yields based on hectares but rather on metric tonnes of material.

Sugar cane is more concentrated in sugars than is corn, and it has a yield of about 500 litres per dry metric tonne. Corn has a yield of about 400 litres per dry tonne. Using new technology like ours, wood comes close to corn at about 380 litres per dry tonne. That being said, wood does not have as great a yield, but wood costs $50 a dry tonne and corn costs about $250. If you convert all of that, our yield per dollar spent is much higher.

Senator Mahovlich: There is currently a problem on the Gulf Coast. The U.S. government did not do due diligence for the people there in terms of monitoring the oil companies. Do you believe that our government is doing a proper job of monitoring and replenishing our forests?

Mr. Chornet: Unfortunately, I am not an expert in forest management and cannot answer that question.

Mr. Lail: I am in the power business.

Senator Mahovlich: We have to monitor our forests. I know that many companies are exporting pellets to China and Europe. What will be left for us? That is a problem.

Mr. Lail: That is a good observation.

Senator Fairbairn: It has been fascinating to listen to you. I am from Alberta and was interested to hear about your compost plant in the Edmonton area.

Your venture has obviously gone well. Have you been looking in the southern mountainous part of Alberta? It is not the greatest place on earth right now because of the snow, ice and wind. However, there are a lot of trees and rivers in that area. Do you have any interest in looking at the southern part of Alberta where we have great forests?

Mr. Chornet: Unfortunately, we have not looked at the geography in this area of Alberta. We are very involved in Rimbey, in Edmonton and the surroundings of Red Deer as well. We also need to be close to refiners, who are essentially our customers, because they blend our ethanol. The southern part of Alberta has not attracted us at this stage, although we do have development activity and we are looking at combining efforts in the south perhaps with refiners up north and in Montana as well.

Senator Fairbairn: There is lots of oil and gas in that southern part as well.

Mr. Chornet: Absolutely, and that is also of interest to us, combining projects with gas exploration.

We are a small company and growing. As we set up development activity in Edmonton on the commercial side — we want to ensure that we keep this market — I am sure we will begin looking to the southern portion of Alberta as well.

Senator Fairbairn: I am glad to hear that. It is a vigorous place. Calgary is on the edge of the mountains.

Mr. Chornet: We also have had discussions with the landfill operation in Calgary.

Senator Plett: Just as an aside, I am looking forward to spending some time with you in New Brunswick this weekend, and we should make a point of collecting my four and a half cents from the Irvings for the tree that I planted. There might be some interest on that already.

Mr. Lail, you told us how many megawatts of electricity Williams Lake provided or put out. That means very little to me. Tell me how much of B.C. you supply with power.

Mr. Lail: B.C. has a load of about 55,000 gigawatt hours per year. We supply 500 gigawatt hours, a very small portion of the total load.

Senator Plett: You also said that you used different products. You use bark, sawdust and shavings. We had a witness here a few weeks ago, and I asked whether he could go from one to another without making changes to the plant. We were told by that individual that with their plant you could not. If you run out of bark and you want to use sawdust, do you have to make changes? Is that a complex operation, or can you literally use any of these products at any time?

Mr. Lail: Currently, we use all of those products. They are all mixed in. If you were using just sawdust and nothing else, then some changes would need to be made to the handling equipment.

Senator Plett: What is a beehive plant?

Mr. Lail: It is almost like a burner in the shape of a teepee, a honeycomb, basically, where all the bark and the wood waste is dumped and burnt, and the smoke comes from the top of it.

Senator Mercer: The energy is not used there?

Mr. Lail: Energy is used. It is used at times for drying lumber. You do not see too many of those in British Columbia. You would not see any in Williams Lake, Prince George or Quesnel, but you might see one in 100 Mile House and a few of the other smaller communities. They impact on the air quality quite badly. As a result, the government has been phasing them out completely.

Senator Mercer: You both told us how many employees you have. One has 75; the other has 1,100. I would like to break down the numbers further. How many people are working at the engineering level as opposed to how many people are working at the level of reclaiming the wood and the raw materials where job creation can happen quickly?

Mr. Lail: We have 1,100 employees across North America that operate coal-fired plants, wind farms, hydroelectric plants, recycling plants and so on. For Williams Lake, which is 65 megawatts, we have 30 full-time, permanent employees. It consists of a general manager, two support staff, three engineers, and the rest of them are all highly skilled tradespeople who operate the plant. Those include millwrights who maintain the plant and system controllers who control the generation.

Senator Mercer: Who is harvesting the wood products?

Mr. Lail: In addition, we have a trucking company that transports the fuel. They have at least 10 employees, truck drivers and so on. Most of our fuel currently comes from the sawmills, which is bark, sawdust and shavings, so essentially they would not have any employees dedicated strictly to the fuel, but as you go up the supply chain there are loggers, truckers and so on.

To give you an example, we are seeking timber cutting and a roadside logging debris salvage licence in Ontario. We estimate that if that licence is granted to supply part of our fuel, that will create an additional 25 jobs, at least. If you take those 25 jobs and assume a multiplier factor of two and a half, you can estimate what the impact will be on the community.

Senator Mercer: I am trying to sell the whole concept. You also have to look at the number of jobs that you are maintaining because the mills are profitable enough to stay operating in a market where they are not selling many of their other products.

Mr. Chornet: Our numbers are much simpler. We are 20 in our corporate office in Montreal. We are 40 in what we call our technical office in Sherbrooke. This is about 30 processing engineers and 10 researchers. That is 60. We have 15 employees at our Westbury plant in the Eastern Townships of Quebec. These are the typical plant operators. That is 75. We are hiring an additional 30 employees, operators in Edmonton in 2011. We will be hiring another 30 for Mississippi in 2011. At the end of 2011, including Mississippi, we will be at about 140 employees. This is from 10 employees three years ago.

Senator Mercer: You made vague reference to the difficulty with the refineries in Montreal. It seems to me that that is providing an opportunity as opposed to a problem, where there will be chemical engineers available who may not currently be available. I imagine the competition for chemical engineers in Edmonton is a little higher than it might be in Sherbrooke.

Mr. Chornet: Yes, it is currently an opportunity.

Senator Mercer: My final question goes back to the discussion about straw. Are we talking about straw or are we talking about switchgrass? There is a difference between straw and switchgrass. The big benefit to switchgrass is that you only plant it once every 10 years; it just keeps growing. From a farmer's point of view, if he has a crop that will grow every year for 10 years, that is pretty good.

Mr. Chornet: In our case it is straw. It is a straw surplus, what is left over.

Senator Mercer: Have you not looked at the use of switchgrass, which is prominent in Saskatchewan and parts of Alberta?

Mr. Chornet: We have not looked at switchgrass for the time being. I will provide the same answer as I provided to a previous question on southern Alberta. There is just so much we can do, but I am aware of this feedstock. It is rich in carbon, so it is a feedstock worth looking into.

[Translation]

Senator Rivard: I see here, Ms. Labrie, that you are Vice-President and the person in charge of government affairs. If you are uncomfortable with the question I am dying to ask, you do not have to answer it.

In a previous life, some fifteen years ago, I was President of the Communauté urbaine de Québec. We had a regional incinerator, and I do not even dare tell you about the problems we had with Environnement Québec. We felt that its role was to make our life difficult and not to be a facilitator.

We were producing steam that was sold to the neighbouring papermaker, and we created a project to utilize the ash produced by the incinerator. We wanted to use it to produce filling for roads, as is common practice in France and other European countries.

At that time, I felt that Environnement Québec was a thorn in our side. Do you feel that Environnement Québec supports your project or that, on the contrary, there are so many constraints and obstacles, rendering the process almost disheartening?

Ms. Labrie: I would say that we have a good relationship with Environnement Québec. However, the problems we do experience from time to time arise from regulations, which were in many cases drafted several years ago, and are not consistent with new technologies. For instance, since we operate in both the waste and bioenergy sectors, we have to work hard to make Environnement Québec understand what we are doing and so convince it to adapt certain regulations. We feel out of place, since nothing is really consistent with our technology. In these situations, we have to be more proactive and visionary. The only problem we are faced with is that regulations are not adapted to new technologies like ours.

Senator Rivard: Do you have the same problem in other provinces? Do you always have to convince people that your technology is up-to-date and that you are helping improve environmental quality?

Ms. Labrie: I am often in the United States, where we really do not have a problem, aside perhaps from the fact that Americans are unfamiliar with the technology we use. At times, we have to work on making people understand that, for instance, urban residual material is also a renewable biomass. In the United States, they are familiar with biofuel production, recycling is done and biomass is considered a renewable energy source.

In Edmonton, we have also had no regulation-related problems in getting our permit. I would say that in general, people are open. We present all our environmental data, the results of our life cycle analyses showing the major reduction in greenhouse gases, the fact that often, we reduce greenhouse gas emissions by 80 per cent when compared with oil production companies. When we present the information in this light, the environmental benefits are clear to everyone.

No smoke stack is involved in our procedures, as everything we do is done in vacuum conditions. However, since people did not think that ethanol could be produced, for instance, from residual materials, regulations often have to be adapted.

Senator Rivard: So in conclusion, Environnement Québec is more of a facilitator than a thorn in your side?

Ms. Labrie: Often, we have to make a big effort when working with them because our situation is so unique, and we need time explain our vision and goals. In general, I would say that people can see the environmental benefits.

Mr. Chornet: I would say that there is no problem—I will use a loaded word—of a religious nature, as you perhaps experienced 15 years ago. Society has evolved, and so have the executives working on projects like ours. However, regulations are still not consistent with technologies that are as advanced as ours is. This causes problems.

Senator Rivard: Thank you very much and good luck.

[English]

The Chair: With respect to feedstock, could you share with us the percentage of your wood feedstock coming from private woodlot owners versus Crown land, and what amount of it comes from hardwood species versus softwood species?

Mr. Lail: Almost all of the fuel that we get from the mills comes from Crown land, and almost all of it is softwood.

Mr. Chornet: The answer is the same. This is how forest management is currently organized and how the pulp and paper companies are organized. There is private land in Quebec in the Eastern Townships, but we do not have dealings with private land owners at this stage.

The Chair: Could private woodlot owners become suppliers? The forestry map of Canada is basically one third Crown land, one third private woodlot owners, and the other would be major companies.

Mr. Chornet: We would not be attracted by private land owners to the same extent we are by Crown land because private land owners would have difficulty in guaranteeing long-term supply agreements. In other words, they may not have the balance sheet that the government has to back up its Crown land position.

The Chair: Previous witnesses have talked to us about the value-added nature of biomass, as an example, pellets, and the other element of the pellet side is torrefied wood.

[Translation]

Mr. Chornet, I have a question regarding torrefied wood. Does using torrefaction for energy production or for powering your operations add value to your product?

Mr. Chornet: We are not looking to either torrefy raw materials or convert them into pellets because of the additional processing costs. We prefer to get residual wood and to simply chip it and convert it to alcohol, ethanol or chemical products.

[English]

Mr. Lail: Going along the value chain, you take sawdust and shavings and turn them into wood pellets. Then those wood pellets are used to produce heat, which, in turn, produces electricity, so there is this intervening step that you have to go through to get electricity.

In our case, we are taking the wood waste and going directly into the boiler and producing electricity, skipping the step of making pellets. From a value-added product basis, locally produced electricity, in my opinion, is better than producing pellets.

The Chair: I have a question that we have asked previous witnesses concerning research and development. I will start with Mr. Chornet.

[Translation]

Are there any improvements that could be made in sustainable research and development for value added and/or biofuel? Do you have any suggestions to give us on how to encourage provincial, territorial and federal governments? Given the current economic situation in the forest sector, is it realistic to hope at this stage to get all the stakeholders on the same page?

Could you take a few minutes to tell us what you would recommend to governments in terms of research and development for ensuring sustainability in the biofuel sector?

Mr. Chornet: That is an excellent question. I think that, first and foremost, we need to keep the research and development tax credits program.

We have a very competitive program in Canada. We have availed ourselves of it. Without this program, we would not be here today. In Canada, we face a challenge other countries are also facing. I do not know if they are better organized than us in what comes after the basic research and development stage. The stage between basic research and the appearance of first commercial plants is referred to as the valley of death.

I started a company from scratch and I had to work extremely hard in order to get some private funds, to get pension funds to invest in my business, to get venture capital funds, all so that I would be able to finance this key intermediate stage, which is the first industrial-size demonstration plant. So, the real difficulties begin after the research and pilot project stage is complete. We would like to invest with paper manufacturers in a large demonstration project. We could have $25-, $50- or $75-million demonstration projects showing the viability of completely adapting a paper mill to use biofuel, but we would only do that if, for instance, tax credits were involved. If, for every dollar we invested, the government would also invest one dollar, we could do this.

Once again, it is difficult to get funds for the demonstration stage, and young companies have to turn to financial markets and usually end up spreading themselves too thin. The truth of the matter is that only one out of 20 of these companies is successful.

[English]

Mr. Lail: We are primarily a commercial corporation. We do not do any of the research and development in-house. However, I have a couple of suggestions with respect to forestry regulations and the way in which forestry is managed.

First, there should be higher utilization of the fibre by forestry companies and, in doing so, access should be provided for biomass energy production so that nothing is wasted. To that end, quality logs that can be made into lumber or higher-value products should go to the lumber mills. Those stands that are not suitable or merchantable should be directed toward bio-energy. To provide long-term stable fuel supply for bio-energy plants, they should be given long-term licences for the salvaged wood.

Second, bio-energy is clean energy. We should encourage more of the greenhouse gas and renewable energy credit market in Canada than currently exists. As well, some research is required for managing large piles of biomass inventory because of the risk of fire. Research on that aspect is ongoing at the University of British Columbia and other universities.

[Translation]

Before we wrap up, do you have any personal comments to share with us? Messrs. Chornet and Lail?

[English]

Mr. Chornet: I thank the committee for the opportunity to make a presentation. Hopefully it will bring some value to your thought processes.

Mr. Lail: I thank the committee for the opportunity of this discussion. I have probably learned more than I have discussed today.

(The committee adjourned.)