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Three years ago, a tiny Ottawa biotechnology firm, Iogen Corp., had the very rare privilege of being singled out by the government as a company that would benefit directly from a federal budget measure.

As part of its effort to reduce Canada's greenhouse-gas emissions, Finance Minister Jim Flaherty announced a $500-million fund to underwrite construction of commercial ethanol plants that would use agricultural or forestry waste to make transportation fuel. The budget identified Iogen as a leading candidate.

But as Mr. Flaherty prepares to unveil the 2010 budget this week, there is still no plant at the proposed site in Prince Albert, Sask., and no firm commitment from Iogen and its partner and part-owner, Royal Dutch Shell PLC, to build one.

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Iogen and a handful of other companies have been touting their technology for years as governments in both Canada and the United States promised generous subsidies to kick start the cellulosic ethanol industry. The hoped-for boom has failed to materialize, however, as deep-pocketed private-sector partners turned more risk-averse in the recession, and governments' climate-change policies have been delayed.

The industry insists the ethanol-from-waste technology will soon be commercially viable with the proper government incentives, including a some sort of price on carbon dioxide emissions that makes fossil fuels more expensive.

As Ottawa moves to make deficit reduction its top priority, the pressure on Iogen to deliver is intensifying.

The Iogen story shows how the economics of turning straw or forestry waste into motor fuel has proved to be more daunting than proponents suggested, partly because governments have delayed the adoption of anticipated climate change policies that would create markets for the advanced biofuels.Cellulosic ethanol uses enzymes to break down agricultural and forestry waste into something that can be turned into fuel - a process that produces far fewer greenhouse-gas emissions than producing corn or wheat to make ethanol.

Iogen is one of a handful of Canadian companies that have received early-stage federal financing for a cellulosic ethanol demonstration plant. But it is the only one that has applied to build commercial-scale projects with help from the $500-million next-generation biofuel fund announced in the 2007 budget. The funding agency, Sustainable Development Technology Canada, expects several others to apply this year.

Shell's Peter Voser, who took over as chief executive officer last July, said last fall that he didn't expect advanced biofuels would be in widespread use for another decade.

Iogen received approval-in-principle for funding - subject to due diligence - from SDTC two years ago, a step that was enthusiastically trumpeted by then environment minister John Baird.

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Iogen CEO Brian Foody insists the company is making progress on the Prince Albert project, though he couldn't put a timeline on a final investment decision.

Mr. Foody said the company has made great strides in the performance and reliability of its process, and doubled its production of ethanol at the Ottawa demonstration plant in 2009 compared to 2008.

"I believe that Shell continues to be very interested in the progress of advanced biofuels," he said, in answer to critics who doubt Shell's commitment.

"However, the fall in the price of oil and the financial crisis and the enormous capital demands these companies face have led them to be very disciplined about what and when they commit large amounts of capital to projects."

Andrew Murfin, Shell project manager on the venture, insisted the company has not cooled on the Iogen project in Saskatchewan. "We're making good progress on the engineering and the steps necessary for what is quite a complicated project delivery," he said in an interview.

He said that Shell is working on delivering the engineering of the plant, while Iogen continues to fine-tune its ethanol production processes. But he said it is critical that Ottawa continue to recognize the benefits of cellulosic ethanol.

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"If the funding doesn't come through we will have to reassess the proposed project in Saskatchewan," he said.

Bruce Orr, a former Ontario government biofuels adviser, said Iogen and other cellulosic ethanol makers still face tremendous hurdles in scaling up from small demonstration plants because their enzymes simply don't break down the cellulose into ethanol efficiently enough. "There has been a lot of hyperbole about cellulosic ethanol, but there are still a lot of doubts [the Iogen project]will ever happen."

The United States has a biofuels standard that require refiners to use a specific percentage of advanced ethanol in their fuel mix in the coming years. But critics say the industry won't produce enough fuel to meet the standard without massive subsidies. Ottawa also has an ethanol standard for fuel, but it can be met exclusively through corn- and wheat-based biofuels.

The U.S. federal requirement - and the prospect for low-carbon fuel standards among states and provinces - will ensure a market develops for cellulosic ethanol, Mr. Foody said. "We have a fuel with a great market opportunity, filling an important need that is becoming imminent for these companies, and we think that will drive us forward to commercialization."



The Anglo-Dutch company has a capital budget for 2010 of $28-billion (U.S.)

In 2009, Shell had earnings of $9.8-billion, down from $31-billion in 2008.

The company has frozen its dividend, cut $3-billion in operating costs and slashed 6,000 jobs worldwide.

In its capital budget, Shell plans to spend $7-billion on refinery projects, notably in Singapore.

Costs have climbed at the Shell-led Athabasca Oil Sands expansion to $14.3-billion (Canadian).

Shell is 60-per-cent partner in the consortium that will expand Iraq's Majnoon oil field, which contains an estimated 12.6 billion barrels in reserves. The consortium will invest tens of billions of dollars to boost production.

The company signed an agreement-in-principle to form a $12-billion joint venture with Brazilian biofuels producer Cosan SA; Shell will contribute $1.6-billion (U.S.) in cash over the next two years. Nathan VanderKlippe

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About the Author
Global Energy Reporter

Shawn McCarthy is an Ottawa-based, national business correspondent for The Globe and Mail, covering a global energy beat. He writes on various aspects of the international energy industry, from oil and gas production and refining, to the development of new technologies, to the business implications of climate-change regulations. More


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