the new face of the canadian forest industry - fpac ii web.pdf · the new face of the canadian...

February, 2011

The New Face of the Canadian Forest IndustryThe Emerging Bio-revolution

The Bio-pathways Project

AboutBio-pathwaysThe Future Bio-pathways Project is acomprehensive investigation of theopportunities to produce a wide range ofbio-products from wood fibre. The firstphase of the study, released in February2010, examined the economic, social andenvironmental benefits of integratingthese new bio-technologies within thetraditional forest products industry and itconsidered how this approach will boostemployment and strengthen Canada’seconomy and rural communities. Theproject was led by the Forest ProductsAssociation of Canada (FPAC), withFPInnovations, Natural ResourcesCanada and scores of economic andscientific experts.

The second phase of the Bio-pathwaysproject, released in 2011, examined themarket potential of emerging bio-energy,bio-chemical and bio-products, and itexplored new approaches to managingvalue and building partnerships in thiscritical area.

Key findings of the Bio-pathways project:• Numerous viable options exist to

convert forest biomass to bio-energy,bio-chemicals and bio-material.

• These options are best achieved byintegrating their production with thetraditional forest industry.

• Producing these products at forestindustry facilities improves theeconomic results for the bio-productsand forest industry facilities. It increasesthe job potential by up to five timesversus stand-alone bio-energy plantsand is environmentally beneficial.

• Markets already exist and aredynamically growing for this broadrange of innovative bio-products thatcan be produced by extractingmaximum value out of the wood fibrefrom every tree. These new markets willreach an estimated $200 billion by2015.

• Canada’s forest sector is alreadyproducing a range of bio-products, but itis not maximizing their contribution tothe industry’s bottom line.

• Integrating new bio-technologies intoexisting production will ensure a vibrantfuture and a Canadian advantage forthe sector.

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THE BIO-FUTURE FOR CANADA’SFOREST INDUSTRY: IT’S ALREADY BEGUN

ADDING VALUEThe Bio-pathways project makes the case forintegrating current operations with new add-onprocesses that create bio-energy, bio-chemicals and bio-materials that add valueand jobs. Imagine a conventional forestindustry operation. You would see piles oftimber or wood chips waiting to be processed,a building housing a sawmill or pulp mill andstacks of processed wood or pulpwaiting to be shipped.

In the near future, some of thesetraditional operations might includebio-refineries that producerenewable fuels, plastics andchemicals for the pharmaceuticaland food industries while alsogenerating electricity that can beadded to the wider grid and used inpeople’s homes. The site wouldproduce little, if any, waste whilegenerating higher income.

The New Face of the Canadian Forest Industry | February, 2011

The Bio-pathways project is a blueprint for anexciting future for Canada’s forest productsindustry―a blueprint that would see the industrylead the world in innovation and give Canada anadvantage in world markets. It’s a future defined bynew prospects for growth as the Canadian forestsector moves from an established, process-drivencommodity industry to a nimble and “green”industry serving wider markets and driven byopportunities emerging in the 21st century bio-age.

Canada’s forest products industry is alreadystarting to extract more value from wood fibre.Yesterday’s waste stream is fast becomingtomorrow’s revenue stream. The Bio-pathwaysstudy identifies a potential global marketopportunity of around $200 billion.

Pulp & Paper Energy Shares, 2009

■ Renewables ■ Electricity (net)■ Fossil Fuels ■ Other (net)

19%

14%

67%

This exciting transformation is already

taking hold in the Canadian forest products industry.

HIGH-VALUECO-PRODUCTS

BIO-FUELS AND BIO-ENERGY

TRADITIONAL PRODUCTS

2ND GENERATION FUELS

RANGE OF POSSIBLE VALUE-ADDED CO-PRODUCTS

BIO-REFINERY

This vision is becoming reality faster than mostCanadians realize. For example,FPInnovations, Canada’s leading forest sectorinnovation centre and research anddevelopment institute, is already working withindustry partners to verify and optimize thegasification of biomass at mills.

2

FOOD ADDITIVES,BULLETPROOF VESTSAND AIRPLANE WINGSProducts such as food additives, bulletproofvests and airplane wings may not come tomind when you think of a tree. Yet they’resome of the existing and future products thatare making up the dynamic new face of theforest sector in Canada.

Clothing: forest fashionsWood can be processed to produce fibres withqualities suitable for textiles such as rayon.These traditional fibres could be combinedwith new technologies to compete withtraditional synthetic textile fibres.

Market opportunity: Forest product textilescould take the pressure off the rapidlyshrinking global cotton supply.

Aerospace: forests are taking offNanocrystalline cellulose composites beingproduced from wood fibres could be used inthe aerospace industry to replace heaviermore expensive non-renewable materials.

Market opportunity: Lighter materials meanlower fuel costs and fewer emissions forairplanes.

Forest Products Association of Canada | FPAC.CA

Bio-plastics: Biodegradable forestproducts Bio-plastic is derived from renewable biomassunlike traditional plastic, which is made frompetroleum. Renewable and biodegradable bio-plastic can directly replace or be blended withtraditional plastics.

Market opportunity: The market demand forbio-plastics continues to grow. Overall,customer needs for plastic will double in thenext decade.

3

Tires: forests are on the moveLignin, the organic substance that holdstogether the individual fibres of wood, is beingconsidered as a replacement for carbon black,a petroleum product used to manufacturerubber needed for products such as car tires.

Market opportunity: Substituting petroleumwith lignin means greener tire products.

Bio-active paper and packaging: smartforest productsEmerging technology is pointing to new usesfor paper: paper towels could indicatecontamination on kitchen counters; strips ofpaper could remove pathogens from water andconfirm the water is safe to drink; medicalmasks could actively remove viruses; andintelligent packaging could change colour toindicate freshness.

Market opportunity: Bio-active paper andpackaging adds value and improves health.


Bio-oil: forest powerSubjecting wood products to high pressureand temperature can produce renewablebio-oil in seconds.

Market opportunity: This petroleum substituteturns a forest waste stream into a revenuestream.

Bio-pharmaceuticals: forest medicinesBio-active compounds in plants could lead tonew and economically viable pharmaceuticalsand other bio-products. Already, paclitaxel, abio-active compound originally isolated fromthe bark of western yew, is a proven anti-tumour agent.

Market opportunity: New drugs could help healmore people.

Bio-buildings: reaching for the skyWood has been used for centuries in buildingsbut new products and construction techniquesare pushing wood construction into the sky.New developments include the possibility of10-storey (or higher) wood buildings.

Market opportunity: One to three billion boardfeet could be used in non-residentialconstruction each year.

4

INVESTING FORGROWTHCanada’s forest products industry is alreadymoving down the road of the bio-revolution.The industry has world-class environmentalcredentials, the expertise to thrive and theroad map to combine traditional operationswith leading-edge, value-added products. Thisadds up to a diversified revenue stream andattractive investment opportunities.

Being part of the 21st century Canadian forestproducts industry gives investors the best ofmany worlds — an essential commodity with aglobal customer base, as well as innovativebio-technology products poised torevolutionize vast sectors of the globaleconomy. And these “green” products sourcedfrom a well-managed renewable resource canalso form a Canadian advantage in the rapidlyevolving global marketplace.

The last decade saw brutal economic realitiesdrive cost-cutting and efficiencies throughoutthe forestry supply chain. Today, the industryhas a well-deserved reputation as a provenleader in process-driven improvementsfocused relentlessly on the bottom line.Consider that more than 600,000 Canadiansare directly or indirectly employed by the forestproducts industry. Exports from the sector areworth $23.6 billion, which translates into atrade surplus of $14.4 billion — second only tothe oil and gas industry.1

But Canada’s forest products industry is notcontent to maintain the status quo. A profoundshift is underway. Industry will continue tooptimize its core business, but it will alsomaximize shareholder value by allocating

wood fibre to production processes with thehighest possible profit and value added. Forindividual plants and mills, it means operationscan channel production from basic materials tobio-products depending on market realities inthe emerging bio-economy.


“This study identifies a global marketopportunity of $200 billion. For example, thepotential for bio-chemicals is $62 billion.”

1 All data is for the year 2009 unless otherwise indicated and is the most up-to-date annual informationavailable from Statistics Canada.

This phase of the Bio-pathway projectassessed global markets for these newemerging products. The potential market sizesare staggering. Countries and companies withthe right policy frame, the desire to fosterinnovation and the ability to deploy theresulting technology will be poised to grabmarket share in these areas and experiencegrowth rates far above those being generatedby the traditional forest product sector. This iswhere the action is!

This chart highlights dynamic growth in emergingmarkets compared to little or no growth in the

conventional forest products sector.

GROSS MARKET OPPORTUNITIESProducts Annual Growth Global Market

Rate (%) Potential2009-2015 2015

(approximate) (US$ billion)Green chemicals 5.3 62.3Alcohols 5.3 62.0Bio-plastic and 23.7 3.6plastic resinsPlatform chemicals 12.6 4.0Wood fibre 10.0 35.0compositesGlass fibre market 6.3* 8.4Carbon fibre 9.5 18.6Canadian forest neg. to O-2 50.0products industry

References:Markets and Markets. 2009. Global Renewable ChemicalsMarket. The Freedonia Group. 2009. World Bioplastics. IndustryStudy 2548. Lucintel. 2009. Global Glass fibre Market 2010-2015: Supply, Demand and Opportunity Analysis. Acme MarketIntelligence. 2010. World Carbon fibre Composite Market.* CAGR for 2010-2015Source: Natural Resources Canada (NRCAN) and Industry Canada (IC)

THE EVOLVING BIO-AGEJust as the industrial age gave way to theinformation age, the bio-age is being heraldedas the next revolution to transform the globeeconomically, environmentally and socially.Canada’s forest sector is poised to thriveeconomically in this new bio-age while buildingon its reputation as a world leader in greeningits operations and reducing its environmentalfootprint.

Producing bio-energy, bio-chemicals and bio-materials from our vast forests — which arerenewable and part of nature’s cycle —willmean replacing materials now made fromrapidly depleting fossil fuels. This can be atremendous competitive advantage for Canadain the emerging bio-age.

A report from the Organisation for EconomicCo-operation and Development supports thisview. OECD research points to a long-termincrease in the cost of fossil fuels as supplies

5

dwindle. It predicts that the expected increasein demand for energy combined withrestrictions on the production of greenhousegases will further stimulate the growing marketfor biomass from forests.2

Countries around the world are not waiting toexploit the new markets being ushered in bythe bio-age. Already, Canada’s competitorsare moving quickly to establish themselves asleaders and are heavily investing in their forestsectors in a quest to combat climate change,deliver energy security, and provide greenerproducts to the marketplace.


The Bio-economy will contribute 10―14new drugs per year by 2015, and it will beresponsible for 10 percent of chemicalproduction by 2030.-The Bio-economy to 2030: designing apolicy agenda, OECD

2The Bio-economy to 2030: designing a policy agenda, Organisation for Economic Co-operation and Development, 2009.

EU Europe 44%

Canada 2%

Rest ofWorld 5%

Rest of Asia 9%

China 23%

United States 10%

Central & SouthAmerica 7%

GLOBAL BIOMASS ENERGY INVESTMENTS (2005–2009)*

*Bloomberg New Energy Finance

NESSAMOIBLABOLG

EU Europe 44%

2(STNEMTSEVNIYGREN

America 7%Central & South

*)9002–500

America 7%Central & South

Asia 9%Rest of

orld 5%WRest of

Canada 2%


America 7%

United States 10%

China 2


America 7%

United States 10%

23%

Between 2005 and 2009, the European Union, the United States and Chinaaccounted for over three-quarters of all investment in biomass-derived energy.Canada was responsible for just 2 percent — a sign of the huge untappedpotential of the Canadian market in the developing bio-age.

6

BIO-PATHWAYS — LESSONS LEARNED


The Bio-pathways projectshows that markets willcontinue to exist fortraditional forest productssuch as wood and pulp.Meanwhile, the newtechnologies will havesmaller niche markets butgenerate a much higherprice. Integrated plantscould produce up to fivetimes as many jobs as astand-alone bio-energyplants. Combining the oldand the new is the wayforward for the next-generation forest industry.

MOVING TO HIGHER VALUE ADDED PRODUCTSBiomass-derived

CommoditiesBiomass-derived

Specialty ChemicalsBiomass-derived Pharmaceuticals

1012

1011

1010

109

108

107

106

105

104

103

102

101

Market Price (US$/kg)

Mar

ket S

ize/

kg

Cellulose-based fibre

Vanillin, Aldehydes

Chiral drugs(ex. Ibuprofen)

101 1 10 102 103 104 105

Adapted from Esteban Chornet, November 2005

This graph shows how big volumes of biomass-derivedcommodities will generate lower prices, while lower volumes ofbio-chemicals and bio-pharmaceuticals will generate higher prices.

Bio-energy findingsCombined heat and power production, also calledcogeneration, is the simultaneous production of electricpower and heat or steam from the same fuel source. Theheat or steam that would otherwise be wasted can be usedfor industrial purposes or for heating or cooling.

Canada’s forest industry already uses cogeneration. TheBio-pathways findings suggest this is a good first step onthe road to integrating traditional mill operations with bio-energy production. The project also showed that producingmore heat and power — and even transportation fuels — iseconomically viable in bio-refineries where other high-valuebyproducts are also made. Synthetic hydrocarbons, suchas bio-oil, were also shown to be economically viable.

However, producing bio-energy on a commercially viablescale depends on the availability of biomass and creationof domestic markets.

7

Bio-material findingsThe demand is growing for forest productsbased on attributes over and above price. Theindustry must respond by finding innovativesolutions to increase the quality and variety ofspeciality wood-based products. More focusshould be placed on applying advanced andinnovative technology to reduce productioncosts and improve methods of manufacturing.Opportunities identified in the Bio-pathwaysstudy include engineered wood, pre-fabricatedwood construction, ultra-low density insulationand packaging, and repair and renovationsystems.

Along with product innovation, there should bebusiness model innovations and a concertedmove to offer building systems to existingmarkets and to new markets that aredeveloping in Europe and Asia. Non-residentialconstruction warrants special attention.

There are already many small-marketapplications for bio-products — for example,replacing glass or other fibres in fibre-reinforced composites. The development ofthese products should be customer driven.


Bio-chemical findingsBio-pathways identified opportunities fordeveloping new cellulose-based products thatcan be converted into bio-chemicals and usedin novel ways such as making bulletproofvests. Older, smaller-scale pulp mills can beconverted to produce a range of bio-chemicalsto serve niche markets.

Producing bio-chemicals over the long termwill continue to depend on integrated milloperations. Combining the extraction of ligninand hemi-cellulose with the operations oftraditional pulp mills can add revenue. Ligninand hemi-cellulose can be used to producenew high-priced chemicals for niche markets.Hemi-cellulose has a number of bio-chemicalapplications, such as additives for jet fuel.

8

THE WAY FORWARDThe Canadian forest sector is ready and willingto play a central role in Canada’s economy asa dynamic contributor to the new bio-age whilemaintaining its reputation as a model producerof traditional forest products. The industry isalready exploring opportunities and investingin these new opportunities. But industry can’tdeliver on the promise by itself. Canadiansneed to collectively embrace a vision in whichthe country can be a world leader and build atrue Canadian advantage in the new bio-economy.

The right policies to compete and winOther countries are already ahead of Canadaon the policy front. The U.S., Europe andChina are retooling their policies and makingthe necessary short-term investments tosecure technology expertise, createemployment, attract investments and capturefast-growing markets for bio-products.Globalization is also allowing for a morespecialized range of forest products. Here too,innovation is crucial to being competitive.

Industry needs policies that focus on closingthe innovation gap, creating domestic marketpotential and encouraging first adoption of themost promising technologies. Canada’s policyframework must also support betterinfrastructure to facilitate the transportationand transmission of green electricity.

Shared risks, shared rewardsSuccess in the bio-age will come fromcoordinated investment linked to a vision ofwhat governments want to achieve with theirinnovative and environmental agendas. Thegovernment of Canada has already invested inthe transformation of the forest productsindustry. But more must be done so that theindustry can produce long-term plans andshare risks and rewards in a more vibrant,green, knowledge-intensive economy.

Partnering for progressIndustry must seek out new partnerships withinnovative companies outside the forest sectorand build networks to bring bio-technologies tomarket more quickly. Potential partners includethe oil and gas, chemical, auto, aerospace andagricultural sectors as well as academia.Government policies should facilitate thesepartnerships by removing roadblocks based ondated 20th century economic models.


Bio-products

Solid Wood

Bio-energy

Textiles

Pulp and Paper

Bio-plastics

Food additives

Bio-chemicals Bio-fuels

Solid W

Bio-energy

Bio-products

oodSolid W

Bio-energy

Pulp and Paper

Bio-plastics

Pulp and Paper

Bio-plastics

exTTe

Bio-chemicals

extiles Food additives

Bio-chemicals Bio-fuels

Food additives

Bio-fuels

Learn more To find out more about the Bio-pathways II project and howCanada’s forest industry is moving up the forestry valuechain: www.fpac.ca/bio-pathways.

FPAC would like to thank the dozens of researchers,academics and provincial and federal governmentrepresentatives who collaborated on this project, inparticular the staff of FPInnovations, Natural ResourcesCanada, the NSERC Value Chain Optimization Networkand Professor Sten Nilsson, Special Advisor to FPAC. Itwould have been impossible to complete this work withoutaccess to the data, skills and project leadership provided bysuch excellent collaborators.

Forest Products Association of CanadaThe Forest Products Association of Canada (FPAC)provides a voice for Canada’s wood, pulp and paperproducers nationally and internationally in government,trade and environmental affairs. The $54-billion-a-yearforest products industry represents almost 2 percent ofCanada’s GDP and is one of Canada’s largest employers,operating in hundreds of communities and providinghundreds of thousands of direct and indirect jobs across thecountry. All member companies are part of the landmarkCanadian Boreal Forest Agreement.To learn more about FPAC and its members, please visitfpac.ca

About FPInnovationsFPInnovations is Canada’s leading forest sector innovationand R&D centre which performs research, technicalservices and technology transfer activities relating to woodharvesting, wood products, pulp and paper, nanotechnology,bio‐energy and chemical production. FPInnovations’ staffnumbers approximately 550. Its research laboratories arelocated in Québec City, Montréal and Vancouver, and it hastechnology transfer offices across Canada. To learn more about FPInnovations and its members,please visit fpinnovations.ca

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