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Battling weak product prices and a strong loonie, Tembec Inc. chief executive officer Jim Lopez is eager to expand the company's ability to squeeze more value out of each tree felled to feed its operations.

With the sector in crisis across Canada, the federal government is encouraging companies to increase their investment in renewable power from forestry waste by establishing a $100-million fund and offering generous tax treatment.

The renewable power initiative - contained in last week's budget - was one of the few spending programs announced by Finance Minister Jim Flaherty. Mr. Lopez said federal action is critical to spur investment because companies have seen their balance sheets and creditworthiness hammered by the recession.

Now, the provinces have to step up to ensure that forestry companies have full access to their renewable power programs to ensure there is an attractive market for the electricity produced.

In addition to its sawmills and pulp and paper operations in Canada. Tembec runs three pulp mills in France, where government programs ensure the company can sell power into the grid at profitable rates.

"If we had the incentives in Canada that they have in France, it would be a game changer for our industry," Mr. Lopez said in an interview.

Tembec lost $214-million last year, and racked up another $9-million in losses in the first quarter of 2010. Mr. Lopez said the company is already producing power and ethanol from wood waste, but is eager to expand that business, utilizing trees tops and branches that are now simply burned in the forest.

"It's all about converting biomass into electrons," he said.

"And if the government is going to pay for the electrons, you might as well pay for them to be produced at a pulp and paper complex so that you improve the profitability of the complex and keep it viable for the long term."

While the forestry sector already provides 60 per cent of its own electricity needs from wood waste, there is opportunity to triple its power production, according to a recent study by the Forest Products Association of Canada. That additional generating capacity would be the equivalent of three nuclear reactors.

Association president Avrim Lazar applauded Mr. Flaherty's budget measure to promote renewable power in the forestry sector, even as other clean-tech advocates complained about the government's decision to let other fund programs lapse.

The four-year, $100-million program - together with accelerated writeoffs for machinery and equipment - "will give Canada the edge it needs to move into the new bio-economy," Mr. Lazar said.

The forestry industry has been bleeding employment across the country, losing jobs in small communities that represent bedrock Conservative Party support. But the Harper government has to move cautiously in supporting the sector, lest the aid provoke retaliation from the U.S. government and lumber interests who vigilantly police the bilateral softwood lumber deal.

Last June, the government announced a $1-billion program to help pulp and paper companies improve energy efficiency and environmental performance.

The current program will assist companies to invest in more efficient steam-based power turbines so they can produce electricity for re-sale as well as their own use.

A "bio-pathways" report released by the forestry association earlier this year advocated just such an approach, arguing the added value from power production would help make the entire industry - from sawmill to paper mill - more economically sustainable.

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