BETTING ON BIO-REFINERY AND POSITIONING THE PULP AND PAPER INDUSTRY FOR BIO-REFINERY SUCCESS, 2008 Engineering, Pulping and Environmental Conference

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The emerging bio-energy industry, in particular, the bio-fuel segment, is attractive to many companies but full of uncertainty. Major factors affecting the industry’s performance and profitability – feedstock costs, regulations, and technologies - are in flux. Despite these uncertainties, waiting to enter under the classical “investment under uncertainty” rules may be costly because resources are in short supply and equity available for investments are in tight squeeze. While the ‘corn’ based bio-fuel program is getting all the attention and investment, life-cycle analysis indicates that there are pit-falls in overemphasizing just this program. There needs to be a sound alternative to this approach and that’s where the pulp and paper industry’s bio-refinery approach makes both financial and technological sense. Bio-refineries are examples of integrated processes for energy generation and production of goods, where energy (bio-fuels) and by-products (chemicals) production provide attractive “Value Proposition” to the revenue portfolio. Pulp and paper companies that decide to enter the ‘bio-fuel” arena should have a sound strategy in place to hedge their bets and should start developing relationships that could help reduce uncertainty and volatility. This paper outlines a strategic approach to the bio-refinery concept in the Pulp and Paper industry and discusses in detail the financial model for the approach.