A clean fuel that's already gaining traction in Asia could be getting a toehold in Canada, just in time to help northwest B.C.'s hard-hit forest industry.

Dimethyl ether, or DME, is almost unknown in North America but may soon get a big boost here from new tough emission standards coming to the U.S.

California's diesel emission standards will become much tougher beginning next year. (CBC)

DME is a mixture of hydrogen and carbon monoxide that can be produced from biomass, natural gas or coal. It is now used as a propellant in aerosol spray cans because it is non-toxic and breaks down.

In Asia, DME is increasingly used as a cooking fuel to replace coal or propane and remedy an air quality problem that in China alone kills hundreds of thousands of people annually, according to the World Bank.

But DME also has the potential to replace diesel fuel because it produces 95 per cent fewer greenhouse gases, no soot, low levels of nitrogen oxide and no sulphur dioxide.

Calgary-based GV Energy is proposing to build a biorefinery to produce DME in Terrace, B.C.

"In a sense we stumbled on it but became very, very interested in it once we started doing the research," CEO Eric Switzer told CBC News.

He first became interested in DME in 2008, while involved with two other business people in looking at setting up a fund to invest in sustainable energy technologies. That was derailed by the financial crisis, but their review of potential investment targets had left them impressed by DME's potential.

Volvo will run field trials on 14 DME-powered trucks beginning next year. (AB Volvo)

"It became clear to us that there was a growing interest in dimethyl ether," Switzer said.

Volvo's field trial with DME-powered trucks in Sweden (see sidebar) is just one example. The Volvo project will use DME made from a waste product from pulp mills called black liquor, but GV Energy wants to use wood fibre collected from the forests around Terrace.

GV Energy signed a tentative agreement with Terrace in November in which the city set aside a 100-hectare site in an industrial park for the biorefinery, which is to use up to 3,000 cubic metres of wood fibre a day. The process would turn the fibre into a gas to make methanol, which would then be converted into DME.

One reason for choosing Terrace is its rail connections through Vancouver and south into the California market.

California passed diesel emission standards in December 2008 that require a reduction in particulate matter, or soot, by 75 per cent by 2010 and 85 per cent by 2020. Overall U.S. standards for nitrogen oxide emissions will also become much stricter in 2010.

Needs long-term wood supply

But GV Energy's choice of Terrace was "predominantly because of the trees," according to Switzer. "There are just lots of them in that area." The wood hasn't been locked up by forestry companies and there's an ample number of firms with cutting licences which would compete to be suppliers.

GV Energy plans to spend the next three years doing a study on whether it can nail down a guaranteed long-term wood supply that is economic, and to find investors. If the company is successful, it will sign an agreement with the city.

A biorefinery requiring a long-term wood supply would be welcomed in a region where many sawmills have closed and the forest industry is struggling. DME production would mean "a whole new use for our resources in the region here," said Sam Harling, of the Terrace Economic Development Authority.

"We've had a tough go in the Terrace area and the whole northwest part of British Columbia for that matter," he said.

Volvo modified the fuel injection on its DME truck and got the same engine performance and handling as a regular diesel. (AB Volvo)

It takes more DME to produce the same amount of energy as diesel, but Switzer's view is it could be cost competitive with diesel when the price of crude oil ranges from $75 to $85 a barrel US.

Another hurdle would be the investment in infrastructure to make DME widely available, although the equipment to dispense the fuel is less of a problem because it is similar to what's already used to fill propane tanks.

Switzer recognizes DME will never replace fossil fuels completely, but if the world has reached a peak oil production it could provide part of the solution.

"It's very hard to make a lot of transportation fuel with biomass," he said.

"We'll never be able cut enough trees to completely replace diesel fuel. Our objective is to displace just a reasonable amount of diesel and somebody else will come and displace a reasonable amount using conventional biodiesel, so over time there will be a multitude of transportation fuels that will accomplish the job."