Canadian forestry firm Canfor Pulp Products Inc. is kicking off a new multimillion-dollar cleantech project with the help of the federal government.

Working with an Australian-based startup company, which has developed a process that uses to convert biomass into biofuel, Canfor plans to turn wood waste from its three Prince George, B.C. pulp mills into biocrude.

Sustainable Development Technology Canada will invest $13 million to support the demonstration project, which will cost approximately $39.2 million overall.

“We have the opportunity to create a truly renewable biofuel that can easily integrate with conventional fuels to dramatically lower environmental impacts,” Martin Pudlas, Canfor’s vice-president of Operations, said in a statement. “This funding from SDTC provides critical support as we look to operationalize this truly transformative green technology.”

The B.C.-based pulp and paper company began working with Australia’s Licella Fibre Fuels Pty Ltd. last year, forming a joint venture to explore ways to use Licella’s catalytic hydrothermal reactor technology. The process has already been piloted in Australia and the two companies will now put it to the test on a larger scale.

Once synthesized, SDTC says the biocrude can then be processed into other biofuels and biochemicals using existing technology.