Canada has invested significantly in the development of a domestic bioethanol industry, and it is expected that bioethanol from lignocellulosics will become more desirable to the industry as it expands. Development of the Canadian industry to date is described in this paper, as are examples of domestic research programs focused on both bioconversion and thermochemical conversion to generate biofuels from lignocellulosic biomass. The availability of lignocellulosic residues from agricultural and forestry operations, and the potential biofuel production associated with these residues, is described. The policy tools used to develop the domestic bioethanol industry are explored. A residue-based process could greatly extend the potential of the bioethanol industry in Canada. It is estimated that bioethanol production from residual lignocellulosic feedstocks could provide up to 50% of Canada's 2006 transportation fuel demand, given ideal conversion and full access to these feedstocks. Utilizing lignocellulosic biomass will extend the geographic range of the bioethanol industry, and increase the stability and security of this sector by reducing the impact of localized disruptions in supply. Use of disturbance crops could add 9% to this figure, but not in a sustainable fashion. If pursued aggressively, energy crops ultimately could contribute bioethanol at a volume double that of Canada's gasoline consumption in 2006. This would move Canada towards greater transportation fuel independence and a larger role in the export of bioethanol to the global market. (C) 2009 Elsevier Ltd. All rights reserved.