Excellent news for Iogen Corp., the cellulose ethanol company based in Ottawa. Volkswagon and Shell, which owns an equity interest in Iogen, have agreed to jointly assess the economic feasibility of producing cellulose ethanol in Germany using Iogen’s innovative process. The three companies made the announcement at the North American auto show in Detroit.

“Iogen’s cellulose ethanol is a fully renewable advanced biofuel made from the non-food portion of agriculture residue, such as cereal straws and corn stover, and is one of the most cost-effective ways to reduce greenhouse gas emissions in road transport,” the companies said in a statement.

Iogen, it points out, operates the world’s only cellulose ethanol demonstration-scale facility and made its first commercial shipments in spring 2004. I know the company has been exploring the possibility of building a commercial plant in Canada and/or the United States but there hasn’t been much news on that front. I’m glad to see the company may get some traction in Europe, and certainly Volkswagon is a great partner to have — not to mention Shell as a minority investor. Certainly a development to watch closely.

The ethanol debate continues to thrive. Ethanol bashers love to cite studies by Cornell academic David Pimentel, who insists that large-scale commercial ethanol production is a fool’s game because the energy it takes to produce ethanol is generally more than the energy you get out of the end product. They say the push for ethanol production, mainly in the U.S., is a farmer subsidy in disguise and nothing else.

The same views exist in Canada. My rip the heart right out of the ethanol bashers’ argument. A former senior executive at Shell came to the same conclusion at a farmers’ conference in England. Fact is, Ford, GM and other automakers are moving aggressively toward flex-fuel vehicles, government mandates are coming into play, and if Canada can’t meet its own mandates locally then it will have to import from somewhere else. Ethanol is here to stay folks, so get over it.

If Iogen can help us meet those objectives and industry demand in the most energy-efficient way possible, then let’s hope Volkwagon and Shell can help kickstart things. In the meantime, is it really injustice to toss a bone to farmers and aboriginal groups trying to find jobs and new markets for their crops?

(BTW: For a terrific post on the ethanol issue, click here for commentary from Joel Makower. He discusses why GM is getting into ethanol, how ethanol production methods have improved, and how Brazil has successfully built an ethanol infrastructure).

(Also, as an FYI, check out this CNET News.com article on biodiesel and alternative fuels. It’s worth a quick read.)