Premier Jean Charest participated in the announcement, which is the first phase of a $310-million investment.
The initial phase will increase annual production of green electricity by up to 40 megawatts, cut sulfur dioxide emissions and boost annual production capacity of specialty cellulose by 5,000 tonnes.
The project will replace three old boilers with a new high-pressure boiler designed to burn waste byproduct of the cellulose manufacturing process.
Hydro-Quebec will purchase the electricity generated by a new electricity turbine under a 25-year contract at $106 per megawatt-hour, indexed with the consumer price index.
The boiler is scheduled to start up in December 2013, followed by the turbine in May 2014.
Tembec's $190-million investment will be financed with $105 million of new debt, including a $75 million loan from the province's Investissement Quebec. The rest will come from free cash flow from Tembec's operations.
Tembec CEO James Lopez said the "game-changing project" will make Temiscaming one of the world's most competitive pulp and paper mills.