It has earmarked £25m of capital funding to support the construction of demonstration-scale waste to fuel and other advanced biofuel plants in the UK.
The funding will be provided over three years from 2015 following a competition to identify the most suitable industry proposals. Details of the contest will be published in the autumn.
Advanced biofuels are made from materials, for example municipal waste and forestry residues, using complex processing techniques. They can produce a wide range of transport fuels including replacements for those used in road transport and aviation.
Transport minister Norman Baker said: “It is clear that in the long term advanced biofuels will be important in areas that we cannot otherwise decarbonise, such as aviation. This announcement will help put the UK in a good position to meet this demand.
Energy secretary Edward Davey added: “Advanced biofuels have the potential to make a sustainable contribution to our 2020 renewable energy targets, as well as to our longer term decarbonisation targets.
“There is significant potential for growth in biofuel use, in low carbon vehicles and other sectors, if advanced technologies are harnessed. This funding will give the industry the boost it needs to develop this innovative, low carbon market.”
The Department for Transport will commission a feasibility study to report on the detailed design of the proposed competition including eligibility criteria and funding scheme options, as well as ensuring the project complies with EU State aid rules.