The Carbon Trust has today launched a new consortium of UK businesses committed to developing a commercially viable process for converting municipal and wood waste into a biofuel boasting higher levels of environmental sustainability than those currently on the market.

The consortium, which will be funded to the tune of £7m over the next three to four years, will attempt to refine a process known as pyrolysis, which can be used to produce biofuels from existing organic waste material rather than controversial energy crops.

Pyrolysis works by heating organic material to extreme temperatures in the absence of oxygen. The process breaks down the material to create either a gas or oil that can then be used to create biofuel.

The Carbon Trust calculates that pyrolysis-based biofuels will have a carbon footprint that is 95 per cent lower than fossil fuels and significantly lower than conventional biofuels, such as corn-based ethanol or biodiesel.

The E4Tech report, which was commissioned by the Trust last year, indicated that wheat bioethanol has a carbon footprint between 30 and 70 per cent lower than fossil fuels, while Brazilian sugar cane ethanol produces around 70 per cent fewer emissions.

Tom Delay, the Carbon Trust's chief executive, said that developing a technique to overcome the issues associated with some traditional biofuels would be critical in helping the UK to cut its carbon dioxide emissions from transport. "In just a few years, pyrolysis could change the way in which we produce biofuels and, by 2020, be a commercially viable option," he said. " Within a decade, we could see a network of mini biofuel refineries sited near landfill sites and other waste sources across Britain."

The Trust will use funding from the Department of Transport and the Department of Energy and Climate Change to finance the initiative. The consortium is being led by Axion Energy, but also includes Catal International, CARE and Aquafuels Research.

Transport Minister Sadiq Khan welcomed the launch of the project. "Many biofuels such as those from waste have the potential to provide significant carbon reductions," he said. "The challenge is identifying and developing those biofuels which deliver the most environmental benefits."

He added that the Department for Transport would provide £3.8m over two years to support the research programme.

The launch of the consortium came on the same day as the Carbon Trust revealed it was offering a £500,000 research grant to the University of York to undertake early-stage research and development into a process that uses microwaves to pyrolyse waste materials. It is hoped the microwave-based technique could lead to higher levels of energy efficiency and produce better quality oil, thus enabling it to be used in cars.