Waste paper or food could be turned into green fuel for transport using a new process being developed by an Oxfordshire biotechnology company.

Green Biologics, of Milton Park, near Abingdon, has raised £1.58m to develop a low-cost 'next generation' biofuel, called Butafuel.

Its chief executive, Dr Edward Green, is an expert on using heat-loving microbes called thermophiles, which ferment the sugars found in plant material into chemicals and biofuels like biobutanol.

Future fuel refineries would be next door to paper mills or sugar factories, reducing the need for expensive waste treatment.

The process was first commercialised in the UK during the First World War, but by the 1960s it had been displaced by a cheaper petrochemical method.

Unlike the oil which provides our current petrol and diesel, biobutanol is renewable and does not contribute significantly to carbon emissions and climate change.

It avoids food crops such as sugar beet, sugar cane, maize and wheat, used for bio-ethanol, a first generation biofuel under fire from environmentalists for using food-growing land from poor countries.

Green Biologics has isolated thermophiles from compost and built a "library" of microbes that efficiently convert waste plant material such as paper pulp residue.

The new funding from existing shareholders as well as new investors Carbon Trust Investments and Oxford Capital Partners will provide a pilot plant in a new laboratory at Milton Park, near Didcot.

Dr Green said: "We believe Butafuel will supersede first generation biofuels within ten years and it ultimately has the potential to completely replace fossil fuels for road and air transport."

Jonathan Bryers, of Carbon Trust Investments, said: "Biofuels that are both cost effective and renewable will have a key role to play in creating a low carbon economy in the UK."