Oil is fast running out and the race to find alternative renewable energy sources is on, coupled with the need to reduce greenhouse gases and global warming.

The Renewable Fuel Transport Obligation takes effect from April 2008 and will require fuel companies to blend increasing amounts of biofuels by 2020.

At Milton Park, industrial biotech firm Green Biologics is hoping to take advantage by becoming the world's leading supplier of fermentation techniques to convert plant material to renewable biofuels, including butanol.

The company has just raised £550,000 in venture capital and grants to develop its own butanol-based fuel known as Butafuel.

Biobutanol was first produced by fermentation back in 1916 and used to manufacture acetone for munitions. Today, butanol is a product of oil refining.

Green Biologics chief executive Dr Edward Green said: "Current research is focused on ethanol and biodiesel as alternatives.

"Hydrogen is potentially a third fuel, but I believe it's some way off because of the difficulties of storage and delivery into the transportation market.

"The United States is heavily into ethanol, but the feedstock is corn - maize - so they're using an edible crop.

"Not only has that driven up the price of corn, but it's not a good idea to use 15 per cent of a food stock as an energy source. Ethanol is corrosive and attacks gaskets and seals, plus it has 33 per cent less energy than petrol."

Dr Green added that biodiesel's feedstock is oilseed rape and only a limited amount of that can be grown in northern Europe.

He claims Butafuel can be blended with petrol or diesel up to 40 per cent strength without engine modifications, produces lower emissions than fossil fuels and matches petrol and diesel for energy and fuel consumption.

The fermentation process utilises sugar, and a variety of feedstocks offer that vital component. Paper mill effluent is readily available in northern Europe. Glycerol is a by-product of biodiesel production and tropical countries refining sugar produce molasses.

Other sources are corn kernels, straw or any fibrous material that is a waste product. In the long term, Green Biologics is also planning to convert municipal and kitchen waste that would otherwise be landfilled, into butanol.

Paper mill effluent has the advantage that it is cellulosic and that the mill's process breaks down the cellulose, easing the transition to sugar. Some of the effluent is burnt to provide heat for the mill, but the majority is landfilled - not a sustainable form of waste treatment.

Dr Green says the challenge is turning a laboratory process into a commercial one.

He added: "Once we reach a certain level, it has a significant impact on cost and that's crucial. With the current push towards biofuels, there are good subsidies, but they won't last forever and we have to be cost comparable to conventional fuels."

Having butanol in your tank will not happen overnight. Dr Green estimates that large-scale adoption could take up to ten years and there are many hurdles yet to climb.

Engine manufacturers have to test various concentrations of fuel and its effect on power outputs, fuel consumption, emissions and engine life.

There has to be a market in butanol and one has recently been created, with BP and Dupont announcing that they will produce it.

A distribution chain to fuel manufacturers and blenders has to be established. In the meantime, Green Biologics can take advantage of an existing market in butanol for the manufacture of plastics and polymers, a market where the price to manufacturers is three times that for fuel.

There are also possibilities for butanol as an aviation fuel.

Dr Green said: "At the moment, aviation is not a serious polluter, but that will change with the increase in air travel. Virgin Fuels is investing £3bn into biofuels over the next ten years.

"Sir Richard Branson believes butanol can be used to fuel planes because it doesn't freeze at low temperatures. Ethanol and biodiesel do."

Green Biologics was founded in 2003. In 2005, Dr Green won the Up and Coming Entrepreneur Award at the Martin and Audrey Wood Enterprise Awards.

The company is expanding rapidly and is already outgrowing its current premises. Planned recruitment will strengthen the management team, double the company size in 2007 and double it again in 2008.

The search is underway for about £5m of funding this year to commercialise the technology, and with alternative energy a booming sector, Dr Green is optimistic funding will be found.

Dr Andrew Rickman has just been appointed chairman. Dr Rickman was the founder and former chief executive of Bookham Technology which he grew from a start-up to a large fibre optics telecom business, and brings a wealth of experience in commercialising technology.

Dr Green said: "Our eventual aim is not only to supply the technology and the expertise to design and construct butanol plants, but to be producers of butanol in our own right.

"That may mean building plants next to feedstock sources and perhaps retro-fitting ethanol plants to produce butanol. It is going to be pretty exciting."

n Contacts: www.nigelwildassociates.co.uk www.greenbiologics.com