INEOS, world's third largest chemical company, said it had patented a method of producing fuel from municipal solid waste, agricultural waste and organic commercial waste and it planned to sell the bioethanol fuel in industrial quantities by 2010.
The bioethanol that INEOS produces will have to be combined with a fossil fuel as very few cars in Britain run solely on bioethanol.
Peter Williams, the chief executive of INEOS Bio, told The Times, "This should mean that, unlike with other biofuels, we won't have to make the choice between food and fuel."
Williams said the company planned to produce commercial amounts of bioethanol fuel for cars from waste within two years.
INEOS claims that it can produce about 400 litres (90 gallons) of ethanol from one tonne of dry waste. The new process works by heating the waste to produce gases, then feeding the gases to bacteria, which produce ethanol that can be purified into a fuel.
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The development of fuel from waste could be a relief for motorists who have watched pump prices soar in the past year to an average of 133.3 pence per litre of diesel.
According to the report, INEOS is talking to authorities in the United States, Canada and Europe about selling the fuel when it is made on an industrial scale.
The company began research into the biochemical process about 20 years ago in Arkansas, in the US. A pilot plant was built and researchers have been working with a variety of waste materials since 2003.
The company has a large traditional refinery business. It owns the Grangemouth oil refinery in Scotland, where a strike resulted in petrol shortages this year.