Ineos, the chemicals company has announced that it has a patented a method of producing fuel from municipal solid waste, agricultural waste and organic commercial waste.

The company claims that it can produce about 400 litres (90 gallons) of ethanol from one ton 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.

Ineos plans to sell the environmental product in industrial quantities by the end of 2010. Peter Williams, the chief executive of Ineos Bio, said: “This should mean that, unlike with other biofuels, we won’t have to make the choice between food and fuel.”

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 133.3p per litre of diesel.

The bioethanol that Ineos produces will have to be combined with a fossil fuel, however, because very few cars in Britain can run solely on bioethanol. Ineos has a large traditional refinery business. It owns the Grangemouth oil refinery in Scotland, where a strike resulted in petrol shortages this year.

Cars that run on bioethanol have been made in Brazil, where a comprehensive biofuels industry is based on sugar cane.

Biofuels have been backed by governments as one of the key ways to reduce carbon dioxide emissions. The EU aims to get 10 per cent of its road transport fuel from renewable sources such as biofuels by 2020.

Present methods of producing biofuels from crops have been criticised for causing high food prices by taking up land that would have been used to grow food. Although bioethanol production releases a lower volume of greenhouse gases than petrol, critics say that it has encouraged deforestation.

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 nearly 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. Mr Williams said that the company would soon announce the location of its first commercial plant.

“We will aim to quickly roll out technology around the world. We plan to be producing commercial amounts of bioethanol fuel for cars from waste within about two years,” he said.

He added that he expected at least 10 per cent of North America and Europe’s petrol use to be replaced with bioethanol, adding that because it released up to 90 per cent less greenhouse gases than petrol, the company’s technology “will make a major contribution to reducing greenhouse gases and the world’s need for fossil fuels”.

The announcement was welcomed by the National Non Food Crops Centre in York, the UK’s home for the development of renewable fuels.

Geraint Evans, one of its managers, said: “This is a breakthrough in two areas. Technologically because we can use municipal solid waste. And commercially because we have the potential to produce large amounts of bioethanol viably across the world.”

The OECD estimates that as much as 14 per cent of the crop land in the EU, the US and Canada will be used to grow plants for biofuels by 2017, up from about 8 per cent last year. This could push the prices for some crops up by 19 per cent.