The plant will be sited in an unnamed country in Europe near to an industrial CO2 source, said Algae.Tec, which specialises in the production of biofuel from algae.

"Lufthansa will arrange 100 percent funding for the project," Algae.Tec said in a statement, without giving a cost estimate. "Algae.Tec will receive licence fees and profits from the project, which will be managed by Algae.Tec."

As part of the agreement, Lufthansa commits to a long-term offtake agreement of at least 50 percent of the fuel produced at an agreed price, Algae.Tec (AEB.AX) said.

A Lufthansa spokeswoman said locations were being sought throughout Europe for the plant. The project was in its early stages and still required final approval from the Lufthansa board.

No details were available about likely plant size, cost or start up date, she said. Lufthansa would arrange finance for the plant but not make investment itself, she said.

European airlines, biofuel producers and the EU Commission last year signed a pact aiming to produce 2 million tonnes of biofuel for aviation by 2020.

However, the EU on Monday announced plans to scale back its previous targets for biofuels produced from food, seeking output from non-food raw materials.

In January, Lufthansa (LHAG.DE) said it was ending the trial use of a biofuel mix for its planes because it had used up stocks of biofuel certified as using materials from sustainable farming and no other reliable supplies were available. (Reporting by Michael Hogan; editing by James Jukwey)

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