The "ProBio3" project, started in early July and co-financed by a French government economic stimulus programme, aims to use traditional horse-bedding materials to develop a new kind of biofuel that can be used in a 50/50 blend alongside kerosene.

"Tomorrow, planes will fly using agricultural and forest waste," said Carole Molina-Jouve, a professor at Toulouse's National Institute of Applied Sciences (Insa), who is coordinating the ProBio3 project.

"We already know how to set up a basic production line but we must move towards an industrial line," she said. "We need to translate what is done in laboratories to the real environment while improving its profitability and efficiency."

The move to use straw-based materials or wood shavings as a source of fuel is the latest in a series of biofuel ventures aimed at cutting fuel bills and pollution.

So far most attempts have been based on crop-based products, raising concerns over food shortages following recent drought.

But European planemaker Airbus (EAD.PA), one of the programme's backers, believes woodchips and agricultural waste could be alternative fuel sources of the future.

With a budget of 24.6 million euros over eight years, ProBio3 aims to set up a profitable production chain for hydroprocessed oils, a type of biofuel which has been certified by international standards organisation ASTM as useable for aviation in combination with kerosene.

Fuel made from wood and straw may seem at odds with some of the most extreme man-made conditions inside a modern jet engine, where temperatures can reach 1,600 degrees Celsius. But scientists say they already know the basics of the process.

Industrial or farm waste is broken down into sugars through enzymes, then mixed with microorganisms such as yeast, and transformed into lipids through the chemical process of fermentation.

The fats obtained are then treated with hydrogen to make a type of hydrocarbon with similar properties to fossil fuels.

NO COMPETITION WITH FOOD INDUSTRIES

At Insa's biological systems and processes engineering lab (LISBP) in Toulouse, France, where Airbus is based, Molina-Jouve removes a test tube holding a yellowish paste from a refrigerator.

"Those are large and fatty yeasts, full of synthesized lipids," she explains, metres away from a small reactor where sugars and yeasts are combined for the fermentation process.

As part of the ProBio3 project, partner Tereos Syral, a specialist in producing starch from cereals, will attempt to replicate the process on an industrial scale using a reactor with 100 times the capacity of the one in the lab.

Molina-Jouve dismissed any concern that biofuel production would divert food crops at a time when commodity prices have been soaring. "The project will focus on non-food biomass," she said.

The European Union plans to limit the use of crop-based biofuels in a major shift in the region's much-criticised biofuel policy, according to draft legislation seen by Reuters.

Last week France said it would push for a pause in the global development of biofuels and the creation of strategic food stocks in response to the third global food price spike in four years.

The "ProBio3" project is part of an EU drive to reach annual output of 2 million tonnes of biofuels for aviation by 2020 in Europe.

Biofuels should help cut down the aerospace industry's carbon footprint while using renewable energy sources, said Jean Botti, chief technical officer of Airbus parent EADS (EAD.PA).

"We want to achieve a balance in terms of carbon dioxide where everything that comes out will be balanced with what goes in," Botti said.

Europe consumes around 50 million tonnes of kerosene per year.

Airbus, Boeing (BA.N) and Brazilian manufacturer Embraer (EMBR3.SA) agreed earlier this year to co-operate on developing alternative fuels.

Dutch airline KLM (AIRF.PA) operated the world's first scheduled biokerosene-powered flight in July 2011 when one of its Boeing 737-800 jets flew 171 passengers between Amsterdam and Paris using a mix of cooking oil and Jet-A fuel. (Writing by Alice Cannet; Editing by Christian Plumb, Tim Hepher and Mark Potter)

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