Virgin Atlantic plans to start using a low-carbon jet fuel derived from waste gases released during industrial steel production on certain commercial flights by 2014, it said on Tuesday.

The technology, developed with energy firm LanzaTech, will capture waste gases from industrial production, then ferment and chemically convert them using technology by the company Swedish BioFuels for use as jet fuel, Virgin said.

The technology is currently being piloted in New Zealand and a larger demonstration plant will be commissioned in Shanghai, China, later this year. Virgin aims to complete a demo flight using the new fuel in 12 to 18 months' time.

In two to three years, Virgin plans to use the new fuel on its routes from Shanghai and Delhi to London Heathrow.

"Following successful implementation, a wider roll-out could include operations in the UK and the rest of the world," the air carrier said in a statement.

LanzaTech estimates that its process can be applied to 65 percent of the world's steel mills, but could also be applied to metals processing and chemical industries.

"With oil running out, it is important that new fuel solutions are sustainable, and with the steel industry alone able to deliver over 15 billion gallons of jet fuel annually, the potential is very exciting," said Richard Branson, president of Virgin Atlantic.

Other airlines have already started using biofuels on regular commercial flights in the race to cut carbon dioxide emissions.

Aviation will be included in the European Union's emissions trading scheme from Jan. 1, 2012, when the sector faces a cap on emissions and will start paying for the CO2 emitted.

In July, European airlines, biofuel producers and the EU Commission also signed up to produce 2 million tonnes of biofuel for aviation by 2020.

Lufthansa started a six-month trial in July, using a mix of regular fuel and biofuel made by Neste Oil   from jatropha and camelina crops and animal fats.

British Airways is also aiming to start powering its fleet using a fuel derived from waste by 2015.

In a report on Tuesday, consulting firm Pike Research forecast the global market for biofuels to increase to $185.3 billion by 2021 from $82.7 billion in 2011.

Biofuels were once seen as a silver bullet for curbing transport emissions, based on the theory that they only emit as much carbon as they absorb during growth.

But some forms of biofuels, like those from palm oil, have been criticised over their "green" credentials as studies show few climate benefits, particularly as increased production could squeeze food supplies and increase global hunger.

Virgin said its new fuel based on waste gases should avoid such problems and take the airline beyond its pledge to cut 30 per cent of CO2 per passenger-kilometre by 2020.

"This next generation technology overcomes the complex land use issues associated with some earlier generation biofuels - and detailed analysis suggests the fuel will produce around a 50 per cent saving in lifecycle carbon emissions," it said. – Reuters