The Government is contributing half the cost of an investigation into converting sawdust, bark and other forestry waste into biofuels.
The $13.5 million Stump to Pump project is the latest to be funded under the Primary Growth Partnership programme.
The Primary Industry Ministry says converting low value forestry waste into sustainable transport fuel could generate economic benefits of up to $1 billion a year and create 1200 jobs.
Forestry processor Norske Skog is leading the project in partnership with fuel company Z Energy.
General manager of Norske Skog's Tasman Mill at Kawerau, Peter McCarty, says it will spend 14 months investigating the technical and economic feasibility of biofuel conversion.
He says engineers, finance people and scientists will work through everything from the forest to the refinery to prove that the fibre can be obtained economically, that it can be processed, what technology is needed and how it should be marketed.
Mr McCarty says there is a lot of residue left in the forest or wasted as a by-product of the sawmilling industry and it's about adding value to that type of fibre.
He says at the end of study it will recommend whether to go ahead with a biofuel pilot plant that could process about 50,000 tonnes of forest waste a year.
