Under the new program businesses and institutions researching second generation biofuels are now able to apply for grants of between $1 million and $5 million.

Second generation biofuels use fuel stocks such as biomass and algae rather than grain or other livestock feed.

Their development is seen as a crucial cog in moving beyond the 'food versus fuel' debate.

Resources Minister Martin Ferguson announced the grant last week, stating the Government was committed to finding alternative fuel supplies.

"This funding will importantly provide a boost to the biofuels industry and assist in the research and development of the next generation of biofuel technologies, which have the potential to be a cleaner burning alternative to petroleum products with lower CO2 emissions," Mr Ferguson said.

"The Gen 2 program is part of the Australian Government's broader commitments under the $500 million Renewable Energy Fund and will match industry funding dollar for dollar."

Research funded through Gen 2 will be directed towards the development of sustainable biofuels technology which uses low-cost, non-food materials.

This may include use of algae to produce biodiesel or cellulosics to produce ethanol.

"The food versus fuel debate has been well documented and it is essential that grant funding reaches projects which are sustainable," Mr Ferguson said.

"We must ensure that biofuel development does not compete with the traditional agricultural industry for land and resources, raising the price of groceries and livestock feeds.

"Developing commercially-viable and effective second generation technology will increase the sustainability of biofuel use."