Two Australian companies have commenced producing biofuel from "second generation" waste products.

Licella Pty Ltd has opened a commercial biofuels demonstration facility at Somersby, near Gosford, New South Wales.

The plant will produce bio-crude oil that has the potential to be refined into low-emission petrol, diesel and jet fuel.

It will operate using Licella’s catalytic hydro thermal reactor that converts woody materials into liquid bio-crude oil. Initially, the plant will use sawdust as its feedstock.

Air New Zealand and Virgin Australia have both entered into Memoranda of Understanding to support commercialisation of Licella’s process.

Another new biodiesel plant at Cressy in Tasmania’s northern midlands has begun producing diesel from poppy seed waste.

The plant, on Mike Henry’s family farm, is fed from oil pressed from poppy seeds left over after the crop is harvested.

It is expected to produce up to three million litres of biodiesel a year – enough to fuel Tasmania’s entire bus fleet.

Engineer, Karne de Boer, said that Tasmania is uniquely placed to make the most of the new technology because of the high cost of shipping product to the mainland combined with the high cost of importing fuel to Tasmania.