The oil group says it is developing a new generation of bio-fuels with associates like chemical maker DuPont and predicts the low-carbon energy could supply as much as 15% of the US' gasoline pool in a decade.

Speaking at the Cambridge Energy Research Associates (Cera) event in Houston today, BP boss Tony Hayward said the company, which is also investing in solar and wind power in the US, has a three-legged programme for its global biofuels business.

Hayward indicates that next "three to five years" could radically change the biofuel industry as more advanced fuels emerge to take the place of fuels derived from food crops.

The BP executive says the UK-based company is studying how to improve "the ethanol molecule" as well as pursue second-generation celluostic ethanol production.

"Much of this ground breaking research is taking place in partnership with the University of California at Berkley, the Lawrence Berkley National Labratory and the University of Illinois at Champaign," he says.

Hayward says the group’s Brazilian investment in sugarcane-derived ethanol is still competitive with oil trading at $40 a barrel.

US ethanol using corn feedstock has been hammered by falling oil and petrol values, sparking a wave of high profile of bankruptcies in the industry.

Speaking to an audience of energy executives, Hayward says that cap-and-trade would be more beneficial for carbon pricing discovery than a carbon tax.

ExxonMobil's Rex Tillerson recently said his company believes a flat tax on emissions would provide the energy industry with greater transparency. Tillerson cited what he deemed as a flawed European model in pollution trading.

But Hayward says the next phase of European cap-and-trade appears more successful that its predecessor.