BP is set to expand its presence in the controversial biofuels market after announcing plans to invest $60m in Brazilian biofuel producer Tropical BioEnergia in return for a 50 per cent stake in the business.

Under the proposed joint venture, the oil giant is to join with sugar cane crusher Santelisa Vale and cotton producer Maeda Group, each of which will hold a 25 per cent stake in the firm. They will invest around $1bn in completing a new bioethanol plant capable of producing 115m gallons of fuel a year and commencing work on a second facility.

The deal is expected to be completed by June with the first refinery scheduled to start operation from this summer with full capacity anticipated for mid 2010. BP said the two refineries will supply domestic ethanol markets and also potentially export fuel to the US, Europe and Asia.

The move is likely to be controversial, given the recent criticism levelled at biofuels, which environmentalists blame for contributing to deforestation and rising food prices.

However, head of BP Biofuels Phil New insisted the new refineries would focus upon sourcing "sustainable feedstocks which do not impact on food supplies", and would also enable further research into the development of more efficient biofuels.

A spokesman for the oil giant said that sugar cane represented a far more efficient means of developing biofuel than corn or palm oil based fuels, as more of the plant can be used in the refining process. He added that the refineries are also 600 miles south of the Amazon rainforest and that "every attempt has been made to ensure they are as sustainable as possible".

The company said the facilities would also be fitted with Combined Heat and Power (CHP) technology that is expected to generate over 30MW of power from the waste biomass that remains after the crushing of the sugar canes.

It added that the CHP system was also intended to offer a potential platform for installing future technologies capable of extracting energy from other forms of biomass, wood including wood and grasses, and biobutanol, a fuel with similar properties to petroleum but produced from biomass.

In related news, the trade war between European and US biofuel producers escalated over the weekend after it emerged that the European Biodiesel Board (EBB) has lodged a complaint over what it regards as unfair competition from subsidised US imports.

The EBB is calling for duties to be introduced on "B99" biodiesel imports, which it claims are being unfairly subsidised in the US and then dumped in the EU, forcing some European operators out of business.

Generous subsidies from the US, which can reach up to $300 a tonne, have also seen some firms adopt a so-called "splash-and-dash" tactic whereby biofuel is shipped from the EU, has a "splash" of conventional diesel added to qualify for the subsidy, and is then shipped back to Europe.

The US National Biodiesel Board threatened to lodge a counter complaint over the move, claiming in an interview with The Guardian that European producers benefit from a "blatant trade barrier" in the form of stringent EU biodiesel fuel specifications.