Italy will become the first country in Europe to legally require "advanced biofuels" in cars and trucks, the BBC has learned.
Made from waste, the new fuels are said to reduce the amount of land taken out of food production.
The world's first commercial scale plant making fuel from straw opened in Italy last year.
From 2018, all fuel suppliers in the country will have to include 0.6% advanced biofuel in petrol and diesel.
The use of fuels made from crops has been a controversial issue across the EU in recent years.
A Renewable Energy Directive, adopted in 2009, required that 10% of energy used within the transport sector came from renewable sources.
Amid concerns that land was being converted from food production to grow crops for biofuels, the EU ultimately reduced this to 5.75%.
At the same time, the European Parliament voted to require a 2.5% target for advanced biofuels by 2020.
However European Council of energy ministers diluted this to a non-binding goal of 0.5% much to the dismay of the biofuels industry.
Now the Italian government have given the enterprise a shot in the arm.
A ministerial decree, seen by the BBC, requires 0.6% of all petrol and diesel contain advanced biofuels from 2018. This rises to 1% by 2022.
Last year a commercial scale advanced biofuels plant was opened in Crescentino near Turin, with the aim of producing 75 million litres of bioethanol every year from straw and arundo donax, an energy crop grown on marginal land.
The Italians recently announced plans to open three further plants in the south of the country.
Novozymes, one of the companies involved in the Crescentino initiative welcomed the government's decision to make it legally binding on fuel suppliers to include advanced biofuels in their petrol and diesel.
"We applaud the Italian government decision to establish a national mandate for advanced biofuels - the very first of its kind in Europe," said Sebastian Søderberg, from the company.
"After years of dithering and stalemate on biofuels policy in Europe, it is very encouraging that a large member state is ready to lead by example.
"This is most needed to spark investors' interest, and should be a source of inspiration for the Council and the new Parliament to come together in adopting an ambitious, EU-wide mandate for advanced biofuels by 2020 and beyond," he added.
In the United States, the Environment Protection Agency has reduced the level of advanced biofuels it requires for use in transport over concerns that it was increasing imports of fuel made from Brazilian sugarcane. Despite this, a number of new second generation biofuels plants have recently opened.
"This is quite an exciting time, things are finally starting to happen," said Chris Malins from the the International Council on Clean Transportation.
"This shows Italy taking a real leadership role in Europe. It will be an example and a signal to other countries that are interested in this."
However while the new technologies are less likely to spur a shift from using land for food production, there are still questions over their long term sustainability. Farmers may decide to grow "waste" crops.
"In and of itself the fact that you are using cellulosic technology doesn't get a way from land completely - there are still land use and sustainability questions , but there's no doubt that the concerns about impacting food markets are much much less with these technologies than it is with first generation fuels."
Follow Matt on Twitter @mattmcgrathbbc.