On top of the 50% reduction in vehicle registration tax on biofuel cars, those motorists and companies that are VAT registered can claim back the 21% VAT on E85 bio-fuel, it has emerged.

This represents a major boost to companies with fleets of biofuel vehicles which clock up high mileage.

Saab and Ford are front runners in selling vehicles that can use the E85 fuel in their petrol engines and the number of filling stations around the country selling the green fuel is expanding.

In the case of the Saab 95 biofuel vehicle, 6,232 is knocked off the price because of the government's 50% reduction in VRT to encourage the use of green fuels.

Anthony Neville of the OHM group, which markets Saab in Ireland, said it would be possible to save a further 450 on every 10,000 miles covered, and as most fleet cars cover at least 20,000 miles a year, the saving would be a significant 900 a year.

The E85 fuel sells at about 87c a litre, is made from a by-product of cows' milk and releases very low levels of harmful emissions.