A detritus-loving bug that can be found in nearly every garden compost heap in the land could be about to transform the way the world makes biofuels.

Initially, it is set to make bioethanol production from corn in the US more efficient, but the British company that has developed it says it can be applied much more broadly.

Unlike the yeasts traditionally used in brewing and bioethanol production it is more tolerant of tough plant matter, so raw materials such as grasses, willow, forest waste, wheat stalks and waste cardboard could all be converted into fuel.

The company, TMO Renewables, has built a trial plant near Guildford in Surrey to demonstrate the process. It is the first plant in the UK to use so-called "second generation" raw material - inputs that are not themselves foodstuffs. "It completely eliminates the debate about food versus fuel," says the company's CEO, Hamish Curran.

Using woody non-food plants would get away from the displacement problem and has long been the goal of the biofuels industry. But so far the technology to do it has proved elusive. The problem is breaking down tough molecules such as cellulose into smaller sugars that can be fermented into ethanol or other fuels.

Curran has big plans. "I see the opportunity within the UK to leapfrog the first generation and go directly to the second generation, making ethanol from biomass," he said. But he knows that is not going to happen anytime soon because the infrastructure for supplying the raw materials will take years to build up.

In the meantime TMO plans to license its technology to US corn ethanol producers. "The market is gigantic because of the legislative agenda in the US," he said. The fuel ethanol industry is currently worth around $30bn (£16bn) and this year is expected to produce between 9bn and 9.5bn gallons of fuel this year.

But making corn ethanol requires a substantial input of fossil fuels, which partially cancels out its green benefits. After fermenting the corn, producers are left with a cloudy ethanol mixture. The cloudiness is a cellulose-rich waste product that needs to be settled out, dried and then disposed of. At the moment producers recover some costs by selling the waste - called distillers dried grains - as cattle feed. That typically means transporting it from a bioethanol plant in the mid-West to a farmer in Texas using huge amounts of energy.

However, by feeding it into TMO's process, Curran says a plant could make 15% more ethanol and reduce its energy consumption by 35% to 50%. He says he has already had interest from 22 US bioethanol producers in buying the technology.

TMO Renewables began by testing thousands of bacteria from compost heaps, farm silage pits, forest leaf litter - in fact, anywhere where there were rotting plants - and testing how good they were at decomposing plant matter. They eventually settled on a Geobacillus bacterium which was particularly unfussy about what it ate, and set about genetically tweaking it so it stopped converting food into other waste products. That boosted the bug's ethanol production and at the same time the team "turbo-charged" its metabolism, as Curran puts it. So rather than taking days to ferment a batch of raw material as yeast would, it can do the same job in hours.