Mascoma was founded in 2005 and works on developing advanced cellulosic ethanol technologies, with the aim of creating fuels that are low-carbon.

One of the processes it is working on uses the waste from paper mills. It is also experimenting with wood chips and switchgrass.

Biofuels are widely seen as a solution to the problems of dwindling oil reserves and growing energy demands. However, the issue of making fuel from grains, such as corn, has raised fears over food supplies.

While using waste from paper mills would be a welcome development, the paper industry is already fearful of the use of wood chips to make biofuels, because of the increase in wood prices.

The Confederation of European Paper Industries has complained about the emphasis on the use of wood in the European Union's European Renewable Energy Policy.

President of GM Fritz Henderson said: "Taken together, these technologies represent what we see as the best in the cellulosic ethanol future and cover the spectrum in science and commercialisation.

"Demonstrating the viability of sustainable non-grain based ethanol is critical to developing the infrastructure to support the flex-fuel vehicle market."

He added: "These investments in leading-edge firms supports belief that ethanol has the greatest near-term potential as a clean-burning, renewable fuel that can help reduce oil dependence."

GM has made an undisclosed equity investment in Mascoma.