BP (BP) - Get Report and Verenium (VRNM) announced a new joint venture to produce cellulosic ethanol on a commercial scale by 2012.

The initiative aims to begin construction on a large-scale cellulosic ethanol refinery in Highlands County, Florida, by 2010. The plant will produce 36 million barrels of ethanol per year. Cellulosic ethanol is a biofuel produced from wood, grasses or non-edible parts of plants.

The two firms are kick-starting their 50/50 venture with a $45 million investment.

Verenium, based in Cambridge, Mass., owns a proprietary enzyme-based process for producing ethanol from cellulosic plant material, instead of the sugars from food crops like corn.

"Not all biofuels are equal," said Sue Ellerbusch, president of BP Biofuels North America, in a conference call late Wednesday. "Cellulosic ethanol offers a better option."

The venture would introduce industrial-scale cellulosic ethanol sooner than other existing projects.

Verenium and BP first announced a formal relationship last August. "The next stage in our relationship with Verenium demonstrates our real commitment to making cellulosic ethanol a reality in the U.S. fuels market in the near term," said Ellerbush.

"BP and Verenium together have the technological know-how, engineering capability and market expertise required to demonstrate that we can deliver better, more sustainable biofuels, more quickly."