Tullibardine distillery has linked up with Celtic Renewables to turn leftovers from the distillation process into butanol which can be used to fuel vehicles.
Professor Martin Tangney, founder of Celtic Renewables, said: "Our partnership with Tullibardine is an important step in the development of a business which combines two iconic Scottish industries – whisky and renewables."
Douglas Ross, managing director of Tullibardine, said: "We are delighted to be partnering Celtic Renewables in this innovative venture, the obvious benefits of which are environmental. It takes a cost to us and turns it into something that has social as well as commercial value."
Celtic Renewables said it eventually aimed to build a processing plant in Scotland, with the hope of building an industry that could be worth £60m a year.