The Bioenergy Association says the latest primary growth partnership project, investigating the conversion of forestry waste into biofuels, is well timed.
The Government is paying half the cost of the $13.5 million Stump to Pump project which pulp and paper processor, Norske Skog is leading in partnership with Z Energy.
It will investigate the technical and economic feasibility of refining forestry leftovers such as sawdust, bark and harvesting residue into transport fuels, before deciding whether to build a test plant.
Two years ago, the Association criticised the Government for cutting a grant scheme for biodiesel production.
But executive director Brian Cox said the scale and timing of the forestry biofuel project make it a better bet and the project is getting closer to becoming economic.
He said it's now a matter of commercialising the technology, which is well proven, using natural resources for a market that already exists.
"Forty percent of our energy is in transport fuel, so that is a huge area that we need to be focusing on."
Mr Cox said this type of technology needs big players like Z Energy and Norske Skog to be involved.
Forest owners hope that a project designed to convert forest waste into liquid biofuels will provide growers and mills with extra income streams.