Transperth has begun a three-day test on a new `environmentally friendly' fuel which could help reduce greenhouse gases and city smog.
The new fuel, known as `diesohol', is said to be cleaner when burned, resulting in a reduction of pollutants such as carbon monoxide, nitrogen oxides and smoke.
Fuel and Energy Minister Geoff Gallop said the move was an important initiative to fight Perth smog levels which currently exceeded World Health Organisation standards on 11 days each year.
"It is generally recognised that one way we can fight the city's pollution problems is by getting people out of their cars on to public transport," Dr Gallop said.
"Transperth already has the largest fleet of natural gas buses in Australia and if it can find a way of making its remaining diesel buses environmental cleaner then it is going to make life in Perth in the future that much more comfortable."
Dr Gallop said diesohol was a mixture of ethanol and diesel which could be used in unmodified diesel engines such as those in most of Transperth's 900 buses.
Ethanol could be produced using wood from farm tree crops and forestry residues in a process similar to the fermentation of alcohol from grapes and hops.
Dr Gallop said the Departments of Agriculture and Conservation and Land Management would join Transperth in the testing program to promote research into potential agroforestry products in low rainfall areas in the State's south-west.
"Ethanol could produce the sorts of financial incentives for farmers to get involved in agroforestry programs which produce further environmental improvements," Dr Gallop said.
"For example, trees planted in shelterbeds can increase pasture and animal production, lower the water table, reduce salinity, guard against soil erosion and provide a valuable sanctuary for threatened wildlife and insects."
An independent researcher from the New South Wales company APACE Research, Dr Russell Reeves, said diesohol could be produced at a price competitive with conventional diesel.
Dr Reeves, who is in Perth as a keynote speaker for an agroforestry conference this weekend, said it was projected that Australia's crude oil imports were going to rise by about 500 per cent over the next 10 years at a substantial cost to Australia's balance of trade.
"The development of ethanol as an alternative liquid fuel source will help reduce this cost and make Australia less vulnerable to world oil prices," Dr Reeves said.
APACE Research won this year's `Energy Challenge' using a truck powered by diesohol.
