The government-funded project at Shinanomachi, 124 miles northwest of Tokyo, will produce cheap rice-origin ethanol brew with the help of local farmers who will donate farm waste such as rice hulls to be turned into ethanol.
"We want to present the next generation a preferable blueprint--a self-sustainable use of local fuels," said Yasuo Igarashi, a professor of applied microbiology at the University of Tokyo who heads the three-year project.
If the project catches on with locals, then it could pave the way for similar endeavors across Japan that will see Japanese cars running on Japanese-made biofuels in the future, he added.
Japan, the world's second largest gasoline consumer after the United States, is entirely dependent on crude oil imports and it has been hit by the surge in oil prices.
With hefty carbon emissions reduction targets to meet under the Kyoto protocols, Japan is turning to biofuels. Yet motorists in Japan are still far behind drivers in Europe and the United States in their consumption of green fuels.
Some analysts say Japan is at a major disadvantage as high prices for local farm produce mean locally-made green fuels are exorbitantly expensive.
Added to that is a lack of support from the country's powerful oil distributors and a failure by the government to provide policy incentives such as mandatory usage.
That is where Igarashi and his team come in. They hope to show that biofuels are feasible and inexpensive by developing a low-cost fuel and encouraging a local community of about 10,000 people to take part in producing that fuel.
Sweet aroma of biofuels
Production has just begun at the facility at a former high school field in Shinanomachi and a sweet, sour aroma, similar to that of unfiltered sake, wafts into the air.
"We like the idea," said Shigehiro Matsuki, the mayor of Shinanomachi.
"The new fuels are renewable...instead of fossil fuels which are running out."
Unlike spacious sugar cane plantations in the No.1 ethanol exporter, Brazil, family farming is dominant in Japan, with a majority of farmers working regular jobs and growing rice, the staple food, on their weekends.
There is plenty of potential to develop biofuels from agriculture waste and abandoned farmland, Igarashi said.
The project will test its biofuel on a "flex-fuel vehicle", which can run on any mixture of gasoline and green fuels and which is gaining popularity in the rest of the world as the battle against global warming heats up.
But Japan has no flex-fuel vehicles even though Japanese car companies Honda and Toyota produce them for the market in Brazil. So the team imported a red Ford Focus from Britain for the project.
With 2.2 pounds of rice needed to produce 0.5 liter of ethanol, the main challenge will be creating a low cost biofuel that can compete with ordinary gasoline, which is now sold at around $1.13 a liter, including gasoline related taxes of some 47 cents.
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