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Virgin Atlantic is aiming to run scheduled flights on a blend of ordinary and "recycled" fuel by 2015, giving a boost to a technology that creates ethanol out of the emissions of carbon-intensive manufacturing operations such as steel plants.

The airline says it will use the fuel, which is being developed by New Zealand-based LanzaTech and Swedish Biofuels, on flights running between London and Shanghai and London and Delhi "within two or three years."

This summer, KLM flew a scheduled commercial flight powered in part by used cooking oil, and Lufthansa followed suit using fuel made from biomass. But Virgin's alternative fuel could prove cheaper, better for the environment and easier to produce in large quantities because it does not derive from elements of the food chain.

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It is created by capturing the carbon released in the production of steel or other energy-intensive products, and converting that into ethanol using microbes found in rabbit gut. From there, the ethanol is transformed into a synthetic, aircraft-ready "drop-in fuel" that would be blended with conventional jet fuel in a 50:50 mix.

"In a nutshell, what we've gone into is the recycling business," said Sir Richard Branson, the airline's founder.

Virgin was an early innovator, flying the first commercial jet using a biofuel blend in 2008 – though no paying passengers were on board. The fuel was made from a mix of coconuts and Brazilian babassu nuts.

"It just isn't acceptable to use that kind of feedstock now," said Christopher Surgenor, editor of GreenAir, an online magazine about aviation and the environment. "Now sustainability is the name of the game."

He said the challenge for Virgin and its partners, as with other alternative fuel makers, was scale. "As yet the only thing that exists is the pilot plant in New Zealand. They haven't really been put into large-scale operation yet."

Virgin has agreed to buy the fuel but is not an investor in either company.

The fuel also needs to win approval for use in commercial aircraft, a process expected to take at least two years.

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Should the partners jump those hurdles, the rewards could be great. Sir Richard said he believed the green fuel in development could come in at about the same price as conventional aircraft fuel.

Jennifer Holmgren, chief executive of LanzaTech, estimated the process could be adapted at two-thirds of the world's steel mills. The first "demonstration facility" will be built this year at one of Baosteel's plants in Shanghai.

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