A COMPANY which produces environmentally friendly fuels from used vegetable oil is on the brink of collapse because of a huge surge in demand.

Colin Newman, co-owner of Rainbow Fuels, on Canvey, says he almost quit two weeks ago after struggling to find the used cooking oil he needs to produce environment-friendly biodiesel.

The company, based on Charfleets Industrial Estate, started producing the fuel in July last year.

It can be used in most unmodified diesel engines, and produces up to 78 per cent less carbon dioxide emissions than ordinary diesel.

But its increasing popularity has led to a bidding war for used oils among companies producing the fuel.

Mr Newman said: "We are struggling.

"We can't find enough cooking oil to make the biodiesel. "Suppliers have got greedy. Two years ago a litre of oil cost 20p. Now it is up to 48p.

"Basically supplies are going to the highest bidder.

"We need 15,000 litres of fuel a week, but we are only getting 1,000.

"I am on the phone all the time trying to get oil. It's an absolute nightmare.

"The outlook is bleak for small companies because all the big companies will just take over and there will be no room for people like me."

Despite his difficulties in recent weeks, Mr Newman says he has now decided to struggle on for as long as he can.

His troubles have come at a time when the Government is doing all it can to encourage the use of biofuels.

From this week all fuel sold in the UK must contain at least 2.5 per cent of biofuels, which are made from plants and can be used instead of conventional fossil fuels like petrol and diesel.

Clare Wenner, head of transport biofuels at the Renewable Energy Association, said: "The UK biofuels industry is wholly committed to producing biofuels that will deliver significant greenhouse gas savings.

"UK research has shown that bioethanol could reduce these by 65 per cent and biodiesel by 53 per cent compared to conventional fossil fuels."