The Renewable Fuels Agency will be responsible for the day to day running of the Renewable Transport Fuels Obligation, coming into force in April next year.
By 2010, the Obligation will mean that 5% of all the fuels sold in the UK should come from biofuels.
The chairman of the agency will be Professor Ed Gallagher, former chief executive of the Environment Agency.
Joining Professor Gallagher on the board of the agency are:
Kelly said: "The creation of the Renewable Fuels Agency marks a big step forward in creating a strong long-term market for biofuels in the UK.
“I want the agency to make sure the Obligation is run efficiently and effectively, but I also want it to take the lead in making sure the biofuels we use in this country come from sustainable sources, saving the most carbon possible.”