The new initiative called Renewable Transport Fuel Obligation (RTFO) requires 2.5% of all road fuels sold to come from biofuels, rising to 5% by 2010.
Motorists will fill their vehicles as normal, but the change is expected to save 2.5 million tonnes of carbon dioxide by 2010.
Transport Minister Jim Fitzpatrick said: "Making it easier for motorists to use greener fuel is an important step towards reducing carbon emissions from transport. It should help save millions of tonnes of carbon dioxide in the coming years.
"But we must do all we can to ensure biofuels are produced sustainably. We know people are concerned about the environmental risks associated with expanding biofuel production and we take those concerns very seriously.
"That is why we want to introduce mandatory standards as soon as possible to guarantee that biofuels don't cause deforestation or food shortages and we are leading international work to do this.
“In the meantime, we require suppliers to produce sustainability reports, providing an immediate incentive for them to source biofuels responsibly,” he added.
Phil Woolas, Minister for the Environment said: "Emissions from transport need to go down if we are to make serious headway in tackling dangerous climate change and this initiative has the potential to deliver considerable carbon savings."
The Government has also recently published a body of research as a contribution to the debate on the wider sustainability impacts of biofuels.