Airlines are keen to use biofuels as a way of cutting down on pollution from jet fuel but the use of food crops, such as palm oil, in their production has come under fire for taking land that could be used to grow food to feed people.
A report by 10 international agencies including the World Bank and World Trade Organisation earlier this month said governments should scrap policies to support biofuels, because they are forcing up global food prices.
Involved in the project signed on Wednesday are planemaker Airbus, airlines Air France-KLM , British Airways and Lufthansa and biofuel producers including Neste Oil.
Aware of the debate surrounding first-generation biofuels, participants at the Paris air show were keen to show a focus on what they feel are more sustainable crops.
Lufthansa says jatropha is its crop of choice and plans to trial a biofuel mix on flights between Frankfurt and Hamburg for six months once certification has been received.
Under a deal with Neste, the mix it uses can be produced from palm oil but biofuels director Joachim Buse told Reuters there was a process to replace palm oil with other sources.
US firm Honeywell, which used biofuel produced by its UOP unit to fly a business jet from North America to Europe, said it uses camelina.
"It's rotated with wheat, and replaces weeds used during the fallow season, so no food production is displaced," Jim Anderson, business director for UOP, said.
"We don't want to compete with food stock, so that's been a focus for us," he said.
However, campaigners from Friends of the Earth say that camelina still competes with food crops and that it is especially concerned by jathropha driving land-grabbing in Africa and India, especially given the amounts of fuel required by the aviation industry.
"The World Bank and OECD have recommended removing support for biofuels, yet the aviation industry continues obliviously," Robbie Blake from Friends of the Earth Europe said.
"It would be irresponsible to grow enormous amounts of crops and grab land to fuel flights, rather than to feed the hungry," he added.
British Airways, meanwhile, is looking at deriving fuel from waste and hopes to power its fleet using the fuel from 2015.
Bill Gates-backed Sapphire Energy is focusing on using algae to create biofuel, which it says does not require arable land or potable water thus avoiding the fresh water resources or lands needed to grow food crops.
"We believe we have crossed the technology threshold. The problem we're facing is the incredible volumes required to sate the industry," CEO Jason Pyle said.
As it is only in the early stage of development, algae is unlikely to make any contribution towards the 2020 targets signed on Wednesday.
"Algae is promising but it will take another 10 years," Lufthansa's Buse said.
EurActiv with Reuters