Government funding of up to £16.5m is to be made available for new research and development that will lead to significant reductions in CO2 emissions and position the UK at the forefront of low carbon vehicle technology.

The announcement was made by business secretary Vince Cable during a recent visit to the MIRA Technology Park in Nuneaton, Warwickshire.

Grants will be awarded to UK businesses through a new open competition for collaborative research and development funding, opening early next year, which will be managed by the UK’s innovation agency, the Technology Strategy Board, in partnership with the Office for Low Emission Vehicles (OLEV) and the Engineering and Physical Sciences Research Council (EPSRC).

The Technology Challenges in Low Carbon Vehicles competition for collaborative R&D funding has been developed in conjunction with the UK Automotive Council and it addresses technology challenges that have been defined by the council as areas that would benefit from increased investment in research and development.

Business secretary Vince Cable said, “Close collaboration between industry and government, through the UK Automotive Council, will help ensure the projects this initiative funds will address important technology challenges and help to strengthen UK capability in low carbon. It’s an example of our industrial strategy in action.

“Supporting the development of new technologies is vital to ensure this country remains such an attractive location for investment by global vehicle manufacturers and suppliers.”

Transport minister, Norman Baker MP, said, “The investment being announced will strengthen the UK’s position at the cutting edge of low carbon vehicle technology, help create new high technology jobs and increase global opportunities for UK businesses. Investment like this will deliver long term benefits for both the environment and the UK economy. Helping the environment and boosting the economy go hand in hand.”

Iain Gray, chief executive of the Technology Strategy Board, added, “We are delighted to be working on this major initiative with support and financial backing from the Office for Low Emission Vehicles and the involvement of the UK Automotive Council. This emphasises the important role the Technology Strategy Board is playing co-ordinating low carbon vehicle innovation in the UK, from initial strategic academic research through to industry led research, development and demonstration.”

David Delpy, chief executive of the Engineering and Physical Sciences Research Council (EPSRC), said, “EPSRC is very pleased to be partnering this initiative. It shows how we can combine the wealth of academic research in the UK with the innovative traits of business to bring real world benefits both economic and environmental. ”

The Technology Strategy Board, OLEV and the EPSRC are seeking proposals for highly innovative, industry led projects involving low carbon vehicles that aim to achieve significant cuts in CO2 from road transport. The aim is to create new low carbon solutions that can position the UK at the global forefront for these specific strategic areas. Technologies must be centred on the vehicle. Projects may also take on higher risk technology challenges to support a higher return on investment for the auto industry and aggressively attack future CO2 challenges.

Proposals should demonstrate the potential to build on the UK’s existing capabilities, targeting global competitive advantage and economic benefit for the UK. Companies from outside the automotive sector, and that can bring technical knowledge and expertise to a consortium, are also encouraged to participate.