Three per cent of all transport fuel will have to come from biofuels by the year 2010.
The figure is included in a new plan announced by Minister for Communications, Energy and Natural Resources Eamon Ryan.
He has described alternatives to petrol and diesel as a help to fighting climate change and reassured motorists that the obligation will apply to fuel companies, while placing no burden on the taxpayer.
Biofuels have been blamed by organisations like Oxfam as having contributed significantly to higher food prices around the world and pushed millions of people to the brink of starvation.
Minister Ryan said new EU criteria will ensure the biofuels come from sustainable sources and the policy will be regularly reviewed.
In a statement, Mr Ryan said that stringent conditions would apply, including preventing certain lands, such as natural forests, from being used in the production of biofuels.
He argued biofuels remain necessary to Ireland for energy security and said the 3% target will provide new opportunities for farmers.
The proposals are now subject to an eight-week consultation period.