Wallpaper that can glow with light and bendable flat-panel screens are a step closer thanks to research into organic LEDs (OLEDs), which are widely hailed as the next generation of environmentally friendly lighting technology.

OLEDs use very little power to produce light, even compared with modern energy-saving bulbs. The chemicals they are made from can be painted on to thin, flexible surfaces, allowing them potentially to be used to replace traditional lightbulbs in homes and offices with panels of energy-efficient light built into walls, windows or even furniture. Other uses include flexible display screens, whose very low power consumption would mean they could operate without mains power, for example as roadside traffic warning signs powered by small solar panels.

Lomox Limited, a two-year-old company based in north Wales, awarded more than £450,000 today by the government-backed Carbon Trust to accelerate the development of its OLED technology.

Around a sixth of all the UK's electricity is used for lighting and Lomox claims its OLEDs are 2.5 times more efficient than standard energy-saving lightbulbs. The Carbon Trust said that, if all modern lights were replaced by OLEDs, annual carbon emissions around the world could fall by 2.5m tonnes by 2020 and almost 7.4mT by 2050. Replacing old, incandescent bulbs with OLEDs would generate even greater CO2 savings.

OLEDs have shown much promise in laboratories but must get over two major hurdles to become widespread consumer items: they are expensive to make and they tend to have relatively short lifetimes. "What our technology does, with the seven patents we have, is fix those problems," said Ken Lacey, chief executive of Lomox. He said his company's OLEDs have the potential to last as long as modern fluorescent lights and, for the display sector, as long as LCD panels. Lomox also claims its light matches natural light more closely than other energy-saving bulbs.

The company will focus its efforts on getting the first of its OLEDs to market by 2012, mainly for outdoor lighting. "The early part of the grant is to do the testing and take this out to that marketplace," said Lacey.

Mark Williamson, director of innovations at the Carbon Trust, said: "Lighting is a major producer of carbon emissions. This technology has the potential to produce ultra-efficient lighting for a wide range of applications, tapping into a huge global market. We're now on the look-out for other technologies that can save carbon and be a commercial success."

The grant for Lomox is one of 164 projects supported by the Carbon Trust for small companies working on a range of renewable energy and energy efficiency technologies such as fuel cells, combined heat and power, bioenergy, solar power, low-carbon building technologies, marine energy devices and more efficient industrial processes.