Alberta is using money from large industrial greenhouse gas producers to help finance a green energy project.

Premier Rachel Notley says $10 million will go to Edmonton-based SBI BioEnergy to build a $20 million facility that will produce a diesel-like fuel from off-grade canola.

The $10 million is from a tax the government collects from companies for every tonne of CO2 emissions they produce over reduction limits.

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A not-for-profit organization created by the province called the Climate Change and Emissions Management Corporation made the funding decision.

Notley says the project will help position Alberta as a global leader in renewable energy.

The premier says the government is putting its carbon levy to work to diversify the economy, create jobs and reduce greenhouse gas emissions.

"This is about a big investment in the potential future growth that we can achieve here," Notley said Thursday.

The government said the funding will help the company produce about 10 million litres of fuel each year and cut CO2 emissions by the equivalent of taking 23,000 cars off the road for one year.

Alberta currently charges large industrial CO2 emitters $20 for each tonne over reduction limits and plans to increase that amount to $30 a tonne in 2017.

Starting next year the carbon tax is to be applied to transportation and heating fuels in the province.

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Alberta has collected $578 million since it began charging the carbon levy in 2009.

So far $350 million has been spent on projects that aim to reduce greenhouse gas emissions.