A craft distillery in Scotland could become the greenest gin and whisky producer in the world as part of the government’s plans to cut industrial climate emissions.

The Orkney Distillery has secured a slice of the government’s £390m fund to help develop low-carbon technologies that could reduce carbon emissions from industry. It hopes to use the funds to become the first gin distillery in the world to run on hydrogen made from renewable energy rather than liquid petroleum gas.

The Orkney gin project will use renewable electricity to run an electrolyser that splits water into hydrogen and oxygen.

A spokesman for the distillery, which plans to make whisky in the future too, said it does not believe there is another distillery in the world capable of producing spirits with a smaller carbon footprint.

The project could reduce emissions from the plant by about 86 tonnes of carbon every year, equivalent to the emissions from 10 homes or 18 cars.

The same technology, at a much larger scale, could create “green” hydrogen to replace traditional high-carbon gases used in industry, or for transport fuels and heating.

Lord Duncan, the climate change minister, said developing hydrogen technology means the UK will be able to reduce climate emissions from industry as it shifts to a cleaner economy. “It’s great to know we can all enjoy an environmentally friendly tipple while helping our planet as we press towards a net zero emissions economy by 2050,” Duncan said.

The government expects hydrogen to play a major role in meeting the 2050 target because it can take the place of more polluting fuels. It plans to spend almost £400m on reducing industrial emissions, including plans to develop hydrogen technologies, most of which will be channelled into the steel and iron sector.

The Department for Business, Energy and Industrial Strategy laid out plans for a £250m Clean Steel Fund to help cut emissions from the iron and steel industry, which make up a sixth of the UK’s total greenhouse gas emissions. It is seeking views on the design of the fund through an industry consultation that runs until late November.

The department will also spend £100m to support a competition to find new ways for businesses to use low-carbon hydrogen, and £40m on a nationwide green technology fund.