Midway Ltd (ASX:MWY) shares are rising on Wednesday morning.

ASX small-cap shares rose 1% to $1.16 in early trading.

Why are shares in this small-cap ASX-listed stock rising?

Investors are buying Midway stock today thanks to the mining giant’s announcement Rio Tinto Sp. z o. o. (ASX:RIO).

But first, what is Midway?

It is Australia’s largest processor and exporter of wood fibres, with a strong and growing carbon management business. Midway fibres are used in recyclable paper and packaging, plastic replacement products.

What was announced?

Rio Tinto announced this morning that it will develop Pongamia seed farms in Australia as part of a new biofuel pilot. This project will explore the potential of Pongamia seed oil as a feedstock for renewable diesel, a cleaner alternative to traditional fossil fuels.

The mining giant said the aim of the pilot is to determine whether Pongamia seed oil can meet Rio Tinto’s demand for renewable diesel, while also potentially contributing to the development of a new biofuel sector in Australia.

Final work is currently underway to acquire approximately 3000 hectares of cleared land near Townsville in north Queensland to create farms where growing conditions can be studied and seed oil yields measured.

As part of the process, Rio Tinto has partnered with Midway to oversee the planting and management of the Pongamia seed farms. The ASX small-cap stock will work with nurseries, agricultural experts and research organisations during the pilot and will prioritise opportunities for traditional owners and local communities.

Why is this happening?

Rio Tinto notes that as part of its ongoing efforts to achieve net zero Scope 1 and 2 carbon emissions by 2050, the company is actively exploring the potential of biofuels in a low-carbon energy mix.

It sees biofuels as a way to reduce dependence on fossil fuels as fleet electrification technologies mature. Rio Tinto is also exploring how biofuels could be used in scenarios where electrification may face practical limitations.

Rio Tinto’s chief decarbonisation officer, Jonathon McCarthy, said:

Diesel accounts for around 10 per cent of our emissions footprint in Australia. While we continue to pursue electrification as a long-term solution to replace most of our diesel use, the Pongamia seed pilot is an important parallel path that could reduce our reliance on diesel in the medium term. It also provides a compelling option for other applications that are difficult to electrify, including cleaning and non-transportable equipment.

ASX small cap stock managing director Tony McKenna was delighted with the partnership. He said:

We are very excited to be working with Rio Tinto on this innovative pilot project. We are proud to be playing an important role in helping to develop a sustainable domestic biofuels industry. This partnership continues to build on our position as trusted suppliers with the skills and experience to deliver a variety of projects for emitters who are required to seek alternative solutions to reduce their net emissions.