Audi has revealed that it has managed to use water and air to create its own synthetic diesel fuel, or liquid "e-diesel," as an alternative fuel source for cars.

The German automaker worked with clean technology company Sunfire to create the fuel at its plant in Dresden through a "power to liquid" process that uses carbon dioxide, according to CNN. Carbon dioxide, created mostly through the burning of fossil fuels, is the most common of greenhouse gases and is a major contributor to global warming.

Audi's research team started the process by breaking the fuel down into hydrogen and oxygen, which is done by using solar and wind energy to heat up steam to extremely high temperatures. The hydrogen and carbon dioxide are then mixed under pressure and at high temperature, which creates blue crude that is then purified into fuels.

The "e-diesel" is different from your average fossil fuel because it doesn't contain sulphur and similar hydrocarbons, and it burns well thanks to its high-cetane number, The Irish Times reported. Audi believes its creation has the potential to become a new form of fuel, adding that it can help reduce a car's carbon footprint by being mixed with regular diesel.

The success of the "power to liquid" process can be found in its efficiency, which is around 70 percent.

Sunfire's Christian von Olshausen pointed out another benefit the "e-diesel" has over conventional rivals is that it has a quieter engine that creates less pollutants, CNN reported.

German Education and Research minister Johanna Wanka tested the "e-diesel" last week, declaring it a success after putting the first five liters into her car.

"If we can make widespread use of CO2 as a raw material, we will make a crucial contribution to climate protection and the efficient use of resources, and put the fundamentals of the green economy in place," Wanka said.

Reiner Mangold, head of sustainable product development at Audi, believes the company's the new fuel will allow drivers to travel long distances without causing any damage to the environment, The Irish Times reported.

Sunfire plans on producing over 3,000 liters of the fuel over the coming months, saying it wants a pre-tax price of between $1.10 and $1.30.