When a passenger on an intercity Megabus coach service reported seeing smoke emanating from a carry-on bag last month, British authorities feared a terrorist attack, and closed down a big motorway.

What armed police, fire crews and bomb disposal experts discovered was altogether less sinister: the “smoke” was in fact vapour from an electronic cigarette device.

E-cigarettes contain nicotine-infused water that is inhaled as a vapour and can be legally consumed indoors, not to mention on intercity coaches.

Some contain a red glowing end to resemble the burning tip of a cigarette, and are available with various tobacco-like flavours such as menthol.

They retail from about £20 for a “starter kit” containing a battery powered tube and vapour charges that contain several hundred doses.

As conventional smokers are encouraged to extinguish their butts through a mix of increasing state regulation of public consumption and high taxes, Big Tobacco and a host of independent companies – such as Skycig, Vapestick, Vapouriz, Ploom and Steamlite – are betting that smokeless cigarettes could be a future substitute.

E-cigarettes have been on the market for several years, but few solid statistics are available on their uptake among the UK’s 10m smokers.

Estimates for the size of the UK’s e-cigarette market range from £10m up to £70m.

According to figures from some of the multitude of e-cigarette makers, about 2m Britons have a tried the devices and 650,000 have become regular users.

However, that number could grow as greater regulation looms, such as plain packaging proposals that would remove brands from cigarette packs.

Last year British American Tobacco established Nicoventures, a company division devoted to cigarette alternatives. It plans to launch a nicotine inhaler by the end of 2014.

“With both increased regulation and increased demonisation of smoking, you need to give smokers safer choices,” says David O’Reilly, BAT’s group scientific director.

“The vision is for another product which can compete with enjoyment of smoking cigarettes, and e-cigarettes are closest thing on market that meets those needs.”

A private company called Kind Consumer, backed by BAT and advised by Sir Terry Leahy, is seeking to raise £10m from private investors for research and development of a cigarette substitute to launch around 2015.

“Our aim is to give addicted smokers craving nicotine an alternative option to a cigarettes,” said Paul Triniman, Kind Comsumer’s chief executive. “If you can allow smokers to get the nicotine hit without tar, there would be a significant improvement on a harm-reduction basis whereby they can satisfy their craving without carcinogens and toxins.”

E-cigarettes are almost entirely unregulated in the UK, are not subject to uniform standards, and have been outlawed in countries including Australia, New Zealand, Brazil and Canada.

That has not stopped companies such as FTSE 100 company Imperial Tobacco taking an undisclosed stake in an e-cigarette company, or Japan Tobacco International signing an agreement to commercialise the nicotine “vaporisers” made by San Francisco-based Ploom abroad.

“E-cigarettes are growing at a phenomenal rate because of cigarette restrictions . . . we’ve been monitoring that and we want to build our knowledge and understanding of the industry,” says Alex Parsons, Imperial’s director of communications.

Much of the UK’s e-cigarette market is geared towards smokers trying to give up. The nicotine replacement therapy industry – which includes nicotine replacement chewing gum and patches – is worth some £150m a year.

No e-cigarette has yet gained UK approval as a medicinal nicotine replacement therapy, although the Medicines and Healthcare products Regulatory Agency (MHRA) is investigating the devices and is scheduled to report back next year. The US Food and Drug Administration has also examined the product.

“The problem is that these products have come on to the market with very little information known about them,” says ASH, the antismoking lobby group.

“They are neither a tobacco product, neither are they a medicine. They don’t appear to cause harm, but we simply do not know.”

In spite of concerns over their safety, the MHRA wants to regulate their use rather than ban them and push smokers back to tobacco cigarettes.

Philip Morris believes a bigger market will be found either in replacing cigarettes altogether or as complementary devices for when smokers cannot light up, such as in a restaurant, aircraft or bus. As such, the company plans to launch what it describes as a healthier version of its cigarettes under the Marlboro brand in 2016.

“When you burn a cigarette you inhale some flavour and smoke . . . so we’re looking at different ways of heating tobacco so you get flavour and nicotine but less smoke,” says Mr Nixon. “E-cigarettes don’t taste that great, so we’re working on something closer to the traditional cigarette.”

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