This paper describes the development of a high-efficiency compressed gas source, which can facilitate considerable savings of fuel and energy. This development was achieved by replacing the conventional lay-out, consisting of an internal combustion engine driving a gas compressor, by an internal combustion engine, in which exhaust gases serve as the compressed agent. This approach entailed some changes in the kinematics and structure of the engine: an auxiliary valve had to be added next to the exhaust valve so that the gas remaining in the clearance volume could be discharged to the atmosphere before the intake stroke was executed. A detailed theoretical analysis was applied to optimize the timing of the exhaust valve. An experimental rig was then constructed and tested, and preliminary conclusions were drawn. Such an engine, having an exhaust back pressure as the load (instead of a mechanical load on the crankshaft) is practical for special applications such as pneumatic hammers.