London (Platts)--14Sep2012/1043 am EDT/1443 GMT

Proposed changes to the current European Union biofuel policy, if approved, could lead to the "catastrophic" end of the 27-nation bloc biodiesel industry and wipe out a sector worth Eur10 billion/year ($13 billion), industry group the European Biodiesel Board said Friday.

According to a leaked draft proposal by the European Commission, the use of crop-based biofuels would be limited to 5% of the final energy consumption in transport by 2020.

The draft rules represent a significant shift in Europe's biofuel policy following growing concerns that crop-based biofuels are less-climate friendly than previously estimated and compete with food markets.

EBB said that a 5% ceiling would force countries such as Germany and France, where biodiesel represents up to 7% of the diesel market, to immediately cut back on usage.

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"After having consistently promoted...biofuels progress, the Commission seems...ready to oblige these countries to regress and diminish their biofuels production," EBB said in a statement.

The Commission's draft rules would also categorize different crop-based biofuels based on their potential impact on land use, which could result in some biofuels being penalized according to their life cycle greenhouse gas emissions.

This could hamper the ability of conventional biodiesel producers of reaching fuel markets, where biodiesel would be substituted for other biofuels with lower greenhouse gas emissions factors, EBB said.

In addition, the industry group said that land use calculation models still lack "scientific proof and verification" and should not be used as basis for regulatory decisions.

The Commission has also proposed that the use of non-crop based biofuels, such as those made from plant residues or waste, should count four times more than conventional biofuels towards the bloc overall 10% target in the energy sector.

The EBB said this measure would shrink the actual amount of renewable fuels blended into fossil fuels and hamper the development of large scale biofuels production.

Earlier this week, a source at the European Commission declined to discuss the draft proposal, saying that an official document is expected to be published sometime in October or November.

Europe, the world's largest biodiesel market by production and consumption, has been under increased pressure over recent years from flagging fuel sales and increased imports from Argentina and Indonesia.

Industry statistics show that more than half of the region's installed biodiesel production capacity is currently idled.

--Guilherme Kfouri, guilherme_kfouri@platts.com
--Edited by Maurice Geller, maurice_geller@platts.com

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