"Imposing 50 percent of fuel taxes on biofuels would make them more expensive than traditional fuels based on mineral oils. In this case they would simply disappear from the market."

Fuel taxes are currently not imposed on biodiesel in Germany.

"We will press for EU states to retain the freedom to maintain their own tax systems," the ministry official said, adding that biodiesel production costs were about 300 euros per thousand litres more than those for conventional diesel.

The EU Commission announced proposals to increase use of biofuels produced from vegetable oils, sugar beet, wheat or organic wastes to two percent of all fuel use by 2005. It aims at 5.75 percent by 2010.

"We also do not think the goal of two percent of all fuel use can be reached by 2005," the German official added.

"German vehicle fuel use of all types is estimated at around 57 million tonnes in 2005. This would require about 1.1 million tonnes of biodiesel. We doubt whether this can reached in Germany, which has one of the most advanced industries, let alone in other countries where the sector is hardly developed."

He added, "The target could be reached if the EU redefines it as two percent of diesel fuel, not total fuel."

The German association for the promotion of biofuels, UFOP, shared the official's reservations about the EU proposal to tax biodiesel from 2004 at 50 percent of the tax rate on conventional diesel fuel.

UFOP chief executive Hans-Juergen Bertram Biodiesel said, "Imposing 50 percent of diesel taxes on biodiesel would make biodiesel even more expensive than conventional diesel under present oil prices."

He added, "We do not accept this tax proposal and we will lobby hard for individual EU states to be given the freedom to introduce their own tax systems for diesel fuel."

But Bertram said he was confident Germany could reach the 2005 production goal, which would require an annual production rise of 500,000 tonnes per year.

"These goals are fully achievable. This is very positive for environmental protection and will create major new markets for farmers."

UFOP puts German biodiesel production in 2001 at 492,000 tonnes and says new refineries under construction will increase the total to around 800,000 tonnes in 2002/03.

Manfred Nuessel, president of the association of German agricultural cooperatives DRV, was also concerned at the tax proposals but welcomed the EU initiative as supporting heavy investments by German cooperatives.

"Cooperatives have for years undertaken pioneering work by building up facilities for this future market," Nuessel said. "They now operate over 400 biodiesel petrol stations and are continuing investments in more production."

Nuessel called for the tax-free status of biodiesel to be extended until at least 2008.

German farmers' association DBV also called for the tax-free status to be extended until 2008.

"Of course we welcome this as an excellent new market for farmers but increased use of biofuel would also enable Germany to meet its targets to cut carbon dioxide emissions," a DBV spokesman said. "This would be worth keeping the tax break for."

In France there was also industry confidence that the EU's target could be met.

Diester Industries, which markets biofuel for French oilseeds growers, said there would be no problem in France in generating the big increase in biofuel production needed to meet the target of two percent biofuel use by 2005.

"The transport directive opens an enormous market. In France we will have to triple our production capacity by 2005, but we can do it," Bernard Nicol, director general of Diester Industries, told Reuters.