Germany currently has a voluntary five percent biofuel blend content in fossil diesel.

The new rule should take effect from January 1, 2007, and the exact percentage was still being discussed with the oil industry, Hendricks said.

"This means that producers of biodiesel and bioethanol will have guaranteed sale volumes," she said.

Hendricks said the government would leave oil companies to make the decision about which bio products they used to achieve the level.

CABINET AGREES TAX RISE

In a separate move, Germany's cabinet approved plans for extra taxes on biodiesel.

A 10 euro cent tax per litre will be imposed on biodiesel sold at petrol stations and a 15 cent tax per litre on biodiesel used for blending at refineries.

This would take effect from August 1, 2006, and would go through separate parliamentary approval to the blending proposals.

The coalition deal for Germany's new Conservative-Social Democrat government late last year said special tax breaks for biodiesel would be replaced by compulsory blending of biofuels with conventional diesel at oil refineries.

Surging oil prices pushed German biodiesel consumption to an estimated 1.8 million to two million tonnes in 2005 from 1.1 million tonnes in 2004.

This caused the government a heavy loss in tax revenues from conventional diesel.

The association of German biodiesel producers VDB said the tax rise was "inappropriately high but we hope the industry can still survive."

It said the blending compulsion was not enough on its own and that some form of tax concession was still needed to allow substantial biodiesel sales, especially to the key trucking market.

The association of German farming cooperatives DRV said it feared many petrol stations would stop selling biodiesel because of the government's plans.