Senior European Union officials failed on Wednesday to agree on how to measure the full climate impact of biofuels, prolonging uncertainty in a debate that threatens to wipe out large parts of Europe's biodiesel industry.
The talks followed warnings from scientists that using biodiesel made from European rapeseed and imported palm oil and soybeans does nothing to prevent climate change and could actually accelerate it.
After more than a year of in-fighting within the European Commission, the bloc's 27 commissioners had been expected to choose between three main policy options at the meeting, but they failed to endorse any of them,
Discussions will now continue in an attempt to reach agreement on a proposal before the end of this year, EU sources close to the meeting said.
"The good news is that there appears to be a consensus in the Commission that the indirect impacts of biofuels need to be taken seriously," said Nusa Urbancic, a clean fuels campaigner for green transport lobby T&E.
"The bad news is, after several years, we are still waiting for a legal proposal to get out of the starting gate."
The debate centred on a relatively new concept known as indirect land use change (ILUC).
ILUC is a theory that states that by diverting food-crops into fuel tanks, biofuel production increases overall global demand for agricultural land. If farmers meet that extra demand by cutting down rainforest and draining peatland, it results in the release of millions of tonnes of additional carbon emissions.
Studies carried out for the Commission showed that the risk of ILUC is far greater for biodiesel - a diesel substitute typically made from oilseeds such as palm oil - than it is for bioethanol - a gasoline-substitute usually made from grain or sugar.
By estimating the ILUC emissions associated with each specific crop, scientists concluded that most biodiesel currently used in Europe emits more carbon than conventional diesel.
"It was a positive and good debate," EU climate spokesman Isaac Valero Ladron said. "There is a strong consensus on the need to act and address ILUC."
EU sources said the Commission's climate and energy department would continue to lead efforts to find a compromise but that the agriculture, trade and industry departments would be more closely involved in the talks than before.
That will be seen by some as a sign that tough EU proposals on ILUC are less likely, given that the agriculture and trade departments are known to oppose any measure that would exclude European or imported biodiesel from the EU mandates.
The EU adopted two laws in 2009 to spur biofuel use. The renewable energy directive requires countries to achieve a 10 percent share of green energy in road transport by 2020, the vast majority of which will be met using biofuels.
The real market driver, however, was the related directive on fuel quality, which forces oil companies to cut the carbon content of transport fuels by 6 percent by 2020, again chiefly through biofuel blending.
Europe's rising demand for diesel means biodiesel is projected to account for two-thirds of EU biofuel use in 2020. If such fuels are excluded from the EU's targets, increased bioethanol production and imports are unlikely to make up the shortfall.
The realisation that EU rules on ILUC could kill off much of Europe's estimated 13 billion euro ($17 billion) biodiesel industry and undermine its climate goals led to paralysis within the Commission, while officials argued over whether current ILUC models were robust enough to warrant such drastic action.
Biodiesel producers say there is too much uncertainty in the assumptions used to model ILUC emissions to justify immediate action, and that specific rules should be delayed for several years in favour of an indirect approach.
One such option is to raise the level of emissions savings that all biofuels must meet to count towards the EU's targets under both the renewable energy and fuel quality laws, currently set at 35 percent compared with conventional fossil fuels.
Under this option, all biofuels would have to deliver emissions savings of at least 60 percent compared with gasoline and diesel regardless of the crop used to make it, but existing facilities would be given until the end of 2016 to meet the new goal.
"Most bioethanol would be unaffected by this option. However, biodiesel derived from palm oil and soybean would fall considerably short of the revised 60 percent greenhouse gas saving threshold, meaning that imports of these biofuels would be effectively prevented," said an internal Commission document prepared for the meeting and seen by Reuters.
Most biofuels made from EU rapeseed would probably be able to meet the threshold, the document showed.
The second policy option, which is favoured by environmental campaigners, is to penalise individual biofuels based on their crop-specific ILUC emissions, which would almost certainly exclude all biodiesel from the targets, putting them out of reach.
"It is unlikely that the targets in the renewable energy directive and the fuel quality directive would be met by member states if this more far-reaching option were implemented," the document said.
The third option, which had been considered the most likely, combines elements of both approaches. The emission savings threshold would be raised to 60 percent in both laws, while an ILUC emission penalty for bioethanol and a higher one for biodiesel would be added to the fuel quality law.
This would remove the incentive for fuel companies to use biodiesel in order to meet their 6 percent target, and lead to a shift in investment towards fuels such as bioethanol that deliver greater emissions savings at a similar cost.
However, existing biodiesel producers would be exempt from the rules for several years, giving them more time to recoup their investment costs and switch production. ($1 = 0.7561 euros) (Editing by Rex Merrifield and Jane Baird)