By Paul Taylor

BRUSSELS, June 3 (Reuters) - European Union states are so divided on the conditions for producing biofuels made from crops that they are unlikely to reach agreement this week on a set of so-called "sustainability criteria", diplomats say.

A paper circulated by the Slovenian EU presidency before environment ministers meet on Thursday shows member states don't agree on rules to prevent fuels such as ethanol and biodiesel doing more harm than good in fighting climate change.

"There remain important differences of opinion on certain issues," the report said after a working group of experts spent two months trying to define appropriate criteria.

Biofuels have come under attack by many scientists and environmental groups that contend that their production has contributed to food price inflation, depleted rainforests and failed to save substantial greenhouse gas emissions.

The OECD and the U.N. Food and Agriculture Organisation said in a joint report last week that rapidly rising global output of biofuels from food crops over the next decade would boost already soaring agricultural commodity prices.

While no member state proposes dropping the goal of getting 10 percent of transport fuel from biofuels by 2020, "many delegations want to make the binding nature of this target conditional" on strict terms set by EU leaders, the Slovenian report said.

These include not only the environmental and social impact of existing agriculture-based fuels but also the commercial availability of second-generation biofuels from plant waste, algae and other low-value materials.

DO-NOTHING INCENTIVE

The executive European Commission argues that making the 10 percent objective conditional on the availability of second-generation biofuels would have the perverse effect of discouraging investment and encouraging "doing nothing".

To ensure that biofuels really achieve a substantial reduction in greenhouse gas emissions compared to fossil fuels, the Slovenian presidency has proposed a two-stage target of a 35 percent saving initially and 50 percent in 2015.

Several delegations disagree with those figures and many want any figure for stage two to be left to a subsequent review.

There are also serious differences on the extent to which the EU should apply social and environmental sustainability conditions to third countries.

Some governments complain the Commission is proposing softer conditions for third countries than for the EU, while others say Brussels should just monitor conditions abroad rather than apply binding environmental criteria on third states, the report said.

It did not name the member states, but diplomats said the debate pits food producers such as France and Italy seeking more protection, against free-traders such as Britain and the Netherlands which oppose legislation seen as protectionist.

The presidency report made no mention of the possibility of agreement at Thursday's meeting, saying ministers would hold a policy debate "to further clarify the positions of the member states so as to facilitate a further convergence of views".

(Editing by Pete Harrison and Christopher Johnson)

AlertNet news is provided by