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By Pete Harrison

BRUSSELS, Nov 27 (Reuters) - The European Commission plans new rules for biofuels by the end of 2010 to prevent the valuable trade from contributing to the destruction of rainforests, a document seen by Reuters on Thursday showed.

Environmentalists have attacked the Commission's initial proposals in January to get 10 percent of all road transport fuel to come from renewable sources by 2020, as it sought to avert storms, floods and droughts foreseen with climate change.

Much of that 10 percent would come from biofuels, creating a huge potential market that is coveted by exporters such as Brazil and Indonesia, as well as EU farming nations.

But environmentalists charge that biofuels made from grains and oilseeds have pushed up food prices and forced subsistence farmers to expand agricultural land by hacking into rainforests and draining wetlands -- known as "indirect land-use change".

The new proposal will lay down which biofuels are acceptable in the 27-nation bloc, where they can be produced, from what plants and which methods can be used.

Such rules would rule out ethanol fermented using power from coal, the most polluting source of energy, which has no benefits for the climate.

Biofuels grown on degraded land, or made from algae, rubbish, or forestry and agricultural waste would all be acceptable, the draft document added.

DEADLOCKED

The plans coincide with efforts by the European Parliament to alter the Commission's initial proposal so as to protect forests and to limit traditional biofuels to just 6 percent of road fuel.

But talks aimed at reaching a compromise have become deadlocked, because EU member states refuse to move on the original 10 percent target, parliament's lead negotiator Claude Turmes said on Thursday.

"The negative environmental and social consequences of biofuels are now widely acknowledged," he added. "This is why the European Parliament proposed strengthening the safeguards."

He told Reuters that major progress had been made on other elements of renewable energy legislation, including improving the access of windfarms and solar power to energy networks and allowing countries to invest in renewables overseas.

But like most areas of EU climate legislation, the renewables proposals remain blocked by big political hurdles and intransigent member states.

Europe has to tread carefully on biofuels, after eight developing nations including Brazil, Indonesia and Malaysia warned this month they could file a World Trade Organisation complaint over what they see as unfair trade barriers.

The Commission draft said biofuel schemes built before 2012 that produce biofuels which provide greenhouse gas savings of more than 45 percent would be exempted from the rules for five years, so they can recoup their investment. (Reporting by Pete Harrison; editing by Dale Hudson and Peter Blackburn)

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