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

The Commission, which originates EU law, has proposed that 10 percent of all road transport fuel come from renewable sources by 2020, as it seeks to heed U.N. warnings that climate change will bring more extreme weather and rising sea levels.

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, production areas, raw materials or production methods can be used to meet EU goals.

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

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)

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