By Raymond Colitt

BRASILIA, May 14 (Reuters) - German Chancellor Angela Merkel urged Brazil on Wednesday to adopt tougher environmental standards in producing biofuels but said rich nations needed to pay up to help protect rain forests and their biodiversity.

Brazil is the world's largest exporter of ethanol, which it derives from sugar cane. Critics say increased production is pushing cattle ranchers and farmers deeper into the Amazon and accelerating the destruction of the world's largest rain forest.

"Biofuels are a way to replace traditional fossil fuels but only if they are produced sustainably," Merkel said in Brasilia when asked about Germany's biofuel imports from Brazil.

"There are statistics that raise concerns about deforestation, the process of displacement between soybeans, beef and the rain forest," Merkel said at a news conference with Brazilian President Luiz Inacio Lula da Silva.

Rich nations also needed to do more to support environmental protection in developing countries, Merkel said. Industrial countries have not lived up to their obligations.

"If we want to be taken seriously here, we need to make the payments and aid we pledged," Merkel said.

Lula said Brazil was the most interested of all countries in protecting the Amazon but that the millions of people living there also had a right to prosperity.

There was a cost for not chopping down trees in the Amazon, he said.

Brazil was open to an international debate about the benefits and risks of biofuels, Lula said, but could not accept a "debate of half-truths" that represented trade interests of its competitors.

Germany's recent decision to postpone the increase of ethanol it uses in its motor fuel had to do with Germany's fleet of cars and the cost of fuel and not with environmental concerns, Merkel said.

She said she was encouraged to hear Lula say that Brazil's environmental policy would not change despite the resignation of Environment Minister Marina Silva on Tuesday.

"She was highly respected and the international community owes her thanks," Merkel said of Silva. (Reporting by Raymond Colitt; Editing by Eric Walsh)

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