Governments need to scrap subsidies for biofuels, as the current rush to support alternative energy sources will lead to surging food prices and the potential destruction of natural habitats, the Organisation for Economic Co-operation and Development will warn on Tuesday.

The OECD will say in a report to be discussed by ministers on Tuesday that politicians are rigging the market in favour of an untried technology that will have only limited impact on climate change.

“The current push to expand the use of biofuels is creating unsustainable tensions that will disrupt markets without generating significant environmental benefits,” say the authors of the study, a copy of which has been obtained by the Financial Times.

The survey says biofuels would cut energy-related emissions by 3 per cent at most. This benefit would come at a huge cost, which would swiftly make them unpopular among taxpayers.

The study estimates the US alone spends $7bn (€5bn) a year helping make ethanol, with each tonne of carbon dioxide avoided costing more than $500. In the EU, it can be almost 10 times that.

It says biofuels could lead to some damage to the environment. “As long as environmental values are not adequately priced in the market, there will be powerful incentives to replace natural eco-systems such as forests, wetlands and pasture with dedicated bio-energy crops,” it says.

The report recommends governments phase out biofuel subsidies, using “technology-neutral” carbon taxes instead to allow the market to find the most efficient ways of reducing greenhouse gases.

”Such policies will more effectively stimulate regulatory and market incentives for efficient technologies,” it said.

The study, prepared for the OECD’s round table on sustainable development, will be discussed in Paris on Tuesday and on Wednesday by ministers and representatives of a dozen governments, including the US. Also attending will be Ángel Gurría, the OECD secretary-general, scientists, business representatives and non-governmental organisations.

The survey puts a question mark over the European Union’s plan to derive 10 per cent of transport fuel from plants by 2020. It says money saved from phasing out subsidies should fund research into so-called second-generation fuels, which are being developed to use waste products and so emit less CO2 when they are made.

Today, only three kinds of biofuels are preferable to oil, the study says: Brazilian sugar, which converts easily to ethanol, the by-products of paper-making, and used vegetable oil.

The EU has said only biofuels that meet as yet undefined standards for sustainability will count towards its target to get a tenth of transport fuel from plants by 2020. Tariff discrimination on sustainability grounds is illegal under World Trade Organisation rules and the authors call for talks at the WTO to set up a global certification scheme.

Adrian Bebb, biofuels campaigner with Friends of the Earth said: “The OECD is right to warn against throwing ourselves headfirst down the agrofuels path.”

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