15/01/2008 (Reuters), Kuala Lumpur - The European Union's talk of toughening environment criteria for biofuels, including a clampdown on palm biodiesel, is another blow for Southeast Asia's struggling biodiesel business.

The biofuel industry in Malaysia and Indonesia, the world's top palm oil producers, has seen margins plunge on record palm oil prices. Any move by Europe to halt palm biodiesel imports could paralyze the industry, producers and industry officials said on Tuesday.

"It is not fair, it is not correct. What they need to see is whether palm biodiesel is sustainable or not," said Unni Krishnan Unnithan, vice president of the Malaysian Biodiesel Association.

EU Environment Commissioner Stavros Dimas in a BBC interview on Monday said the EU had initially underestimated the danger to rainforests and the risk of forcing up food prices from its policy of setting binding targets for the use of biofuels.

EU leaders set a mandatory target last March that at least 10 percent of transport fuel should come from biofuels by 2020.

In Europe, policy makers and environmentalists consider the rapid expansion in Southeast Asia's palm estates responsible for the destruction of tropical forests and wildlife.

Malaysia's palm oil sales to Europe from January to November last year fell 20.2 percent to 1.9 million tonnes, mainly because of a campaign against palm oil by green groups.

Dimas said the EU would introduce a certification scheme for biofuels and promised a clampdown on biodiesel from palm oil.

It is a great concern to biofuel manufacturers like us, who depend on exports to these European Union countries," said David Ho, Managing Director of Carotech Bhd (CTEH.KL: Quote, Profile, Research).

He said the company, which is setting up a second biodiesel plant in Malaysia, sold most of its output to Europe. "A looming potential ban on palm-based biofuel is a very serious threat to us. Most of our biodiesel goes to the European Union so it will be a big impact," he told Reuters.

But Fordyanto Widjaja, an industry analyst with Morgan Stanley in Singapore, said the EU's stand on palm-biofuel was just tough talk.

"It is not something new, I will treat this news as noise, unless we see a very big momentum coming from Europe providing a ban in the use of crude palm oil as feedstock," he said.