14/3/06  BERLIN (Reuters) - The German government is planning a tax of 10 euro cents ($0.12) per liter on biodiesel fuel and a 15 cent tax per liter on biodiesel used for blending with conventional fuels, according to a copy of a draft law obtained by Reuters.

The proposed tax would be over and above a value added tax on biodiesel -- already more expensive to produce than conventional fuel -- and could make the green alternative fuel uneconomical, its supporters say.

Surging oil prices pushed German biodiesel consumption to an estimated 1.8 million to two million tonnes in 2005 from 1.1 million tonnes in 2004.

This caused the government a heavy loss in tax revenues from conventional diesel.

The German cabinet would take a decision on the proposals at a meeting on Wednesday. Provided parliament approves it would take effect on August 1, 2006.

"The taxes are too high," a spokesman for German oilseeds and biodiesel industry association UFOP, said.

"This is a heavy blow. The tax on biodiesel at petrol pumps could basically remove the price advantage of biodiesel over conventional diesel and if it is not cheaper people will not buy it."

Direct sales by biodiesel refineries to trucking fleets would also suffer because of the proposed tax, he said. This was a larger sector than sales at petrol stations.

But if prices for conventional diesel continued to rise, this could still create strong biodiesel demand despite the new taxes.

Biodiesel has so far largely been exempt from heavy German taxes imposed on fossil fuels.

The coalition deal for Germany's new Conservative-Social Democrat government late last year said special tax breaks for biodiesel would be replaced by compulsory blending of biofuels with conventional diesel at oil refineries.

UFOP wanted to see more details about the government's plans to impose compulsory blending of biodiesel with fossel fuels at oil refineries, the spokesman said.

But the association welcomed the decision to free farmers from the new biodiesel taxes as agriculture was a huge user of biofuels, he said.

German biodiesel is largely made from rapeseed oil and biodiesel has become a major new market for German farmers.

A study earlier this year from UFOP and German farmers' association DBV estimated that farmers last year planted about one million hectares of rapeseed for use in biodiesel and only 400,000 hectares to produce food rapeseed oil.