* Deal fixes 7 percent limit for biofuels from food crops
* Includes 0.5 percent non-binding goal for advanced fuels
* EU ministers to vote on issue next month
By Barbara Lewis
BRUSSELS, May 28 EU diplomats on Wednesday agreed to limit production of biofuels made from food crops in response to widespread criticism that they stoke inflation and do more environmental harm than good.
The compromise, agreed by diplomats in a closed-door meeting, follows on from a stalemate late last year when governments failed to agree on a proposed 5 percent cap, which amounted to a policy U-turn.
Diplomats said Wednesday's compromise would set a 7 percent limit on the use of food-based biofuels in transport fuel, compared with an overall target to get 10 percent of such fuel from renewable sources by 2020.
EU ministers are expected to endorse the decision at a meeting in June and after that it will have to be considered by the newly-elected European Parliament.
Initially, the European Union backed biofuels as a way to tackle climate change, but research has since shown that making fuel out of crops such as maize displaces other crops, forces the clearing of valuable habitats and can inflate food prices.
The next generation of advanced biofuels, made from waste or algae for example, does not raise the same problems, but it does require more investment.
The compromise backed on Wednesday includes a 0.5 percent non-binding target for next generation biofuels, which environment campaigners say is nowhere near enough.
It could mean that the overall goal to get 10 percent of transport fuel from renewable sources by 2020 is missed, analysts say. Currently around 5 percent of EU transport fuel comes from renewable sources.
Food-based biorefiners which have invested on the basis of the original 10 percent say a lower target threatens jobs.
And those trying to develop advanced biofuels say the progress they are making is under threat.
The debate has drawn together a group of companies, ranging from British Airways to Denmark's Dong Energy and Finland's UPM Biorefining, which support advanced biofuels. They say the European Union will lose technology to other parts of the world if it does not provide sufficient incentives.
"It is time for the EU to put its cards on the table: Do we want to stay dependent on polluting fossil fuels or do we want to harvest the potential of innovative biofuels technologies?" the group, Leaders of Sustainable Biofuels, asked in an open letter.
Epure, which represents bioethanol refiners, said in a statement the compromise proposal lacked ambition and that biofuel should make a major contribution to limiting EU dependence on imported oil and gas - a concern highlighted by the crisis over Russia's seizure of Crimea.
Environment and humanitarian campaign groups said a limit on first generation food-based biofuels was a small step, but they were still concerned about the amount of land required.
"Europe's thirst for biofuels is fuelling hunger, land grabs and deforestation in the developing world," Marc Olivier Herman, Oxfam's EU biofuels expert said.
He called on the new European Parliament to push for "an end to the foolish use of food for fuels". (Additional reporting by Ben Garside in London, editing by David Evans)