The Department for Transport today announced the formation of a new Renewable Fuels Agency to manage its biofuel strategy and help ensure biofuels used in the UK come from sustainable sources.

The new agency will be chaired by former Environment Agency chief executive Professor Ed Gallagher and will be responsible for the day-to-day operation of the Renewable Transport Fuels directive, which comes into effect next year and requires five per cent of fuels sold in the UK to come from biofuels by 2010.

The government claims the policy will save between 2.6 and 3 million tonnes of carbon emissions a year, but a series of studies have argued the environmental benefits of biofules have been overstated and warned that the burgeoning market for energy crops was leading to increased food prices and tropical deforestation.

Transport Secretary Ruth Kelly said that the new agency would help tackle these concerns and would be charged with not just ensuring the biofuel target was met, but also "making sure the biofuels we use in this country come from sustainable sources".

Professor Gallagher welcomed the launch of the new agency, which will be based in Hastings, promising that it would work with the oil industry, biofuel companies and environmental groups to help ensure biofuels are "truly sustainable".

However, many environmentalists remain unconvinced that current biofuel crops such as palm oil and sugar cane can ever prove sustainable, arguing that transferring arable land to grow biofuel crops in order to meet EU and US targets for biofuel use will lead to dangerous food shortages and serious environmental problems.

They also argue that it will prove extremely difficult to certify biofuel plantations as truly sustainable due to the interrelated nature of the global agricultural sector.

Speaking at an event on Green Banking last week, BBC environment analyst Roger Harrabin said that there was evidence from some areas in South America that while the biofuels themselves were "sustainable" and not contributing directly to rainforest deforestation, farmers displaced by the expansion of the biofuel plantations were now eating into the rainforest to grow crops.

However, advocates of biofuel insist that the emergence of second generation biofuels from waste plant matter or algae will allow the sector to deliver sustainable biofuels that will not require the expansion of agricultural land.