The government yesterday responded to growing concerns about the negative impact of biofuel production, commissioning a study into the environmental and economic effects of increased demand for fuels made from organic matter.

Transport minister Ruth Kelly said that the newly established Renewable Fuels Agency, which is responsible for ensuring the UK meets its target to ensure five per cent of fuels sold at the forecourt are biofuels, would lead the study.

She said that it would particularly focus on the indirect impacts of biofuels, whereby allocating more agricultural land to the production of fuel crops can lead to deforestation or rising food prices.

Recognising widespread concerns about the environmental impact of biofuels, Kelly accepted "evidence [is] now emerging on the indirect, or "displacement" impacts, of growing demand for agricultural production around the world".

However, she insisted that the study would not impact the UK's existing biofuel target for 2010 set out under the Renewable Transport Fuel Obligation and would instead be used to inform future targets. "We are not prepared to go beyond current UK target levels for biofuels until we are satisfied it can be done sustainably," she said. "The Review I am announcing today will ensure that the full economic and environmental impacts of biofuel production are taken into account in the formation of UK policy beyond 2010."

Environmentalists welcomed the review, but insisted that with reams of research already raising fears that biofuels are damaging the environment the government should now scrap its targets until the study is completed.

Friends of the Earth biofuels campaigner Kenneth Richter, urged the government to issue a moratorium on all biofuels until the review was completed.

"Ruth Kelly is right to raise concerns about biofuels and launch this review, " he said. "[We] hope that the Government will now put the Renewable Transport Fuels Obligation on hold and demand a moratorium on EU biofuel targets. The real solution to Europe’s rising transport emissions is better public transport, more provision for cyclists and higher standards for fuel efficiency in new cars."

The government review comes in the wake of a raft of scientific and economic reports linking increased demand for biofuels to deforestation, soil erosion, loss of biodiversity and increased food prices.

Most recently a study in Science magazine from the University of Minnesota concluded that when emissions from the production, transport and associated land clearance that arises from increased demand for fuel crops is taken into account biofuels release between 17 and 420 times more carbon than the annual savings they deliver by replacing fossil fuels.