* Would raise planned cap from 5 to 7 pct of fuel use
* Prompted by fears of biofuels' impact on food prices
* Final agreement unlikely before 2015
By Charlie Dunmore
BRUSSELS, Nov 29 (Reuters) - European Union governments are trying to raise a planned limit on the use of transport fuels made from food crops, despite warnings that the fuels can harm the environment and push up food prices.
Last year in response to such warnings, the European Commission, the EU executive, proposed capping the bloc's use of crop-based biofuels at 5 percent of total transport fuel demand.
That was a U-turn from three years before, when the European Union had set a legally binding target to source 10 percent of its transport fuel from renewable sources by 2020, mostly crop-based biofuels.
On Friday, EU ambassadors meeting in Brussels drew up a draft compromise that would raise the proposed cap to 7 percent.
With the bloc's use of crop-based biofuels already at around 5 percent and with enough production capacity in place to meet the 10 percent target, the change would offer a lifeline to some biofuel producers who had invested heavily to meet the earlier goal.
The compromise will be discussed by the bloc's energy ministers in Brussels on Dec. 12. EU diplomats said that while the Netherlands, Denmark, Belgium and Luxembourg were likely to oppose the change, that would not be enough to block agreement if other countries give their support.
That would set up a clash with lawmakers in the European Parliament, who have called for a lower cap of 6 percent and a new mandatory target for the use of advanced, non-crop fuels made from algae or agricultural wastes. Most governments want the new target to be voluntary.
Environmental and anti-poverty campaigners reacted angrily to the draft compromise and urged governments to reject it.'
"If EU energy ministers give their green light, they will be caving into pressure from self-interested biofuel lobbyists and encouraging further hunger, land-grabs and environmental damage," said Marc Olivier Herman, biofuels expert for campaign group Oxfam.
While some companies accept that some forms of biofuel need to be phased out, it says policy changes have to be handled carefully.
"The problem is people have invested on the back of 10 percent," Iain Conn, group managing director at BP, said in Brussels this week.
"The risk is that people lose confidence. Why would someone invest on the back of that if it might become five? Changing the rules of the game is very difficult."
Last month, the parliament opted against opening negotiations with EU governments to finalise the rules, forcing a second reading of the legislation.
That means a final agreement will happen only after European parliamentary elections in May, which means the law is unlikely to be in place before 2015 at the earliest.