* Biodiesel and bioethanol should get different treatment
* Energy Commissioner says "we're flexible" on level of cap
* Irish presidency to deliver progress report in June
* Environmental groups fear dilution of proposals
By Barbara Lewis and Charlie Dunmore
BRUSSELS, Feb 22 (Reuters) - Limits must be imposed on the use of biofuels made from food crops, leading EU member states France and Britain said on Friday, while questioning the detail of a Commission proposal for a 5 percent cap.
Concern that some biofuels create more problems than they solve led to a major policy shift in September when the EU executive announced plans to limit the use of crop-based biodiesel and bioethanol to 5 percent of total transport fuel consumption.
Energy Commissioner Guenther Oettinger on Friday said the Commission's 5 percent proposal had taken into account investments already made, but was not a definitive level.
He told a meeting of EU energy ministers a slightly higher level of say 6 or 7 percent, as well as looking at biodiesel and bioethanol separately, "might be more in line with the market".
"We are willing to be flexible," he said.
The reason some first-generation biofuels are considered problematic is that they increase total demand for crops and displace food production into new areas, forcing forest clearance and draining of peatland. The displacement is referred to as ILUC (indirect land-use change).
In some cases, first-generation biofuels can be worse for the environment than fossil fuels. Another human cost is the risk of stoking food price inflation and land grabs.
"To me it seems a terrible waste of money and food to promote biofuels which are more expensive than fossil fuel, and which do not create significant greenhouse gas savings and in some cases seem to have even higher emissions than fossil fuels," said Danish Minister for Climate, Energy and Buildings Martin Lidegaard.
He called for changes to the Commission plan, including tougher controls on biofuels with the highest ILUC emissions.
The proposal includes ILUC factors to measure the indirect emissions of biofuels made from cereals, sugars and oilseeds, but they carry no legal weight in a watering-down of an earlier draft proposal.
Ed Davey, British energy and environment minister, said the Commission approach could increase costs, while jeopardising EU goals to cut climate emissions.
BIODIESEL UNDER FIRE
The aim of a goal to get 10 percent of transport fuel from renewable sources - chiefly biofuels - is to meet a target to cut EU greenhouse gas emissions by 20 percent by 2020 versus 1990 levels, while increasing the share of renewables in the energy mix to 20 percent.
"Clearly some of the ways that biofuels have been damaging the environment and undermining action on climate change need to be addressed," Davey said.
However, the Commission proposal as it stands is too much of a "one-size-fits-all proposal", he said, calling for more research and analysis.
Biodiesel made from rapeseed or palm oil has a greater ILUC impact than bioethanol from sugar or wheat, scientific studies for the Commission showed, and Sweden said this should be reflected by capping biodiesel use alone.
France announced "a pause" in the production of first generation biofuels that compete with food crops on Sept. 12, two days after Reuters reported on a Commission draft of the proposal to set a limit.
"We are in favour of a ceiling for biofuels which compete with food, even though there is still some discussion about the level of the ceiling," Energy and Ecology Minister Delphine Batho said during Friday's debate.
The proposal will be debated further at a meeting of environment ministers next month and then at ministerial talks in June, at which Ireland, holder of the EU presidency, is expected to deliver a progress report.
Environmental groups have campaigned forcefully against biofuels and on Friday said they were worried an already weak proposal was being diluted further.
From the European Environmental Bureau, Faustine Defossez described as "shocking" Oettinger's "openness to weaken his own proposal by increasing the ceiling on first generation biofuels". (Editing by Andrew Roche)