Regulators should promote the most carbon-efficient biofuels by linking financial incentives to the overall carbon lifecycle savings they deliver, according to oil firm Shell. Speaking to journalists on Tuesday, Shell executive Graham Sweeney said simple volume-based targets such as those in force in the EU make no distinction between the carbon footprints of different biofuels. "More sustainable biofuels tend to be higher cost, so biofuels with lower well-to-wheel emissions should receive higher incentives," he said.

The EU is in the process of revising upwards its volume-based biofuel promotion targets. The European commission is developing biofuel sustainability criteria as part of the proposed biofuel promotion initiative, which could include a minimum lifecycle carbon savings target.

The commission has hinted that biofuels failing to achieve certain lifecycle savings might not be eligible for tax breaks and financial incentives, but there is no indication that the level of these incentives will be directly linked to the CO2 savings achieved.

Separately the EU is debating proposals that would require producers such as Shell to reduce lifecycle carbon emissions from transport fuels by 10 per cent in 2020, either through production efficiency improvements or increased use of more carbon-efficient biofuels. But this plan makes no mention of economic incentives.

"We need clarity from governments and regulators that CO2 emission reductions from biofuels will be recognised with financial rewards", added Mr Sweeney. He was speaking ahead of an announcement that Shell is investing in new second-generation biofuels production from non-food biomass material.