A leading German utility has abandoned plans to convert a British power station to run on palm oil, in a blow to the promotion of biofuels in Europe.

The decision by RWE npower to scrap the project at its Littlebrook plant in Dartford, Kent, which was seen as a test case for palm oil as an alternative energy source, comes after it was unable to secure sufficient supplies without risking damage to tropical rainforest. The move highlights the mounting alarm over the scramble in South-East Asia to bring more land into palm oil cultivation.

Widely used in processed foods, such as margarine, and in cosmetics, palm oil is burning bright on commodity exchanges. The price in Rotterdam soared to an eight-year high last week of $620 per tonne, buoyed by fears that floods in Malaysia would damage production. It has risen by more than 50 per cent over the past year in expectation that the burgeoning market for biodiesel will transform a previously dull commodity into the fuel of the future.

The Indonesian Government has signalled that 40 per cent of its palm oil crop will be designated for biofuel production in an attempt to reduce the country’s reliance on crude oil.

RWE npower had hoped that palm oil would produce electricity in a carbon-neutral process that would not add to greenhouse gas emissions.

According to a spokesman for RWE npower, the process works but the company was unable to guarantee that enough palm oil could be bought from sustainable plantations.

“There wasn’t enough palm oil that we could demonstrate was sustainable,” the spokesman said. “The bottom line is: are you contributing to global warming by chopping down rainforest?” The company hired independent auditors to establish whether palm plantations in Malaysia could be accredited to standards set by the Round Table on Sustainable Palm Oil, an organisation committed to promoting a sustainable palm oil industry.

Close attention paid to the RWE project by environmental groups, such as Friends of the Earth, did help to tip the balance against palm oil, RWE’s spokesman admitted.

The environmental group claims that 87 per cent of deforestation in Malaysia between 1985 and 2000 was caused by palm oil plantations. Other groups, such as World Wide Fund for Nature, have mounted vigorous campaigns to save the orang-utan, which is threatened by deforestation in Indonesia.

Further opposition is brewing in the European Parliament, which is considering a ban on imports of non-sustainable palm oil. This stance brings it into conflict with the European Commission, which is anxious to promote biofuels in its drive to reduce European carbon emissions.

Public concern about rainforest wildlife is ringing alarm bells among UK supermarket groups. Several groups have joined the Round Table, hoping to develop an effective scheme that will guarantee sustainable palm oil.

Times Recommends

• ‘Lame duck’ fear for FSA as chief quits
• Storm over bailout of EU's most ailing economy
• Northern Rock to drop 100% savings guarantee