A series of conflicting reports have appeared in German newspapers in recent days, with some saying increased taxes would be imposed on biodiesel from 2007 and others that the sector would retain its exemption from the kind of levies imposed on conventional diesel.

Behind the speculation is a single sentence in the contract for Germany's new grand coalition government, which said the mineral oil tax exemption for biofuels would be dropped and that compulsory blending would be introduced.

The spokesman said the ministry had the task of introducing compulsory blending and simultaneously ending the tax exemption for biofuels.

The ministry also needed to create a quota of 5.75 percent biofuel in total fuel production to meet European Union biofuel targets.

"That is the political task and this must naturally be implemented," he said.

Asked about reports that various increased tax levels for biodiesel were being considered from 2007, he said: "Just how this will be implemented in detail will depend on the legislative process."

A strong increase in German demand for biodiesel, largely made from rapeseed oil, has supported European rapeseed prices in recent months.

But rapeseed prices have weakened because of the uncertainty following publication of the coalition contract in mid-November.

One German rapeseed trader said: "It appears certain that something is going to happen on tax.