Alistair Darling was accused yesterday of getting cold feet on biofuels after abolishing a measure that encouraged their production.

The Chancellor announced in his Budget that the 20p per litre fuel duty differential benefiting biofuels is to be scrapped from 2010.

The Renewable Transport Fuel Obligation, which comes into effect next month, is designed to ensure that 2½ per cent of fuel is formed of biofuel, rising to 5 per cent by 2010, but Mr Darling failed to give any sign that the scheme will continue beyond 2011.

His omission infuriated farmers who believe they are paying the penalty for worries about the sustainability of biofuels inported from abroad.

“We are concerned at what appears to be a strong undercurrent of hostility to and lack of understanding of British-produced biofuels, which runs through the Budget small print,” said Meurig Raymond, deputy president of the National Farmers’ Union.

“British-produced biofuels are sustainable and can make a very real contribution to the reduction in greenhouse-gas emissions, in transport especially. They should be encouraged by the Government, not undermined.”

Jonathan Scurlock, the NFU’s renewables and climate change adviser, said there was disappointment at the failure to give a long-term signal and concern that the Government “is backing down” on biofuels.

Ruth Kelly, the Transport Secretary, has launched a review into the use of biofuels as a transport fuel and Mr Scurlock said it appeared she was “blinking from the hard stares” aimed at biofuels by campaigners concerned at the impact of biofuel crops on rainforests and food production.

Worries about the lack of the long-term signal needed to allow businesses to plan investment were echoed by the Conservatives. Peter Ainsworth, the Shadow Environment Secretary, said: “Nothing is better guaranteed to undermine investor confidence than a government that can’t make up its mind.”

Steve Webb, Shadow Environment Secretary for the Liberal Democrats, said that after initial overenthusiasm for biofuels the Government appeared to have overcompensated. “The pendulum has swung too far,” he said. “The Government is running scared.”

Biofuel supporters maintained that even if the benefits of today’s biofuel crops are open to question, the industry has enormous potential. Yannick Read, of the Environmental Transport Association, said: “It looks like they’ve got cold feet. It’s a shame because the industry is in its infancy. We risk missing out on its benefits.”

However, Professor Paul Mitchell, of the Unversity of Aberdeen, was convinced that Mr Darling had displayed prudence. “What he is doing is saying biofuels are still an option but have to be managed sustainably,” he said.

Business and environmental groups remained convinced that Mr Darling had missed an opportunity to respond to the chanllenges of climate change.

Carol Somper, of the environmental consultancy ADAS, said little environmental progress had been made. “They aren’t doing much more than treading water,” she said.

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