The European Union is unlikely to ban the use of palm oil as a biofuel due to fears it may push up prices, a senior economist with agricultural analyst LMC International Ltd. said Thursday.

Using palm oil as a biofuel has sparked controversy because of concern that it could contribute to deforestation in producing countries, particularly the world's largest exporter Indonesia , and push food cultivation into environmentally sensitive areas.

But Sarah Hickingbottom, a senior research economist for LMC International Ltd, said price pressure means the EU is unlikely to stop the use of the oil as a fuel source.

"People are now getting government subsidies to burn palm oil, shells and biomass directly for electricity," she told an agricultural conference in Brussels .

"If they cut palm oil the prices in Europe will be considerably higher than the rest of the world," she said. "I'm not sure governments will have the will to disrupt it completely."

Indonesia plans to impose a 2% export tax on biodiesel for the first time in October, in a bid to curb rapidly rising exports of oil, which is also an important domestic source of cooking oil, according to reports.
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