China's Ministry of Finance (MOF) has drawn up policies to promote the production of non-food sources for biofuels, a senior MOF official told a Beijing energy conference.

The ministry will use subsidies and other forms of financial support to reduce the risks of producing these sources, said Zeng Xiao'an, deputy director of the MOF's Department of Economic Development, at a synthetic fuel forum held in Beijing Thursday.

"We have worked out a complete set of policies to support non-food biofuels, as they are clean energy sources with a limited negative impact on the environment," Zeng said.

Flexible subsidies will be offered to biofuel producers who lose money on crops when crude oil prices are low, he said, and the government would encourage enterprises to reserve funds to offset such risks.

Farmers will receive a 3,000-yuan (405 U.S. dollars) subsidy for each hectare of forest products for biofuels, such as ethanol and bio-diesel, and 2,700 yuan for each hectare of crops for biofuels, Zeng said.

The ministry would also subsidize demonstration projects producing ethanol from cellulose, sweet sorghum and cassava or making bio-diesel from forest products, so as to make it easier to get bank loans for construction, according to Zeng.

Projects that are up to industrial standards would receive rewards ranging from 20 percent to 40 percent of the total investment, he said.

"Government subsidies are a small proportion of the total investment of a bio-diesel project; however, we are confident of the long-term prospects for bio-diesel production," said Liu Jianbo.

Liu runs a company, Hunan Rivers Bioengineering Co. Ltd, that set up a bio-diesel plant with an annual capacity of 20,000 tons, one of several such small plants in China. There is no reliable figure for the nation's bio-diesel output, but there are believed to be fewer than 10 plants, all small-scale.

Chinese officials have said that the country would increase bio-diesel output to 200,000 tons by 2010 and 2 million tons by 2020.

In 2006, China's four ethanol projects produced about 1.3 million tons of fuel, which was blended with gasoline in some provinces, including Shandong.

All four projects mainly produce corn-based ethanol. However, earlier this year, China banned the further use of grain for ethanol production, to ensure that grain was available for food.

China has set a target of an annual production capacity of 2 million tons of ethanol by 2010 and 10 million tons by 2020.

The energy-thirsty country has also sought to use its abundant coal reserves to produce synthetic fuel, with the goal of reducing reliance on imported petroleum. But support policies for such projects are still being debated, because there are concerns over the environmental impact of coal-based synfuels, Zeng said.

The production of coal-derived fuels, such as methanol and dimethyl ether (DME), is usually accompanied by abundant carbon dioxide emissions, contrary to the country's efforts to cut emissions.

"We are still doing research and will publish specific support policies for such projects as soon as possible," Zeng said.