A £100M industry vital to the region’s rebirth is in danger of “collapsing” because of a Government blunder, ministers were warned yesterday.

Leading figures from the growing transport biofuels industry are furious that a “drafting error” in legislation has wrecked plans to dramatically boost the use of biofuels in petrol and diesel, threatening investment and jobs.

To the industry’s astonishment, ministers have now acknowledged the error – but insisted it cannot be corrected until April, at the earliest.

Furthermore, they plan to cave in to pressure to slow down the increase in biofuels after claims – strongly rejected by North-East companies – that it is pushing up world food prices.

At stake is the region’s strategy to lead Europe in transport biofuels, by combining its traditional strengths in petrochemicals and agriculture.

At least 350 jobs will be created and thousands more sustained in related industries.

One estimate is that annual turnover could reach £1bn.

Central to the vision is the planned opening, next June, of Europe’s largest bioethanol plant in the Tees Valley, being constructed by Ensus, in Wilton, at a cost of £300m.

Ian Waller, an advisor to the region’s biofuels sector, said: “The UK market has collapsed because of this error, which means there is nowhere to sell biofuels.

“I have clients in Europe who think the UK is a laughing stock. The Government says it is keen to promote green fuels, but it can’t sort out how to do that.”

Insisting it was not too late to amend the error, Mr Waller added: “Ministers could start a quick 28-day consultation before Christmas and easily change the law by February.”

The drafting error, in the Renewable Transport Fuel Obligation, has effectively halved the target for oil companies to replace 2.5 per cent of their fossil fuels with biofuels in the year to April next year.

It mistakenly excluded any fuel blended with biofuel from the obligation. Because almost all diesel is blended – and because about half of fuel is diesel – the new figure is, in reality, 1.25 per cent.

The industry is also worried by the Government’s intention to cut the future target for biofuels. It is now likely to reach five per cent in 2013-14, instead of 2010-11, although no final decision has been made.

Mr Waller’s criticism was echoed by Dari Taylor, Labour MP for Stockton South, who said: “The Government’s attitude is not good enough. There are serious implications for both farmers and the processing industry.”

However, in a Commons debate this week, Transport Minister Jim Fitzpatrick insisted it was not possible to correct the error until “the start of the next obligation year, in April 2009”.