* Last gasp bid to raise planned 5 pct cap on food biofuels
* Producers, farmers say cap will cause huge job losses
* Commission seen sticking to plan despite internal dissent
* Proposals due to be formally presented on Oct. 17
By Charlie Dunmore
BRUSSELS, Oct 15 (Reuters) - The European Commission is under strong pressure from industry groups and some of its own departments to weaken a planned cap on the use of biofuels made from food crops such as rapeseed and wheat.
Last month, the two EU Commissioners responsible for biofuel policy said they planned to limit the share of crop-based fuels in the transport sector to 5 percent up to 2020, which would effectively halve the bloc's existing target.
That signalled a stunning U-turn in EU biofuel policy less than four years after the current target was agreed, and was hailed by campaign groups who question the climate benefits of biofuels and blame them for pushing up food prices.
But just days before the EU executive is set to formally propose the cap in draft legislation, some Commission departments are leading a last-minute push to water down the plans at the urging of biofuel producers and farmers.
"Too many Commission cabinets are now giving in to the biofuel lobby," said Claude Turmes, a Green EU lawmaker from Luxembourg who helped to negotiate the bloc's 2020 biofuel target when it was agreed back in 2008.
"It is very likely now that without major pressure, the 5 percent limit will be moved up closer to 7 or 8 percent," h e said.
The Commission's agriculture and industry departments are understood to be leading efforts to raise the limit, emphasising industry warnings of threats to jobs and investments in the EU's estimated 17 billion euro-a-year ($22 billion) biofuel sector.
"It's a typical case of the industry crying wolf and the commissioners, instead of reading details of their briefs, are just taking up their arguments," Turmes said.
An EU source close to the discussions said despite opposition from some departments, the 5 percent cap was still a part of the Commission proposal, and there was enough support to ensure it would survive the final draft.
The last chance for opponents to amend the plans is at a meeting of chief advisors to the 27 EU Commissioners on Monday, who are due to finalise the proposals ahead of formal announcement by the Commission on Oct. 17.
The proposed limit on crop-based fuels is part of wider EU rules designed to address the indirect climate impacts of biofuels, known as indirect land-use change or ILUC.
ILUC is based on the principle that by diverting millions of tonnes of crops to make fuel, additional farmland is needed to replace the lost food and stop more people going hungry.
If this extra demand for land is met by cutting down rainforest or draining peatlands, the extra carbon emissions that entails are enough to wipe out any theoretical saving from biofuels.
EU scientific models showed that ILUC emissions associated with biodiesel made from rapeseed, palm oil or soy beans were particularly high - enough to cancel out any carbon saving compared with normal diesel.
As a result, the Commission's draft proposals include measures to discourage fuel suppliers from using biodiesel from oilseeds, and instead focus on increasing the use of ethanol from cereals and sugar or non-land-using biofuels made from waste or algae.
But with biodiesel currently accounting for three quarters of total EU biofuel consumption, producers and farmers say the plans will kill the sector and lead to significant job losses.
In a letter to Commission President Jose Manuel Barroso, EU farm groups and biodiesel producers said the plans would result in "the loss of hundreds of thousands of direct and indirect jobs, and the total disappearance of the biodiesel sector."
But green campaigners argue that the 5 percent cap on food-based biofuels allows current production to be maintained until 2020, and cite a study by sustainable energy consultants Ecofys showing that 95 percent of current investments in biodiesel plants will be recouped by 2017.
EU countries with the largest biodiesel production capacity include Germany, France, Spain and Italy. To become law, the Commission's proposals will have to be jointly agreed by EU governments and lawmakers. ($1 = 0.7712 euros) (Additional reporting by Barbara Lewis; editing by Gunna Dickson)