LONDON (Bloomberg) — Chancellor of the Exchequer Alistair Darling, delivering his first annual UK budget today, will consider eliminating a tax break on biofuels, a person with knowledge of the plans said.

Darling may scrap a 20-pence (40-cent) tax break on a litre of fuel from plants including as sugar cane and maize because, in some cases, producing those crops may harm the environment more than burning fossil fuels, the person said. The government instead will rely on existing plans to require gasoline and diesel fuel to include five percent biofuel by 2010.

The plan is part of Prime Minister Gordon Brown's effort to reduce emissions from cars by 2030 and to improve the state of the environment. Darling's budget statement tomorrow also may encourage the building of environmentally-friendly homes and limit the number of plastic bags given away by supermarkets.

Darling will say the government will introduce laws forcing stores to charge for each plastic bag unless they reduce the number of bags they allow customers to take home, the person said. The measures on biofuels are at the heart of tax measures impacting cars and fuel.

Policy makers in the European Union and US have identified biofuels as a tool to fight global warming, because they emit less greenhouse gases than fossil fuels.

A recent study by Minnesota-based scientists shows that converting new land to produce alternative fuels from crops and grasses can cause emissions of carbon dioxide 420 times greater than the annual savings from replacing fossil fuels. Converting forests and peatlands that absorb carbon dioxide from the atmosphere to grow the crops may cause emissions that far outweigh the annual benefits of burning the new fuels, creating a "carbon debt" lasting centuries, the researchers at the University of Minnesota, St. Paul and the Minneapolis-based Nature Conservancy said in the journal Science last month.

Darling wants to stem the rush to produce such fuels in plantations that are developed on former rain forests and that make excessive use of pesticides, the person said.

The chancellor will tell the House of Commons tomorrow that the Renewable Transport Fuel Obligation, which comes into force in April, is better geared toward targeting the right fuels than fiscal policy, the person said.

The US recently enacted legislation aiming to boost biofuel production to 36 billion gallons in 2022 from 7.5 billion gallons in 2012. The EU requires 10 percent of transportation to use biofuels by 2020.

Policy under Brown, who took office in June, is being reshaped to endorse with the recommendations of Nicholas Stern, the former top government economist. Stern said in 2006 that man-made global warming is a "serious and urgent issue" and that spending the equivalent of just one percent of gross domestic product now on combating it could avert future expenditure of between five percent and 20 percent once climate change worsens.

Darling will also use his budget to spur the construction of "zero carbon" apartments, the person said, extending a 2007 plan which exempted people buying new houses worth as much as £500,000 from paying a transaction tax as high as three percent.