KUALA LUMPUR--Malaysia's policy of requiring all government vehicles to use five percent biofuel has become too expensive and the eco-minded policy may have to be scaled back, a minister said Monday.

When crude oil prices rocketed last year, Malaysia and Indonesia, which produce most of the world's palm oil, heavily promoted their version of biofuel—a mixture of diesel with five percent processed palm oil known as B5.

Plantations Minister Bernard Dompok said he was urging a shift to B3, which will contain just three percent palm oil.

"We want to push for B3," he told reporters at an international palm oil congress. "I am presenting a paper to cabinet soon and hopefully this will be approved by the end of the year."

Malaysian Palm Oil Board (MPOB) director general Mohammad Basri Wahid said that funds collected from the industry to help defray biofuel manufacturing costs was a major factor in pushing for B3.

The MPOB collected $118 million (400 million ringgit) from its members this year to defray the cost of replanting trees and for biofuel manufacture, but the allocation is expected to fall next year due to lower palm oil prices.

"This has implications on cost and budget availability, so if we have a lot of money, no problem, we can go for B5 but if we are short, then we don't have enough, that's the main reason we have to look at (B3) and rationalize it," he said.

"It's a policy that we have to keep alive... We have to be seen to the world that we are also concerned about the environment," he said.

Malaysia requires all government diesel vehicles to use biofuel, with privately owned diesel vehicles due to make the shift by next February.

The fortunes of Malaysia's biofuel industry waned late last year when the price of crude oil tumbled, triggering a crash in the palm oil price which made supply uncertain, jeopardizing the long-term contracts the industry needs.

Crude palm oil prices plummeted from a peak of $1,274 (4,312 ringgit) per ton a year ago to a low of 1,390 ringgit in October 2008, although they have since staged a partial recovery.

Malaysia is the world's second-largest exporter of palm oil after Indonesia, and the two countries account for 85 percent of global production.