The UK's "irrational" use of biofuels will cost motorists around £460 million over the next 12 months, a think tank says.
A report by Chatham House says the growing reliance on sustainable liquid fuels will also increase food prices.
The author says that biodiesel made from vegetable oil was worse for the climate than fossil fuels.
Under EU law, biofuels are set to make up 5% of the UK's transport fuel from today.
Since 2008, the UK has required fuel suppliers to add a growing proportion of sustainable materials into the petrol and diesel they supply. These biofuels are mainly ethanol distilled from corn and biodiesel made from rapeseed, used cooking oil and tallow.
Deep fried fuel
But research carried out for Chatham House says that reaching the 5% level means that UK motorists will have to pay an extra £460m a year because of the higher cost of fuel at the pump and from filling up more often as biofuels have a lower energy content.
The report say that if the UK is to meet its obligations to EU energy targets the cost to motorists is likely to rise to £1.3bn per annum by 2020.
"It is hard to find any good news," Rob Bailey, senior research fellow at Chatham House, told BBC News.
"Biofuels increase costs and they are a very expensive way to reduce carbon emissions," he said.
The EU biofuel mandates are also having hugely distorting effects in the marketplace. Because used cooking oil is regarded as one of the most sustainable types of biodiesel, the price for it has risen rapidly. Rob Bailey says that towards the end of 2012 it was more expensive than refined palm oil.
"It creates a financial incentive to buy refined palm oil, cook a chip in it to turn it into used cooking oil and then sell it at profit,"
"It is crazy but the incentives are there."
There are also worries that taking EU land out of production to grow rapeseed oil in particular is creating more climate problems than it solves. The more fuel of this type that is put into cars the bigger the deficit created in the edible oils market. This had lead to increased imports of palm oil from Indonesia, often produced on deforested land.
"Once you take into account these indirect effects, biofuels made from vegetable oils actually result worldwide in more emissions than you would get from using diesel in the first place," said Rob Bailey.
"Plus you are asking motorists to pay more for the fuel - it makes no sense, it is a completely irrational strategy."
The European Biodiesel Board (EBB), which represents the industry across the EU, said it was aware of the problems caused by the mandate. But it believes that biofuels have many positives.
"Blaming biofuels for all the troubles in the world is a bit too exaggerated," said Isabelle Maurizi, project manager at the EBB.
"It has brought lots of benefits. It has improved the security of our diesel; it has reduced EU dependency on animal feed imports, thanks to the rapeseed we grow for biodiesel."
"If there was no biodiesel farmers would just make their land idle - no food, no feed!"
As the UK hits the 5% of liquid fuels mark, the government faces some difficult decisions on how to move forward on this issue as it faces tripling the costs for motorists by 2020.
Insiders suggest its preference would be to try and get agreement in Brussels on the impacts of indirect costs which might constrain what counts as biofuel. However getting agreement from countries with powerful agricultural sectors who benefit from the current arrangement will be difficult.
"When you have a lobby which includes the agricultural sector and the oil sector it is very hard for Governments to make a U-turn," said Rob Bailey.
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