BERLIN (Reuters) - Germany's biodiesel industry expects to operate at around 50 percent of capacity in 2010 as taxes are making the green fuel too expensive for motorists, a biofuels industry leader said on Friday.

Germany's 4.8 million tonne annual capacity biodiesel industry, Europe's largest, is estimated to have produced about 2.5 million tonnes in 2009, down from 2.7 million tonnes in 2008, said Elmar Baumann, chief executive of German biofuels industry association VBO.

"We expect the same level of capacity use in 2010," Baumann told Reuters. "The industry is facing a dramatically poor outlook, we will be facing more consolidation in the coming year with more plants being taken out of the market."

About half of the 49 German biodiesel plants were not working at all and many of the operational plants were producing well under capacity, he said.

"Industrial plants like this need 75 percent capacity use to remain viable, we cannot continue at this level in the long-term."

Germany's government, elected in September 2009, initially said it would review green fuel taxes to stimulate biofuel sales but later said it would only freeze taxes, not cut them.

"This will not be enough to simulate the B100 (petrol station) market," Baumann said. "Sales of B100 fell sharply in 2009 and the tax freeze will not be enough to create an improvement in 2010."

The VDO estimates sales of pure biodiesel at petrol stations fell to around 200,000 tonnes in 2009, sharply down from about 1.1 million tonnes in 2008 and a peak of 1.8 million tonnes in 2007 before taxes reduced the price attraction of biodiesel.

The VDO continues to lobby the government for a cut in taxes to revive petrol station sales but this year the main industry production will be focused on production for the blending market.

Germany's government has also scaled back the level of biofuels which must be blended with fossil fuels under the country's plan to cut carbon dioxide emissions to 6.25 percent in 2010, down from its previous plan for 6.75 percent biofuel content.

With petrol station sales down so dramatically, blending sales were now the critical market for biodiesel, said Baumann.

Oil companies did not want to deal with small biodiesel deliveries on road transport tankers but large consignments by train or inland waterways tankers, Baumann said.

"This means biodiesel producers without a river or canal link or a railway siding find great difficulty in making blending sales," Baumann said. "The future of such plants will be in question."

(Editing by Sue Thomas)