"This plan will reduce Europe's dependence on imported energy, cut greenhouse gas emissions, protect jobs in rural areas and extend the EU's technological leadership in these areas," Energy Commissioner Andris Piebalgs said.
He said the plan outlined measures for using fuel from agriculture and waste materials in the heating, electricity and transport sectors.
The EU aims to have renewable sources make up 12 percent of its energy mix by 2010 but the Commission said that goal is unlikely to be reached. It said renewables will likely make up nine to 10 percent by then, spurring the need for a plan now.
Biomass can be made of wood, sugar cane, or animal waste. Examples of biofuels include ethanol, biodiesel and methanol.
The biomass action plan sets out more than 20 steps to be taken, most of which will be implemented from 2006.
High oil prices were a particular incentive for raising biofuel usage in the transport field, the Commission said. In that sector the executive is seeking to promote "biofuels obligations" in which suppliers include a minimum proportion of biofuels on the conventional product they put on the market.
The EU wants biofuels to have a 5.75 percent share of the 25-nation bloc's petrol and diesel market by 2010, but that target, too, is far from being reached. Market share now is at 0.8 percent, the Commission said.
The plan drew a mixed reaction from industry and environmental groups.
Peter Tjan, Secretary General of the European Petroleum Industry Association, stressed that using biomass to generate power was much more effective at reducing carbon dioxide (CO2) emissions than using it as a transport fuel.
Environmental groups warned of negative side effects.
"Certain biomass production systems result in levels of greenhouse gas emissions which are not much lower than those of fossil fuels," environmental groups WWF, Greenpeace, BirdLife International and the European Environmental Bureau said in a statement.
"Furthermore, the impact of biomass production on biodiversity, water and soil needs to be taken into account."
Renewable fuel sources are getting more attention from EU policy makers as the 25-nation bloc mulls a common energy policy and worries about the security of its energy supply.
Five percent of all motor fuel sold in Britain will have to come from renewable sources by 2010, under new rules announced by the government last month.
The measure should save around one million tonnes of carbon dioxide emissions in 2010, the equivalent of taking a million cars off the road, the UK government said.
The EU plan includes a campaign to inform farmers and forest owners about energy crops.
The EU executive also approved a report on support of electricity from renewable energy, which concluded that more than half of the 25 member states are not doing enough to support "green electricity".
Piebalgs said the EU's ultimate goal was to have a renewable energy sector that could stand on its own without public support, though that was likely to take more than 10 years.
(additional reporting by Stuart Penson in London)