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IP/01/1543

Brussels, 7 November 2001

Transport: Commission proposes to encourage alternative fuels, starting with biofuels

The European Commission has adopted an action plan and two proposals for Directives to foster the use of alternative fuels for transport, starting with the regulatory and fiscal promotion of biofuels. The Commission considers that the use of fuels (such as ethanol) derived from agricultural sources (i.e. biofuels) is the technology with the greatest potential in the short to medium term. The action plan outlines a strategy to achieve a 20% substitution of diesel and gasoline fuels by alternative fuels in the road transport sector by 2020. It concludes that only three options would have the potential to achieve individually more than 5% of total transport fuel consumption over the next 20 years: biofuels which are already available, natural gas in the medium term and hydrogen and fuel cells in the long term. One proposed Directive would establish a minimum level of biofuels as a proportion of fuels sold from 2005, starting with 2% and reaching 5.75% of fuels sold in 2010. The second proposed Directive would give Member States the option of applying a reduced rate of excise duty to pure or blended biofuels, when used either as heating or motor fuel.

"The transport market is today almost entirely dependent upon oil-based fuels" said Loyola de Palacio, the Vice-President for Energy and Transport. "This coherent action plan for an alternative fuel strategy for transport will tackle this over-dependence, which is a significant source of environmental and supply concerns for the European Union."

Frits Bolkestein, Commissioner for Taxation, added: "Taxes make up a significant proportion of the selling price of energy products, in particular of motor and heating fuels. The proposed Directive to allow Member States to reduce excise duties on biofuels would introduce an important incentive for economic operators to turn towards products which promote sustainable development."

"The production of bio-energy can offer new sources of farm income. It could become a concrete demonstration of a sustainable, multifunctional agriculture." added Franz Fischler, Commissioner for Agriculture, Rural Development and Fisheries.

The European Union is committed to an 8% reduction of greenhouse gases emissions by 2010. The continuous strong growth in C02 emissions is not consistent with this commitment. The transport sector's overwhelming dependence on oil is a strong factor in the increase of oil imports, expected to reach 90% by 2030. The transport sector alone is thus responsible for many of the challenges which the Union has to face in terms of meeting its greenhouse gases emissions targets and of securing alternative energy supplies.

It is in this context that the Commission has today adopted a package of complementary measures:

  • a Communication on alternative fuels and on a set of measures to promote the use of biofuels

  • a proposal for a Directive establishing a minimum level of biofuels as a proportion of fuels sold from 2005

  • a proposal for a Directive providing a new Community framework for the taxation of biofuels.

Action plan

The action plan for the promotion of alternative fuels and biofuels in road transport concentrates policy efforts on the promotion of biofuels, natural gas and hydrogen. These are the three options that would appear to have the potential to achieve individually a volume of more than 5% of total transport consumption over the next 20 years:

  • biofuels (in the short term)

  • natural gas (in the medium term) and

  • hydrogen and fuel cells (long term).

The combination of these three options could allow the 20% substitution target to be achieved by 2020.

While the promotion of biofuels is the objective of the two proposals for Directives, the Commission's action plan also invites relevant industry and non-governmental organisations to clarify the outstanding issues relating to the introduction of natural gas and hydrogen fuel as transportation fuel.

Proposal concerning the use of biofuels for transport

This proposal requires that an increasing proportion of all diesel and gasoline sold in the Member States be biofuels, starting with 2% in 2005 and progressively increasing so as to reach a minimum of 5.75% of fuels sold in 2010.

Tax proposal

The proposal would allow Member States, but not oblige them, to reduce excise duties on pure biofuels or biofuels blended into other fuels, when they are used for heating or transport purposes. Appropriate differentiation of excise rates would contribute to the development of the biofuel industry by offsetting the high cost of manufacturing biofuels compared to fossil fuels.

The proposal would allow Member States to reduce excise duties in proportion to the percentage of biofuel incorporated in the fuel or end product, without the need for a specific authorisation of the EU's Council of Ministers.

However, in order to limit distortions of competition and to ensure the smooth functioning of the Internal Market, the proposal calls on Member States to set up excise reduction mechanisms which take account of changes in raw material prices so that the lower tax rates do not over-compensate for the extra cost of manufacturing biofuels. Furthermore, to minimise the tax revenue loss for Member States, the actual amount of tax on the end product, when intended for sale as motor fuel, may not be less than 50% of the normal rate of excise duty for the corresponding propellant.

In the case of pure biofuels used by local public passenger transport, including taxis, and by public authority-operated vehicles, the proposal would allow Member States to apply a reduced rate of excise duty of less than 50% of the normal rate and even exempt these fuels completely from excise duty. Additionally, in the Member States which on 1 January 2001 fully exempted pure biofuels, a transitional period, up to 31 December 2003, is proposed to allow operators sufficient time to adapt or to apply for a continuation of their full exemption following a specific procedure provided for under article 8 (4) of the mineral oil directive. This "grand-fathering" clause would also allow Member States so wishing to apply for Council approval for long-term exemption under the procedure provided for in the Directive on the harmonisation of the structures of excise duties on mineral oils (92/81/EEC). Under that Directive, such an additional exemption or reduction may be allowed to cater for specific national circumstances.

The proposal is subject to review before 1 January 2008.

Background

Biofuels are combustible fuels which can be used instead of or in a mixture with conventional fuel and which are obtained by processing or fermenting non-fossil biological sources such as plant oils, sugar beet, cereals and other crops and organic waste material.

The Commission, the Parliament and the Council have been encouraging the development of renewable energy and particularly of biofuels for a long time. The Communication entitled "A Sustainable Europe for a Better World: A European Union Strategy for Sustainable Development" presented to the Göteborg Summit in June 2001 (see IP/01/710) highlighted the important role of biofuels in tackling climate change and in the development of clean energies. The Commission Green Paper "Towards a European strategy for the security of energy supply" of November 2000 (see IP/00/1368), introduced the objective of substituting 20% of traditional fuels by alternative fuels in the road transport sector by 2020. In this context, it stressed the key role of tax instruments in achieving the objectives set in terms of volumes by reducing the price differential between biofuels and rival products. The recent White Paper on Transport Policy (see IP/01/1263) establishes an objective of a 6% market share for biofuels in 2010. This package, with its two proposals for Directives, represents the means to achieve the objectives set in those earlier Communications.

There is a Community system for the taxation of mineral oils based on two Directives, 92/81/EEC and 92/82/EEC. These set a minimum rate of tax for each mineral oil according to its use (motor fuel, industrial and commercial use, heating). Under Directive 92/81, biofuels blended into motor or heating fuel are taxed according to end product and use. This Directive allows Member States to apply total or partial exemptions or reductions in the rate of duty in the case of projects for the technological development of more environmentally friendly products, but only in the pilot phase. The 1992 Directive also provides that a Member State may introduce further exemptions or reductions for specific policy considerations, but only on the Council's unanimous authorisation. Given the likelihood of an ever-increasing number of individual applications by Member States for excise reductions or exemptions to promote the development of the biofuels industry, the Commission considers that a Community framework would be preferable to ensure the smooth functioning of the Internal Market.

The texts of the action plan Communication and the two proposals for Directives will be available on the Europa website at:

http://ec.europa.eu/dgs/energy_transport/en/whats_new_en.html

and

http://ec.europa.eu/taxation_customs/whatsnew.htm


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