EU prioritises biofuels in plans to achieve 20% substitution of diesel and gasoline by alternative fuels in road transport by 2020

The Commission’s adopted action plan and two proposals for directives on biofuels considers that the underused renewable energy source (see related feature) is the technology with the greatest potential in the short to medium term. The EC’s 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, concluding that only the adoption of 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, whilst the second 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. This proposal, which would not be obligatory, would ensure that 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 EC says.

The proposal would allow EU members 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 also 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, 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 under the proposal.

In the case of pure biofuels used by local public passenger transport, including taxis, and by public authority-operated vehicles, the proposal would allow EU nations 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 countries which this year fully exempted pure biofuels from the duty, 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.

The Commission says that the proposals would assist the EU achieve its 8% reduction in 1990 levels greenhouse gases emissions by 2010, as the “continuous strong growth in C02 emissions is not consistent with this commitment” and “the transport sector’s overwhelming dependence on oil is a strong factor in the increase of oil imports, expected to reach 90% by 2030”. However, recent research concluded that ethanol, currently favoured in the US as the preferred biofuel, takes more energy to make than it yields when combusted (see related story).

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.

“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.”

“Taxes make up a significant proportion of the selling price of energy products, in particular of motor and heating fuels,” added Frits Bolkestein, Commissioner for Taxation. “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.”