European Commission proposes to encourage alternative fuels, starting with biofuels

12 November 2001

The European Commission (EC) has proposed new legislation to promote the use of alternative fuels for transport, starting with the regulatory and fiscal promotion of biofuels, such as biodiesel and bioethanol. A regulatory package adopted last week (COM(2001) 547) includes an action plan and two proposals for Directives which would establish minimum biofuel content in transportation fuels and allow reduced taxation rates for biofuels.

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According to the EC the use of fuels 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: (1) biofuels which are already available, (2) natural gas in the medium term and (3) hydrogen and fuel cells in the long term. The first 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 adopted action plan includes the following objectives:

• Contribute to reduce the European Union’s dependency on foreign supply for oil.
• Contribute to the achievement of the European Union’s greenhouse gases emission reduction objective as decided in Kyoto (an 8% reduction of greenhouse gases emissions by 2010)
• Meet the objective of substituting 20% of traditional fuels by alternative fuels in the road transport sector by 2020.

The proposed Directive sets a minimum percentage of biofuels to replace diesel or gasoline in transportation and sets an obligation on Member States to ensure (e.g., by using taxation policies) that as from 2005 these biofuel quotas are met in practice. The proposed schedule for the compulsory biofuel share is: 2005 - 2%; 2006 - 2.75%; 2007 - 3.5%; 2008 - 4.25%; 2009 - 5%; 2010 - 5.75%. At a later stage, the EC will make a proposal for mandatory blending of biofuels in gasoline and diesel.

The taxation Directive proposal (which would modify the existing Directive 92/81 on excises duties) 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. 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 authorization of the EU’s Council of Ministers.

Biofuels considered by the action plan include the following fuels:

• Biodiesel: a methylesther produced by reaction between a plant oil and methanol.
• Bioethanol: ethanol produced though fermentation of sugar beets, cereals or other organic material.
• ETBE: ethyl-tertio-butyl-ether is etherised bioethanol.
• Biogas: produced from biodegradable waste. It is basically methane.
• Biomethanol: produced from biomass or biodegradable waste is equivalent to methanol from fossil fuels.
• Biodimethylether: produced from biomass or biodegradable waste for use as biofuel.

Biofuels currently represent about 0.3% of diesel and gasoline consumption in the EU. At the current crude oil prices (US$25 per barrel) biofuels are not competitive. The production cost of biodiesel is 0.5 €/liter, as compared to 0.2-0.25 €/liter for petrodiesel (furthermore, it takes 1.1 liter of biodiesel to replace 1 liter of petrodiesel). In some EU countries, biofuels are already supported by preferential taxation within the existing regulatory framework.

Biofuels can be used in pure form in captive vehicles or blended for use in regular engines. In the case of biodiesel, regular vehicles can run on a 5% blend (this figure is consistent with the Fuel Injection Equipment Manufacturers Common Position Statement on the use of Fatty Acid Methyl Ester Fuels, published in June 2000). Bioethanol can be blended up to 15% in gasoline without the need for vehicle modification.

Source: European Commission