Voluntary Report - public distribution

**Date:** 7/14/2005

**GAIN Report Number:** GM5026

GM5026

**Germany**

**Agricultural Situation**

**Germany may reduce mineral oil tax waiver for biodiesel**

**2005**

**Approved by:**

![](media/image1.wmf)Karina Ramos

U.S. Embassy, Berlin

**Prepared by:**

Sabine M Lieberz

**Report Highlights:**

The German Ministry of Finance has presented the first mandatory report
about the mineral tax exemption for biofuels and possible
overcompensation. The report finds an overcompensation of 5 Euro cents
per liter for pure biodiesel and of 10 Euro cents per liter for
biodiesel blends and proposes to reduce the tax exemption. FAS Berlin
expects that any possible changes to the current tax exemption will not
go into effect until 2006.

Includes PSD Changes: No

Includes Trade Matrix: No

Unscheduled Report

Berlin \[GM1\]

\[GM\]

In Germany, pure biodiesel is traditionally exempt from the mineral oil
tax in order to increase its competitiveness and usage. Production costs
of biofuels are much higher than for mineral fuels. If biofuels were
subject to the standard mineral oil tax, they would not be competitive.
Since January 2004, the tax exemption was applied to all kinds of
biofuels, including for the first time the biofuel component of biofuel
blends. The exemption is granted until December 31, 2009, but must not
result in overcompensation, in which case, the amount of the tax
exemption has to be reduced.

In order to prevent overcompensation, the German Ministry of Finance
with the help of the Ministry of Consumer Protection, Food, and
Agriculture, the Ministry of Economics and Labor, and the Ministry of
Environment has to report to the Bundestag (comparable to the U.S. House
of Representatives) on an annual basis the development of prices and the
market. The first of these reports covering the year 2004 has now been
released.

The two major biofuels used in Germany are biodiesel and bioethanol. In
2004, bioethanol production had only amounted to 65,000 MT[^1] (about 22
million gallons) and was mostly used for the production of
ethyl-tertiary-butyl-ethger (ETBE) rather than for direct blends with
gasoline. Therefore the Ministries' report focuses on biodiesel.

The report finds that the tax exemption overcompensates production costs
by 0.05 Euro per liter for pure biodiesel and by 0.10 Euro per liter for
blends containing 5 Percent biodiesel. The report proposes to introduce
a partial mineral oil tax for biodiesel. However, while the partial tax
should be high enough to avoid overcompensation, it should not be too
high in order not to discourage the use of biodiesel.

Introducing a partial mineral oil tax, or rather reducing the current
tax waiver for biodiesel involves the German parliament. With the
general elections possible in September 2005, it is unlikely that any
change to the current tax exemption will go into effect before 2006.

In 2004, biodiesel consumption in Germany amounted to 1.05 million MT (
about 1.2 billion gallons). 70 percent of this amount was used as pure
biodiesel (40 percent in trucks of company fleets plus 30 percent in
personal vehicles) and the remaining 30 percent were used in 5 percent
biodiesel blends. This resulted in a total tax waiver for biodiesel of
559 million Euro (about U.S. \$ 694 million[^2]) in Germany in 2004.

Related reports:

+-----------------------+-----------------------+-----------------------+
| > **Report Number**   | **Title**             | **Date Released**     |
+-----------------------+-----------------------+-----------------------+
| GM4048                | Biofuels in Germany   | 11/22/2004            |
|                       | -- Prospects and      |                       |
|                       | limitations           |                       |
+-----------------------+-----------------------+-----------------------+
| GM5025                | EU Approves German    | 07/13/2005            |
|                       | State Aid for Bio     |                       |
|                       | Ethanol Plant         |                       |
+-----------------------+-----------------------+-----------------------+

[^1]: MT = metric ton

[^2]: Average exchange rate for 2004: 1 U.S. \$ = 0.8051 Euro