Voluntary Report - public distribution

**Date:** 8/29/2003

**GAIN Report Number:** FR3044

FR3044

**France**

**Agricultural Situation**

**French Biofuel Situation**

**2003**

**Approved by:**

![](media/image1.wmf)Besa L. Kotati

U.S. Embassy

**Prepared by:**

Marie-Cécile Hénard & Xavier Audran

**Report Highlights:**

France is the second largest EU producer of biodiesel after Germany, and
the second largest EU producer of bioethanol after Spain. However, due
to an increasing number (nearly 70% in 2002) of cars and trucks that use
diesel fuel in France, biodiesel programs are more promising than
bioethanol programs. In May 2003, the EU Commission adopted a new
biofuels promotion Directive, and is expected to adopt another Directive
on the biofuel tax regime by October 2003. The French government has had
great interest in biofuels since 1993 by significant reductions in
national \"excise\" tax. Consequently, France is preparing a law on
energy to be put in place by the end of 2003 that is likely to include
provisions on biofuel production and uses.

Includes PSD Changes: No

Includes Trade Matrix: No

Unscheduled Report

Paris \[FR1\]

\[FR\]

Table of Contents

[Executive Summary 3](#executive-summary)

[FRENCH BIOFUEL PRODUCTION 3](#french-biofuel-production)

[Biodiesel 3](#biodiesel)

[Bioethanol 4](#bioethanol)

[FRENCH BIOFUEL CONSUMPTION 6](#french-biofuel-consumption)

[Current Consumption 6](#current-consumption)

[Biofuels to Help France Meet Kyoto Protocol Requirement
6](#biofuels-to-help-france-meet-kyoto-protocol-requirement)

[FRENCH AND EU BIOFUEL POLICY 7](#french-and-eu-biofuel-policy)

[2001 EU Action Plan 7](#eu-action-plan)

[May 2003 Directive on Biofuel Promotion in Road Transportation
7](#may-2003-directive-on-biofuel-promotion-in-road-transportation)

[Biofuel Tax Regime 7](#biofuel-tax-regime)

[French National Policy on Biofuels
8](#french-national-policy-on-biofuels)

[Impact of the Reformed CAP on Biofuel Production
8](#impact-of-the-reformed-cap-on-biofuel-production)

[Future Opportunities for Biofuels
8](#future-opportunities-for-biofuels)

# Executive Summary

France is the second largest EU producer of biodiesel after Germany, and
the second largest EU producer of bioethanol after Spain. However, due
to an increasing number (nearly 70% in 2002) of cars and trucks that use
diesel fuel in France, biodiesel programs are more promising than
bioethanol programs. In May 2003, the EU Commission adopted a new
biofuels promotion Directive, and is expected to adopt another Directive
on the biofuel tax regime by October 2003. The French government has had
great interest in biofuels since 1993 by significant reductions in
national \"excise\" tax. Consequently, France is preparing a law on
energy to be put in place by the end of 2003 that is likely to include
provisions on biofuel production and uses.

# FRENCH BIOFUEL PRODUCTION

France mainly produces biodiesel from rapeseed and bioethanol from
sugarbeet and wheat. Biotethanol is not used directly in gasoline but is
blended with isobutylen, a petroleum product to produce EBTE (Ethyl
Tertio-butyl Ester) which is then added to gasoline . Industrial crop
production is produced on set-aside land. Rapeseed dominates the French
industrial crop production, as indicated in the graph below:

![](media/image2.wmf)

Note: the variations of the total industrial set-aside land can be
explained by the fluctuations of the compulsory set-aside rate set by
the EU Commission every year.

## Biodiesel

To be allowed to produce biofuels that benefit from a tax reduction
program for fuels when sold on the French market, a plant needs to have
a governmental agreement for a maximum volume of biofuel. There is a
total of 317,500 MT of Vegetable Oil Methyl Ester (VOME) approved by the
French government to be produced per year benefiting from the French tax
cut program. However, France produced 365,000 MT of biodiesel in 2002.
The 47,500 MT above the authorized volume were either exported or used
in the chemical industry. Since 2000, biodiesel producers have waited
for an additional agreement from the French government of 70,000 MT of
VOME to be produced. French biodiesel producers hope to have an official
agreement by the end of 2003.

The leading French producer of biodiesel is "Diester Industrie." It owns
the largest European biodiesel plant, located in Grand-Couronne,
Normandy, with 250,000 MT annual production capacity, of which about
180,500 MT approved by the French government. The plant was created in
1995 with 18 million Euros of initial investment from the French oilseed
industry (Sofiproteol), grower cooperatives, and local authorities.
Diester Industrie also owns another biodiesel plant in Venette, North of
Paris, with 60,000 MT approved production. In the past few years,
production of these two plants has increased significantly, as indicated
in the graph below:

![](media/image3.wmf)

France has three additional plants that have received official
authorization from the government to produce biodiesel. One located in
Verdun (Eastern France), with an agreement for 33,500 MT, managed by the
Novaol company; the second is located in Boussens (Southwestern France),
33,000 MT, belonging to Cognis; and the third plant is located in
Germany in Conneman administered by ADM for 10,000 MT.

In July 2003, Novaol (Italian subsidiary of Bunge) and the companies
collecting used cooking oil from McDonald's France (Ecogras and Sud
Recuperation) signed an agreement stipulating that 1,200 MT of used
cooking oil (rapeseed oil) will be supplied annually to Novaol to be
processed into biodiesel. The biodiesel produced will be exported to
Italy where it will be used as a fuel.

It is estimated that 1 hectare of rapeseed roughly produces an average
of 1.2 MT of Vegetable Oil Methyl Ester (VOME):

1 hectare --\> 3 MT rapeseed --\> 1.25 MT crude rape oil + 1.77 MT rape
meal

1.25 crude rape oil + 0.12 MT methanol --\> 1.2 MT VOME + 0.12 MT
glycerin

## Bioethanol

Currently, two thirds of the bio-ethanol produced in France comes from
sugarbeet, and one third comes from wheat. However, these proportions
are likely to change in the future, as there is no marketable by-product
from the bio-ethanol production with sugarbeet, while there are
by-products, such as pellets used as cattle feed, from the bio-ethanol
production from wheat, which makes it more profitable.

One hectare of sugar beet can produce 5.8 MT of bio-ethanol while one
hectare of cereals can produce 2.5 MT of bio-ethanol.

![](media/image4.wmf)

Unlike the U.S. or Sweden, ethanol is not directly blended with
gasoline. The largest French oil company, TOTAL S.A.
([www.total.com](http://www.total.com/)) is a strong opponent of direct
blending of ethanol in gasoline. Their main argument is that the
increased volatility of ethanol would make the blend exceed EU fuel
volatility norms (EC Directive 98/70/CE). Thus, ethanol is chemically
combined with a petroleum product, isobutylene, to produce ETBE, which
is a oxygenated component like the MTBE used in the U.S. TOTAL produces
ETBE in three of its oil refineries and blends it directly into
gasoline, up to 15 percent.

1 Hectoliter of ethanol = 0.08 MT

0.47 MT of ethanol + 0.53 MT of isobutylene = 1 MT of ETBE

![](media/image5.jpeg){width="4.25in" height="3.3194444444444446in"}

While the oldest production facility in Feyzin was an old MTBE
production facility, the newest ETBE plants in Dunkerque and Gonfreville
were built using funds from TOTAL S.A. and from wheat and sugarbeet
growers.

  ------------ ------- -------- -------- -------- --------- --------- --------- --------- --------- ---------
  production   1992    1993     1994     1995     1996      1997      1998      1999      2000      2001
  (MT/year)                                                                                         

  ETBE         7,203   58,489   81,851   80,672   128,221   177,168   208,051   193,060   196,664   192,338

  Which uses   3,419   27,743   38,858   38,250   60,872    84,105    98,569    91,654    93,248    91,197
  MT of                                                                                             
  Ethanol                                                                                           
  ------------ ------- -------- -------- -------- --------- --------- --------- --------- --------- ---------

(Source: French Sugarbeet Growers Association-CGB)

# FRENCH BIOFUEL CONSUMPTION

## Current Consumption

Biofuels (including biodiesel and bioethanol) currently represent 1% of
total fuel consumption in France per year.

However, these biofuels are not being developed at the same rate. In
France, diesel fuel is the leader. With lower taxes and French car
building know-how focused on diesel engines, particularly for the
Peugeot -- Citroen company ([www.psa.com](http://www.psa.com/)), a
growing number of French motorists are buying diesel cars: currently,
63% of private vehicles in France use diesel, and 37% use gasoline. New
diesel engines with high-pressure direct injection made diesel cars as
attractive in terms of power and acceleration as gasoline cars, along
with efficient fuel consumption. This situation creates a large problem
for French oil refiners: refining crude oil produces a certain amount of
diesel oil as well as a large amount of gasoline. Thus, in France,
refiners face a surplus of gasoline and a deficit in diesel oil:
gasoline is exported (20 million MT in 2002) at low prices, mainly to
the United States, while diesel oil (22 million MT in 2002) has to be
imported, sometimes at a much higher prices. It is then easy to
understand why oil companies in France do not like to blend ETBE or
ethanol in their gasoline, as it increases their surpluses, but they
love to incorporate VOME in diesel as it reduces their need for imports.

VOME is blended with diesel at the rate of 5% with no specific label at
the pump, and at a rate of 5-30% in captive fleets, approximately 4,000
vehicles in 30 communities across France. ETBE is blended up to 15
percent in gasoline.

For complete information on biodiesel production by Diester Industrie
and consumption, please see the website of the French oilseed industry:
[http://www.prolea.com]{.underline}

To date, biodiesel used in France is exclusively sourced from rapeseed
oil specifically produced to process biodiesel. However, other EU member
states such as Italy, Spain and Austria have developed programs where
cooking oil is recycled once used in restaurants and processed into
biodiesel. In case of short rapeseed supply, there may be similar
programs in France.

TOTAL S.A. ([www.total.com](http://www.total.com/)) is the largest
French petrol company to use biofuels. It purchases the bulk of the
biodiesel production and 100% of the ETBE produced in France.

## Biofuels to Help France Meet Kyoto Protocol Requirement 

According to the French biofuel industry, biofuels are the only liquid
renewable fuels immediately available, which production can be used to
fulfill France's commitments under the 1997 Kyoto protocol. This
protocol aims to reduce emissions of greenhouse effect gases and France
committed not to increase her emissions of greenhouse effect gases from
1990 to 2010, which is a major challenge given the sharp development of
transportation. An EU Directive from September 2001 stipulated that
France must raise its renewable energy consumption to 21% of its total
electricity consumption by 2010 from 15% in 1997.

The French Agency for Environment and Energy Management (ADEME)
considers that biofuel production in France saves 90 million Euros of
fossil fuels, or 1 million MT CO~2~ equivalent from being imported.
According to the French MinAg, 1 MT of VOME represents 2.5 MT of CO~2~
equivalent and 1 MT of bio-ethanol represents 2.7 MT of CO~2~
equivalent.

# FRENCH AND EU BIOFUEL POLICY

## 2001 EU Action Plan

In 2001, the EU Commission adopted an action plan to create through
incentives the use of biofuels, as part of the EU Commission's overall
strategy to favor sustainable development, reduce the EU's energy trade
deficit, and reduce the emission of greenhouse effect gases. The goal of
the EU Commission's action plan is to replace 20% of fossil fuels with
non fossil fuels by 2020. In the EU Commission's perspective, biofuels
offer the best short-term perspectives, natural gas ranks second, and
hydrogen consuming fuel cells come third.

## May 2003 Directive on Biofuel Promotion in Road Transportation

The 2003/30/EC Directive dated May 8, 2003 stipulates that fuels sold in
member states should contain 2% of biofuels by 2005 and 5.75% by 2010.
The EU Commission will monitor actions of each member state, and member
states will have to justify any short fall. ADEME estimates that the
2010 objective would require industrial oilseed plantings to increase
from currently 300,000 ha to roughly 1.5 million ha in France, and 8
million ha in Europe.

For more details on the potential impact of the Directive on French
biofuel production and consumption, please see report FR1083, dated
November 26, 2001.

## Biofuel Tax Regime

Biofuels are not price-competitive with fossil fuels, and biofuel
production has developed in France since 1993 because the French
Government has implemented significant tax reductions on these products.

From 1992 to December 2002, VOME benefited from a tax rebate of 35.06
Euros/hectoliter and bioethanol benefited from a tax rebate of 50.23
Euros per hectoliter. In 2002, tax cuts on biofuels represented 122.50
million Euros for VOME and 57.23 million Euros for bioethanol. These
biofuel programs were authorized with special derogations from the EU
Commission.

Since March 2002, the EU Council for transportation and energy has
approved biofuel tax cut programs as a \"specific policy conducted by
member states to increase their energetic independence and protect the
environment.\" The EU Council has tried to adapted biofuels' fiscal
advantages so that there would be no overcompensation provided to this
industry, and so that raw material prices are taken into account. Tax
reduction was consequently changed to 35 Euros per hectoliter of VOME (a
slight change from previous level) and 38 Euros per hectoliter of
bioethanol (a significant decline).

A new EU Directive officially authorizing special tax regimes for
biofuels is expected to be finalized by October 2003. Recommendations
from the European Parliament are currently expected on the EU Commission
project which should then formalize the March 2002 EU Council decision:
no overcompensation for biofuels, and taking into account raw material
prices in the calculation of biofuels tax reduction.

## French National Policy on Biofuels

The French Ministry of Agriculture considers that biofuel production is
important for France because these new markets for farmers increase farm
income, has a positive impact on land management, creates jobs, and
reduces EU deficit in protein meals for animal feed. Note: biodiesel is
produced from rapeseed oil, which is produced from rapeseed crush.
Crushing rapeseed produces rapeseed oil and rapeseed meal, which is used
in animal feed rations.

In May 2003, the French Government organized a one-day conference on
biofuels involving Parliamentarians from the French Senate and the
French National Assembly as well as biofuel specialists from petrol,
car, transportation, biofuel producing companies, research centers, the
French Agency for Environment and Energy Control (ADEME:
[www.ademe.fr](http://www.ademe.fr/) ), and the French Agency for Farm
Fuel Development (ADECA).

This conference was part of the ongoing \"National Debate on Energy\"
(including a number of conferences and discussions across France on
energy and transportation, renewable energies, nuclear energy, and
fossil energies) initiated by the French Government and lead by the
French Minister for Industry. Following these discussions, the French
Government is expected to present an orientation law on energy including
the main orientations of France's policy on energy for the next 30 years
to the Parliament in fall 2003.

For more information on the French \"National Debate on Energy,\" please
see the website:

[http://www.debat-energie.gouv.fr]{.underline}

## Impact of the Reformed CAP on Biofuel Production

The reformed Common Agricultural Policy adopted in June 2003 sets a
carbon credit payment of 45 Euros per hectare for farmers for growing
non-food crops. French oilseed growers believe it is insufficient for
French farmers to continue to grow industrial crops, and believe that 90
to 100 Euros per hectare for growing non-food crops would be necessary
to keep non-food production stable in France.

## Future Opportunities for Biofuels

Proponents of bio-ethanol would like ethanol to be blended directly into
gasoline, as it is done currently in Sweden. This would mean modifying
EU fuel volatility norms or at least granting a derogation for blended
gasoline. Another boost for ethanol would be a better tax differential,
with higher taxes for diesel fuel. Such a move could lead more motorists
to switch to gasoline cars.

Some biofuels specialists believe the future for bio-ethanol lies with
the development of fuel cells. A wide use of fuel cells is expected in a
near future, from home appliances, mobile telephone or computers to cars
and trucks. In those fuel cells, bio-ethanol will be used as safe
storage for hydrogen, which will be oxidized to produce electricity.

The gasification of bio-products, including arable crops and animal
dejections, using the Fisher-Tropsh process could also become a viable
solution to produce bio-fuels. Thru this process, the organic matter is
converted into petroleum-like products such as diesel fuel, naphtha and
kerosene. The French Oil company TOTAL S.A. is working on this process
(For more information, contact: <sustainable.development@total.com>).

The burning of straw in dedicated plants to produce heat and electricity
has also a potential in France. The French grain growers are watching
closely an experiment currently underway in Spain, which could be easily
duplicated in France.