COMMISSION OF THE EUROPEAN COMMUNITIES
Brussels, 7.11.2001
COM2001 547 provisional version
20010265 COD
20010266 CNS
COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN
PARLIAMENT, THE COUNCIL, THE ECONOMIC AND SOCIAL COMMITTEE
AND THE COMMITTEE OF THE REGIONS
on alternative fuels for road transportation
and on a set of measures to promote the use of biofuels
Proposal for a
DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL
on the promotion of the use of biofuels for transport
Proposal for a
COUNCIL DIRECTIVE
amending Directive 9281EEC with regard to the possibility of applying a reduced rate
of excise duty on certain mineral oils containing biofuels and on biofuels
presented by the Commission
COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN
PARLIAMENT, THE COUNCIL, THE ECONOMIC AND SOCIAL COMMITTEE
AND THE COMMITTEE OF THE REGIONS
on alternative fuels for road transportation
and on a set of measures to promote the use of biofuels
1. INTRODUCTION
Oil production in the EU has been on the increase over the last decade, due to the success of
exploration in the North Sea. At the same time oil consumption has remained almost
unchanged, primarily due to the phasing-out of oil as an energy source for non-transportation
uses, thus compensating for strong growth in transportation oil consumption. In the coming
twenty to thirty years EU production is expected to decline, whereas consumption will
increase as substitution possibilities will be exhausted and transport demand is likely to
continue to grow. During the coming decades of increased import dependency world oil demand is also
expected to show strong growth and the global distribution of known oil reserves leaves the
Middle East OPEC members as the only possible suppliers to this increased demand.
In addition, this scenario is out of step with the recognised necessity of reducing global
greenhouse gas emissions and particularly with the Kyoto commitments for industrialised
countries to initiate their reduction programmes over the coming decade. This is the backdrop against which the Commissions Green Paper Towards an European
Strategy for the Security of Energy Supply introduces the objective of 20 substitution by
alternative fuels in the road transport sector by the year 2020 with the dual purpose of
improving security of supply and reducing greenhouse gas emissions. This objective poses a challenge well beyond what has been asked from the car and oil
industry in the past such as drastic reduction of emissions of conventional air pollutants,
virtual elimination of lead and sulphur from automotive fuels or significant improvement of
fuel efficiency against developments that would otherwise have led to increased fuel
consumption. Any radical changes in fuel supply or engine technology for road transport faces a number of
problems.
The population at large has got used to having at their disposal a car that has over
the years become very cheap as has the fuel particularly when compared to disposable
income. Refuelling is necessary only for every 4-600 km or more available everywhere and
done in a few minutes. The car serves purposes from short distance shopping by one person in
the local supermarket to taking the family on the annual or semi-annual holiday to the other
end of Europe. In addition virtually no safety restrictions exist for parking or otherwise
placing the car in spite of it carrying a large amount of highly flammable liquid.
Few people
would be ready to compromise much on any of the advantages offered by todays car. Freight transport has different criteria. As an economic sector subject to strong internal
competition, cost and reliability are key factors. Any alternative fuel or engine technology
will have to be made competitive in order to penetrate the market. On the other hand, long
2
distance road transport is a single functional activity and refuelling points need not to be as
close together as for passenger transport. However, their geographical coverage throughout
Europe is essential. The penetration potential for any alternative fuel for the future has to be evaluated against
these criteria. Different alternatives will require different types and levels of investment in
infrastructure and equipment. Replacing a few percent of diesel or gasoline with biodiesel or
ethanol is the simplest, establishing plants to produce such alternative fuels being the only
long term investment. Fuel cells fuelled by hydrogen are the most complicated alternative,
requiring alternative engine technology, as well as large investment in plants to produce the
hydrogen and a totally new distribution system. Shifting to a hydrogen-based transport system
is a major decision, which will only make sense as part of a large-scale, long-term strategy, in
principle extending even beyond the EU. The driving force behind long-term substitution of conventional diesel and gasoline is the
need partly to improve the security of energy supply, partly to reduce the environmental
impact, especially climate change, from the transport sector. Any long-term solution will, as a
minimum, have to offer a reduction in oil dependency and a reduction in greenhouse gas
emissions, compared to the most fuel-efficient vehicles running on conventional fuel. In
addition, it must be required that such alternatives permit a continued reduction in emission of
conventional air pollutants from the vehicles. The combined requirement of comfort and performance of the car, security of supply of the
fuel, low environmental impact and high level of safety and continued low overall cost of
driving can in no way be fully met at any time. Future policy development will have to give
higher priority to security of energy supply and fuel efficiency lower greenhouse gas
emission.
An economic growth rate of 2-3 annually allows sufficient margin for transport
cost to increase moderately for those who are not prepared to accept a reduction in car size or
performance. This is particularly important in a transition period allowing for a change to a
more sustainable transport
technology is
fundamentally dependent on broad availability of the fuel. Establishing an area covering fuel
supply systems is very expensive and only justified if there is a sufficiently high demand, i.e. penetration. This chicken and egg situation makes any take-off difficult and implies that
only on a sufficiently large level such as the EU-wide level is it realistic to imagine the
introduction of alternative fuels with significant market shares. sector. Penetration of any new transport
On the basis of the consideration mentioned above the Commission sees three main potential
alternative ranges of fuels that could each be developed up to the level of 5 or more of the
total automotive fuel market by 2020
biofuels
natural gas
hydrogen
In addition, the technology of hybrid cars, combining combustion and electric drives, offers a
degree of fuel saving comparable to what alternative fuels may offer. These alternative fuels
and technology are described below, along with other alternatives that do not look quite so
promising yet, but might offer more limited contributions. The present communication does not set out to deliver the definitive answers to the challenges
outlined above. It does, however, try to identify an approach to be followed during the coming
3
years necessary to allow the EU to achieve the medium-term goals of 20 substitution of
conventional automotive fuel by 2020 and to do it in a way that sets the direction for the
development of road transport systems in the decades following 2020. 2. 2.1
THE OPTIONS
Motor vehicle fuel efficiency
Whereas fuel efficiency as such is not the scope of this communication it must be stressed that
any cost-effective strategy to reduce oil dependency and CO2 emissions from the transport
sector will have fuel efficiency as its top priority. This has been officially recognised as part
of the EU Strategy to reduce emissions and improve fuel economy since the Councils
adoption in 1996 of a CO2 emission target of 120g CO2km for new cars by 2005 and 2010 at
the latest1, corresponding to an average 35 reduction in fuel consumption of new cars
compared to the 1995 level. This strategy has since been mainly implemented through the
commitment of the European ACEA and Japanese JAMA and Korean KAMA Car
Manufacturers to achieve a maximum 140 g CO2km by 2008 2009 for JAMA and KAMA,
a commitment corresponding to a fuel efficiency of about 5.8 litre100 km for gasoline and
about 5.3 litre100 km for diesel. The target of 140 g CO2km has to be achieved mainly by
technological developments and market changes linked to these developments. It should be
mentioned that within the monitoring of the commitment only the direct CO2 emissions of the
vehicle are taken into account. The share of biofuels used has therefore no direct repercussion
on the commitment. There is reason to believe that applying and further developing existing technology will allow
higher fuel efficiency to be achieved in a cost-effective overall strategy. The ACEA
commitment will be reviewed in 2003 when the Commission will also seek commitments
from the car industry covering the years beyond 2008 in addition to the planned monitoring of
progress versus the 2008 target. In addition, the Commission has initiated talks with the car industry on how to ensure
improved fuel efficiency of the categories of cars not covered by existing agreements. Particularly, light commercial vehicles including sport utility vehicles not covered by the
existing agreement are addressed in this connection. If evaluated against a certain percentage of substitution with alternative fuels, fuel efficiency
improvements offer an advantage beyond what is offered by the measures in their own right.
It reduces the overall amount of fuel to be substituted, and since alternative fuels are more
costly, this will help to keep the overall cost down. That said, probably much more important
in the global picture is the effect world-wide of a strong European drive in car fuel efficiency. European car manufacturers are actively involved in car production in several important
emerging markets China, Latin America which nationally have strong reason to limit their
future dependence on imported oil. The benefit for all economies depending on imported oil,
including the EU, of easing pressure on the global oil market becomes an important priority in
a period of expected increased dependency on imported oil.
This issue will be taken up by the
Commission as a priority in the Trans-Atlantic Dialogue. 1
Environment Council of 25.6.1996
4
2.2
Biofuels
Ever since the first oil crisis in 1973, biomass has been considered and in some cases
promoted as an alternative to fossil fuel as a source of energy. Particular attention has been
given to the potential of using biomass as the basis for production of alternative motor vehicle
fuel diesel or gasoline because of the transport sectors almost exclusive dependence on oil. Biological material can be used as fuel for road transport in several ways
Plant oils colza, soybean, sunflower, etc. can be converted into a diesel
substitute which can either be used in a mixture with conventional diesel or
burnt as pure biodiesel. Sugar beets, cereals and other crops can be fermented to produce alcohol bio-
ethanol which can either be used as a component in gasoline, as motor fuel in
pure form, or as a gasoline component after being converted to ETBE through
reaction with isobutene a refining by-product. There is reason to believe that
future developments will also make it possible to produce economically
competitive bio-ethanol from wood or straw material. Organic waste material can be converted into energy which can be used as
automotive fuel waste oil cooking oil into biodiesel, animal manure and
organic household waste into bio-gas and plant waste products into bio-
ethanol. Quantities are limited in most cases, but raw materials are free and
waste management problems cost will be reduced. Technological progress indicates that in the medium term, other liquid and
gaseous biofuels produced by thermochemical processing of biomass such as
biodimethylether, biomethanol, biooils pyrolysis oils and hydrogen could
become competitive. In principle biofuels offer an ideal alternative since, when based on EU grown crops, they are
practically 100 indigenous and CO2 neutral since their carbon content is captured from the
atmosphere. On the other hand, biofuels are expensive 300 or more in additional cost per 1000 litre
conventional fuel replaced and the direct and indirect energy consumption during growing
the crops and producing the fuels means that up to half, or more than half, of the CO2 benefit
respectively. This
is offset
disadvantage can be reduced by fuelling the production process with waste material from the
crops straw, but this will tend to increase the additional cost. in the production process for biodiesel and bio-ethanol
The 3001000 litre additional cost is based on present oil price levels approx. 30barrel. It
would take an oil price around 70barrel to make biofuels break even with conventional
petroleum-derived diesel and gasoline. The maximum road transportation fuel substitution through biomass is usually considered
around 8 of present gasoline and diesel consumption if production of biofuels were
restricted to 10 of agricultural land . It is difficult to assess today the availability of land for
energy crops or biofuels by the year 2020 or beyond, and it should be borne in mind that
several crops rape, wheat, etc. have a higher energy content than what is used for the biofuel
and thus offers a broader renewable energy perspective than motor fuel substitute.
In addition
5
these crops deliver protein rich feedstuff as a by-product. Currently the EU is importing
around 30 Mio tons of oilseeds p.a. mainly for animal feedstuffs. Creating an EU market for biofuels will also offer an opportunity for the Candidate Countries. On average they have more agricultural land and less diesel and gasoline consumption per
capita than present EU Member States. Growing crops for biofuels will facilitate the
absorption of the agricultural sector of the new Member States in the Common Agricultural
Policy. Whereas biofuels will hardly be seen as a long-term high volume substitute for motor fuels
because of the limitation of available land, they deserve to be exploited in the short to
medium term because they can be used in the existing vehicles and distribution system and
thus do not require expensive infrastructure investment.
Present consumption of biofuels is
still below 0.5 of overall diesel and gasoline consumption, mainly in captive fleets that
operate on pure biofuels, and supported through different tax exemption schemes. A significant increase in the use of biofuels will require action at EU level in view of the
significant additional cost of biofuels, which are not so high at present levels of substitution
but which will amount to more than 5 billion annually with substitution moving above 5. Promoting biofuel can be done through different ways of overcoming the higher cost of
biofuels
a
Supporting the non-food agriculture sector. b
Tax differentiation in favour of biofuels to make it competitive in the market. c
Specifying a certain amount of biofuel in transport fuels sold
Agriculture policy
The Commission sees little scope for large scale biofuel production under the
existing system of set-aside land, in that the current agreement with the US Blair
House Agreement implies various limitations for support of rapeseed, soybean and
sunflower . Furthermore, public opinion will not be supportive of a biofuel campaign
that would be seen as additional agricultural subsidies whether justified or not. Finally, the Berlin ceilings on the budget simply would not allow additional support
for agricultural products. Taxation measures
Tax incentives could provide an effective way of promoting the development of
biofuels by helping, through suitable tax schemes, to reduce the differences in
production costs with fossil fuels. That said, the potential for different tax schemes
presented by the current legislation2 is still held in check to some extent by the
2
For the member States to implement measures to reduce or exempt excise duty on my own fuels
directive 9281EEC provides for two possibilities
-
one, Article 82d provides that Without prejudice to other Community provisions, Member
States may apply total or partial exemptions or reductions in the rate of duty to mineral oils used under fiscal
control .... in the field of pilot projects for the technological development of more environmentally-friendly
products and in particular in relation to fuels from renewable resources
6
objectives of the smooth functioning of the internal market, controlling distortion of
legal certainty for operators and the Member States and faster
competition,
development of sectors. The Commission and the Council therefore have to adopt a plain and transparent
framework in order to reduce excise duty on biofuels under fiscal control. This need
was already recognised in 1992 in the Scrivener3 proposal for a directive on
biofuels of agricultural origin, and then again in 1997 in the proposal for a Council
directive on the restructuring of the Community framework for the taxation of energy
products,4 Article 141b and c biomass and waste of which gives Member
States the option of reducing andor exempting excise duty on biofuels. The
Scrivener proposal was not unfortunately adopted by the Council5 and the 1997
proposal has been before the Council since it was tabled. Taxation as a tool is often made more effective where tax relief measures form part
of a coherent system of technical, regulatory and economic measures. This will
happen when two proposals for directives are established jointly, one to make the
sale of a certain percentage of biofuels obligatory in the Member States, the other
giving Member States a flexible economic instrument for implementing the first
proposal, and even going beyond its objectives. Biofuel Requirement in Marketed Transport Fuel
A requirement for a certain minimum percentage biofuel of all fuel sold throughout
the EU can be implemented without technical complications and the modest costs
of such a measure will be shared by all users. As a first step to a long-term biofuel
strategy a minimum biofuel share up to 2 will not have significant implications for
vehicle technology or other environmental aspects than CO2 reduction. However, it
would create a stable market, require expanding the existing biofuel production
capacity by a factor 5 in Europe and allow for experience to be gathered before next
steps on further expansion become effective. The Commission believes that the
simplest way of promoting large-scale biofuel penetration in the long term would be
through obligatory blending of a certain percentage of biofuels into gasoline and
diesel marketed throughout Europe. This solution requires no modification of
existing vehicles and it takes advantage of the existing distribution system with
practically no additional cost. Such an approach, however, would not recognise the
existing differences in agriculture production of raw materials that in some parts of
Europe would favour more the diesel substitutes and in other parts alcohol-based
components. Moreover, many existing schemes have been based on the pure andor
mixed biofuels in captive fleets, often through local agreements between producers
and municipalities or regions.
Therefore, in order to allow large-scale introduction of biofuels in the most cost-
effective way while at the same time maintaining the momentum given through the
-
two, Article 84 lays down that The Council, acting unanimously on a proposal from the
Commission, may authorise any Member State to introduce further exemptions or reductions for specific policy
considerations. 3
4
5
Proposal of 19.02.1992 COM1992 36, as published in JO C9273, p. 6, as amended on 01.07.994
COM1994 147. COM 1997 30, 12.03.1997.
Proposal withdrawn by the Commission in 1999. 7
visibility of local, pure biofuels schemes, the Commission believes that the following
approach offers the desired solution
In a first phase there should be a general overall commitment for Member States to
ensure that a certain percentage increasing with time of the transportation fuel
sold on their territory will be biofuel. Such a measure will achieve the double
objective of ensuring a certain quantity of fuel substitution and allowing the
necessary flexibility to continue existing and planned projects at local or regional
level.
In a second phase, as dedicated uses of biofuels will only be able to absorb a
limited quantity, further substitution above 5 will necessarily take the form of a
required blended amount of biofuels in each type of fuel marketed. 2.3
Natural Gas
Natural gas consists primarily of methane CH4 and can be used as a motor fuel in a
conventional gasoline engine. However, it requires special storage and injection equipment
and large-scale use of natural gas as a motor fuel would have to be based on cars specially
built for natural gas rather than on retrofitting existing gasoline vehicles. Natural gas as a motor vehicle fuel will have to be kept either under high pressure 200 bars
or in liquefied form at -162C in order to allow vehicles to carry fuel for a sufficient range
400 km between refuelling. The high-pressure solution is most likely to be the technically
preferred option. The technology is fully developed and proven. In Italy 300 000 vehicles run on natural gas
provided through a network of 300 refuelling points. In addition 50 000 more vehicles
throughout Europe operate on natural gas. These vehicles normally operate in a limited
geographical area and refuel at one or a few dedicated points. Natural gas has great potential in principle as a motor fuel. It is a cheap alternative fuel, has a
high octane number, is clean and has no problem in meeting existing and future emission
standards. It offers potential for a 20-25 lower CO2-emission than the energy equivalent
amount of gasoline, although no significant CO2 advantage over the more efficient diesel
engine. When used in buses, natural gas offers a most welcome noise reduction in cities. Since gasoline and natural gas will both be imported to a large extent in the future, there is no
overall security of supply advantage from natural gas. Increased use of natural gas would,
however, move the dependency away from the oil market, normally seen as an advantage. By
and large natural gas resources are more evenly distributed world-wide than oil resources, but
making them available is more difficult. Any decision on a large-scale move to natural gas as
a transportation fuel would have to include a serious analysis of the security of supply aspects.
An initial move to 5 or 10 of transport fuel being covered by natural gas appears to be of
minor concern from a security of supply view. Methane is a powerful greenhouse gas. The theoretical CO2 advantage over gasoline would
disappear with just a few percentage point losses of methane during distribution, storage or
refuelling. Experience from existing fleets indicates that the real CO2 advantage is 15-20
rather than the theoretical 20-25. Extended use of natural gas must include measures to
minimise losses. It should furthermore be noted that if natural gas replaces diesel, the
advantage is smaller due to the higher efficiency of the diesel engine. The energy used for
compressing the natural gas to 200 bars represents an additional 4 energy loss. 8
Carrying compressed natural gas necessitates appropriate safety measures. The fact that
natural gas is lighter than air and has a narrow flammability range and a high auto-ignition
temperature makes it less dangerous than gasoline and LPG, and it appears possible to let
natural gas vehicles to access anywhere where gasoline vehicles are allowed. Establishing a
sufficient infrastructure for areas covering natural gas supply for motor vehicles will be
moderately costly, benefiting from the existing natural gas distribution system throughout the
EU.
A recent study proposes an additional 1450 refuelling stations in order to create a proper
EU refuelling network at a total investment cost of around 800m. 2.4
Hydrogen
Hydrogen has been the subject of intensive research as a potential fuel for motor vehicles
during recent years. This is mainly due to the requirements of US legislation for car
manufacturers to start introducing Zero Emission Vehicles onto the market. Hydrogen used
in fuel cells, where the only combustion product is water, offers such a possibility. Use of Hydrogen as a motor fuel is not restricted to fuel cells. Hydrogen is a perfect fuel for a
conventional gasoline engine. Due to the much lower cost of the combustion engine relative
to the fuel cell this would seem to be the preferred option until future development has
reduced significantly the cost of fuel cells andor improved their energy conversion efficiency.
Used in combustion engines, hydrogen gives rise to the formation of NOx which, however,
since it is the only pollution formed, can be almost totally decomposed without too much of a
problem. Several large car manufacturers are already investing heavily in hydrogenfuel cell
technology and provided that projected development brings the production cost down by a
factor of 10 or more for the fuel cell systems, one can expect series production lines of
hydrogen-powered passenger cars in 3-4 years. It must be stressed, however, that hydrogen is not an energy source but an energy carrier. Whereas it is regularly stated that hydrogen can be derived from water, correctly in a purely
chemical sense, this is totally irrelevant. Any generation of hydrogen requires sources of
energy, in exactly the way as the other major energy carrier, electricity. Like for electricity, the advantage of using hydrogen as a fuel, as far as security of supply or
greenhouse gas emission is concerned, depends on how the hydrogen is produced. If produced
with coal as an energy source, it adds to security of supply but gives rise to higher CO2
emissions. If produced by non-fossil fuel nuclear or renewable, it adds to security of supply
and reduced CO2 emissions, but only in so far as the non-fossil fuel source is additional to
what would otherwise be used in electricity production. This means that any assessment of the
virtues of switching to hydrogen as a transportation fuel involves a number of assumptions on
long-term future energy policy developments, which are for the time being quite uncertain. Hydrogen as a future large-scale energy carrier has the advantage like electricity of allowing
generation from any imaginable source of energy and unlike electricity of allowing storage
over time. It will however have to compete with future electricity generation from the low-
carbon natural gas or no-carbon nuclear, renewable energy sources, and thus only offer an
advantage if the production of hydrogen is based on additional non-carbon energy resources
andor on additional natural gas supplies. In the latter case, it still remains to be shown
whether direct use of natural gas as transport fuel or conversion to hydrogen and subsequent
use in a fuel cell offers the biggest overall advantage. Large-scale production of hydrogen from natural gas or from electricity via electrolysis are
technological
fully developed industrial processes with little scope for
significant
9
breakthroughs or cost reductions. The full advantage of hydrogen as an energy carrier is that it
offers a flexible link with buffering capacity to a decentralised non-fossil fuel-based energy
market. Pipeline distribution of hydrogen is also a well-proven technology. The establishment
of a broad distribution network is only dependent on a sufficiently large customer base. Until
such point in time distribution via tanks to filling stations seems a more likely alternative. Storage of sufficient quantities of fuel in the car is another problem that has not yet found a
satisfactory solution. Because hydrogen only has 30 of the energy content of natural gas on
a volumetric basis, the gas containers needed to store a sufficient quantity becomes very
large and heavy. Different techniques are being researched on board storage of hydrogen but
so far none have seriously challenged high-pressure up to 350 bars containers. In conclusion, it is obvious that the potential advantages of hydrogen as a motor fuel will only
be achieved after further successful technological development of hydrogen storage and fuel
cell technology and after costly investment in hydrogen production and distribution facilities. Whereas other alternative fuels can be applied on the basis of one or several of either existing
vehicles bio-fuels, available fuels natural gas, or available distribution infrastructure
biofuels and partly natural gas, hydrogenfuel cell technology requires everything to be
developed or established from scratch. Beyond discussion, this is the most challenging
alternative to the conventional gasoline or diesel powered car and it is widely assumed that
hydrogen as a motor fuel will still take a number of years to take off on a full commercial
scale. Further progress in hydrogen and fuel cell related technologies could emerge from the
hundreds of millions of invested by the car industry and supported through the EU
framework programmes on RTD. Accelerated market introduction will gradually become
more extensive. The Commission is for the time being co-financing a large demonstration
project with 30 hydrogen-powered buses in 10 cities throughout Europe in order to help gain
practical experience in this new technology. Broad commitment from EU governments to
assist financially in the introduction of hydrogen-powered vehicles would provide much
needed support for the further development of this technology.
The two engine systems, and
other technical sophistication, such as regenerative breaking, however, increase the
cost and weight of the car. Until now the relatively few hybrid cars on the market
have been heavily subsidised. It is difficult to say whether high-volume production
would bring the price down to or in the neighbourhood of levels where the fuel
savings would justify the extra cost. Fuel savings obviously depend on the
circumstances under which the car is used. A 30 reduction in fuel consumption is
often quoted by the manufacturers of hybrid cars, a reduction level which is only
achievable in urban traffic with frequent breaking and acceleration and the engine
operating at low load for much of the time. Constant driving at high speed in a hybrid
car offers no advantage compared to a traditional car. c. Methanol and Dimethylether DME are both potential alternative fuels, derived
normally from natural gas. Methanol can be used in a gasoline engine, DME as a
substitute for diesel. Methanol offers few advantages over natural gas, apart from being a liquid and
therefore easier to hold in the car. The energy loss in the conversion of methane to
methanol results in lower overall efficiency and higher overall CO2 emissions than
natural gas when used directly as fuel. In addition, the high toxicity of methanol
makes it less attractive as a motor fuel. DME has physical properties like LPG it is a
gas at ambient temperature but it liquefies under a pressure of a few atmospheres. Being a diesel fuel, it offers higher efficiency than fuels for gasoline engines, enough
in fact to compensate for the energy loss in the conversion process from natural gas. For these reasons, DME burnt in a diesel engine is close to natural gas burnt in a
replacement and CO2-emission advantages are
gasoline engine as far as oil
concerned. DME, because it is easily liquefied, offers the possibility of commercialising sources
of natural gas that cannot justify investment in pipeline transportation because they
are too small andor too remote. An additional advantage of DME is that it burns
cleaner than diesel and poses less of a problem for emissions control equipment. For
this reason, it has attracted the interest of truck and bus manufacturers. It would be difficult to justify large-scale Community support for methanol or DME,
but the Commission will monitor the commercial development, both inside and
outside the EU. d. Diesel fuel produced from natural gas via the so-called Fischer Tropsch synthesis
appears to be a promising addition to conventional diesel. It is particularly attractive
in places where there is no market for the natural gas close to the production site. The conversion of natural gas into diesel goes via several conversion steps with
significant energy consumption and corresponding CO2 emissions. Consequently,
11
there is no CO2 advantage linked to Fischer Tropsch Diesel. There is however a
security of supply advantage since it broadens the range of supply possibilities for
motor vehicle fuel and the diesel produced from natural gas has very good blending
properties cetane number, giving it a high value. e. Liquefied Petroleum Gas LPG has been used as an automotive fuel for decades. LPG originates from refining of oil and as natural gas liquids, a fraction separated
from the methane during natural gas production. Quantities depend on crude oil type,
the type and degree of refining and on the specificity of individual gas fields. It can
be debated to what extend LPG should be considered a real alternative fuel. LPG is cheap and traditionally seen as an environmentally friendly fuel. However,
with gasoline and diesel becoming much cleaner than in the past, this advantage is
rapidly diminishing. Certain quantities of LPG are needed as a raw material in the chemical industry and
for other specific purposes. Conventional gasoline also contains butane an LPG
component in quantities as high as vapour pressure limitations permit. Deliberate
production of LPG from heavier petroleum fractions makes no sense, neither from a
security of supply nor environmental perspective. The challenge therefore is to make
sure that naturally available LPG will be used as a motor vehicle fuel rather than as
refinery fuel or other low-value energy source. There is reason to believe that more sophisticated refinery processing and increased
production of natural gas will increase the availability of LPG in the future. This may
allow a limited increase in LPG used as motor fuel.
The Commission will monitor
the situation and take appropriate steps where potential quantities of LPG are ignored
by the car industry or consumers
3. CONCLUSIONS
Out of numerous possible alternative fuels and engine technologies the following three
options would appear to have high volume potential each more than 5 of total transport
fuel consumption over the next 20 years
biofuels
natural gas
hydrogenfuel cells
Concerning the alternative fuels, an optimistic development scenario at this stage might
look like the following not excluding other possibilities such as DME
Year
2005
2010
2015
2020
Biofuel
Natural gas,
Hydrogen,
Total,
2
6
7
8
2
5
10
12
2
8
14
23
2
5
As regards the above figures for biofuel it should be pointed out that the 2 in 2005 results
from the assumption that the current situation in the Member State that are most advanced in
this field can be extrapolated to the other Member States. The 6 in 2010 presumes an active
policy in promoting biofuels and is based on the available potential in agriculture and waste
treatment. For the application of natural gas a new distribution infrastructure must be
established and a change of vehicles will be necessary. As it is unlikely that existing vehicles
will be adapted at a large scale this means that the gradual introduction of this alternative fuel
depends on the sale of new adapted vehicles . Therefore 2 in 2010 and 5 in 2015 seems an
optimitic scenario based on active policy. For the introduction of hydrogen an additional issue
is the production capacity, which makes it unlikely that a substantial market penetration will
take place before 2015. In addition the production method is crucial for the environmental
implications.
It is obvious from the previous chapters that these figures represent no more
than a rough guideline that will have to be adjusted in line with experience gained over the
years to come. It allows some of the alternatives to be less promising while still achieving the
20 substitution target by 2020. As underlined in the text, any alternative fuel strategy has to
be continuously monitored against developments in motor fuel efficiency. Successful
implementation of a strong fuel efficiency regime makes high substitution percentages less
necessary and may offer the most cost-effective CO2 emission reduction and improved
security of supply for quite a long part of the way. In order to promote the development described above, the Commission will act according to
the following plan of action
Two Commission proposals are attached to this Communication The first
1. proposal concerns a Directive requiring an increasing proportion of all diesel and
gasoline sold in the Member States to be biofuel, announcing, for a second phase, an
obligation of a certain percentage of biofuels to be blended into all gasoline and
diesel. The second proposal creates a European-wide framework allowing Member
States to apply differentiated tax rates in favour of biofuels. It should be pointed out
that the implications of a gradual introduction of biofuels are well-known and
contrary to the introduction of natural gas or hydrogen there are no objective reasons
for further delay. Biofuels are for the short and medium term the only option,
therefore launching the appropiate policy instruments to promote the introduction of
biofuels will give a clear signal that the Community is serious about developing
alternatives to petroleum products in transportation. 2. The establishment of a formalised contact group to give advice on the further
introduction of alternative fuels, particularly natural gas and hydrogen over the next
20 years. For natural gas the group will recommend which types of vehicles would be foreseen
buses, trucks, taxis, all types of cars, which geographical areas dependent on
availability of natural gas and car intensity, how to establish refuelling stations and
the necessary incentives, including questions related to fuel and vehicle taxation. For hydrogenfuel cells the group would analyse the feasibility of different concepts
and suggest a strategy to clarify uncertainties while considering different scenarios
for the energy mix to produce the hydrogen and their environmental implications. The steps necessary to allow at least 5 substitution by hydrogen by 2020 should be
part of the strategy. 13
In addition, the contact group will advice on other potential alternative fuels as it sees
relevant. The contact group will be chaired by the Commission and include important
stakeholders such as the car industry, the gas industry, the electricity industry and
NGOs in its makeup. It will deliver its first report by the end of 2002 and regularly
e.g. every 2 years thereafter.
In accordance with this, the Commission will report
regularly to the Council and Parliament, by mid 2003 for the first time. Alternative fuels or technologies not directly covered by the action plan
3. outlined above LPG, DME, electric cars will continuously be monitored by the
Commission as part of its overall commitments on security of energy supply and
sustainable development. Any new developments that might call for a review of the
assessment given in this Communication will be communicated to the Council and
Parliament. Consumers will be kept properly informed by public information and by
4. information from car manufacturers about the possibilities of using biofuels. As part of the implementation of Strategy to reduce emissions and improve fuel economy,
inter alia the following actions will be included in the Commission activities
a
b
c
d
the Commission will put forward - as a third pillar of the Strategy to reduce
emissions and improve fuel economy - a communication on options for establishing
a reference framework for fiscal measures in order to close the gap of 20 g CO2km
between the Community objective and the commitment of the car manufacturers
associations. in addition, support for the accelerated introduction of advanced, high efficiency cars
should be considered. A commitment by governments to buy a significant number of
such cars for public services would offer a most useful contribution to test whether
the additional cost can be brought down through large-scale production and could
offer a significant contribution to bridging the gap on fuel efficiency between the
Community target of 120 g CO2km and the industries commitment. in connection with the 20034 review of the CO2 commitments the Commission and
the car industry will also address post-2008 fuel efficiency targets. the Commission will continue the discussions with the car industry to take
appropriate measures in order to reduce the CO2 emissions from light duty vehicles. Although these measures and activities are not strictly related to the introduction of
alternative fuels, they are closely linked to CO2 emission reduction from road transport and to
dependency on energy imports and have therefore to be considered together with any
alternative fuels strategy. The Commission invites the European Parliament and the Council to endorse the above action
plan and to adopt the two legislative proposals for a European Parliament and Council
Directive on the promotion of the use of biofuels for transport and the legislative proposal for
a Council Directive amending Council Directive 9281EC contained in this Communication,
which is a coherent package for a significant enhancement of the use of biofuels in the EU
under transparent and stable conditions.
14
EXPLANATORY MEMORANDUM
1. INTRODUCTION
In its Green Paper Towards a European Strategy for Energy Supply6 the Commission
highlighted the critical role of the transport sector, with respect to both security of supply and
climate change
The transport sector is practically 100 dependent on oil, the energy source of greatest
concern from a security of supply viewpoint. CO2 emissions from transport are expected to keep rising, contrary to agreed objectives to
reduce them. This make it more difficult for the Union to respond to the challenge of
climate change and to meet its commitments under the Kyoto Protocol.
Moreover, the
commitments made in Kyoto Protocol must be regarded as a first step. The Green Paper therefore proposed an ambitious programme for that sector to promote
biofuels and other substitute fuels, including hydrogen, the aim being for these fuels to
account for 20 of total fuel consumption by 2020. With the Common Agriculture Policy CAP being refocused towards more emphasis on rural
economy, the production of raw materials for biofuels would help to create new sources of
income and to maintain employment in rural areas.
This will have a general beneficial impact
and also tie in better with enlargement. Consequently, several Member States have already taken measures at national level, mainly in
the field of taxation, to promote the production and use of biofuels. However, without co-
ordinated decisions on fiscal, energy and environmental policies in this field and without clear
prospects for the agricultural production and processing industry, it is doubtful whether
biofuels will ever reach a substantial share of the total fuel consumption in the EU. Actions at Community level in the field of biofuels, including taxation, are therefore needed
in order to create the basis for the investment required to promote sufficient quantities of
biofuels. 2. OBJECTIVE AND SCOPE OF THE PROPOSED DIRECTIVE
The fundamental objective underlying the draft Directive is to provide for a Community
framework that would foster the use of biofuels for transport within the EU. This proposal
lays down an obligation on Member States to introduce legislation and take the necessary
measures to ensure that as from 2005 a minimum share of transport fuel sold on their territory
is occupied by biofuels, while leaving it to the Member States to decide how best to meet this
aim. The minimum percentage of biofuels of all fuels for transportation sold on the individual
markets of the Member States, will be introduced on the basis of an agreed schedule. These
minimum percentages and schedules should be adapted by committee procedure on the basis
of experience, environmental evaluation, new technical developments and in conformity with
6
COM2000 769 of 29 November 2000
15
other energy and environmental objectives undertaken at national as well as Community
level. The measures taken to reach the annual targets will be set out in an annual report to be
submitted to the Commission by the Member States. On the basis of these reports, the
Commission will then assess the action taken by Member States to meet their quotas for
biofuels and, if appropriate, make proposals for amending the annex to the Directive. To allow time to establish the necessary production facilities, a quantitative commitment
should not be applied before 2005 when 2 biofuel substitution would appear to be a realistic
target. Increasing the substitution by 0.75 per year will bring substitution to 5 in 2009. Before the end of 2006 the Commission will examine the need for mandatory blending of
biofuel into petrol and diesel in order to meet the targets for biofuel in the transport sector and
will bring forward a proposal, amending Directive 9870EC as appropriate. 3. CURRENT DISTRIBUTION OF DIFFERENT TYPES OF FUELS IN THE EU AND
POTENTIAL FOR BIOFUELS
3.1
Different types of fuels
Biofuels for transport could be marketed in the form of pure biofuels for dedicated
vehicles or in the form of blend fuels in such a proportion that it does not affect the
performance of motor vehicles engines. These biofuels are mainly biodiesel,
bioethanol and ETBE ethyl-tertio-butyl-ether produced from bio-ethanol. Other
possible biofuels are biogas, biomethanol, biodimethylether and biooils. Technically
they can be used in conventional gasoline or diesel engines, but special containers
may be needed for carrying these fuels. Bioethanol can be used as automotive fuel by itself or it can be mixed with
conventional engine fuels. Most vehicles registered in the EU can technically run on
a blend of fuel of up to 15 bioethanol. Biodiesel
is currently used in pure form or blended with conventional diesel. in adapted
Currently, Germany, Austria and Sweden use 100 pure biodiesel
vehicles. In France biodiesel is blended at 30 in captive fleets and also used in
blends of 5 in normal diesel fuel. In Italy it is blended at 5 in normal diesel fuel. ETBE ethyl-tertio-butyl-ether is etherised bioethanol and can be used as a blending
component in gasoline at a rate of up to 15 . Biogas produced by the anaerobic fermentation of biomass andor the biodegradable
fraction of waste can be purified to natural gas quality and used in gas engines for
transportation. Biomethanol produced from biomass andor the biodegradable fraction of waste is
equivalent to fossil methanol and can be used in the same conditions as fuel for
transportation. Biodimethylether is a diesel quality fuel produced from biomass andor the
biodegradable fraction of waste, for use as biofuel. 16
Biooil is a pyrolysis oil fuel produced from biomass and can be used as a normal
diesel fuel. 3.2
The current situation in Europe
The situation regarding biofuels varies enormously throughout Europe. Austria and
France, for example, are the most active countries. A remarkable increase of 93
was recorded between the production of biofuels in 1997 and production in 1999. Only six Member States make any real contribution to the total European biofuel
production. The French oil and protein plants sector endeavoured to find new markets for
rapeseed oils that were under-used in the fuel sector in Europe. In 1991, a major
programme was developed to involve the main sectors concerned in biodiesel
production oilseeds manufacturers, oil producers, engine manufacturers, ADEME7
and public authorities. As a result of this programme and the existing tax relief on
pilot projects on rapeseeds and sunflowers esters, a 5 biodiesel was blended into
diesel fuel by one oil company on a general basis. Total biofuels contribution in 1999
amounted to 0.7 of total oil products consumption, with approximately one third
bioethanol and two thirds biodiesel. Austria was one of the first countries to establish a bio-energy programme. In 1991,
one of the worlds first industrial biodiesel production plants started operation at
Aschach Province of Upper Austria. An important part of the success of the Bioenergy programme in Austria is the
integration of an energy policy in the diversification, reorientation and innovation of
agriculture. In 1999, Austrian production of biodiesel was 18 kT. This production
increased to 30 KT in 2000. Germany is currently the second biggest biodiesel producer. Eurostat official
statistics gave 130 kT produced in 1999, which amounts to 15 of total EU biofuel
consumption.
In 2001, production is expected to be 250 kT, rising to 500 kT by
2002. Over the next 20-40 years, the Swedish scenario is to replace 25-50 of todays fuel
use based on forest and agricultural residues. The Swedish National Energy
Administration believes it is possible to attain a 10 market share for biofuel in ten
years time. Production of biofuels in Sweden in the year 2000 was about 50 kT. The available
surplus of wheat in Sweden could in the future produce with current yields
500 000 m³ of bioethanol, meaning some 5.6 of the total annual consumption of
gasoline and diesel oil in that country. There are around 300 ethanol fuel buses, most
of them in the area of Stockholm, and approximately 600 biogas-fuelled cars and
100 heavy-duty vehicles. Wood chips and other ligno-cellulosic sources such as
straw may be a raw material of the future, but for the time being conversion of
cellulose into bioethanol is not yet competitive. The Swedish government supports
7
Agence de lEnvironnement et de la Maîtrise de lEnergie
17
research and development of ethanol from wood biomass, with the objective of
making bioethanol from wood competitive in 2004. Production in Italy was 96 kT in 1999. The national plan for the use of agricultural
and forestry biomass anticipates production of bioethanol, biodiesel and ETBE of
around 1000 ktoe over the next decade. Production in Spain was around 50 kT in the year 2000. Liquid biofuels are included
in the national plan,8 with a recognised value for rural development and job creation. Approximately 500 ktoe is anticipated in the year 2010 in the context of fiscal
measures. The following table shows the relative share of only biodiesel in the EU Member
States
Country
Allpetroleum
products
consumptionin
transportktoe
1998-Eurostat
Gasoline
consumption
intransport
ktoe1998-
Eurostat
data
Diesel
consumption
intransport
ktoe
1998-Eurostat
Biofuel
production
kTin1998
Biofuel
production
kTin1999
Austria
Belgium
Denmark
Finland
France
Germany
Greece
Ireland
Italy
Luxembourg
Netherlands
Portugal
Spain
Sweden
UK
Total
5 923
9 228
4 574
4 129
47 237
61 351
7 085
3 200
38 647
1 503
13 079
5 523
29 401
7 288
47 791
285959
2 130
2 514
2 016
1 846
14 554
30 080
3 106
1 307
17 880
541
4 112
2 030
9 018
4 021
21 882
117037
3 224
4 852
1 711
1 776
26 603
24 834
2 245
1 429
16 138
685
5 067
2 863
16 215
2 374
16 597
126613
16
319
100
96
531
30
344
130
96
50
50
570
700
Conversion factor for biodiesel is 0.812 ktoekT Eurostat source and 0.6 ktoekT
for bioethanol extrapolation.
production in the year 2000
3.3
The potential for biofuel in Europe
The following factors will influence the potential breakthrough of biofuels
the primary biomass produced and process efficiency there exist variations from
1 toe of biodiesel produced per hectare in the case of rapeseed to 5.6 toe of biofuel
produced per hectare in the case of sugar beet
8
Plan de Fomento de las energías renovables en España, December 1999. 18
the economics of the main process and the production of by-products secondary
biomass
technology developments e.g.
the case of ligno-cellulosic crops. To give some kind of magnitude, the total arable crop area under the CAP which can
be used for the production of cereals, oilseeds, protein crops is limited to about 54
mill ha. for EU-15. The obligatory set-aside for 20012002 amounts to about 4 mill
ha in addition to voluntary set-aside of 1.6 mill ha i.e. in total 5.6 mill ha. Given this
surface of set-aside and considering only primary biomass as a function of the crop
grown, between 4 and 15 Mtoe of biofuels would be supplied for transport uses,
making for between 1.2 and 5 of total European petroleum products consumption. But the extent to which producers may choose to make use of set-aside for such
production will depend upon price signals and, in any case, be limited by the Blair
House Agreements constraint on the use of by-products of non-food production on
set-aside - namely 1 mio T soya meal equivalent. Moreover,
the Blair House
Agreement also constrains oilseed production supported by a crop-specific aid to a
maximum of some 5 mio ha. Thus the decision, taken within the context of Agenda
2000, to align the oilseed aid upon the cereals aid - and so end the crop-specific aid
for oil-seeds - created the basic condition for EU oilseed production to be able to
respond significantly to such demand outside the context of set-aside since the
possibility within set-aside is extremely limited. Other sources of production for
biofuels such as cereals including maize, sugarbeet, or woody biomass are not
covered by the Blair House Agreement and so are simply subject to normal rules of
competition. From the predictions of the Green Paper on security of supply,9 the transport sector
would grow some 2 per annum over the coming decade. If no energy saving
measures are applied, diesel and gasoline consumption for transport would be
approximately 304 Mtoe in 2010 in the EU as a whole. The contribution of biofuels
predicted in this proposal for 2010 should then be around 17.5 Mtoe. Finally, it should be mentioned that biofuel production is not directly linked with
agriculture surface area. In addition to the potential based on primary biomass,
secondary biomass and residues or organic waste should be considered as an
important, environmental-friendly, complementary resource for biofuels production. Examples of the potential of secondary biomass are waste vegetable oils and fats. Total consumption of oils and fats in the EU is about 17 Mt with a rate of increase
of 2 per year, three-quarters of which is vegetable oil. As part of its recycling
policy, Austria estimates that 18.5 of the total amount of oilfat is collectible. Extrapolation of this figure to the rest of EU would give a market size of up to 3 Mt
of fats and vegetable oils. The use of these fats and oils would eliminate the need for
dumping and its attendant environmental hazards. Recovery of oils also avoids the
cost of drainage and landfill disposal. 9
COM2000 769final. Green Paper Towards a European strategy for the security of energy supply. 19
4. ECONOMIC CONSIDERATIONS
4.1. Extra production costs of biofuels
Against
the backdrop of security of supply, reduced CO2 emissions and rural
economy, biofuels would look to have a great future. The dramatic fall in oil prices
in the earlymid 1980s and their persistently low level since then even todays
30barrel is less than half the price it was in 1980-82 in real terms means,
however, that biofuels are not competitive. Biodiesel currently the most used biofuel - has a production cost of approx. 5001000-litre, against 200-2501000-litre for traditional petroleum-based diesel
including the refinery cost. The production cost of biodiesel depends on a number of
factors, particularly the price of the raw material usually rapeseed oil, the size and
type of production plant, the yield and the value of by-products protein, glycerol. The estimate of 5001000-litre is based on average raw material cost,
low
large production plant and glycerine by-product price of
production cost of
501000-litre biodiesel produced. In view of the fact that it takes 1100 litre of
biodiesel to replace 1000 litre of petroleum-based product, the economic calculation
shows an additional cost of at least 3001000-litre of diesel replaced by biodiesel. This additional cost is highly dependent on the crude oil price and the volatility of
market prices of petroleum products. Crude oil price
Extra cost- 100 biodiesel
20 barrel
25 barrel
30 barrel
35 barrel
3501000-litre
3001000-litre
2501000-litre
2001000-litre
It should be mentioned that the production of biodiesel from used fried oils gives a
more positive picture, as the raw material is more or less free of costs and it forms
part of a sound waste management policy.
However, the quantity of biodiesel
produced from that source is of course limited. Bioethanol can be produced from different crops, normally sugar beets or cereals
wheat, barley. In the US, corn maize is the main raw material, and agricultural
waste products can be used in some cases. The same considerations apply to
bioethanol as to biodiesel. The production cost per 1000 litres may be lower. On the
other hand, it takes 1500 litres of ethanol to replace 1000 litres of gasoline. How can the extra cost for the medium term production of biofuels be justified and
which instruments can best offset this extra cost? Paragraphs 4.2 and 4.3 address the
benefits that are most readily quantifiable while paragraph 5 looks at the qualitative
impact on other policies. 20
4.2. The benefits of CO2 avoidance
Avoidance of CO2 emissions from biofuel depends on the way it is produced. CO2
emission from fossil diesel is around 3.2 tonnes CO21000-litre including CO2
emissions from production,
transport, etc. used. However, even though CO2
emission from biofuels is neutral in principle, actual CO2 avoidance is less than the
3.2 tonnes because of the emissions produced in the process of growing the crops and
the conversion of raw material into biofuels. Realistic CO2 saving for biodiesel is
around 2 to 2.5 tonnes CO21000-litre. Replacement of gasoline by ethanol is put by
ADEME at 2 tonnes CO2 1000-litre. If there were no other benefits, such as, for
instance, in the agriculture sector and in the security of supply, this would mean that
at current oil prices and biofuel production costs the cost of CO2 avoidance would be
in the range of 100 to 150 tonne CO2, which is above the range for cost-effective
measures to meet the EUs commitments during the first Kyoto commitment period. However, though the use of biofuels at this moment cannot yet be justified by the
benefits alone of CO2 avoidance, it should certainly be considered as a strategic
choice for future climate change policy. 4.3
The benefits of oil substitution for the security of supply
The strength of the oil substitution argument is difficult to quantify but nevertheless
significant. It is clear that a vast number of energy policy measures energy saving,
oil substitution in oil consuming countries put an end to the rising oil prices in the
early 1980s.
It is difficult to predict the effect of a single marginal reduction of oil demand on
world oil prices. However, for example, replacing 2 of EU diesel consumption with
biofuel at an additional cost of 2501000 litre would cost around 1000 Myear. The resulting 2 lower demand for OPEC oil would have a certain buffering effect
on oil prices and the savings on the approximately 4 billions barrels of oil consumed
annually in the EU could partially justify these additional costs. Moreover, the introduction of biofuels could be expected to have a modest effect in
dampening the effect of changes in crude oil prices on prices paid by consumers. For
example, if a 10 rise in the price of a barrel of oil results in an increase in the price
at the pump of 10 cents per litre, blending in 5 biofuels could be expected to limit
this price rise to 9.5 cents, assuming that the prices of biofuels themselves were not
significantly affected by the rise in crude oil prices.
5. 5.1
IMPACT ON OTHER POLICIES
Agriculture
Rural development is an increasingly important part of the Common Agriculture
Policy. An essential facet of the European agricultural model, which aims to put in
place a consistent and lasting framework for guaranteeing the future of the rural
community, is the creation of employment. Increased production of raw materials for biofuels will contribute to the multi-
functionality of agriculture and provide a stimulus to the rural economy through the
creation of new sources of income and employment. 21
Agricultural policy should encourage sustainable farming and afforestation and the
avoidance of negative environmental impact. Biomass can be directly processed from
raw material or be the residue of another process secondary biomass. The overall
impact will depend on how the raw material is used and disposed of, and what the
possible by-products and residues are. In many cases in the agri-food and forestry
industry biofuels could turn problematical waste production into a sustainable
product. The present proposal
management and should not give rise to distortions. is compatible with the Common Agricultural Policy
5.2
Employment
Biofuels are relatively labour-intensive, especially in rural areas during the
exploitation phase. Although precise numbers of job creation are difficult to evaluate,
different studies agree on the scale. The German study performed by the Fraunhöfer
Institute10 showed the rate of economic impact to be 16 employees per ktoeyear. The
Spanish national plan for biofuels puts the figure at 26 employees per ktoeyear of
biofuels produced source IDAE. Extrapolation of these results would lead to the conclusion that a biofuel contribution
of around 1 to total EU fossil consumption would create between 45000 and 75000
new jobs. Most of these jobs would be located in rural areas. The employment impact can be calculated in different ways with different results. For example, the 2000 M production cost of 4 million m3 of just biodiesel will
generate some 50 000 man-years in direct and indirect employment. Employment
engendered by refining of the same amount of conventional diesel is around 2 of
that figure. 5.3
Fiscal policy
The fragmentation of fuel tax systems in Europe, with different countries adopting
specific tax exemptions on different fuel specifications, creates a barrier to the
development of the sector and of European trade. A new legislative instrument in
favour of tax differentiation is proposed as a package with this proposal in order to
give stability to the market through greater European approximation.
Therefore, in
parallel to the present proposal, a Commission proposal for a Council Directive
amending Council Directive 9281EC is presented. 5.4
Environmental considerations
As regards the environmental impact of the production of biofuels, a number of
studies on the energy and environmental efficiency of alternative fuels have been
carried out since the beginning of the 1980s. Most of these studies gave rise to
animated discussions among advocates and opponents, both experts and the general
public alike. An analysis of the most important studies shows that the results only
differ slightly.
The studies confirm a positive energy balance, stating that with one
unit of fossil fuel energy, two to three units of renewable fuel can be produced. The
10
Volkswirschafttliche Aspekte einer Herstellung von Biodiesel
Wirtshaftsforchung 2nd EU Motor Biofuels Forum Sept 1996. in Deutschland. IFO-Institut
für
22
reduction of greenhouse gas emissions is also confirmed. The differences in the CO2
reduction depend on farming practices and the chain of production. Apart from the
impact on CO2 emissions, the production of crops for biofuels, conversion of the raw
materials and subsequent use of biofuels have a number of effects on the
environment that could be relevant to the attractiveness of replacing conventional
motor vehicle fuels with biofuels. When assessing these effects it is important to be aware that in principle what
matters is the difference between the overall impact of fossil fuel production, refining
and use versus biofuel production, conversion and use rather than the impact as such
of the biofuel life cycle. 5.4.1
Vehicle exhaust emissions
It has been claimed that biofuels are attractive because they generate fewer
conventional car emissions CO, NOx, VOC, and particulate. With conventional
gasoline and diesel becoming virtually sulphur and lead-free and with emission
norms being tightened to more than 90 reduction of most conventional emissions,
biofuels will offer in theory little, if any, emission advantage over gasoline and diesel
in the future. For this reason it is important that any future mandatory blending of
biofuels into petrol and diesel should be considered within the framework of
Directive 9870EC, EN 228 EN 590 and Community type-approval legislation. Directive 9870EC is based upon Article 100a new 95 of the Treaty and establishes
harmonised environmental specifications for all petrol and diesel marketed in the
Community.
Even so, in some cases, countries like Ukraine with big cereal production
could see rapid benefits arising from the new market. 24
Before the 1st of January 2007,
the Commission shall report to European Parliament
and to the Council, in order to asses the trade effects of the proposal and take into
account the relevant international obligations taken by the Community, especially
those under the WTO agreement on technical barriers to trade.
6
6.1
JUSTIFICATION FOR ACTION AT COMMUNITY LEVEL
Current political context
Art. 2 of the EC Treaty calls for sustainable development of the economy of the
Community. Art. 6 of the EC Treaty reinforces these objectives of sustainable development by
integrating environment policy into other Community policies. The Cardiff European
Council in 1998 reaffirmed the need for integration of the environment into energy
the framework for adopting measures with environmental
policy. Art. 175 set
objectives. The EU strategy for sustainable development, recently presented by the Commission
to the Gothenburg European Council of 1516 June 2001, identifies as key priorities
Limiting climate change and increasing the use of clean energy
Addressing threats to public health
Managing natural resources more responsibly
Improving the transport system and land use. One of the main challenges in implementing the strategy will be the development of
renewable energy sources, including for transportation. The present Directive intends
to address some of these challenges by promoting the use of biofuels. At international level the UN Framework Convention on Climate Change of 1992
requires the parties to adopt policies and to take measures to reduce and limit
greenhouse gas emissions consistent with the objectives of the Convention. This
commitment has been quantified by the Community by way of the 8 reduction
commitment laid down in the Kyoto Protocol of 1997. Greater use of renewable
energy sources can already substantially contribute to the Community efforts to meet
the Kyoto target in the relatively few years left before 2012. Nevertheless, their role
will be even more important in the period beyond 2012, where the Commissions
proposal for a Sixth Environmental Action Programme foresees a 20-40 reduction
by the year 2020. The expected increase in CO2 emissions if no further measures are taken, and the
difficulties that
the majority of Member States may face in meeting their
commitments under the EU burden sharing agreement, call for the reinforcement of
policies and measures at EU level within the overall EU climate change strategy. On 26.11.1997, the Commission adopted the Communication entitled Energy for
the future Renewable Energy Sources.11 This White Paper identified bioenergy and
11
COM 97 599 of 26.11.1997
25
transport as those fields where more targeted actions should be taken to help counter
the above problems. A progress report on the White Paper adopted by the
Commission,12 concluded that, firstly, the rather low contribution of 452 ktoe of
biofuels registered in 1997 was due to the fact that only four Member States had by
that time taken specific measures and, secondly, that the production of energy crops
should be given more encouragement and energy taxation revised to favour biofuels. In response to this White Paper, the European Parliament and the Council adopted
two resolutions on 17 June 199813 and 8 June 199814 respectively, whereby the
Commission was invited to undertake initiatives, notably in the biofuels sector. The Council noted that Member States should choose the most appropriate means of
promoting the use of renewable energy sources from, among other, fiscal measures. The Council also noted that, given the important role to be played by biomass, full
account should be taken of renewables in the development of Community policies on
agriculture and waste management, inviting the Commission to consider the need for
proposals to remove obstacles to the greater use of renewables. The European Parliament called on the Commission to include in the Action Plan the
promotion of the use of biofuels, with the aim of increasing the market share to 2
over 5 years, either through financial aid for the processing industry or through an
obligation on the oil companies to produce a minimum proportion of fuel from
biomass. It also considered that there should be additional exemption from mineral
oil taxes for mixed fuels to aid entry into the market. At its meeting on 9 September 2000 the informal ECOFIN Council stressed the need
for faster implementation of EU action plans in the field of energy-saving and
diversification in order to reduce the oil dependency of our economies. In its Green Paper on the security of energy supply,15 the Commission outlines the
prospective energy situation in the EU for 2010 and beyond. One of the essential
observations in this Communication is that the EU will in the short and medium term
have a limited possibility to influence the supply side of energy. However, as the EU
is one of the main consumer areas it should do its utmost to reduce its heavy
dependence on external suppliers. 6.2
Additional impact of action at Community level
There is no doubt that promotion of the use of biofuels in the EU is desired at
political level for the reasons of sustainable development, CO2 reduction, security of
supply and the additional positive influence on rural development and agriculture
policy. These are all issues of interest and responsibility at Community level, as
borne out by the numerous statements and acts at political level highlighted under
6.1. 12
13
14
15
COM200169 final of 16.02.2001
Resolution of the European Parliament of 17 June 1998.
A4-020798
Council Resolution of 8 June 1998 on renewable sources of energy, OJ C 198, 24.6.1998, p.1
Green Paper Towards a European strategy for the security of energy supply, COM2000 769. Op. Cit. 26
The dramatic fall in oil prices in the earlymid 1980s and their persistently low level
since then even todays 25barrel is less than half the price in 1980-82 in real
terms mean that biofuels are not competitive. Bio-diesel currently the most used
biofuel - has a production cost of approx. 5001000 litres, as against 200-250
1000 litres for conventional petroleum-based diesel. This means that promotional
measures involve costs such as reduced tax revenue, higher price at the pump, etc.,
and it is only fair that those costs should be borne to the same extent by all Member
States. However, chapter 3 highlights the substantial differences in performance between the
Member States concerning the use of biofuels in transport. In addition, there is
evidence that progress in some countries is mostly due to the impact of proactive
measures, both fiscal and promotional, rather than specific circumstances or resource
availability in those countries. The Commission also considers that the current situation in the EU shows that the
overall effort in terms of economics and research is provided by only a few Member
States, whereas the benefits from promoting biofuels in terms of the environment,
security of supply, emerging technologies and markets profit the Union as a whole. Therefore, the proposal for a new legally binding instrument must be seen in the light
of the common objective of increasing the use of biofuels for transport in all Member
States in the European Union. The proposal also would lead to an increased demand
for biofuels in the internal market, which will provide EU-wide market opportunities
for companies. Nevertheless, the proposal should at the same time safeguard the internal energy
market by ensuring that promotional measures will not prohibit trade in fuels that
meet the specifications on fuel quality of Directive 9870EC. The proposal therefore
requires that as from 2005 a certain percentage of the fuel sold in each Member State
is biofuel, although it does not impose any particular method of how to meet such an
objective. This flexibility means that Member States can leave the choice to the
companies concerned of how to meet
local
circumstances. This could be done by blending diesel or petrol with biofuel products
or by promotion of 100 biofuel in captive fleets. It also means that there will be no
legal barriers to the trade of pure fossil fuel in the internal market. However it is
considered to be unlikely that a percentage of biofuels above 4 to 5 can be reached
in any Member State without a systematic blending into all ordinary transport fuels. Therefore the Commission will study this issue and if appropriate propose an
amendment to Directive 9870EC to require a mandatory blending of a certain
percentage biofuels in gasoline and diesel. taking account of
their quotas,
The percentages proposed for the total biofuel sold can be adapted to the situation in
the Member States by a Committee procedure. This Community approach will give a better guarantee of a level playing field for the
agriculture and forestry sectors, consumers, fuel producers and distributors, and the
car industry in the internal market.
27
7. RELEVANCE OF THE INITIATIVE TO ACCESSION COUNTRIES
Agricultural activity per capita in accession countries is double the level in EU-15. There is
therefore potential for sustainable farming of biofuels in these countries. Biofuel production
could contribute to agricultural diversification, help to meet the environmental challenge and
form part of job creation policy. Examples of a developing biofuel industry are in the Czech Republic and in Slovakia. The
Czech Republic has already completed a programme for establishing 16 biodiesel plants and
is the world leader in the number of plants per country. It already has some 70 000 t
production capacity, the biggest single plant, with 30 000 t capacity, being located in
Olomouc. There is also full tax relief for biodiesel granted for environmental reasons. Additionally, the level of VAT on biodiesel is reduced to only 5 . 8. CONTENTS OF THE PROPOSAL
Article 1 defines the purpose and scope of the proposal. Article 2 concerns biofuel definitions. Article 3 obliges Member States to establish a minimum percentage by volume of biofuels to
be sold in their respective markets. Article 4 concerns reporting by the Member States and the Commission.Articles 5 and
6concern the committee procedure for adapting the annex of the proposed Directive to
technical progress. Articles 7, 8 and 9 concern the administrative provisions of the proposal. The Annex to the proposal contains a list of liquid tha are considered to be biofuels and the
schedule for the share of biofuels in the total fuel market. 28
20010265 COD
Proposal for a
DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL
on the promotion of the use of biofuels for transport
THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,
Having regard to the Treaty establishing the European Community, and in particular
Article 175 thereof,
Having regard to the proposal from the Commission,16
Having regard to the opinion of the Economic and Social Committee,17
Having regard to the opinion of the Committee of the Regions,18
Acting in accordance with the procedure laid down in Article 251 of the Treaty,19
Whereas
1
2
3
4
5
In accordance with Article 2 of the Treaty the Gothenburg Council of 1516 June 2001
adopted a Community sustainable strategy consisting in a set of measures, which
include the development of biofuels. Natural
resources, and their prudent and rational utilisation as referred to in
Article 174 of the Treaty, include oil, natural gas and solid fuels, which are essential
sources of energy but also the leading sources of carbon dioxide emissions. The transport sector accounts for more than 30 of final energy consumption in the
Community and is expanding, a trend which is bound to increase, along with carbon
dioxide emissions. Greater use of biofuels for transport forms a part of the package of measures needed to
comply with the Kyoto Protocol, and of any policy package to meet further
commitments.
Increased use of biofuels for transport is a tool for the Community to influence the
global fuel market for transport and hence the security of energy supply in the medium
and long term. 16
17
18
19
OJ C , , p. . OJ C , , p. . OJ C , , p. . OJ C , , p.
. 29
6
7
8
9
Promoting the use of biofuels respecting good farming practices will create new
opportunities for rural sustainable development in a more market-orientated Common
Agriculture Policy. In its resolutions of 8 June199820 and of 5 December 2000 the Council endorsed the
Commissions Strategy and Action Plan for Renewable Energy Sources and requested
specific measures in the biofuels sector. In its resolution of 17 June 1998 the European Parliament called for an increase in the
market share of biofuels to 2 over 5 years through a package of measures, including
tax exemption and the establishment of a compulsory rate of biofuels for oil
companies. The optimum method for increasing the share of biofuels in the national markets
depends on the availability of resources and raw materials, on national policies to
promote biofuels and on tax arrangements and should therefore be left as far as
possible to the policies of the oil companies and other parties concerned. 10 National policies to promote the use of biofuels should not lead to prohibition of the
free movement of fuels that meet the harmonised environmental specifications as laid
down in Community legislation. 11 However, it will be difficult to increase the proportion of biofuel sold above a certain
level without measures to blend it in fossil fuel. Therefore, Member States should aim
at a minimum blending of 1 of biofuel
into the mineral oil marketed in the
Community. This percentage will be adapted on the basis of the shares obtained by
biofuels among the various fuels marketed in the Member States and based on further
detailed studies. 12
13
14
In accordance with the principles of subsidiarity and proportionality as set out in
Article 5 of the Treaty, general principles providing for a minimum share of biofuels
to be marketed and distributed should be established at Community level, although
with detailed implementation left to each Member State, thus allowing each Member
State to choose the arrangement that best fits its particular situation. This Directive
confines itself to the minimum required in order to achieve those objectives and does
not go beyond what is necessary for that purpose. Provision should be made for the possibility of rapidly adapting the schedule in the
Annex to this Directive for introducing biofuels in the transport fuel market to
technical progress and to the results of an environmental impact assessment of the first
stage of introduction. Since the measures necessary for the implementation of this Directive are measures of
general scope within the meaning of Article 2 of Council Decision 1999468EC of 28
June 1999 laying down the procedures for the exercise of implementing powers
conferred on the Commission,21 they should be adopted by use of the regulatory
procedure provided for in Article 5 of that Decision. 20
21
OJ C 198, 24.6.1998, p.1.
OJ L 184, 17.07.1999, p. 23. 30
HAVE ADOPTED THIS DIRECTIVE
Article 1
This Directive sets a minimum percentage of biofuels to replace diesel or gasoline for
transport purposes in each Member State. Article 2
1. For the purpose of this Directive, the following definitions shall apply
biofuels means liquid or gaseous fuel for transport produced from biomass. biomass means the biodegradable fraction of products, waste and residues from
agriculture including vegetal and animal substances, forestry and related industries, as well
as the biodegradable fraction of industrial and municipal waste. energy content means the lower caloric value of a fuel. 2. The products listed in Part A of the Annex shall be considered biofuels. Article 3
1. Member States shall ensure that the minimum proportion of biofuels sold on their
markets is 2, calculated on the basis of energy content, of all gasoline and diesel
this share
sold for transport on their markets by 31 December 2005 and that
increases, aiming towards a minimum level of blending, in accordance with the
schedule set out in Part B of the Annex. 2. Biofuels can be made available as
a
pure biofuels
b
biofuels blended in mineral oil derivatives taking into account the appropriate
European norms describing the technical specifications for transport fuels EN
228 and EN 590
c
liquids derived from biofuels, such as ETBE ethyl-tertio-butyl-ether, where
the percentage of biofuel is specified in the part A of the Annex. Member States should monitor the effect of the use of biofuels in diesel blends above
5 by non adapted vehicles and, where appropriate,
take measures to ensure
compliance with the relevant Community legislation on emission standards
Member States shall report to the Commission, before 1 July each year, on the total sales of
transport fuel and the share of biofuels in such sales for the preceding year. Article 4
31
Before 1 January 2007 the Commission shall report to the European Parliament and to the
Council on the progress made in the use of biofuels in the Member States, on the economical
aspects and on the environmental impact of further increasing the share of biofuels. On the
basis of this report, the Commission will propose, when appropriate, an adaptation of the
system of targets as laid down in Article 3. Article 5
Any amendments necessary in order to adapt the Annex to technical progress shall be adopted
in accordance with the procedure referred to in Article 62. The adaptation of the schedule of Part B of that Annex may be decided in accordance with the
procedure referred to in Article 62, on the basis of technical development of biofuel
technologies, market penetration and applications in means of transport. 1. 2. 3. 1.
2. Article 6
The Commission shall be assisted by the committee established by Article 4 of
Council Decision 199921EC22. Where reference is made to this paragraph, the regulatory procedure laid down in
Article 5 of Decision 1999468EC shall apply, in compliance with Article 7 and
Article 8 thereof. The period provided for in Article 56 of Decision 1999468EC shall be three
months. Article 7
Member States shall bring into force the laws, regulations and administrative
provisions necessary to comply with this Directive by 31 December 2004 at the
latest. They shall forthwith inform the Commission thereof. When Member States adopt those provisions, they shall contain a reference to this
Directive or be accompanied by such reference on the occasion of their official
publication. Member States shall determine how such reference is to be made.
Member States shall communicate to the Commission the provisions of national law
which they adopt in the field covered by this Directive. 22
OJ L 7, 13.01.19990, p. 1. 32
This Directive shall enter into force on the twentieth day following that of its publication in
the Official Journal of the European Communities. Article 8
Article 9
This Directive is addressed to the Member States. Done at Brussels,
For the European Parliament
The President
For the Council
The President
33
ANNEX
A. LIST OF BIOFUELS AND PERCENTAGE OF RENEWABLE CONTENTS
bioethanol ethanol produced from biomass andor the biodegradable fraction of waste, to
be used as biofuel
biodiesel a diesel quality liquid fuel produced from biomass or used fried oils, to be used
as biofuel
biogas a fuel gas produced by the anaerobic fermentation of biomass andor the
biodegradable fraction of waste that can be purified to natural gas quality, to be used as
biofuel
biomethanol methanol produced from biomass andor the biodegradable fraction of waste,
to be used as biofuel
biodimethylether dimethylether produced from biomass andor the biodegradable fraction
of waste, to be used as biofuel
biooil a pyrolysis oil fuel produced from biomass, to be used as biofuel. bioETBE ethyl-tertio-butyl-ether ETBE produced on the basis of bioethanol. The percentage of volume bioETBE that is calculated as biofuel is 45. B. MINIMUM AMOUNT OF SOLD BIOFUEL AS A PERCENTAGE OF SOLD GASOLINE AND
DIESEL
Year
Of which as a
minimum in the
form of
blending
2005
2006
2007
2008
2009
2010
2
2.75
3.5
4.25
5
5.75
-
-
-
-
1
1.75
34
IMPACT ASSESSMENT FORM
THE IMPACT OF THE PROPOSAL ON BUSINESS WITH SPECIAL REFERENCE
TO SMALL AND MEDIUM-SIZED ENTERPRISES SMEs
DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL ON THE PROMOTION OF
THE USE OF BIOFUELS FOR TRANSPORT
DOCUMENT REFERENCE NUMBER
THE PROPOSAL
1. Main aims of the proposal is to promote an increased use of biofuels in
transport in the European Union in order to contribute
to security of supply of transport fuel
to a reduction of CO2 emissions
to rural development and maintenance of employment in the rural community. Community legislation is necessary to increase the use of biofuels and the
investments in this sector in all Member States, as benefits of such an increased use
are also for the Union as a whole. THE IMPACT ON BUSINESS
2. Who will be affected by the proposal ? Oil companies
Biofuel producers
Farmers
Vehicle manufacturers
Consumers. Next to Oil companies and vehicles manufacturers, mainly the small and medium-
sized producers especially in rural areas of the Community will be affected. Oil companies will have to ensure that a share of their total gasoline and diesel
3. sold will be biofuels. 4. What economic effects is the proposal likely to have? on employment positive
on investment and the creation of new businesses positive
on the competitiveness of businesses neutral
35
Does the proposal contain measures to take account of the specific situation of
5. small and medium-sized firms reduced or different requirements etc? No
CONSULTATION
6. Organisations which have been consulted about the proposal
Oil companies
Car manufacturers
Biodiesel producers
Trade organisations. Agriculture organisations. 36
EXPLANATORY MEMORANDUM
1. INTRODUCTION
In this explanatory memorandum, a biofuel is a product obtained from certain renewable
to excise duty under Directive 9281EEC.23 A biofuel can
resources which is subject
therefore be used, in its pure or blended form, as a motor or heating fuel. The Commission communication on alternative fuels for transportation and on a set of
measures to promote the use of biofuels24 identifies two possible courses of action for the
latter purpose25
-
-
applying different rate of excise duty in favour of biofuels to make them competitive
in the market,
specifying a minimum percentage of biofuel in motor fuels sold. The attached proposal for a Council Directive therefore sets out a new framework of taxation
for biofuels. A second proposal for a Directive of the European Parliament and of the Council
will set a statutory minimum biofuel content for motor fuels sold after 200526. 2. BACKGROUND
Promoting biofuels
The Commission and the Council have been encouraging the development of renewable
energies, and biofuels in particular, since 1985. The Directive relating to oil savings through
the use of substitute fuel components27 stresses the role biofuels can play in reducing Member
States dependence on oil imports and authorises the incorporation into petrol of up to 5 of
ethanol by volume and up to 15 of ethyl-tertiary-butyl-ether ETBE by volume. The
Council Decisions of 1993 and 1997 on promoting renewable energies in the Community
Altener28 and Altener II programmes29 are aimed at securing a market share for biofuels of
5 of total motor vehicle fuel consumption by 2005.
The 1997 White Paper on renewable
sources of energy30 further recommended setting a production target of 18 million tonnes of
liquid biofuels by 2010 as part of an overall goal of doubling the share of renewables in EU
energy consumption by the same year. The communication on the implementation of the
Community strategy and action plan on renewable energy sources 1998-200031 reinforces
23
24
25
26
27
28
29
30
31
OJ L 316, 31.10.1922, p. 12, as last amended by Directive 9474EC OJ L 365, 31.12.1994, p. 46. OJ C , , p. . Having rejected the possibility of subsidising raw material production under the common agricultural
policy. OJ C , , p. .
Council Directive 85536EEC of 5 December 1985 on crude-oil savings through the use of substitute
fuel components in petrol. OJ L 334, 12.12.1985, p. 20. Council Decision 93500EEC of 13 September 1993 concerning the promotion of renewable energy
sources in the Community Altener programme OJ L 235, 18.9.1993, p. 41. Council Decision 98352EC of 18 May 1998 concerning a multiannual programme for the promotion
of renewable energy sources in the Community Altener II OJ L 159, 3.6.1998, p. 53. COM1997 599, 26.11.1997. COM2001 69, 16.2.2001. 37
these guidelines. The communication entitled A Sustainable Europe for a Better World A
European Union Strategy for Sustainable Development,32 presented to the Gothenburg
European Council of 15 and 16 June 2001, also highlights the important role of biofuels in
tackling climate change and in the development of clean energies. Recent work indicates that the development of biofuels would also have a positive impact in
the agricultural sector and on employment. Lastly, the Commission Green Paper Towards a European strategy for the security of energy
supply33 stresses 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. Taxation framework
Energy products are basically taxed in three ways excise duties, which are specific duties
proportional to the physical quantity of the product, dedicated taxes and duties and VAT,
which is an ad valorem tax proportional to the selling price of the product. At the current
moment, there is no Community framework for energy products other then mineral oils nor
for taxes other than excise duty and VAT. the Member States decided unanimously in 1992 to introduce a
In the excise field,
Community system for the taxation of mineral oils based on two Directives, one on the
harmonisation of the structures of excise duties 9281EEC, the other on the approximation
of the rates of excise duties 9282EEC34 on mineral oils. The two Directives set a minimum
rate of tax for each mineral oil according to its use motor fuel, industrial and commercial use,
heating. In practice, excise duty is often far in excess of the minimum Community rates,
which have not been adjusted since 1992, and differs enormously from one Member State to
another. The Directives provide for a number of compulsory tax exemptions35 and also allow Member
States further specific excise duty exemptions or reductions either under fiscal control or
subject to an application to the Commission and the unanimous approval of the Council,
acting on a proposal from the Commission. Such derogations are often introduced out of a fear of seeing certain sectors of the economy
lose their competitiveness when ambitious fiscal reforms involving tax increases for
environmental purposes are adopted at national level. However, there are other reasons for the derogations too, in particular to facilitate the
introduction of more environmentally friendly fuels. Differential excise rates, for example,
help the market share of low sulphur fuels to develop more rapidly. By allowing products to
be differentiated by environmental category, tax incentives are an effective method for
steering economic operators business and consumers towards products which promote
sustainable development. 32
33
34
35
COM2001 264, 15.5.2001.
COM2000 769, 29.11.2000. OJ L 316, 31.10.1992, p. 19, as last amended by Directive 9474EC OJ L 365, 31.12.1994, p. 46. e.g. on fuels used in commercial air transport. 38
Lastly, derogations are also aimed at the development of public transport, particularly in
urban centres, by allowing tax exemptions or reductions on fuel used by local public
passenger transport. Tax treatment of biofuels
Pursuant to Directive 9281EEC, biofuels blended into motor or heating fuel are taxed
according to end product and use. On being added to petrol, for example, ethanol, which is
not a mineral oil within the meaning of Directive 9281EEC, becomes a motor fuel subject to
the current rate of excise duty on petrol in the Member State concerned. Member States are allowed two possibilities by Directive 9281EEC for implementing
measures to reduce or exempt excise duties on biofuels. Firstly, under Article 82d of the Directive, Without prejudice to other Community
provisions, Member States may apply total or partial exemptions or reductions in the rate of
duty to mineral oils used under fiscal control ... in the field of pilot projects for the
technological development of more environmentally-friendly products and in particular in
relation to fuels from renewable resources. Secondly, according to Article 84 of Directive 9281EEC, the Council, acting
unanimously on a proposal from the Commission, may authorise any Member State to
introduce further exemptions or reductions for specific policy considerations. In September 2000, the Court of First Instance36 annulled the Commission decision of April
1997 which established the compatibility of the state aid scheme37 in France involving the
reduction of excise duty on ethyl-tertiary-butyl-ether ETBE on the grounds that the legal
basis for the tax derogation, i.e. Article 82d of Directive 9281EEC, was not relevant
because the manufacture of ETBE in France had gone beyond the pilot project phase. Prior to the CFI judgment, Member States allowing tax reductions or exemptions for biofuels
had made use only of the option offered by Article 82d of Directive 9281EEC. Subsequently, in accordance with Article 84 of Directive 9281EEC, the French, Italian and
UK authorities have applied to the Commission for derogations allowing them to apply excise
duty reductions on biofuels. 3. OBJECTIVE AND SCOPE OF THE PROPOSED DIRECTIVE
The development of renewable energies, in particular biofuels, is a clear political priority for
the EU in the context of commitments on the reduction of greenhouse gases. Security of EU
energy supply is also becoming of increasing importance. Tax incentives are an effective tool of both environmental and energy policy. Taxes make up
a significant proportion of the selling price of energy products, in particular motor and heating
fuels. 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. At a
36
37
CFI judgment of 27.9.2000, Case T-18497, BP Chemicals v Commission. Decision of 9.4.1997, SG 97 D3266. 39
crude oil price per barrel of between 25 and 30 dollars, the cost of producing pure biodiesel,
unblended with fossil fuel, is currently EUR 0.25-0.30 more per litre than for fossil diesel
oil.38
The effectiveness of tax instruments is often enhanced if the tax relief measures form part of
a coherent package of technical, regulatory and economic measures. This is the case here as
two proposals for directives have been drawn up in conjunction, one on the compulsory
incorporation of biofuel in fuels sold, the other providing Member States with a flexible
the first proposal or even go further than its
economic instrument
objectives. to help implement
The need to adopt a simple and transparent legal framework for the implementation of
reductions in the excise duty on biofuels was already acknowledged in 1992 in the proposed
Directive on excise duties on motor fuels from agricultural sources39 and again in 1997 in the
proposal for a Council Directive restructuring the Community framework for the taxation of
energy products,40 Article 141b and c biomass and waste which allows Member States
to apply reductions andor exemptions in excise duty on biofuels. Unfortunately, the 1992
proposal was not adopted by the Council41 and the 1997 proposal is still on the Council
table.42
The definition of biofuels in the 1997 proposal still applies today subject to the addition of
water when used, for example, with certain fuels and additives aquazole. The burgeoning interest in the development of biofuel industries is clearly illustrated by the
tax incentive programmes implemented by some countries to promote biofuels and a close
inspection of recent Member State budgets and the ongoing debates in various national
parliaments. Despite variations in the types of product concerned, the projects generally include a tax-
related component a reduction in excise duties. Faced with the prospect of an ever-increasing number of individual applications for excise
reduction or exemption measures from Member States under Article 84 of Directive
9281EEC, the Commission considers it in the Community interest to establish a legislative
framework on the basis of Article 93 of the Treaty to provide economic operators and
Member States with the necessary legal certainty required to ensure the development of a
genuine market
in these products. A Community framework is conducive to better
functioning of the internal market. The attached proposal for a directive allows Member States to reduce excise duties, under
fiscal control, in proportion to the percentage of biofuel incorporated in the fuel or end
product. This proportional reduction in tax is consistent with the objective of the regulatory
Directive as the higher the percentage of biofuel, the greater the value of the potential
reduction in excise duty on the end product. 38
39
40
41
42
OJ C , , p. . Proposal of 19.2.1992 COM1992 36, published in OJ C 731992, p. 6, as amended on 1.7.1994
COM1994 147. The proposal is often referred to as the Scrivener proposal. COM1997 30, 12.3.1997. The proposal was withdrawn by the Commission in 1999.
The current proposal for a directive does not affect the 1997 proposal. 40
With a view in particular to mitigating the loss of Member State budget resources, however,
the actual amount of tax on the end product may not be less than 50 of the normal rate of
excise duty for the corresponding propellant. Transitory measures are foreseen in favour of
products solely made up of biofuels, which have been totally exempted from excise duty on 1. January 2001. Furthermore, if required by specific circumstances at national level, additional
exemptions or reductions may be authorised according to the procedure of Article 8 4 of
Directive 9281EEC. In order to limit distortions of competition and maintain the incentive of a reduction in costs
for producers and distributors of biofuels, the proposal calls on Member States to set up
excise reduction mechanisms which take account of changes in raw material prices so that in
the event of a sustained rise in crude oil prices, for example, the lower tax rates do not over-
compensate for the extra cost of manufacturing biofuels.43
The proposal also contains an additional optional reduction for biofuels used by local public
passenger transport, including taxis, and by public authority-operated vehicles identified in
the communication on alternative fuels for transportation as appropriate and setting a good
example. To take into account the principle of free movement of goods in the internal market, only
some biofuels, intended for use as heating fuel or motor fuel, have to be integrated in the
scope of Directive 9212EEC,44 on the general arrangements for products subject to excise
duty and on the holding, movement and monitoring of such products. Implementing measures
are included in order to define what has to be understood by a product intended for use as
heating fuel or motor fuel. Lastly, it is important to ensure monitoring of derogations, by
limiting their duration. 4. CONCLUSION
The proposed Directive amending Directive 9281EEC will not only meet the current need
to align national biofuel taxation schemes but will help Member States establish the necessary
economic and legal conditions to achieve the targets to reduce emissions of greenhouse gases
and to achieve security of EU energy supply which are stated in the proposed regulatory
Directive setting the minimum percentage of biofuels in motor fuels sold after 2005. The proposed tax Directive helps to provide flexible instruments which, in line with the
subsidiarity principle, can be adapted to the budgetary constraints, local conditions e.g. for
crop growing and technological choices of each Member State. 43
44
E.g. the price of pure biodiesel i.e. of 100 agricultural origin is approx.
0.35 per litre higher when
a barrel of crude oil is at USD 20 and 0.20 when it is at USD 35. OJ L 76, 23.3.1992, p. 1. 41
20010266 CNS
Proposal for a
COUNCIL DIRECTIVE
amending Directive 9281EEC with regard to the possibility of applying a reduced rate
of excise duty on certain mineral oils containing biofuels and on biofuels
THE COUNCIL OF THE EUROPEAN UNION,
Having regard to the Treaty establishing the European Community, and in particular
Article 93 thereof,
Having regard to the proposal of the Commission,45
Having regard to the opinion of the European Parliament,46
Having regard to the opinion of the Economic and Social Committee,47
Whereas
1
2
3
4
Article 6 of the Treaty states that environmental protection must be integrated into
Community policies with a view to promoting sustainable development. As a party to the United Nations Framework Convention on Climate Change,
approved by Council Decision 9469EC,48 the Community has undertaken to take the
necessary steps to stabilise greenhouse gas concentrations in the atmosphere at a level
that would prevent dangerous interference with the climate system. In its resolution of 8 June 1998,49 the Council endorsed the Community strategy and
action plan on renewable energy proposed by the Commission and called for specific
measures on biofuels, i.e. fuels derived from renewable resources. The communication entitled A Sustainable Europe for a Better World A European
Union Strategy for Sustainable Development,50 highlights the important role of
alternative fuels, including biofuels, in tackling climate change and in the development
of clean energies.
5
Development of biofuels encourages diversity in the Communitys energy sources and
thereby contributes to the medium and long-term security of its energy supply. 45
46
47
48
49
50
OJ C , , p. . OJ C , , p. . OJ C , , p. . OJ L 33, 7.2.1994, p. 11. OJ C 198, 24.6.1998, p. 1. COM2001 264, 15.5.2001. 42
6
7
8
The relative prices of energy products are key factors in the Communitys
environmental protection, energy and transport policies. As biofuels are subject to
taxation under Council Directive 9281EEC of 19 October 1992 on the harmonisation
of the structures of excise duties on mineral oils,51 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. A Community framework for the reduction of excise duties on biofuels therefore
needs to be established to contribute to the better functioning of the internal market
and provide Member States and economic operators with proper legal certainty. The above tax differentiation measures must form a coherent package of technical,
regulatory and economic measures. Directive 200177EC of the European Parliament
and of the Council of 27 September 2001 on the promotion of the use of biofuels in
transportation52 sets a compulsory minimum percentage of biofuels in all motor fuels
sold. 9
Member States should be allowed the necessary flexibility to formulate and implement
policies adapted to national circumstances. 10 Distortions of competition should be limited and the incentive of a reduction in costs
for producers and distributors of biofuels maintained through the application by
Member States of excise reduction mechanisms which take account of changes in raw
material prices. 11
12
13
In some cases, reduced rates of excise duty which are lower than the minimum rates
laid down by Council Directive 9282EEC of 19 October 1992 on the approximation
of the rates of excise duties 9282EEC on mineral oils53 may be allowed. Special measures are required for local public passenger transport, including taxis, and
public authority-operated vehicles. Transitory measures should be foreseen in favour
of products solely made up of biofuels, which have been totally exempted from excise
duty on 1. January 2001. Excise differentiation measures achieved under fiscal control may be complemented
with additional exemptions or reductions according to the procedure of Article 84 of
Directive 9281EEC. Before 1 January 2008 the Commission will report to the
Council on these additional measures. 14
The duration of reductions in excise rates should be limited to enable their application
to be monitored.
15 A multiannual programme of a maximum length of six years is sufficient for planning
investment projects in the sectors concerned. 16 Certain biofuels,
if intended for use as heating fuel or motor fuel, have to be
assimilated to mineral oils in order to integrate them in the scope of Council Directive
9212EEC of 25 February 1992 on the general arrangements for products subject to
51
52
53
OJ L 316, 31.10.1992, p. 12, as last amended by Directive 9474EC OJ L 365, 31.12.1994, p. 46. OJ L , , p. . OJ L 316, 31.10.1982, p. 19, as last amended by Directive 9474EC OJ L 365, 31.12.1994, p. 46. 43
17
18
excise duty and on the holding, movement and monitoring of such products54. . Implementing measures define the construction to be placed at Community level upon
products intended for use as heating fuel or motor fuel. The provisions of this Directive shall be without prejudice to the application of
Article 271a and b of Council Directive 9283EEC of 19 October 1992 on the
harmonisation of the structures of excise duties on alcohol and alcoholic beverages,55
as regards the compulsory exemption of denatured alcohol and the arrangements for its
distribution since the present tax arrangements must be applied solely to the specific
case of denatured alcohol used as a fuel or fuel additive in accordance with Article
23 of Directive 9281EEC. Since the measures necessary for the implementation of this Directive are measures of
general scope within the meaning of Article 2 of Council Decision 1999468EC of 28
June 1999 laying down the procedures for the exercise of implementing powers
conferred on the Commission,56 they should be adopted by use of the regulatory
procedure provided for in Article 5 of that Decision. 19 Member States should communicate to the Commission, for information purposes, the
national tax measures which they adopt on biofuels. The obligation to communicate
this information does not release Member States from the obligation of notification
provided for in Article 883 of the Treaty. This directive does not prejudice the
outcome of any future State aid procedure that may be undertaken in accordance with
Articles 87 and 88 of the Treaty.
20 Directive 9281EEC must therefore be amended accordingly. HAS ADOPTED THIS DIRECTIVE
Article 1
Directive 9281EEC is hereby amended as follows
1 In Article 2 1, the following points shall be added
m energy products falling within CN codes 1507 to 1518, if these are intended for
use as heating fuel or motor fuel
n
energy products falling within CN code 2905 11 00, which are not of synthetic
origin, if these are intended for use as heating fuel or motor fuel. 2 In Article 2a 1, the following points shall be added
f
energy products falling within CN codes 1507 to 1518, if these are intended for
use as heating fuel or motor fuel
54
55
56
OJ L 76, 23.3.1992, p. 1, as last amended by Directive 9699EC of 30.12.1996 OJ L 8, 11.1.1997, p.
12. OJ L 316, 31.10.1992, p. 21. OJ L 184, 17.7.1999, p. 23. 44
g
energy products falling within CN code 2905 11 00, which are not of synthetic
origin, if these are intended for use as heating fuel or motor fuel. 3 The following article shall be inserted
Article 2b
For the purpose of articles 2 1 m and n and 2a 1 f and g, the construction to be
placed upon products intended for use as heating fuel or motor fuel shall be defined in
accordance with the procedure referred to in Article 9a 2. 4 The following point IIa is to be inserted
IIa. Reductions for biofuels
Article 8b
From 1 January 2002 to 31 December 2010, Member States may, without prejudice to
Article 8f, apply a reduced rate of excise duty under fiscal control on the taxable products
referred to in Article 2 where such products are made up of or contain one or more of the
following biofuels
a
energy products falling within CN codes 1507 to 1518, 4401 and 4402
b
energy products falling within CN codes 2207 20 00 and 2905 11 00,
which are not of synthetic origin
c
energy products produced from biomass
d water CN codes 2201 and 2851 00 10. Biomass shall mean the biodegradable fraction of products, waste and residues from
agriculture including vegetal and animal substances, forestry and related industries, as well
as the biodegradable fraction of industrial and municipal waste57. Article 8c
1.
2. The reduction in excise duty resulting from the application of the reduced rate
laid down in Article 8b may not be greater than the amount of excise duty
payable on the volume of biofuels present in the products eligible for the
reduction. The rates of taxation applied by Member States on the products made up of or
which contain biofuels referred to in Article 8b may be lower than the
minimum rates specified in Directive 9282EEC. However, the level of taxation of these products, if intended for use, offered for
sale or used as motor fuel, may not be lower than 50 of the normal rate of
57
Directive 200177EC of the European Parliament and of the Council of 27.9.2001 on the promotion of
electricity produced from renewable energy sources in the internal electricity market not published
yet. 45
excise duty applied by the Member State on corresponding motor fuel. Level of taxation shall mean the total amount of all indirect taxes excluding
VAT charged, calculated directly or indirectly on the quantity of product
consumed. The Member States, which on 1 January 2001 totally exempted products solely
made up of biofuels, may continue to totally exempt these until 31 December
2003. Article 8d
Products made up of or which contain biofuels referred to in Article 8b, used
by local public passenger transport, including taxis, and by public authority-
operated vehicles may qualify, under fiscal control, for an additional reduction
of a value equivalent to the reduction provided for Article 8b. The limit laid down in the second subparagraph of Article 8c2 shall not apply
in the case provided for in paragraph 1. 3. 1.
2. Article 8e
The reduction in excise duty applied by Member States shall be adjusted to take account of
changes in raw material prices to avoid over-compensating for the extra costs involved in
the manufacture of biofuels in the event of a sustained rise in the price of crude oil. Adjustments shall be made according to the variation in crude oil prices over the previous
twelve months. The price variations shall be calculated using the dated Brent monthly
average oil price. Article 8f
1. 2. The reduction provided for in Article 8b may be granted under a multiannual
programme by means of an authorisation issued by an administrative authority
to an economic operator for more than one calendar year. The reduction
authorised may not be applied for a period of more than six consecutive years. This period may be renewed. In the case of a multiannual programme authorised by an administrative
authority before 31 December 2010, Member States may apply the reduction
provided for in Article 8b after 31 December 2010 until the conclusion of the
multiannual programme but it may not be renewed. Article 8g
Member States shall communicate to the Commission the schedule of excise duty reductions
applied in accordance with point IIa by 1 January 2003 and every twelve months thereafter. Article 8h
Before 1 January 2008, the Commission shall report to the Council on the tax, economic,
agricultural, energy, industrial and environmental aspects of the reductions granted in
accordance with point IIa. Additional exemptions or reductions granted in favour of biofuels
46
according to the procedure of Article 84 of Directive 9281EEC shall also be reviewed. The Commission shall put forward proposals, if necessary, for their abolition, amendment or
extension. 5
Point IV is hereby amended as follows
a The title is replaced by the following words
General and final provisions
b The following Article 9a is added
Article 9a
1. The Commission shall be assisted by the Excise Committee set up by Directive
9212EEC. 2. Where reference is made to this paragraph, the regulatory procedure laid down
in Article 5 of Decision 1999468EC shall apply, in compliance with Article 7
thereof. The period provided for in Article 56 of Decision 1999468EC shall be three
months. This Directive shall enter into force on the twentieth day following that of its publication in
the Official Journal of the European Communities.