# EUR-Lex - 52001DC0547 - EN

Avis juridique important

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# 52001DC0547

**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 /* COM/2001/0547 final */ **

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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 Commission's 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 400-600 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 today's 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 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 sector. Penetration of any new 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.

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 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. The options

2.1 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 Council's adoption in 1996 of a CO2 emission target of 120g CO2/km for new cars by 2005 and 2010 at the latest [1], 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 CO2/km by 2008 (2009 for JAMA and KAMA), a commitment corresponding to a fuel efficiency of about 5.8 litre/100 km for gasoline and about 5.3 litre/100 km for diesel. The target of 140 g CO2/km 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.

[1] Environment Council of 25.6.1996.

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.

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 sector's 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 (EUR 300 or more in additional cost per 1 000 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 is offset in the production process for biodiesel and bio-ethanol respectively. This 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.

The EUR 300/1 000 litre additional cost is based on present oil price levels (approximately EUR 30/barrel). It would take an oil price around EUR 70/barrel 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 these crops deliver protein rich feedstuff as a by-product. Currently the EU is importing around 30 million 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 EUR 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 legislation [2] is still held in check to some extent by the objectives of the smooth functioning of the internal market, controlling distortion of competition, legal certainty for operators and the Member States and faster development of sectors.

[2] For the member States to implement measures to reduce or exempt excise duty on my own fuels Directive 92/81/EEC provides for two possibilities:

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 "Scrivener" [3] 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 14(1)(b) and (c) (biomass and waste) of which gives Member States the option of reducing and/or exempting excise duty on biofuels. The Scrivener proposal was not unfortunately adopted by the Council [5] and the 1997 proposal has been before the Council since it was tabled.

[3] Proposal of 19.2.1992 (COM(92) 36 final, as published in OJ C 73, 24.3.1992, p. 6), as amended on 1.7.1994 (COM(94) 147 final.

[4] COM(97) 30 final, 12.3.1997.

[5] Proposal withdrawn by the Commission in 1999.

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 and/or 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 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 -162°C 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.

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 1 450 refuelling stations in order to create a proper EU refuelling network at a total investment cost of around EUR 800 million.

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 and/or 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 hydrogen/fuel 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 three to four 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 and/or 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 fully developed industrial processes with little scope for significant technological 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 container(s) 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), hydrogen/fuel 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 euro 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.

2.5 Other fuels and/or technologies

a. Electric cars have been commercially available for a number of years but have not managed to attract much consumer interest. The size and cost of the batteries, relative to the energy carried, seem prohibitive for producing a car of sufficient size, power and range between recharging at a price that the buyer would be willing to pay. In addition, the slow recharging of batteries, normal over night, is considered to be a disadvantage by potential buyers.

Expectations of a breakthrough development in battery technology, necessary to make the electric car appealing to a larger segment of buyers, seem to have declined during recent years. Electric cars may still have a niche market for short-distance transport purposes, where no noise and no emissions are essential. Unless a breakthrough in battery technology changes the scenario, the Commission sees little prospect in maintaining the electric car on the list of candidates for high-volume marketable alternative vehicles.

b. Hybrid cars

Although not representing an alternative fuel, hybrid cars seem to be one of the possible alternative technologies for the near future.

The hybrid car is designed to take advantage of the best elements of the gasoline (or diesel) engine and of the electric car, while at the same time avoiding their disadvantages.

A hybrid car has two "engines", a combustion engine and an electric motor. Depending on driving circumstances (load factor, acceleration) the car automatically switches to the most efficient mode.

Because of the semi-continuous loading of the batteries during driving, these can be much smaller (and cheaper) than in an electric car. 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 gasoline engine as far as oil replacement and CO2-emission advantages are 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 and/or 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, 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

- hydrogen/fuel cells

Concerning the alternative fuels, an "optimistic development scenario" at this stage might look like the following (not excluding other possibilities such as DME):

>TABLE POSITION>

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:

1. Two Commission proposals are attached to this Communication The first 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 hydrogen/fuel 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.

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 two years) thereafter. In accordance with this, the Commission will report regularly to the Council and Parliament, by mid 2003 for the first time.

3. Alternative fuels or technologies not directly covered by the action plan 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.

4. Consumers will be kept properly informed by public information and by 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) 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 CO2/km between the Community objective and the commitment of the car manufacturers' associations.

(b) 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 CO2/km and the industries' commitment.

(c) In connection with the 2003/2004 review of the CO2 commitments the Commission and the car industry will also address post-2008 fuel efficiency targets.

(d) 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 92/81/EC 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.