### Required Report

- public distributio n

Date: 6/15/200 9



### GAIN Report Number: NL901 4



# Netherlands

- Germany EU

- 2 7

EU

- 27 BIOFUELS ANNUA L

Annual Report 200 9

Approved By:

Stephen Huet e

Prepared By:

Bob Flach and other s

Report Highlights:

In Directive 2003/30, the EU set indicative targets for biofuel consumption. While the use of

biofuels is trending upwards it is not expected that the EU will achieve its target of 5.75% of road

transport fuel by 2010. In the previous EU Biofuels Annual, it was reported that profit margins in

the biofuels sector were reduced by high feedstock prices and competitive imports. Since the

summer of 2008, however, the market for biodiesel in the EU further deteriorated due to the decline

in fossil fuel prices and policy changes in Germany. In addition, biodiesel imports increased

stronger than anticipated. While biodiesel production stagnated, bioethanol production expanded

more than forecast in the previous Annual. The majority of this added production was based on

sugar beet derivatives as feedstocks, which were relatively price competitive. In 2009, duties on

imports of U.S. biodiesel are expected to dramatically reduce biodiesel imports from the United

States. The void is expected to be filled with high er domestic production, and increased imports

from other third countries, in particular Argentina, Indonesia and Malaysia. In 2010, EU production

as well as imports of biodiesel and bioethanol is forecast to continue its upward trend following the

domesti c demand for these transport fuels, spurred by biofuel use mandates. The biofuel targets for

2020 laid down in the EU Energy and Climate Change Package (CCP) were finally adopted by the

European Council on April 6, 2009. EU Member States will have to sub mit national action plans by

June 2010. This report also covers developments in the EU biogas and biomass market. This report

has been drafted by Bob Flach, Karin Bendz, Sabine Lieberz, Bettina Dahlbacka and Dietmar

### Achilles.

Post:

The Hagu e Commodities:

selec t



### Executive Summary:

Table of Content

This report contains the following chapters and Annexes:



### - General Overview

- Introduction

- Biofuels Policy

- Biodiesel

- Pure Vegetable Oil

- Bioethanol

- BtL

- Biogas

- Solid Biomass

- FAS Related Reports

- Annex I: Biofuels Incentives in the Member States

- Annex II: Summary Table Renewable Energy Directive (as

attachment)

General Overview

The EU biofuels market largely depends on consumption mandates and incentives. The main

emp hasis of these measures is clearly on the consumption side. Direct production incentives

do exist on the Member State (MS) level but are in the minority. In Directive 2003/30 the EU

set indicative non

- binding goals for biofuel consumption. It is left to the MS‟ discretion which

measures they take to achieve the goals. As a result, MS have introduced or are in the

process of introducing various support measures, including tax incentives, mandates, and

penalties. These measures vary considerable from MS to MS and are summarized in Annexes I

and II.

Biodiesel is the main biofuel for road transport used in the EU and is estimated to account for

72 percent of this market in 2008 (see table below). Bioethanol is the runner

- up with a 24

percent market shar e. Pure vegetable oil accounts for the remainder and is expected todecline and form a niche market. Many expectations rest on Biomass

- to

- liquid (BtL) to

support the transition to second generation technologies. However, this second generation

biofuel i s still in its infancy and will take some years before it reaches a significant volume.

While biofuels as a share of all road transport fuels is trending upwards, the EU as a whole is

not expected to achieve its Directive 2003/30 targets by 2010 (see tab le below).

Estimated EU Biofuel and Conventional Fuel Consumption

for Road Transport (Ktoe)

2006 r 2007 r 2008 e 2009 f 2010 f

Biodiesel 4,110 5,900 7,160 8,170 9,980

Pure Vegetable Oil 920 660 370 100 100

Bioethanol 880 1,380 1,790 2,070 2,560

BtL 0 0 0 2 8

Total biofuels 5,910 7,940 9,320 10,340 12,650

Diesel 183,702 189,596 192,250 194,940 197,670

Gasoline 109,829 106,071 105,650 105,220 104,800

Total transport fuels a 299,440 303,610 307,220 310,510 315,120

Blending of biofuels 1.97% 2.62% 3.03% 3.33% 4.00%

EU goal b 2.75% 3.50% 4.25% 5.00% 5.75%

Supply and demand trends during 2006

– 2008

During 2007, EU production of both biodiesel and bioethanol increased, mainly driven by

domestic consumption. Since the summer of 2008, however, the market for biodiesel in the

EU has deteriorated substantially because of:

• The decline in fo ssil fuel prices; and

• Policy changes in Germany, the largest biodiesel market within the EU.

Competition from cheap imports from the United States, which substantially increased since

2007, put additional pressure on EU

- produced biodiesel. Whi le the production of biodiesel

stagnated, EU bioethanol production surged by more than forty percent in 2008 (see graph

below). The main reason for this significant increase was that new plants became operational

or expanded production. The majority of t his added volume was based on sugar beet

derivatives as feedstock, which remained at relatively low prices compared with other

feedstocks for biofuel production, such as corn and wheat. In addition, while the price of

biodiesel is highly correlated with t he crude oil price, the price of bioethanol is dictated by the

sugar price. In effect, bioethanol prices didn‟t increase as significantly as fossil fuel prices,

which made substitution of gasoline with bioethanol attractive during the first half of 2008.

Furthermore, since EU imports of bioethanol leveled off during 2008 (see graph below), the EU

bioethanol sector didn‟t suffer as much from imports as the EU biodiesel sector did.Supply and dem and trends for 2009 and 2010

For 2009, the introduction of countervailing and anti

- dumping duties by the EU on imports of

biodiesel from the United States is expected to dramatically reduce imports from the United

States. The void is expected to be fill ed with higher domestic production and by imports from

third country suppliers, namely Argentina, Indonesia and Malaysia. Also EU bioethanol

production is expected to increase, but at a lower pace than in 2008. An important factor for

this slowdown is th e carry

- over of bioethanol stocks from 2008. In 2010, production of

biodiesel and bioethanol is forecast to continue its upward trend following EU demand for these

transport fuels, driven by the national use mandates. Also biofuel imports, mostly biodies el,

are expected to recover following the anticipated growth in demand. The EC is proposing a

balanced approach towards domestic biofuels production and imports in several recent policy

papers (see policy section). Currently, the EC is determining sustai nability criteria (SC), which

could cause changes in the sourcing pattern of EU biofuel and feedstock importers as early as

2010.

Biogas

Biogas production in the EU in 2006 and 2007 amounted to about 4,900 and 5,900 Ktoe,

respectively. In the EU, biogas from agricultural crops is almost exclusively produced by

farmers in Germany. In 2007, biogas produced in the agricultural sector amounte d to 36

percent of total biogas production in the EU. The other 64 percent of biogas production

resulted from biogas collection and production from landfills and from sewage sludge. The

agricultural production portion is growing rapidly. In Germany, an increasing portion of the

agricultural biogas is inserted into the natural gas pipeline system. Another approach is to

pipe the unprocessed biogas to combined power and heat plants which are installed at the

location of heat consumption.

Solid BiomassIn the past few years, primary energy production from solid biomass in the EU has been

steadily increasing to 66.4 Mtoe in 2007. Wood

- based biomass is the main source for

bioenergy in Europe, followed by waste and agricultural

- based biomass. Most of t he biomass

is used for heat, and to a lesser extent, in combined heat and power (CHP) applications. The

main producers in the EU are countries with large territories and large forestry resources such

as France, Sweden, Germany, Finland and Poland. Biomas s will play an increasingly important

role in the EU energy market in meeting the 20 percent target for renewable use by 2020 and

in the future reduction of CO 2 emissions in Europe.



### Author Defined:

Introduction

Disclaimer: This report presents the situation and outlook for biofuels in the EU

- 27. This report

presents the views of the authors and does not reflect the official views of the U.S. Department of

Agriculture (USDA). The data are not official USDA data. Official host government statistics on

biofuels are not available in many instances. This report is based on analytical assessments, not

official data.

This report was a group effort of the following FAS analysts:

Dietmar Achilles FA S/Berlin covering Germany (bioethanol, biogas)

Karin Bendz USEU/FAS Brussels

Mila Boshnakova FAS/Sofia covering Bulgaria

Bettina Dahlbacka FAS/Stockholm covering Sweden and Finland

Bob Flach FAS/The Hague covering the Benelux Countries

Marta Guerrero FAS/Madrid covering Spain and Portugal

Marie

- Cecile Henard FAS/Paris covering France

Ioana Ionescu FAS/Bucharest covering Romania

Agata Kawonczyk FAS/Warsaw covering Poland, Latvia, Lithuania and Estonia

Roswitha Krautgartner FAS/Vienna covering Austria and Slovenia

Hasse Kristensen FAS/Copenhagen covering Denmark

Sabine Lieberz FAS/Berlin covering Germany (biodiesel,

pure vegetable oil and BtL)

Jana Mikulasova FAS/Prague covering the Czech Republic and Slovakia

Ferenc Nemes F AS/Budapest covering Hungary

Sandro Perini FAS/Rome covering Italy

Stamatis Sekliziotis FAS/Athens covering Greece

Jennifer Wilson FAS/London covering the U.K.

The FAS EU biofuel reporting team would like to thank Ken Joseph from FAS Buenos Aires, Argentina

for his valuable support and insight.

The chapters were coordinated by:

General Overview Bob FlachPolicy Karin Bendz

Biodiesel Sabine Lieberz

Pure Vegetable Oil Sabine Lieberz

Bioethanol Bob Flach

Biomass

- to

- Liquid (BtL) Sabine Lieberz

Biogas Dietmar Achilles

Biomass Bettina Dahlbacka

Ab breviations and definitions used in this report

Benelux

= Belgium, the Netherlands and Luxembourg

Biodiesel

= Fatty acid methyl ester produced from agricultural feedstock

(vegetable oils, animal fat, recycled cooking oils) used as transport fuel to substitute for petroleum

diesel

Bioethanol

= Ethanol produced from agricultural feedstock used as transport fuel

BtL = Biomass to liquid

Bxxx = Blend of mineral diesel and biodiesel with the number indicating the percentage of biodiesel in the

blend, e.g. B100 equals 100 % biodiesel, while B5 equals 5 % biodiesel and 95 % conventional diesel

CEN = European Committee for Standardization (Comité Européen de

Normalisation)

EBB = European Biodiesel Board

GJ = Gigajoule

= 1,000,000,000 Joule or 1 million KJ

Ha = Hectares, 1 hectare

= 2.471 acres

HS = Harmonized S ystem of tariff codes

Ktoe = 1000 MT of oil equivalent

= 41,868 GJ = 11.63 GWh

MJ = Megajoule

MMT = Million metric tons

MS = Member State(s) of the EU

MT = Metric ton (1000 kg)

Mtoe = Million tons of oil equivalent

MY = Marketing Year

NMS = New Member State(s)

= Countries that joined the EU in/after 2004

PVO = Pure vegetable oil used as transport fuel

RME = Rapeseed Methyl Ester

Toe = Tons of oil equivalent

= 41,868 MJ = 11.63 MWh

MWh

= Mega Watt hours

= 1,000 Kilo Watt hours (KWh)

TWh

= Tera Watt hours

= 1 billion Kilo Watt hours (KWh)

USD = U.S. Dollar

Energy content and Conversion rates [1] :

Gasoline

= 43.10 MJ/kg

= 43.1 GJ/MT

Ethanol

= 26.90 MJ/kgDiesel

= 42.80 MJ/kg

Biodiesel

= 37.50 MJ/kg

Pure vegetable oil

= 34.60 MJ/kg

BtL = 33.50 MJ/kg

1 Toe = 41.87 GJ

1 MT Gasoline

= 1342 Liters = 1.03 Toe

1 MT Ethanol

= 1267 Liters = 0.64 Toe

1 MT Diesel

= 1195 Liters = 1.02 Toe

1 MT Biodiesel

= 1136 Liters = 0.90 Toe

1 MT Pure veg Oil

= 1087 Liters = 0.83 Toe

1 MT BtL = 1316 Liters = 0.80 Toe



### EU Biofuels Policy

The EU Energy and Climate Change Package (CCP) was final ly adopted by the Council on April 6,

2009. The Renewable Energy Directive (RED), which is part of this package, was completed in

December 2008. The RED was published in the Official Journal (OJ) on June 5, 2009 and will enter

into force 20 days later. The Directive has to be implemented 18 months after it is published, which

means November 2010. By that time, Member States (MS) will have transposed the Directive into

national law. MS will also have to submit national action plans by June 2010.

This package includes the “20/20/20” goals for 2020:

A 20 percent reduction in green house gas (GHG) emissions compared to the levels of 1990.

A 20 percent improvement in energy efficiency compared to current forecasts for 2020.

A 20 percent share for renewable energy in the EU energy mix (consumption). Part of this 20

percent share is a 10 percent minimum target for renewable energy consumed in transport to

be achieved by all MS. (Note: most, but not all, of this 10 percent wil l come from increased

biofuel use.)

The goal for 20 percent renewable energy in total energy consumption is an overall EU goal, and RED

sets different targets for different MS within this overall target. This means that some MS will have to

reach much hi gher targets than the 20 percent renewable energy by 2020, whereas other MS will

have much lower targets. Sweden will for example have to reach 49 percent, while the target for

Malta is only 10 percent. The targets for the four largest economies of Europ e, Germany, France, UK

and Italy, are 18, 23, 15 and 17 percent respectively. These targets are set by the Commission

depending on the current situation and the potential for growth in different MS. In contrast, the 10

percent target for renewable energy in transport is obligatory for all MS. The reason for this transport

target is that this sector is projected to account for most of the growth in energy consumption, is

going the wrong way on GHG emissions, and thus requires the most discipline. People are travellingmore, transportation of goods is increasing and cars are not getting efficient enough. Fuel use in

transportation is growing faster than any other sector, and is anticipated to increase about 1 percent

per year to 2020, according to the Eur opean Commission‟s model.

Biofuels have to meet certain criteria to be taken into account for the 10 percent goal:

They must meet the sustainability criteria (see below). One of those criteria is they must

reduce GHG emissions by at least 35 percen t compared to fossil fuels beginning autumn 2010.

From 2017 the reduction has to be 50 percent, and at least 60 percent for new installations.

Second

- generation biofuels will get a double credit. This means that biofuels made out of

ligno

- cellulosic, non

- food cellulosic, waste and residue materials will count double towards the

goal. This calculation is made on energy basis.

Renewable electricity consumed by cars will be counted by a factor of 2.5, and like 2 nd

generation biofuels help countries achieve targets faster.

Sustainability Criteria

For biofuels to be eligible for financial supports they must comply with the sustainability criteria that

are provided in the RED. These sustainability criteria have to be met by all biofuels whether produced

within the Union or imported from a third coun try. Member States have 18 months, until December

2010, to implement the renewable energy package into national law. Most MS will use the full

transition period.

Specific requirements are laid out for GHG emissions

- saving criteria and a 35 percent th reshold is set

that later increases. Environmental sustainability criteria covering bio

- diverse and high carbon

content lands are also specific. Other sustainability criteria are mentioned and reporting requirements

are established, but no specific requi rements or thresholds are laid down for them. These cover other

environmental criteria (soil, water and air quality), and social criteria (focus on food price impact and

adherence to ILO conventions).

Biofuels may not be made from raw material obtained from land with high biodiversity value such as

primary forest and other wooded land, areas designated by law or by the relevant competent

authority for nature protection purposes, highly biodiverse grassland or highly biodiverse non

grassland. The Commiss ion will establish the criteria and geographic ranges to determine which

forest lands, grasslands and other lands this shall cover. These criteria apply on land that had this

status on or after January 2008. Biofuels shall not be made from raw materials produced on land with

high carbon stock such as wetlands, peatlands or continuously forested areas. The Commission is

currently working on the implementing rules.

The Commission is also working on finalizing the three elements of the sustainability sche me that

require further details. This is achieved through the EU comitology (committee system) process:

Establish criteria and geographic ranges for biodiverse grassland.

Establish detailed definitions of severely degraded land and heavily contaminated land.

Establish the list of social/environmental items that companies have to report on in addition tothe mandatory criteria.

The agricultural raw materials shall also be produced in accordance with the minimum requirements

for good agricultural and environmental conditions that are established in the common rules for direct

support schemes under the common agricultural policy (CAP) (Article 17 § 6 of the RED).

GHG emi ssions

The biofuel must have a GHG emission savings of at least 35 percent once the RED is implemented

through national legislation. From 2017, the GHG emission saving has to be 50 percent. For biofuels

produced in installations for which production sta rts from 2017 and onwards, the GHG savings must

be 60 percent. GHG emission savings are calculated using lifecycle analysis and following

methodologies described in RED annexes.

The European Commission‟s Joint Research Center (JRC) has been working on d efining the GHG

emission savings for different raw materials and selected production and supply pathways and the

result of these are presented in the RED annex. JRC has calculated GHG emissions for cultivation,

processing and transport and distribution fo r the different raw materials, and used this for calculation

of the GHG emission savings. Net carbon emissions from land

- use change are not yet included.

It is challenging trying to document GHG emissions on different biofuels using different producti on

processes for different countries. The Commission has looked into several options regarding what

kind of GHG emissions certification they would need to accept a product as being produced according

to the sustainability criteria. The three types of “ch ain of custody” approaches discussed, in declining

level of strictness, are identity preservation, mass balance, and confirmation from the producer that

the product was produced in a manner that meets minimum GHG emission savings sustainability

criteria.

The option the Commission will finally adopt is reportedly the “mass balance system”. This system

means that each container must clearly identify how much of each kind of fuel it contains (i.e.

biodiesel (B100), 40 percent from rapeseed oil, 40 percent from animal fats, and 20 percent from

waste oils), and when anything is taken out of the container it has to be clearly marked what is still in

the container. MS are responsible for not counting anything as biofuel toward goals, mandates, and

eligible for tax credits that does not fulfill sustainability criteria for biofuel. MS have to establish a

checklist. MS are not allowed to have different (higher or lower) sustainability criteria than those set

by the Commission, and they have to accept all certifi cations systems that are recognized by the

Commission. However, with each MS having different checklists this means that there will be 27

different national certification schemes that the Commission would like to have registered and

recognized

– applying to EU members as well as Third Countries.

The mass balance system means that it will not be possible to mix biofuels with different GHG

emission savings values and get an averaged value for a single container in order to meet the

threshold value (i.e. if two biofuels are mixed, one with a GHG value above 35 percent and one with a

GHG value below 35 percent, only the one that has a GHG value above the 35 percent threshold can

be counted toward goal fulfillment, mandates and tax credits). This eliminates t he market for biofuelsthat fall below the GHG emission savings threshold.

Typical GHG 1 savings Default GHG 2 savings

Rape seed biodiesel 45% 38%

Soy bean biodiesel 40% 31%

Sun flower biodiesel 58% 51%

Palm oil biodiesel (Process not specified) 36% 19%

Palm oil biodiesel (process with methane capture at

oil mill) 62% 56%

Sugar beet ethanol 61% 52%

Sugar cane ethanol 71% 71%

Waste vegetable or animal oil biodiesel 88% 83%

Source: European Commission, RED (Indirect land use is not included) 1 „Typical value‟ means an estimate of the

representative GHG emission savings for a particular biofuel production pathway

2 „Default value‟ means a value derived from a typical value by the application of pre

- determined factors and that

may, in circumstances specified in this Directive, be used in place of an actual value.

According to the RED, biodiesel made from soy oil do es not automatically comply with the GHG

emission criteria. Omitting any adjustment for indirect land use, the RED‟s GHG emission savings

default (reference) value for soy diesel is 31 percent, which is below the minimum GHG threshold. On

closer examinat ion, this value was calculated using a pathway where soybeans are first shipped from

Brazil, then transformed into soy oil and biodiesel in the EU. Using lifecycle analysis, the value for

soy

- based biodiesel produced in and shipped from the US would be di fferent because it has a different

pathway. According to EPA, US soy

- based biodiesel has a GHG emission savings value of 80 when it

is produced and consumed in the United States. If it is shipped to and consumed in the EU that value

falls only slightly.

Under the RED, it is possible to use actual numbers and achieve a GHG emission saving that is above

the required 35 percent. It is always possible to claim the default value without any supporting

documentation.

According to Commission officials it s hould not be a problem for US soy

- based biodiesel to comply

with the standards that are currently being implemented, but it could be more difficult in the future,

when the GHG emission savings threshold increases to 50 percent by 2017, and if or when indir ect

land use change (ILUC) is taken into account. The higher GHG emission savings threshold of 50

percent is also a potential difficulty for EU

- produced rapeseed biodiesel. The RED has made it clear

that biofuels GHG emission savings values can be reviewed and updated as new information is made

available.

There are some concerns that this system of calculating GHG savings, and deciding what feedstocks

are qualified and which ones are not, could be a possible way for the EU to protect its industry.

Indirect Land Use Change (ILUC)

The EC considers that the calculation and inclusion of indirect land use change (ILUC) in GHG

emission savings values is appropriate when crops used for biofuel production are grown on arable

land that can be used to grow food crops, and this food crop production then moves to other lands(namely pasture, grasslands and forested lands) which were not used to produce crops before. The

concern is that the conversion of new lands would lead to additional GHG releases into the

atmosphere and that those indirect releases must be counted. It follows that the inclusion of ILUC

would lower the GHG savings values for most first generation biofuels.

The Commission hopes to develop a concrete methodology to calculate GHG emissions caused by

indirect land use changes and adjust current published values. The Commission is now in the starting

process of developing implementing rules for ILUC and will most likely finish this by March 2010. A

report on the impact of indirect land use ch ange on GHG emission savings values is required by

December 2010. As the MS are obliged to have to have their Action Plans for renewables ready by

June 2010, it should be finished before then.

Trade Policy

In the projections for biofuels, the Commis sion is making the assumption that even though it would

be agronomically possible to domestically grow all the feedstock needed to reach the goal of 10

percent renewable energy for transport by 2020, some of the feedstock and biofuels will have be

imported to reduce price pressure on EU feedstock. The Commission is expecting about 70 percent of

the feedstock to be produced internally and 30 percent of the feedstock to be imported.

There are no specific codes for biofuels in international trade nomenclat ure. Individual trade codes

used by the EU and the United States include biofuels as well as other products and so it is impossible

to get a close fix on trade volumes and values using codes alone. The codes in the EU system refer to

the product regardle ss of its final use. For ethanol the two main codes are 220710 for undenatured

ethanol and 220720 for denatured ethanol. Blends with petrol may also appear under other codes

depending on the proportion of the mix. For biodiesel, there is a code that cover s fatty

- acid mono

alkyl esters (FAMAE) that was introduced in January 2008. However other forms of biodiesel could

still enter under other codes depending on the chemical composition.

HS Code Description Duty Rate

38249091 FAMAE 6.5% (plus the provisional anti

- dumping duty. See

chapter on B99)

220710 Undenatured ethanol €19.2/hl

220720 Denatured ethanol €10.2/hl

Biodiesel

B99

Following a complaint lodged by the European Biodiesel Board (EBB), on June 13, 2008, the European

Commission initiated anti

- subsidy and anti

- dumping investigations on imports of biodiesel from the

United States. U.S. industry has been actively engaged in the investigation.

On March 12, 2009, the Commission published its Regulation 193/2009 and Regulation 194/2009

,

containing provisional anti

- dumping and countervailing duty measures on imports of biodiesel from

the United States. The Regulations a nd duties entered into force on March 13. They apply for a

maximum of 6 months as they are provisional measures. On May 28 a majority of MS delegatessitting in the EU anti

- dumping committee backed the Commission proposal to extend the

countervailing and anti

- dumping duties for a 5

- year period. The next steps in the procedure are

approval of the definitive measures by the Council of Ministers in June and publication before July

12th.

The Commission notes that during the period analyzed, imports from the United States increased their

market share from 0.4 percent in 2005 to 17.2 percent. The EBB claims that this increase is due to

exporters taking advantage of a U.S. federal excise tax credit for biodiesel. Allegedly, exporters

import biodiesel from a t hird country, add a minimal amount of petroleum diesel, claim the credit and

export the product (the so

- called “splash and dash”).

EU Imports of US Biodiesel

Imports from U.S. 2004 2005 2006 2007 IP

Tons 2,634 11,504 50,838 730,922 1,137,152

Index 2005 = 100 23 100 442 6,354 9,885

Market share (%) 0.1 0.4 1.0 11.0 17.2

Index 2005 = 100 25 100 250 2,750 4,300

Note: IP= Investigation Period „April 1, 2007 to March 31, 2008‟ Source : USA export statistics.

The Commission has calculated provisional (company

- specific) anti

- dumping duties ranging from 10

to 82 cents per gallon (equating to dumping margins of 3.3 to 27 per cent) and countervailing duties

ranging from 89 to 99 cents per gallon (equating to subsid ization margins of 29.5 to 33.1 per cent).

Bioethanol

Quotas and Import tariffs

Currently, bioethanol enters the EU duty

- free under the Everything But Arms initiative (EBA) for Least

Developed Countries and the Cotonou Agreement with African, Caribbean and Pacific (ACP) countries.

EU Import Policy

In the EC documents “A Strategy for Biofuels” and “Renewable Energy Road Map”, the European

Commission is proposing to look for “appropriate development of both EU domestic production and

enhanced import o pportunities for biofuels”. In the latter document the EC even states that “if it

would appear that supply of sustainable biofuels to the EU is constrained, the EU should be ready to

examine whether further market access would be an option to help the dev elopment of the market.”

According these documents, the Doha Round and the free trade agreement between the EU and

Mercosur (Argentina, Brazil, Paraguay and Uruguay) will have an impact on further market opening

for bioethanol.



### Biodiesel

SummaryT he market for biodiesel in the EU has deteriorated substantially since summer of 2008 because of:

The decline in fossil fuel prices; and

Policy changes in Germany, the largest biodiesel market within the EU.

Competition from cheap imports from the United States, which substantially increased since 2007, put

additional pressure on EU produced biodiesel.

The introduction of EU countervailing and antidumping duties on imports of biodiesel from the United

States is expected to dramatically reduce EU biodiesel imports from the United States. The void is

expected to be filled with higher domestic production o f biodiesel in the EU and increased biodiesel

imports, particularly from Argentina, Indonesia, and Malaysia.

The discussions about the EU climate change package and possible mandatory biofuel targets have

prompted a number of MS to put in place goals, ma ndates, and tax incentives. As a result, biodiesel

production capacity, production, and consumption increased in a number of MS that did not have a

strong biodiesel history in the past. As a result of ambitious replacement goals, France may overtake

Germ any as the biggest biodiesel market in 2010 for the first time.

The EU sustainability criteria (SC) that are part of the RED are expected to be implemented in the MS

through national legislation by Fall 2010. In the long run, in the biodiesel sector the y are expected to

have two main consequences. One, they will favor the use of feedstock that is certified to be

sustainable according to an EU

- accredited system. As the SC are also applied to imports, this could

cause changes in the sourcing pattern of E U biodiesel and feedstock importers. Two, the SC might

push the use of animal fat and recycled cooking oils, as these have better GHG saving values than

virgin vegetable oils.

The required feedstock for the anticipated production in 2010, 9.5 MMT of bi odiesel, is estimated at

about 6.8 MMT of rapeseed oil and 2.9 MMT of other oils, of which 1.2 MMT is expected to be soybean

oil.

EU Production, Supply and Demand Table

The European Union is the biggest producer and consumer of biodiesel in the world. Biodiesel is also

the most important biofuel consumed in the EU, representing about 77 percent of the total biofuels

market in the transport sector. Biodiesel was the first biofuel developed and used in the EU in the

transport sector in the 1990s. At t he time, the rapid expansion was driven by an increasing crude oil

price, the Blair House Agreement [2] and resulting provisions in the EU‟s set

- aside scheme, and

generous tax incentives, mainly in Germany.

EU Biodiesel

Production, Supply and Deman d

(1,000 MT)

Calendar Year 2006 r 2007 r 2008 e 2009 f 2010 f

Production 4,718 5,945 6,040 8,250 9,450

Imports 62 925 2,450 1,300 2,200Exports 0 0 160 50 50

Consumption 4,780 6,870 8,330 9,500 11,600

EU Biodiesel

Production, Supply and Demand

(Million Liters)

Calendar Year 2006 r 2007 r 2008 e 2009 f 2010 f

Production 5,360 6,750 6,860 9,375 10,740

Imports 70 1,050 2,785 1,480 2,500

Exports 0 0 180 60 60

Consumption 5,430 7,800 9,465 10,850 13,180

r = revised / e = estimate / f

= forecast 1 MT = 1,136 liters Source: EU FAS Posts

Production Capacity

The EU biodiesel capacity expanded rapidly from 2005 to 2007. However, this slowed in 2008. As a

result of the deteriorating markets especially in Germany, many projected new plants never made it

past the planning stage. Spain, France, the Benelux, and Italy reported the largest production

capacity increases in 2008. For 2009 and 2010, further capacity increases are expected, especially in

countries with new or increasing biofuel mandates.

EU Biodiesel Production

- Number of Plants and Capacity

(1,000 MT)

Calendar Year 2006 r 2007 r 2008 e 2009 f 2010 f

Number of Plants 119 176 215 230 255

Capacity

In 1,000 MT

In Million Liters 5,922

6,730 11,300

12,840 16,000

18,180 18,400

20,910 19,500

22,160

Note: as of December 31 of each year. Source: EU FAS posts based on industry estimates that have been

adjusted for those projects that are unlikely to get past the planning stage.

Under current market conditions it is questionable that the EU biodiesel market can support all

existing

- let alone projected

- production capacity, since the projected increase in the EU biodiesel

consumption is significantly smaller than the current capacity. Consequently, one can expect to see a

number of plants closing th eir operation or even having to file for bankruptcy in the coming years.

The structure of the biodiesel sector is very diverse and plant sizes range from an annual capacity of

2,000 MT owned by groups of farmers to 500,000 MT owned by large multi

- national companies.

Some plant locations were prompted by proximity of major feedstock production regions, oil mills or

large ports and some by availability of subsidies. In general, the best chances of survival are

expected for those plants that:

have their own oil mill, or are affiliated with or at least have contracts with an oil mill;

are able to adapt their feedstock mix to price fluctuations and differentials;

are located close to a major port or waterway, an oil mill or a mineral oil company;

belong to a large company or group that can bridge a cash

- flow gap; or

are large enough to work with petroleum oil companies that blend biodiesel into their diesel.

In contrast, it will be much more difficult for companies that:have to buy the feedst ock on the spot market;

have to bear additional transport costs because of their location;

do not have enough capital to bridge cash

- flow gaps;

do not have long

- standing suppliers and customer relations.

2007 and 2008 saw the first cases of companies closing their operation or declaring insolvency. This

occurred in the U.K., Austria, and Germany.

Production

In 2006, the top three producing MS (Germany, France, and Italy) together accounted for 80 p ercent

of the EU‟s biodiesel production. In 2008, the share of the top three producing MS dropped to 68

percent and the share is expected to drop to 60 percent by 2010. This is a clear indication that the

production of biodiesel is gradually increasing i n other MS, as these are increasing their domestic

production to meet domestic biofuel mandates.

EU Biodiesel Production

– Main Producers

(1,000 MT)

Calendar Year 2006 r 2007 r 2008 e 2009 f 2010 f

Germany 2,400 2,890 2,690 2,460 2,660

France 570 1,150 2,000 2,100 2,300

Italy 600 470 750 1,100 1,500

Benelux 43 251 500 700 1,100

Others 1,105 1,184 120 1,900 2,100

Total 4,718 5,945 6,040 8,250 9,650

Source: EU FAS Posts

Feedstock Use

In contrast to the United States, where about 50 percent of biodiesel is produced from soybean oil,

rapeseed oil forms the major feedstock in the EU. The use of soybean and palm oil is limited by theEU biodiesel standard DIN EN 14214. This standard was developed based on engine compatibility

studies carried out by EU car manufacturers. Soybean

- based biodiesel does not comply with the

iodine value prescribed by this standard (the iodine value functions as a measure for oxidation

stability.) In addition, palm oil

- based biodiesel reportedly does not provide enough winter stability in

northern Europe. However, it is possi ble to meet the standard by using a feedstock mix of rapeseed

oil, soybean oil, and palm oil. Recycled vegetable oils and animal fat are not as popular as feedstocks

as virgin vegetable oils. However, with the high vegetable oil prices at the end of 2007 and the first

half of 2008, recycled vegetable oils and animal fat formed a cheaper alternative feedstock and their

use increased. The introduction of sustainability criteria for biofuels and their feedstocks is expected

to give these two feedstocks an a dditional push in the future, as they have a higher GHG emission

savings value.

Feedstock Use for Biodiesel Production

(1,000 MT)

Calendar Year 2006 r 2007 r 2008 e 2009 f 2010 f

Rapeseed Oil 3,400 4,360 4,300 5,790 6,800

Soybean oil 750 900 870 1,100 1,200

Palm oil 150 300 300 450 500

Sunflower 180 200 200 300 450

Other and not attributed 110 20 40 50 55

Subtotal Vegetable oils 4,590 5,780 5,710 7,690 9,005

Recycled Vegetable Oil 120 135 200 400 450

Animal Fats 10 35 130 160 200

Grand total 4,720 5,950 6,040 8,250 9,655

Note: Data for feedstock use is not available. The figures above represent estimates by EU FAS posts.

Consumption

In 2008, Germany, France, Italy, the U.K., and Austria were the largest biodiesel consumers in the

EU. For 2009, EU consumption is forecast to further increase to 9.5 MMT (10.8 billion liters), despite

the economic crisis. The increase is driven almost e xclusively by MS mandates and tax incentives.

For 2010 further consumption increases are projected, most prominently in Spain, France, Italy, and

the Benelux countries, again driven by mandates. The projections are based on the assumption that

the strong link between crude, rapeseed, and soybean oil (see chart below) will continue. The crude

oil price would have to increase substantially more than vegetable oil prices in the future for biodiesel

to be competitive on a price basis without tax incentives o r mandates.Germany is an exception to the overall trend of increasing consumption in 2008 and 2009.

Traditionally, the German tax incentive

- based support system enabled pure biodiesel (B100) to

successfully compete with mineral oil

- based diesel. In 2006, Germany began the process of

transferring from tax incentives to use mandates and gradually increased the energy tax on B100.

The scheduled 2 nd and 3 rd steps in the increase of fuel tax on biodiesel went into effect on January 1,

2008 and 2009, respectively. This essentia lly dried up the demand for biodiesel outside the mandate,

as B100 was no longer price competitive in the current market situation with low fossil fuel prices.

Therefore, B100 consumption will largely be limited to the farm sector, which continues to bene fit

from a complete tax reduction. As a result, the majority of biodiesel consumption in Germany will bemandate driven. However, the current mandate is not high enough to compensate for the decrease in

tax incentives. Consequently, overall German biodi esel consumption is expected to decline in 2009.

Nonetheless, Germany is expected to continue to be the largest biodiesel consumer in the EU at least

in 2009. In 2010, the German overall biofuel mandate will increase from 5.25 to 6.25 percent. It is

exp ected that biodiesel will be used to fill most of the difference between the fuel specific mandates

(4.4 % for biodiesel and 2.8 % for bioethanol) and the overall mandate. However, the French biofuel

use objective for 2010 is more ambitious and set at 7 p ercent. As a result, France may overtake

Germany as the biggest biodiesel market in 2010 for the first time.

EU Biodiesel Consumption

– Main Consumers

(1,000 MT)

Calendar Year 2006 r 2007 r 2008 e 2009 f 2010 f

Germany 2,875 3,133 2,650 2,400 2,600

France 631 1,300 2,200 2,300 2,700

Italy 220 202 789 1,200 1,500

United Kingdom 220 260 507 520 540

Austria 321 370 430 435 440

Benelux 27 398 365 450 670

Greece 135 300 330 220 252

Spain 63 292 213 760 1,200

Romania 25 50 130 150 215

Poland 15 20 124 350 550

Others 248 545 592 715 933

Total 4,780 6,870 8,330 9,500 11,600

Source: EU FAS Posts

Biodiesel Consumption Lags EU Goals

While biodiesel consumption is increasing in the EU, the biodiesel share of total diesel consumption is

not expected to reach the current (non binding) EU targets listed in the table below. On an energy

basis, the biodiesel share (including both blending as well as use in the form of B100) of total EU

diesel fuel consumption during 2008 was 3.59 percent. As a result of increasing consumption, this

share is forecast to rise to about 4.81 percent in 2010.

EU Biodiesel and Diesel Consumption

(Ktoe)

Calendar Year 2006 r 2007 r 2008 e 2009 f 2010 f

Biodiesel 4,110 5,900 7,160 8,170 9,980

Diesel 183,702 189,596 192,250 194,940 197,670

Biodiesel share 2.19% 3.02% 3.59% 4.02% 4.80%

Indicative EU goal

(EU Directive 2003/30) 2.75% 3.50% 4.25% 5.00% 5.75%

Diesel use is based on Eurostat data for 2006 + 2007 and on an estimated annual increase of 1.4% for 2008

-

2010. Source: EU FAS Posts.

Trade

Biodiesel imports have surged from 62,000 MT in 2006 to 2.4 MMT in 2008. The majority (89 %) of

imports consisted of B99 from the United States. There is a huge discrepancy in the trade data ofvarious sources. The U.S. Department of Commerce reports 2.2 MMT of U.S. biodiesel export s to the

EU, which is about 1 MMT more than what the EU reports as imports under CN code 3824 90 91. This

suggests that some biodiesel enters the EU under different customs codes. Other major suppliers to

the EU in 2008 included Indonesia (145,500MT), Ar gentina (66,400 MT), and Malaysia (34,000 MT),

A specific customs code for biodiesel (3824 90 91) was introduced in the EU only in January 2008.

Prior to this date, biodiesel entering the EU was subsumed under the CN code 38 24 90 98 (other

chemicals). (Note: CN stands for “Combined Nomenclature” and is the equivalent of the “Harmonized

System” used in the United States.) Therefore, biodiesel imports prior to 2008 are estimated based

on industry information.

Expected effects of the EU countervailing duties on U.S. B99

In March 2009, the EU imp osed countervailing and antidumping duties on biodiesel imports from the

United States (see policy section of this report). These are expected to largely eliminate EU biodiesel

imports from the United States. While EU biodiesel producers will benefit fro m the decreasing U.S.

exports, other biodiesel exporting countries such as Argentina, Indonesia, Malaysia, and Canada are

also expected to benefit from the void.

Among these, Argentina has the largest potential to substantially increase its biodiesel e xports to the

EU. In fact, EU industry sources indicate that EU biodiesel imports from Argentina have surged since

March 2009.

In previous years, large amounts of Argentine biodiesel were shipped through the United States to the

EU. For example, in 200 8, U.S. imports of biodiesel from Argentina totaled 540,600 MT. However,

imports fell dramatically after the United States changed the provisions of blender‟s credit. Therefore,

these Argentine biodiesel amounts are now available to be shipped directly t o the EU. In addition,

Argentine biodiesel capacity continues to grow. It was estimated at 1.4 MMT at the end of 2008 and

is expected to increase over the course of 2009 to 2.4 MMT. All of these plants are registered for

export rather than for selling o n the domestic Argentine market.

Furthermore, the competitiveness of Argentine biodiesel on the EU market is enhanced by its

favorable treatment vis

- à

- vis soybean oil under the Argentine differential export tax (DET) system.

Assuming similar conversio n costs for biodiesel plants in the EU and Argentina, the DET makes it more

attractive for EU customers to buy the finished biodiesel than buying Argentine soybean oil and

converting it into biodiesel in the EU.

While reports about the drought

- related reduction in the Argentine 2009 soybean crop suggest that

Argentina may not be able to use its full potential in 2009, the EU will increasingly have to face

Argentina as a strong competitor to its domestically produced biodiesel in the foreseeable future.

Expected Impact of Sustainability Criteria on the Biodiesel Sector

As part of the EU renewable energy package the EU is currently developing sustainability criteria (SC)

for biofuels under the RED (see policy section of this report). Depending on the details of the finalcriteria regarding minimum GHG saving values and applied default values, these criteria could in the

long term have an impact on the origin of imports of biodiesel or feedstocks as they will favor sources

that produce according to an E U approved sustainability scheme. In addition, the SC might also give

a push to biodiesel from animal fat and recycled cooking oil, as these feedstocks have a better GHG

balance. This is because GHG emissions resulting for example from fertilizer applica tion in oilseed

production are not counted when the vegetable oil is recycled.

However, the effects of a minimum threshold for GHG emission savings and the application of other

sustainability criteria are only expected to be felt in late 2010 and beyond. This expectation is based

on indications that most MS will use the full 18 months transition period (likely until December 2010)

to implement the renewable energy package into national law. However, Germany has announced

that it will implement the neces sary national laws as soon as possible in 2009 and apply the SC

starting January 2010. Germany has already notified draft legislation on sustainability criteria for

biomass used in electricity and heat production. However, it is likely to take a few mont hs until

certification systems are in place and functioning.



### Pure Vegetable Oil

In the EU, pure vegetable oil (PVO) is mainly used in agriculture and by company fleets. PVO can be

used as a biofuel without conversion to biodiesel but only in special ly

- modified engines. While

biodiesel and diesel have similar specifications, pure vegetable oil differs substantially in viscosity and

burning parameters. As a result, engines have to be modified in order to run on pure vegetable oil.

EU consumption of PVO as biofuel mainly consists of rapeseed oil and soybean oil. The large decline

of its use since 2006 is a result of tax changes in Germany, where 95 % of the EU consumption

occurred (other users include the Benelux, France, and Poland). These tax c hanges reduced the

competitive advantage of PVO compared to diesel and prompted many trucking companies to revert

to conventional diesel.

EU Consumption of pure vegetable oil as a biofuel

(1,000 MT)

2006 2007 e 2008 e 2009 f 2010 f

Soybean oil 500 250 100 20 20

Rapeseed Oil 605 540 340 100 100

Total 1,105 790 440 120 120

Note: The distribution between soybean oil and rapeseed oil is based on discussion with industry and technical

experts as statistics on this do not exists. Source: EU FAS posts.

Germany is currently discussing options to allow counting hydrogenated vegetable oils against its

biofuels mandates. If this were to be put in practice, the use of vege table oils in 2010 could be about

580,000 MT higher than projected.



### BioethanolSummary

In 2008, EU bioethanol production surged by more than forty percent to 2.1 MMT. There were two

main reasons for this significant increase:

New plants became operational or expanded production. The majority of this added production

volume was based on sugar beet derivatives, which were relatively price competitive.

As bioethanol prices didn‟t increase as significantly as fossil fuel prices, substitution of ga soline

with bioethanol was attractive during the first half of 2008.

During 2009, EU bioethanol production is expected to increase at a lower pace mainly as a result of

the financial crisis, which reduced demand for transport fuels and more importantly, depressed crude

oil prices. Another factor which is hampering further expansion of EU bioethanol production is the

carry

- over of bioethanol stocks from 2008.

In 2010, production is forecast to regain its upward trend following the increased demand for biofuels

in the EU. Supported by the national mandates, bioethanol consumption is forecast to grow further to

about 4.0 MMT. The required feedstock for the anticipated production in 2010, 3.0 MMT of

bioethanol, is estimated at about 8 MMT of cereals, an d a volume of sugar beet derivatives equivalent

to 1.5 MMT of refined sugar.

During 2007 and 2008, bioethanol imports grew significantly to nearly 900,000 MT. The majority of

the bioethanol is imported by the UK, Sweden, and the Benelux countries throug h the port of

Rotterdam. During 2009, EU bioethanol imports are expected to stabilize due to the stagnating

demand in the EU. A recovery is expected in 2010, following the anticipated growth in demand.

Currently the European Commission (EC) is determini ng criteria for sustainability (see policy section

of this report), but these are not expected to negatively affect bioethanol produced from sugarcane.

EU 27 Production, Supply and Demand Table

Compared to the United States and Brazil, the EU is only a minor producer of bioethanol. Bioethanol

represented about 24 percent of the total biofuels market in the transport sector in 2008.

EU Bioethanol

Production, Supply and Demand

(1,000 MT)

Calendar Year 2006 r 2007 r 2008 e 2009 f 2010 f

Production 1,290 1,450 2,100 2,400 3,000

Imports 180 790 870 880 1,000

Exports 30 35 40 45 50

Consumption* 1,440 2,205 2,930 3,235 3,950

EU Bioethanol

Production, Supply and Demand

(Million Liters)

Calendar Year 2006 r 2007 r 2008 e 2009 f 2010 fProduction 1,635 1,840 2,660 3,040 3,800

Imports 230 1,000 1,105 1,115 1,270

Exports 38 44 51 57 63

Consumption* 1,825 2,795 3,715 4,100 5,010

r = revised / e = estimate / f

= forecast * Includes stock building. 1 MT = 1,267 liters Source: EU FAS Posts

and statistics of Eurostat, World Trade Atlas and the European Bioethanol Fuel Association (eBIO).

Production Capacity

EU Bioethanol Prod uction

- Number of Plants and Capacity

(1,000 MT)

Calendar Year 2006 r 2007 r 2008 e 2009 f 2010 f

Number of Plants 37 52 60 65 75

Capacity

In 1,000 MT

In Million Liters 1,750

2,220 3,000

3,800 4,700

5,960 5,300

6,720 7,000

8,870

Note: as of December 31 of each year. Source: EU FAS posts based on industry estimates that have been

adjusted for those projects that are unlikely to get past the planning stage.

Bioethanol production capacity is forecast to increase from 1.75 MMT in 2006 to 7.0 MMT in 2010. It

is anticipated that only a part of these investment plans will be put in practice. The majority of the

production capacity has been installed in France, G ermany, Spain, and Poland. In 2007, only about

half of the available capacity was utilized due to high grain prices, in particular wheat. The lowest

utilization rates were reported in Central Europe and in Spain. Another reason for the underutilization

was competitive bioethanol imports from Brazil.

Production

EU Bioethanol Production

– Main Producers

(1,000 MT)

Calendar Year 2006 r 2007 r 2008 e 2009 f 2010 f

France 235 420 630 700 700

Germany 340 314 458 500 500

Benelux 12 25 62 250 450

Poland 128 100 174 300 400

United Kingdom 0 0 40 140 320

Spain 320 284 240 270 300

Other 255 307 496 240 330

Total 1,290 1,450 2,100 2,400 3,000

Source: EU FAS Posts

In 2008, EU bioethanol production surged by more than forty percent to 2.1 MMT (see graph below).

On an energy basis, this is equivalent to 16.7 million barrels of crude oil. The most significant

production increases were reported in France, Germany and Poland. The main reason for this

significant increase was that new plants became operational or expanded production in these

countries. In France and Germany, production expansion was mainly reported for ethanol using sugar

beet derivatives as feed stock

. Another important factor for the production boost was the high crude

oil price (see graph below) which made substitution, or blending, of gasoline with bioethanol

attractive. During the first half of 2008, bioethanol prices rose, but at a lower pace th an fossil fuelprices. While the price of biodiesel is highly correlated with the crude oil price, the price of bioethanol

is mainly dictated by the sugar price. An exception to the positive trend reported in the EU was

production in Spain, which decline d for the second successive year. The relative high grain prices

compared to Central and Northwestern Europe had a detrimental effect on profit margins in this

Member State.

During 2009, E U bioethanol production is expected to increase at a lower pace, mainly as a result of

the financial crisis, which reduced demand for transport fuels and more importantly, depressed crude

oil prices. The low crude oil price made substitution of gasoline w ith bioethanol unattractive for oil

companies. In Belgium for instance, producers have been unable to sell their production domestically

as the tax break for blending appears to be insufficient. In France and Spain, however, the tax cut is

reportedly sti ll sufficient for meeting the increased costs for blending. Another factor which ishampering further expansion of domestic bioethanol production is the carry

- over of bioethanol stocks

from 2008. In the port of Rotterdam, stocks reportedly built up durin g last year. The storage

capacity for ethanol in this port is estimated at about 400,000 MT.

In 2009, the EU bioethanol industry will possibly face the same problems as the EU biodiesel industry

previously experienced during 2007 and 2008: an oversupply on the market due to elevated domestic

production, slackening demand and competitive imports (s ee Biodiesel section of this report). In

order to cope with this market situation, some bioethanol producers reportedly switched to producing

ethanol for human consumption or for use by the chemical and pharmaceutical industries.

Consolidation of the sec tor, with closure of smaller plants and investments in larger size plants, seems

to be inevitable, and is expected to take place when market conditions improve. At the moment,

plants are owned by large multinationals as well as by larger and midsized dome stic cooperatives and

processors, such as corn wet millers and sugar producers.

In 2010, production is forecast to regain its upward trend following the increased demand for biofuels

in the EU (see Consumption). During 2009

- 2010, production in France, Germany and Spain is

expected to increase only moderately, a major expansion is forecast in the UK and the Benelux

countries. A wheat

- based bioethanol plant with a capacity of about 300,000 MT is expected to open

in the UK in November 2009 and a similarl y sized venture in late 2010 (see FAS EU Grain & Feed

Annual Report). Production is expected to surge in the Netherlands and Belgium as the seaports in

this region can deliver feedstocks from a wide range of suppliers. In the port of Rotterdam, a

bioetha nol plant with a capacity of about 450,000 MT is expected to start production in 2010.

Feedstock Use

Feedstock Use for Bioethanol Production

(1,000 MT)

Calendar Year 2006 r 2007 r 2008 e 2009 f 2010 f

Wheat 2,500 2,500 3,200 3,900 5,000

Corn 600 700 1,600 1,800 2,500

Barley & Rye 500 300 500 500 500

Sugar* 650 1,000 1,300 1,400 1,500

Note: Data for feedstock use is not available. The figures above represent estimates by EU FAS posts. *

Expressed on basis of refined sugar, based on a conversion factor of 0.42.

In the EU, bioethanol is mainly produced from wheat, corn and sugar beet derivatives. A limited

volume of bioethanol is produced from barley, rye and the surplus of wine alcohol. The use of corn is

expected to increase in Spain and Central Europe, mainly in Hungary and Poland. Wheat is expected

to remain the major feedstock in Northwestern Europe. Strong expansion for bioethanol production

from sugar beet derivatives is expected in France, Germany and Belgium (see FAS EU Sugar Annual).

During the second half of 2007 and the first half of 2008, wheat prices were at a high l evel (see graph

below), which made sugar beet derivatives, mainly sugar syrup, a favorable feedstock for bioethanol

production. During 2008/2009, an abundance of wheat reduced cereal prices, but sugar prices fell at

the same pace. Due to the CAP Reforms, sugar prices are projected to remain at low levels during

2009 and 2010. As a consequence, sugar beet derivatives are expected to remain a competitivefeedstock compared to wheat during this period. In the long term, however, domestic sugar prices

could rise as a consequence of shrinking EU production.

The availability of cereals for bioethanol production is expected to be limited in the EU as bioethanol

producers will need to compete with feed compounders. In general, positive margins on bioethanol

production with cereals as feedstock are anticipated d uring good crop years, with an oversupply on

the EU market. The required feedstock for the anticipated production in 2010, 3.0 MMT of bioethanol,

is estimated at about 8 MMT of cereals, and a volume of sugar beet derivatives equivalent to 1.5 MMT

of refin ed sugar.

Consumption

EU bioethanol consumption in 2006 and 2007 was estimated at 1.4 MMT and 2.2 MMT, respectively.

Germany, France and Sweden were the main consumers during this period. In Sweden, most of the

bioethanol consumed originated from Bra zil, while in the other two main markets, bioethanol is

predominantly produced domestically.

In 2008, EU consumption followed its upward trend and increased to 2.9 MMT. Consumption was

supported by the high crude oil price. A part of the bioethanol p roduced has, however, been stocked

by the private sector. Actual ethanol use as transport fuel in the EU market is estimated at about 2.8

MMT. Based on the mandates (see policy section of this report), bioethanol consumption is forecast

to grow further t o 4.0 MMT in 2010. This anticipated growth is taking into account a moderate

recovery of the EU economy and crude oil prices. The most significant growth is expected in France,

the UK, Spain, the Benelux countries and Poland. The demand in France, Spain and Poland will be

mainly supplied with domestic production. The UK and Benelux production will compete with third

country imports in their domestic market.EU Bioethanol Consumption

– Main Consumers

(1,000 MT)

Calendar Year 2006 r 2007 r 2008 e 2009 f 2010 f

France 231 426 650 660 750

Germany 478 461 595 600 600

United Kingdom 0 150 225 310 470

Sweden 260 300 340 300 360

Spain 180 190 190 250 360

Benelux 28 133 230 320 350

Poland 93 64 70 150 250

Other 170 481 630 645 810

Total 1,440 2,205 2,930 3,235 3,950

Source: EU FAS Posts

On an energy basis, the share of bioethanol in gasoline consumption during 2008 was 1.6 percent.

Blending is forecast to increase to about 2.4 percent in 2010.

EU Bioethanol and Gasoline Consumption

(Ktoe)

Calendar Year 2006 r 2007 r 2008 e 2009 f 2010 f

Bioethanol 880 1,380 1,790 2,070 2,560

Gasoline 109,829 106,071 105,650 105,220 104,800

Bioethanol share 0.79% 1.28% 1.67% 1.93% 2.38%

Indicative EU goal

(EU Directive 2003/30) 2.75% 3.50% 4.25% 5.00% 5.75%

Source: EU FAS Posts. Gasoline use is based on statistics of the European Commission, Directorate

- General for

Energy and Transport.

Trade

As bioethanol has no Harmonized System (HS) code, trade numbers are difficult to asse ss. Assuming

the increase of EU ethanol imports (HS code 2207) since 2002 can solely be attributed to expanding

bioethanol imports, EU bioethanol imports are estimated at about 180,000 MT in 2006. During 2007

and 2008, imports grew significantly to nearl y 900,000 MT. The majority of the bioethanol is

imported by the UK, Sweden, and the Benelux countries through the port of Rotterdam. During 2008,

the Rotterdam port authorities reported imports from Brazil, Argentina, Costa Rica, Venezuela, Peru

and Guat emala. On April 11, 2008, the Dutch and Brazilian Governments signed a Memorandum of

Understanding in which the strategic location of the Rotterdam port for the transit of biofuels to the

EU was recognized. A part of the bioethanol imports is blended wit h gasoline in Rotterdam, but most

of the biofuel is blended at its final destination to fulfill local EU Member State requirements.

Brazil mainly exports undenatured, pure ethanol to the EU. The tariff on undenatured ethanol is 192

Euro per thousand liters, while the tariff on denatured ethanol is 102 Euro per thousand liters. Most

EU Member States only permit blending with undenatured etha nol. The UK and the Dutch

governments, however, also permit blending with denatured ethanol. As a consequence the UK and

Dutch ethanol sectors must compete with the lower

- priced denatured ethanol. Until 2007, bioethanol

was also imported under the HS co de 3824 into Sweden, which was subject to a lower tariff, 6.5

percent of the customs value. In 2007, this loophole was closed. In addition, bioethanol enters duty

free under the Everything But Arms initiative (EBA) for Least Developed Countries and the C otonouAgreement with African, Caribbean and Pacific (ACP) countries (see the policy section of this report).

During 2009, EU bioethanol imports are expected to stabilize due to the reduced demand in the EU.

During the first quarter of this year, impo rts from third country origins through the port of Rotterdam

reportedly fell. In 2010, EU imports are expected to recover following the anticipated growth in

demand. Currently, EU Member States individually regulate their bioethanol imports by issuing

im port licenses to importers. The European Commission (EC) is not expected to take political action

against these imports. In several biofuels policy papers of the EC (see policy section of this report),

the EC is proposing to seek a balanced approach towa rds domestic biofuels production and imports.

Currently the EC is determining criteria for sustainability (see policy section of this report), but these

are anticipated not to affect bioethanol produced from sugarcane.

Cellulosic Ethanol

- Sweden

Due to its vast forestry resources, Sweden has a long history of processing cellulosic raw materials

from forestry products. Sweden‟s largest ethanol producer, SEKAB, is one of the world‟s leaders in

the developing technologies for production of ethanol from cellulose. The company‟s pilot plant in

Örnsköldsvik in Northern Sweden has been in continuous operation, producing ethanol from forestry

waste products, since 2005. The pilot plant produces 300

- 400 liters of ethanol per day from a

feedstock input of 2 t ons of dry biomass. The plant is designed to produce the necessary expertise

for the expansion to commercial production. The feedstock is wood chips from pine trees, but other

raw materials such as bagasse from sugarcane, wheat and corn stover, energy gr ass and recycled

waste are also of interest for the project.

An intensive development project is under way at the facility with the aim of verifying and further

developing the process technology prior to the next stage of technological development. Th e target is

to have the technology ready for production of large

- scale second generation ethanol in 5

- 8 years

using cellulose as raw material.



### BtL

BtL is a second generation biofuel that is produced from biomass. While BtL can be produced from

cellulosic material, it is distinctly different from cellulosic ethanol, another second generation biofuel.

For details on the characteristics and the produc tion process of BtL please refer to page 20 of report

GM4048 [Biofuels in Germany

– Prospects and Limitations].

BtL research enjoys much attention, particularly in Germany. BtL is s till in its infancy and not

commercially available. Once widely available, it could contribute significantly to achieving the

ambitious EU biofuel goals. Projections as to when this might be technically feasible range from 5 to

10 years. However, whethe r BtL will be actually produced on a large scale basis depends on political

and economic factors. These include details of biofuel mandates, CO 2 emission reduction goals, and

the price of competing products such as fossil diesel and gasoline as well as ce llulosic ethanol.

Production and Research ProjectsIn April 2008, Choren opened the first commercial

- yet small

– BtL production plant in Freiberg

,

Saxony in Eastern Germany. However, the plant is still its initial stages and commercial production is

expected to start in the Fall of 2009. The plant has an annual production capacity of 18 million liters,

or 15,000 MT. At full capacity it will use 65,000 MT of wood dry matter as feedstock. Subject to the

company‟s assessment of the projected profitability it is contemplating building a large industrial scale

plant with an annual capacity of 270 million liters/200,000 MT (71 million gallons). Howev er, for lack

of clear political signals regarding energy tax reductions, the final decision has been postponed to

2010. If built, the plant could start operating in 2013 or 2014.

Because of the complex production process, BtL production plants need to be of a large size to be

economically viable. This poses the challenge of transporting large amounts of voluminous biomass

over large distances. The Forschungszentrum Karlsruhe (Research Center Karlsruhe, FZK, Germany)

is developing a four stage process that would address this problem by splitting the BtL production

stages geographically. In a first step ( bioliq ® process) biomass is transformed into an intermediate

product ( bioliqSyncrude ®) that holds 10

- 15 times as much energy as the original biomass. The

bioliqSyncrude ® is then transported to a central BtL plant for the stages two through four, thus

substantially reducing the transport volumes, costs, and attached GHG emissions. A pilot bioliq ®

plant is operational at the FZK. A gasification plant for stage two is currently being constructed. FZK

expects to have the entire system from straw to fuel in place by 2012. For details on the FZK process

please refer to http://www3.interscience.wiley.com/cgi

- bin/fulltext/121624305/PDFSTART

.

In Sweden, the Värnamo Biomass Gasification Centre has a pilot plant that uses the existing biomass

fuelled pressurized IGCC (integrated gasification combined

- cycle) CHP (combined heat and power)

process.



### Biogas

Biogas production in the EU in 2006 and 2007 amounted to 16,973 GWh and 19,937 GWh,

respectively.

EU Biogas Production

(Ktoe)

From:

Calendar Year Landfill Sewage Sludge Field Crops, Manure

other Leftovers Total

2006 2007.3 867.8 1330.8 4898.9

2007 2905.2 887.2 2108.0 5901.2

Source: le journal des énergies renouvelables No. 186, 2008

– biogas barometer

In the EU, biogas from agricultural crops is almost exclusively produced by farmers in Germany.

Agricultural biogas plants in most other EU countries process manure and waste material from the

food processing industry. However, new pilot plants for bioga s from field crops have been also

installed in other EU countries. In 2007, biogas produced in the agricultural sector amounted to 36

percent of total biogas production in the EU. The other 64 percent of biogas production resulted frombiogas collection and production from landfills and from sewage sludge. The agricultural production

portion is growing rapidly.

German farmers predominantly use silage corn and other plant silage materials to convert into biogas,

and subsequently convert it into electr ic power and heat. Since the financial incentive system was

amended in Germany in 2008, more biogas plants will be installed operating on manure and

manure/crop mixes. In 2008, there were 4000 biogas plants in operation. For 2009, an additional

500 plan ts are likely to be installed, most of them processing manure and manure/crop mixes. In

2008, about 400,000 hectares of farm land were used to produce the required feedstock. Investors

operating biogas plants in Germany are entitled to a fixed price for electricity inserted into the public

power system. The per

- unit compensation ranges between 0.124 € and 0.195 € per KWh.

In Germany, an increasing portion of the agricultural biogas is inserted into the natural gas pipeline

system. This, however, requi res that the gas be cleaned and standardized to meet the natural gas

quality requirements. Industry experts claim that a minimum plant size of about 1.0

- 1.5 MWh is

required to make this additional processing step competitive. Power plants and natural gas trading

and processing companies are considering investment in large

- scale biogas operations to produce

biogas which is directly inserted into the natural gas pipeline system. Such investment plans are

currently only known from companies in Germany. The average size of biogas facilities installed

during recent years is reported at about 500KWh.

Another approach is to pipeline the unprocessed biogas to combined power and heat plants which are

installed at the location of heat consumption. To commercial ly use the process heat from the gas

conversion, some farmers have begun to dehydrate the fermentation sludge to obtain a marketable

dry organic fertilizer.

In northern Germany, there is also one biogas station in operation fueling up automobiles. Th is pilot

project is run as a cooperation between the German automobile company Volkswagen and a regional

agricultural cooperative.



### Solid Biomass

In the past few years, primary energy production from solid biomass has been steadily increasing in

Eur ope. However, a mild winter in 2007 slowed down the solid biomass growth to 66.4 Mtoe, only 0.7

Mtoe more than in 2006. Wood

- based biomass is the main source for bioenergy in Europe, followed

by waste and agricultural

- based biomass. Most of the biomass is used for heat, and to a lesser extent

in combined heat and power (CHP) applications.

The share of biomass in the energy mix differs widely among the EU Member States, from under 2

percent in some countries to almost 20 percent in Sweden and Finland. The main producers in

Europe are countries with large territories and large forestry resources such as France, Sweden,

Germany, Finland and Poland. These five countries represent 58 percent of primary energy

production coming from solid biomass. The pr incipal users of biomass are the Nordic countries andthe Baltics.

The main reasons for the wide use of bioenergy in the Swedish and Finnish energy systems are the

availability of forests and raw materials, a developed forest products industry and the wide use of

district heating systems. About 90 percent of bioenergy used in Sweden and Finland today comes

from the forestry sector. The raw materials used include forestry residues such as brash (branches

and tree tops), and waste products from the saw mill and pulp industry, such as sawdust and bark.

However, the largest source of bioenergy in Sweden and Finland today is black liquor from the

forestry industry. Most of this energy is used directly in the pulp production process but also for

district h eating and electricity production.

Biomass will play an increasingly important role in the European energy market in meeting the 20

percent target for renewable use by 2020 and in the future reduction of CO 2 emissions in Europe.

Despite the fact that the heating and cooling sector is responsible for almost 50 percent of Europe‟s

energy demand, this sector has not been addressed in the policy framework. However, major

changes in the heating and cooling sector might soon be seen due to the new EU Renewable Energy

Directive (RED) agreed upon in December 2008. The RED requires Member States to introduce

measures in order to increase the use of renewable energy sources in the buildings sector. Also, the

RED stre sses the importance of developing central district heating and cooling systems using

renewable energy sources.

Heating and Electricity

District heating has a significant position in Sweden, accounting for about 40 percent of the heating

market in Sweden. Compared to 1970, when oil was the main fuel, oil accounts for only a few

percent today. Over 60 percent of district heating fuel toda y is biomass. The use of wood fuels in the

district heating sector has increased more than fivefold since 1990, mostly in the form of felling

residues and solid by

- products from the forest products industry. Also, processed fuels such as

briquettes and p ellets are being increasingly used.

Electricity production in Sweden is almost entirely fossil

- free and is mainly based on hydro power and

nuclear power. The use of oil has fallen from more than 70 percent of the total energy supply in 1970

to around 30 percent today, largely because of diversification of fuels and more efficient use of

energy. The most important policy instrument in promoting renewable electricity production in

Sweden is the electricity certificate system that was introduced in 2003. The objective of the

electricity certificate system is to increase the production of renewable electricity with 17 TWh by year

2016 compared to year 2002. The system replaces earlier public grants and subsidy systems.

Pellets

Wood pellet use in the EU mainly occurs in Sweden and Germany although there are signs of dynamic

growth in a number of other Member States. With the Member States‟ ambitious policy objectives to

increase the share of renewable energy sources in the electricity and heating sector

, wood pellets will

become increasingly important. According to the European Biomass Association (AEBIOM), there are

currently about 450 pellet plants in Europe producing about eight million tons of pellets per year. Thenumber of plants is increasing co ntinually due to the dynamic market development and AEBIOM

estimates that up to 80 million tons of pellets could be used in the EU by 2020, which corresponds to

33 million tons oil equivalent.

The major raw material for pellets has traditionally been s awdust and by

- products from sawmills.

With the increasing competition for the sawdust resources there is now increased interest in searching

for alternative raw material. The issue of pellet raw material and the pricing will be crucial for future

market development.

Sweden is the largest producer and consumer of wood pellets. There are over 90 pellet factories

supplying nearly 2 million metric tons of pellets to the Swedish market. In Germany, production of

wood pellets reached 1.47 MMT in 2008 co mpared to 1.13 MMT in 2007. Capacity size of pellet

companies in Germany ranges between 10,000 and 50,000 MT. About 60 percent of the German

production, 900,000 MT, has been used in Germany. Growing demand is particularly reported from

commercial and co mmunity heating facilities.



### Related Reports from USEU Brussels and MS Posts in the EU

Country Title Date Report

Number

EU

- 27 Oilseeds Annual

http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Commodity%20Report_EU

27%20OILSEEDS%20_Berlin_Germany%20EU

- 27_4

- 30

- 2009.pdf 04/30/09 E49039

EU

- 27 Grain and Feed Annual

http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Commodity%20Report_ EU

27%20GRAIN%20_London_United%20Kingdom%20EU

- 27_4

- 30

- 2009.pdf 04/30/09

Sweden Swedish Ethanol Plant's Bi

- Product Becomes Main Product 04/28/09 SW9006

Albania Italy to Build $1.3 Billion Biomass Plant in Albania 02/10/09 AL9001

Sweden Bio

- Fuels Cooperation

- The Next Big Thing for FAS? 02/04/09 SW9001

Germany EU action requires Germany to revise changes to biofuel law 01/30/09 GM9002

Germany Read

- out from Fuels of the Future Congress in Berlin 12/12/08 GM8051

EU

- 27 EU Member States revise their biofuels policy 12/08/08 E48140

France Changes Proposed in French Biofuels Incentives 11/12/08 FR8020

Germany German Government Modifies Biofuel Laws 10/28/08 GM8047

Germany First Biogas Plant Using 70 Percent Chicken Manure as Feedstock Inaugurated 08/26/08 GM8034

France Biofuels Update 08/14/08 FR8012

UK Biofuels under fire 07/15/08 UK8013

Sweden Biofuels Annual 07/14/08 SW8006

EU

- 27 Biofuels Annual 06/24/08 E48063

EU

- 27 EU Agriculture Commissioner's Message on Biofuels and Food Prices 05/16/08 E48053

Germany Biomass

- to

- Liquid Biofuel Plant Opens in Germany 04/23/08 GM8020

Sweden Sweden Fights to Import Cheap Ethanol 02/25/08 SW8002

Germany BioTownTM USA and Bioenergy Village Juehnde Explore Options for Cooperation 02/25/08 GM7051



### Annex I: Biofuels Incentives in the Member States

Production incentivesInvestment aids

Bulgaria: Renewable energy projects are financed by the National Rural Development Program which

is applicable to all projects related to investment in rural areas. No other special funds for biofuels

exist.

Finland: Government support for pilot plants for development of second generation biofuels.

Greece : The National Investment Law provides incentives to the processing industry for establishing

new facilities, and for the modernization and expansion of existing ones. Financial Support varies

betwee n 50

- 60% of the total investment according to zoning and the size of the investment. Oilseed

crushing plants and biofuel production plants are covered by the law provided that they satisfy all the

requirements set by the law. There are about 13 plants in t he country which participate in contract

allocation based on certain criteria set by the GOG Ministry of Agriculture, such as spending on

research, ISO, processing capacity, etc. A proposal by the Ministry of Agriculture for 100% tax

reductions to farmers and public transport using 100% biodiesel was discussed but no decisions have

been made yet.

Ireland: In Budget 2006 a five year biofuels excise relief package was announced aimed at placing

163m liters of biofuels on the Irish market by 2008. Once a project is approved, that biofuel is given

relief from Mineral Oil Tax.

Netherlands: Subsidy program of €60 million for domestic production of biofuels.

Poland : Financial aid is available under EU funds. There is €69 million from ERDF and €8 milli on

from public funds, available to co

- finance the “Energy security, including diversification of the energy

sources” priority.

The Innovative Economy program provides co

- financing for projects that are based on biofuel and bio

components production. Funds are available under priority “Investing in innovations” (strictly for

second generation bio

- fuels) and “Research and development of new technologies”.

Portugal: Decree 66/2006 established tax benefits for the producers of biofuels in Portugal. This la w

reduced or exempted petroleum taxes on biofuels to approved producers by €280

- €300 per 1,000

liters for fuel destined for the commercial market, with a limit of 205,000 tons of biodiesel in 2007.

With the recent passage of Decree 1391

- A/2006, the GOP set the maximum ceiling on which the tax

exemption can apply at 100,000 tons per producer. Each producer will be allocated a quota for the

tax

- exempt production based upon factors such as the source of the raw materials and location of the

production. Fo r 2008, the exemption is the same with a limit of 320 million liters of biodiesel. In the

case of bioethanol, the government is planning to provide a tax exemption of €400

- €450 per 1,000

liters with a limit of 65 million liters as from 2009.

Spain: Th e Spanish Government and many of the regional Autonomous Governments provide

subsidies to encourage potential investors in less

- favored areas in order to create employment. The

incentives are not biofuel specific; most of them support a variety sectors. Bi ofuel producers can

benefit from these aids.Sweden : Government supports the development of second generation biofuels and will allocate SEK

875 millions during 2009

- 2011 for commercialization of new energy techniques, for example pilot

plants.

UK: The UK has an Enhanced Capital Allowance (ECA) scheme that provides businesses with

enhanced tax relief for investments in equipment that meets published energy

- saving criteria. 100

percent first

- year ECAs allow the full cost of an investment in designat ed energy

- saving plant and

machinery to be written off against the taxable profits of the period in which the investment is made.

The general rate of capital allowances for spending on plant and machinery is 20 percent per year on

the reducing balance bas is. In addition, the UK has a number of different grant schemes designed to

encourage biomass production and conversion to energy.

Tax breaks/credits/penalties for producers

Belgium : The Belgian Government appointed distribution quotas to three bioeth anol producers in

Belgium, totaling 248,000 MT. The quotas are valid for six years. In December 2006, the Belgian

Government also appointed distribution quotas to four biodiesel producers. These quotas add up to

374,000 MT and are valid for a period of six years. The quotas equal the projected domestic demand

in 2010. An important part of the volume will be produced in the so

- called Ghent Bio

- Energy Valley.

As of November 1, 2006, the Belgian Government increased the tax on diesel (0.013 €/liter) and

gasoline (0.037 €/liter). With the collected tax the oil companies will be compensated for blending

biofuels, with 0.0102 €/liter and 0.0305 €/liter, respectively.

Bulgaria: 3% reduction in excise duties for biofuel and mineral fuel blends. This 3% reduction was

put in the law but there were some legal issues around it which prevented the industry and even the

executive authorities from implementing it. This can be done only after the Min Finance notifies the

EC about the production cost structure of locally produced fuel, so that derogation in the excise duty

is granted. This process, however, was obstructed by certain corporate interests related to the

confidentiality of s uch information. The communication between the current government and the EC

is not completed yet but due to upcoming new climate legislative package, national budget collection

challenges, and national elections in early July, it is highly unlikely that the current dialogue will

continue and that this regulation will be ever implemented.

Finland: The Finnish Government will present a proposal for feed

- in tariffs for biogas and wind power

in the spring of 2009. Also, new taxation and subsidy measures are being developed to favor fuel

efficiency.

France : An environmental tax (called TGAP) is imposed on distributors when the incorporation of

biofuels they practice is lower than the objective of the French Government. These are 3.5% in 2007,

5.75% in 2008, 6.25% in 2009 and 7% in 2010.

Greece: Biofuels in Greece can be blended up to 5%. Accor ding to the GOG Ministry of Development,

reduction of duties can be expected only when blends exceed 10%. Current consumption tax for

100% mineral fuel of about 420 €/Hectoliter is equally implemented for a 5% biodiesel blended fuel.

The GOG‟s views seem to favor crop production for food instead of energy. GOG officials often expressopinions favoring imports from neighboring Balkan States, instead of locally producing feedstock, due

to the relative expense of local production.

Hungary: The system of ex cise tax preferences was changed June 30, 2007 to a mandate for

bioethanol, and from January 1, 2008 for biodiesel. The compulsory blending standards have been

removed (e.g. blending with pure ethanol as well as ETBE will be eligible). However, gas compa nies

must use more than 4.4% bio

- component in their fuels (% based on volume) to be eligible for the

lower excise tax. If they do not meet the 4.4% criteria, the normal excise tax will be imposed. The

preferential tax is 32 €/hl lower for diesel oil and 33 €/hl lower for gasoline compared to the normal

tax rate.

Poland: According to the Ministry of Economy, 2007 law changes set new excise tax rates: for

gasoline $0.4742/l; crude oil $0.3176/l; self

- contained bio

- components $0.0030/l. For gasoline and

di esel that include over 2% biofuels, there is no excise tax at all. For the period 2007

- 2014 producers

can exclude from their income tax 19% of biofuel production costs that are surplus over costs of liquid

fuel production (same heating/fuel value). However

, these regulations have not yet been positively

notified to the European Commission.

Romania : Currently an excise exemption for pure biodiesel blended with conventional fuel is applied

for the mandate 4%, regardless of the actual amount of biodiesel co ntained in the blend. The current

excise tax for conventional fuel is €336 /MT. There are no incentives for biofuel producers.

Spain: As of 2009, a duty is imposed on distributors when the incorporation of biofuels is lower than

the mandate levels. Bio fuels are exempt from the hydrocarbon tax, at least until 2013.

UK: Under the UK‟s Renewable Transport Fuel Obligation (RTFO), fuel suppliers are awarded

certificates for each liter of biofuel, and these can be traded. Suppliers can also buy themselves out

of the obligation, at a price set by the government at a level intended to be higher than the additional

cost of supplying biofuel (over and above the fossil fuel based alternative). The combination of duty

incentive (currently 20 pence per liter for biodiesel and bioethanol) and the penalty/buy

- out price (15

pence per liter) paid by fuel suppliers who fail to meet their RTFO obligation is guaranteed until 2010

-

2011. After that the duty differential will cease, and the RTFO buy

- out price will change to 30 pence

per liter.

Consumption incentives

Tax breaks for consumers (e.g. reduced mineral tax, reduced VAT etc.)

Austria: The Austrian Mineral Oil Duty Act (Mineraloelsteuergesetz) lays down lower duty rates for

fuels containing at least 44 liters biofuels per 1,000 liters fuel. As of October 2007, the mineral oil

duty for petrol containing at least 44 liters bioethanol per 1,000 liters is €442 (unreduced tax: €475).

As of July 2007, the mineral oil duty for diesel containing at least 44 liters b iodiesel per 1,000 liters is

€347 (unreduced tax: €375). Pure biofuels are exempt from mineral oil duty.

For Baltic States: Biofuels used as motor or heating fuels are exempt from excise duty.Bulgaria : none

Czech Republic: An amendment to the C onsumption Taxes Act that is expected to come in force in

mid 2009 will set tax exemptions for high

- percentage fuel mixes, pure biofuels and biogas. E 85 and

E 95 will effectively become consumption

- tax

- free. Also exempt from the consumption tax will be t he

bio

- component in biodiesel, in mixes with its content exceeding 30 percent. The tax incentive is

planned to last for six years and is anticipated to increase domestic production and use of biofuels.

France: Reduced mineral tax (called TIC) on limited quantities of biodiesel and bioethanol. Tax rate

and quantities are revised (and reduced) annually by the French Government. In 2009, they are €15

per hectoliter for biodiesel, and €21 per hectoliter for bioeth anol. The quantities are distributed in a

tender system administered by the GOF to certain plants located in France and in the MS close to

French borders (Germany, Italy, Spain, and Belgium).

Germany: Energy tax reduction for B100. Until August 2006, tax was set at zero. Currently tax

amounts to €0.21/liter versus €0.47/liter for diesel. The tax reduction will be phased out over the

next few years. By 2012, taxes for diesel and biodiesel will be at the same level.

Greece: There are no incentive s for 5% blends. Some tax reductions may take place in 2

- 5 years

when higher biodiesel blends enter the market.

Hungary: There are no consumer incentives to boost biofuel use

Italy: The partial (80 %) consumption tax relief quota for biodiesel is 250,000 tons. Of this amount,

70,000 tons should come from domestically produced feedstock, under specific cultivation contracts.

For bioethanol there is a three year (2008

- 2010) tax relief f und (€73 million/year): the tax would be

reduced by about 50 %. The amount of the un

- reduced tax is €0.562/liter for gasoline and

€0.423/liter for diesel.

Poland : In July 2007, the Polish Parliament approved a new program which is supposed to encourage

biofuel use. These measures should be enough to make biofuel use attractive. However, local and

national governments are not making much progress in implementing this program.

Romania : Currently there are no incentives for biofuel producers. The curre nt excise tax for

conventional fuel and biofuel is 325 €/MT.

Slovakia: Duty is reduced by 48% of the percentage of a biogenous substance that is contained in

the blend, to a maximum of 7.2%.

For petrol: duty is reduced by the percentage of a biogenou s substance that is contained in the blend,

to a maximum of 5%.

The amendment (53/2009) to the Act on Mineral oil excise tax (98/2004) has been in force since

March 1, 2009.

Slovenia : In accordance with the Excise Act, distributors of fuel for motor tra nsport vehicles qualify

for an exemption from excise duties, provided that the fuel is blended with the following biofuels:

bioethanol, biodiesel, biogas, bio ETBE or biodimethyl ether. The level of exemption from exciseduties is proportional to the shar e of biofuels added, but may not exceed 5% of excise duties.

Spain: Currently there are no incentives for biofuel consumers.

Sweden: There are no energy taxes for ethanol and biodiesel. The new Government Bill presented

on March 11, 2009, proposed th at “green cars” will be exempted from vehicle tax for five years. The

current “green car” cash bonus will thus be replaced by a long

- term tax exemption. The amendment

should apply to cars entering use from July 1, 2009. In addition, cars running on petr ol and diesel

that emit less than 120 grams of carbon dioxide per kilometer in mixed driving will also be exempted

from vehicle tax.

UK: The UK government introduced a lower rate of tax on bioethanol and biodiesel with the aim of

making it 20 pence pe r liter cheaper to consumers. However, to date, the lack of suppliers and higher

manufacturing and distribution costs means that bioethanol and biodiesel are just marginally cheaper

than standard fuels. One tax

- break for consumers is that flex

- fuel car o wners get a 20 pounds/30

USD per year discount (around 10 percent) on their road tax.

Use mandates

Austria: Substitution requirements stated below are based on the total energy content.

As of October 1, 2005: 2.5% for petrol and diesel;

As of October 1, 2007: 4.3% for petrol and diesel;

As of October 1, 2008: 5.75% for petrol and diesel;

In 2007, a total of 6.3 million MT of diesel was sold. 96.3% of the Austrian diesel had an average of

4.7% biodiesel added by volume. 289 thousand MT of blended biodiesel, 71 thousand MT of pure

biodiesel or higher biodiesel content were placed on the Austrian market. Total biodiesel on the

Austrian market in 2007 accounted for 370 thousand MT.

Petrol consumption in 2007 was 2 million MT, including 406 thousand MT with a bioethanol content

averaging 4.7% bioethanol by volume.

Belgium: The Belgium Government imposed a mandate of 5.75% blending in 2010, but has no

mandates imposed for the preceding years. At the moment, the Belgium gove rnment is not planning

to change their biofuel targets.

Bulgaria: The major law about biofuels was passed by the Parliament in June 2007 and called for

mandatory 5% biofuel blending. Although this requirement entered in force on January 1, 2008, few

f uel distributors are selling biofuels today. The targets are as follows:

Biofuel Targets

– Bulgaria

(1,000 MT)

2005 2008 2009 2010 2015 2020

Biofuel 0 43.9 79.3 133.2 218.6 314.5

Bioethanol 0 9.7 16.0 24.5 33.4 37.0

Biodiesel 0 34.2 63.3 108.7 185.2 277.5

Total Fuel 1,952 2,237 2,344 2,450.5 2,950.5 3,460.5Target (%) 0 2 3.5 5.75 8 10

Czech Republic : There are blending mandates based on the volume of total transport fuels:

As of September 1, 2007: 2 % for diesel;

As of January 1, 2008: 2 % for petrol;

As of January 1, 2009: 3.5 % for petrol and 4.5 % for diesel.

Finland: A new law on promoting the use of biofuels in transport came into force on Jan. 1, 2008.

The law obliges distributors of transport fuels to supply a minimum volume of biofuels annually. The

minimum biofuels volume in 2008 was 2% of the total energy content of all transport fuels supplied

by a fuel distributor. In 2009, the minimum volume is 4%, and in 2010 and subsequent years it will

be 5.75%.

France : The French government has set biofuel objectives for each year until 2010.

Biofuel Targets

– France

2005 2006 2007 2008 2009 2010

1.20% 1.75% 3.50% 5.75% 6.25% 7.00%

No France

- specific goals are set after 2010. Biofuels use will be part of the 10 percent European

target for use of renewable energies by 2020.

Germany: Mandates stated below are based on energy content, not on volume. The gap between

the specific and the overall mandates can be filled with any approved biofuel to the liking of the

trader. Mandates apply to everybody who sells fuels, not just gas station s.

Biofuel Targets

– Germany (%)

Year Overall Mandate Biodiesel Specific Ethanol Specific

2007 4.4 1.2

2008 4.4 2.0

2009 6.25 4.4 2.8

2010 6.75 4.4 3.6

2011 7.00 4.4 3.6

2012 7.25 4.4 3.6

2013 7.50 4.4 3.6

2014 7.75 4.4 3.6

2015 8.00 4.4 3.6

The mandates above were introduced in 2006 based on the assumption that E10 would be introduced

on the German market in 2008. This did not materialize as allegedly 3 million older cars cannot use

E10 and would have been forced to buy the more expensive “s uper plus” gasoline. As a consequence

of the failure to introduce E10, the German government viewed the mandates as over

- ambitious and

is in the process of reducing them. The current draft legislation stipulates the following revised

mandates:

Biofu el Targets

– Germany (%)

Year Overall Mandate Biodiesel Specific Ethanol Specific2009 5.25 4.4 2.8

2010

- 2014 6.25 4.4 2.8

The German government expects the Bundestag and Bundesrat to pass the amendment before the

summer recess. The revised mandates would apply retroactively.

Greece:

Biofuel Targets

– Greece (%)

Year Overall mandate Biodiesel specific Ethanol specific

2009 3.00 5.0% max 0

2010 3.50 5.0% max 0

2010

- 2014 5.27 5.00

- <10% Unpredictable (see also

Report GR9006 on

“sugar”, FAS Athens,

Greece

Italy: 2 % of sales in 2008, 3 % in 2009 (energy content)

Netherlands: On January 1, 2007, the Dutch Government implemented EC Regulation 2003/30/EC

into the Dutch Decision Biofuels 2007. As of this date, distributors of transport fuels were obliged to

blend 2 percent of biofuels in 2007, increasing gradually t o 5.75% in 2010. On November 3, 2008,

the Dutch government reduced the blending target for 2010 from 5.75 to 4 percent. The reason for

this reduction is the uncertainty of the sustainability of biofuels, and the absence of criteria. With the

reduction t he government wants to pressure the biofuels industry to establish proper certification of

sustainable biofuels.

Poland: Mandatory National Goal Indicators: 230,000 for CY 2008 and almost 550,000 tons for

2010. The most significant policy that will en courage biofuel use was the introduction of National Goal

Indicators for the years 2008

- 013 (see PL7044, dated 7/22/2007). As of January 2008, these

indicators became obligatory for all liquid fuel producers and all fuel importing companies (both

outside of EU and within the EU), which trade or distribute them in Poland. The National Goal

Indicators (NGI) for biofuels are: 3.45% energy level use for 2008, 4.60% for 2009, 5.70% for 2010,

6.20% for 2011, 6.65% for 2012 and 7.10% for 2013.

Portugal: On F ebruary 2009, the Government of Portugal approved a regulation in order to

encourage biodiesel consumption. The mandatory amounts of biodiesel that must be marketed, based

in volume, are 6% for 2009 and 10% for 2010.

Romania : The mandate was introduced for the first time in Romania in July 2007, when the fuel

retailers had to use at least 2 percent of biodiesel in blending. The percentage increased gradually

reaching 4 percent in July 2008. Starting with July 2009, a minimum 4 percent of bioethanol based on

volume should be blended with gasoline.

Slovakia: Government Regulation No 246/2006 Coll. sets the mandates on the minimum quantity of

renewable fuels in the petrol and diesel fuels marketed in the Slovak Republic (entry into force: 1 May

2006). P roducers and vendors are obliged to blend a minimum of 2% biofuels in fuels for transport,

based on the energy content of the total quantity of petrol and diesel fuel placed on the market. In2010 the minimum mandate is 5.75%.

Slovenia: In accordance wi th Articles 5 and 6 of the Rules on the content of biofuels in motor vehicle

fuels (Slovenian Official Gazette No 83/05, corrigendum 108/05), distributors of fuel for transport

vehicles must ensure that the annual average content of biofuels in all transpo rt fuels placed on the

Slovenian market in the particular calendar year is as follows:

Biofuel Targets

– Slovenia (%)

Year Content of biofuel

2006 1.2

2007 2.0

2008 3.0

2009 4.0

2010 5.0

2011 5.5

2012 6.0

2013 6.5

2014 7.0

2015 7.5

The content of biofuels is expressed as a percentage of the energy value of all motor vehicle fuel

placed on the market. Distributors may transfer obligations from one year to the next if the price of

purchasing biofuels exceeds the total of the price of fossil fuels and the excise duties on them.

Spain: In October 2008, the Government of Spain implemented a mandatory mixing regulation

(Orden ICT/2877/2008, October 9, 2008). As of 2009 the mandatory amounts of transport biofuels

that must be marketed by fuel sector operators are as shown in the table. The mandate is based in

energy content, not volume.

Biofuel Targets

– Spain (%)



### Year Overall mandate Biodiesel specific Bioethanol specific

2008 1.9 1.9 1.9

2009 3.4 2.5 2.5

2010 5.83 3.9 3.9

2011 7 N/A N/A

The industry estimates that diesel consumption would grow 1% in 2009, and 2% and 3% in 2010 and

2011 respectively. Meanwhile, gas consumption would decrease 3% each year. According to this, the

consumption of gas and diesel would be:

Biofuel Targets

– Spain

Year Gas (1,000 KTEP) Diesel (1,000 KTEP)

2005 7,260 23,282

2006 6,931 24,585

2007 6,686 25,772

2008 6,227 25,296

2009 6,414 25,549

2010 6,606 26,060

Source : Corporación de Reservas Estratégicas de Productos Petrolíferos (CORES).Considering established conversion factors, these percentages suppose the demand of biofuels shown

in the following table:

Biofuel Targets

– Spain

(1,000 MT)



### Year Biodiesel specific Bioethanol

specific Overall mandate

biodiesel/bioethanol

2009 740 241 330 / 448

2010 1,178 350 716 / 972

The rest of the overall mandate will be likely covered by biodiesel.

Sweden: All gasoline sold in Sweden contains 5% ethanol. As of 2006, Swedish regulations allow a

5% blend of biodiesel in conventional diesel. Also, Sweden has introduced obligations on fuel retailers

to sell at least one type of biofuel. In order to quickly in crease the use of biofuels, the Government of

Sweden has the ambition to implement the new EU biofuel directive that enables a blending of 10%

ethanol and 7% biodiesel, hopefully by July 1, 2010. Sweden‟s biofuel mandates are 5.75% for 2010

and 10% for 20 20.

U.K.: The Renewable Transport Fuel Obligation (RTFO) came into force in April 2008. The RTFO

places an obligation on UK fuel suppliers to ensure that a certain percentage of their aggregate sales

is made up of biofuels, or they face a 15 pence per l iter penalty. Starting at 2.5 per cent in

2008/2009, it will increase each year to require 5 per cent by volume of all UK fuel sold at UK gas

stations to come from renewable sources by 2013/2014.

Biofuel Targets

– U.K. (% by volume / Fiscal Year)

2008/

2009 2009/

2010 2010/

2011 2011/

2012 2012/

2013 2013/

2014

2.50 3.25 3.50 4.00 4.50 5.00

[1] Based on information from:

- Massachusetts Institute of Technology (MIT) http://web.mit.edu/mit_energy/resources/factsheets/UnitsAndConversions.pdf

,

- German Federal Agency for Renewable Resources (FNR)

[2] The Blair House Agreement allowed the EU to produce oilseeds for non

- food use of up to 1 million MT of soybean equivalent. For details

please refer to page 5 of report GM4048 http://www.fas.usda.gov/gainfiles/20 0411/146118126.pdf