# Commission Decision of 9 July 2014 on the aid scheme SA.18042 (2013/C) (ex MX 17/2009) (ex NN 61/2004) implemented by Spain            on excise duty exemption for biofuels (notified under document C(2014) 4530) (Only the Spanish text is authentic) (Text with            EEA relevance) (2014/766/EU)         

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U.K.

# Commission Decision

# of 9 July 2014

# on the aid scheme SA.18042 (2013/C) (ex MX 17/2009) (ex NN 61/2004)

# implemented by Spain on excise duty exemption for biofuels

# (notified under document C(2014) 4530)

# (Only the Spanish text is authentic)

# (Text with EEA relevance)

# (2014/766/EU)

THE EUROPEAN COMMISSION,

Having regard to the Treaty on the Functioning of the European Union, and in particular the first subparagraph of Article                           108(2) thereof,                        

Having regard to the Agreement on the European Economic Area, and in particular Article 62(1)(a) thereof,

Having called on interested parties to submit their comments pursuant to the provisions cited above(1) and having regard to their comments,                        

Whereas:

I.**PROCEDURE**(1)Since 2006, the Directorate-General for Competition has carried out each year an *ex-post* monitoring exercise of a sample of aid measures implemented by Member States. The Spanish excise duty exemption for biofuels                                 scheme (case No NN 61/2004) was approved by the Commission by decision C(2006) 2293 of 6 June 2006. This scheme was included                                 in the 2009/2010 monitoring exercise under reference MX 17/2009, in the context of which the Commission examined how Member                                 States had implemented a sample of existing schemes in 2009.(2)The Commission decided to include this scheme again in the 2011/2012 monitoring exercise, in the context of which the Commission                                 examined how Member States had implemented a sample of existing schemes during the period 2009-2010.(3)In the light of the information provided by Spain during the monitoring exercise, the Commission had doubts about the proper                                 implementation of the scheme by the Spanish authorities. Consequently, it decided to initiate the procedure laid down in Article                                 108(2) of the Treaty on the Functioning of the European Union (TFEU). The Commission informed Spain of its decision by letter                                 dated 17 July 2013.(4)Spain provided its observations on 20 September 2013.(5)The Commission decision to initiate the formal investigation procedure was published in the *Official Journal of the European Union* on 7 February 2014(2). The Commission invited interested parties to submit their comments.(6)The Commission received comments from the biofuels section of the Spanish Association of Renewable Energy Producers (APPA                                 Biocarburantes) on 5 March 2014. It forwarded them to Spain, which was given the opportunity to react. On 6 May 2014 the Spanish                                 authorities indicated that they did not wish to comment on the observations received from third parties.

II.**DETAILED DESCRIPTION OF THE MEASURE**(7)The scheme NN 61/2004 Excise duty exemption for biofuels consists of a zero rate of the Spanish tax on hydrocarbons. It applies                                 to ethyl alcohol produced from products of agricultural or vegetable origin (bioethanol) falling within CN Code 2207 20, methyl                                 alcohol obtained from products of agricultural or vegetable origin falling within CN Code 2905 11 00 and products falling                                 within CN Codes 1507, 1508, 1510, 1511, 1512, 1513, 1514, 1515 and 1518.(8)The zero rate of tax was applied to these products irrespective of whether they were used as such or after chemical modification.                                 In cases were the biofuel was blended with other fuel, the reduced rate applied only to the biofuel part of the mixture. The                                 reduced excise duty was applicable to biofuels of whatever geographical origin.(9)The scheme was approved by the Commission on 6 June 2006 and expired on 31 December 2012(3).(10)The assessment of the information provided by the Spanish authorities during the monitoring exercise raised doubts as to whether                                 the scheme had been implemented in compliance with the Commission decision in 2009 and 2010. Moreover, there were doubts that                                 Spain may have overcompensated beneficiaries in 2010. The Commission’s concerns were set out in recitals 13 to 29 of its decision                                 of 17 July 2013.(11)The Commission requested Spain to:(a)
demonstrate that the scheme had been correctly implemented in 2009 and 2010;
(b)
demonstrate that there had been no overcompensation for bioethanol in 2010, or, if there had been, to explain what measures                                       were taken to avoid overcompensation in the following years;                                    
(c)
submit annual reports for the whole duration of the scheme.

III.**COMMENTS FROM INTERESTED PARTIES**(12)The Commission received comments from APPA Biocarburantes on 5 March 2014. The comments were very similar to those of the                                 Spanish authorities (see section IV). APPA Biocarburantes argued that the scheme had been correctly implemented.(13)When the costs of biofuels were compared with the pre-tax price of fossil fuels at the pump, both bioethanol and biodiesel                                 seemed to have been undercompensated for the whole period, with the exception of 2010 for bioethanol and 2012 for biodiesel.                                 APPA Biocarburantes argued that this methodology was incorrect, as the pre-tax price of fossil fuels at the pump included                                 all fuel transport and distribution costs until the product reached the final consumer, while such logistical costs were not                                 included in the cost of biofuels in this comparative analysis. In its view, it would be more appropriate to compare biofuel                                 production costs with the internationally quoted prices of fossil fuels. Use of this methodology clearly showed an increased                                 undercompensation for biofuels during the lifetime of the scheme and no instances of overcompensation.(14)Finally, APPA Biocarburantes argued that, even when the costs of biofuels were compared with the pre-tax price of fossil fuels                                 at the pump, the two one-off situations of potential overcompensation were purely temporary and were caused by the very nature                                 of the tax aid scheme for biofuels (with absolute quantities set *ex ante* and evaluations carried out *ex post*) and the highly volatile prices of the agricultural raw materials (the main component of biofuel production costs). No adjustment                                 of the scheme was necessary – for bioethanol no sign of potential overcompensation could be seen in the following years (2011                                 and 2012) and for biodiesel the potential overcompensation occurred in the last year, 2012. Moreover, no adjustments would                                 be possible for the future, as the scheme had expired.

IV.**COMMENTS FROM SPAIN**(15)The Spanish authorities provided their comments on 20 September 2013. On 6 May 2014 they indicated that they did not wish                                 to comment on the observations from third parties that had been forwarded to them.(16)In their letter of 20 September 2013, the Spanish authorities submitted information on the costs of production of bioethanol                                 and biodiesel, together with data on the prices of fossil fuels during the period between 2004 and 2012. At the same time                                 they provided tables comparing the costs of biofuels with the pre-tax price of fossil fuels at the pump. These tables are                                 set out in the Annex.(17)The data and the analysis illustrated by the respective tables are based on the following assumptions:(a)
The starting point is the real data for annual production costs of Spanish plants, plus a production profit margin of 5 %.                                       Adjustments are made due to the difference in energy content between the biofuel and the fossil fuel with which it is mixed                                       using the data in Annex III to Directive 2009/28/EC of the European Parliament and of the Council(4), namely 1,52 and 1,09 for bioethanol and biodiesel, respectively.                                    
(b)
These costs are compared with the price data for the fuel they are replacing, i.e. petrol and diesel. The price is the pre-tax                                       pump price of this fuel and it therefore includes the gross commercial distribution margin. The difference between the production                                       cost of the biofuel and the cost of the substitute fossil fuel is the maximum compensation margin.                                    
(c)
The real compensation applied is equivalent to the excise duty on mineral oils that would correspond to bioethanol and biodiesel.                                       Without the exemption, the rate applied to the products in question as excise duty on mineral oils would have been the rate                                       for petrol and diesel, respectively(5).                                    
(18)Based on the corresponding data, Spain indicated that during the period 2004-2012 an accumulated undercompensation could be                                 observed for both types of biofuel (EUR 455,96/1 000 l for biodiesel and EUR 897,22/1 000 l for bioethanol). When each year                                 was considered separately, undercompensation could still be observed for all the years with only two exceptions: 2010 for                                 bioethanol, and 2012 for biodiesel.(19)With regard to bioethanol, Spain explained that the apparent overcompensation observed in 2010 was the result of a one-off                                 drop in commodity prices, in particular agricultural commodities, between January and June 2010. This was therefore a one-off,                                 reversible and unforeseeable situation which furthermore automatically corrected itself the following year through the rise                                 in raw material prices. Therefore there was no reason for the Spanish authorities to take any action. Detailed information                                 about the evolution of raw material prices was provided, as well as a graph illustrating the trend in the sugar and cereals                                 price index (2002-2004 base = 100).**Developments in raw material prices in the period 2009-2011** (6) (20)As for biodiesel, Spain explained that an instance of overcompensation apparently took place in 2012 but the scheme expired                                 on 31 December of that year.(21)Spain argued that the price used as reference for substitute fuels in this methodology — the pre-tax pump price — was the                                 most stringent of the options available, and a comparison with a value closer to the world prices for these products would                                 be more appropriate. The Spanish authorities also provided tables comparing the costs of biofuels with the world price of                                 the fossil fuels and underlined that in this case no overcompensation could be observed for biodiesel in any of the years                                 considered, while for bioethanol the potential overcompensation was negligible (EUR 2/1 000 l, compared with EUR 142,13/1                                 000 l using the pre-tax pump price of fossil fuel as reference). The accumulated undercompensation would be several times                                 higher than as compared with the previous methodology.(22)The Spanish authorities explained that they had reported on all companies that produced, processed, held, received and dispatched                                 excise goods, in accordance with Council Directive 2008/118/EC(7).(23)In point 1 of Article 4 of that Directive ‘authorised warehousekeeper’ is defined as a natural or legal person who, in the                                 course of his business, is authorised to produce, process, hold, receive or dispatch excise goods under a duty suspension                                 arrangement in a tax warehouse. Article 8 of the Directive states that the authorised warehousekeeper is liable to pay the                                 excise duty.(24)The Spanish authorities explained why they had provided tax details on only one of the two companies that had signed an agreement                                 to operate on a subcontracting basis to produce fatty acid methyl esters (FAME) from soya and palm oil. As this contract dealt                                 with products subject to excise duty on the holding, movement and monitoring of such products, it was governed by Directive                                 2008/118/EC. The Spanish authorities stated that the owner of the product did not fall within the definition of ‘authorised                                 warehousekeeper’ as set out in point (1) of Article 4 of the Directive.

V.**ASSESSMENT OF THE MEASURE**(25)The Commission already concluded in its decision in case NN 61/2004 that the measure at issue involved aid within the meaning                                 of Article 107 TFEU. The Commission assessed this aid scheme on the basis of the 2001 Community guidelines on State aid for                                 environmental protection(8) and concluded that it was compatible with the internal market.(26)The Spanish authorities have now provided the Directorate-General for Competition with detailed information, including the                                 relevant data on the production costs of bioethanol and biodiesel for the whole duration of the scheme. When the production                                 costs of biofuels are compared with the pre-tax pump price of fossil fuels, as illustrated in the tables included in the Annex                                 to this decision, there can be observed two situations of overcompensation: for bioethanol in 2010 and for biodiesel in 2012.(27)With regard to the alternative methodology proposed by Spain, which takes as reference the world prices of fossil fuels, the                                 Commission observes that this methodology is different from that proposed by Spain and used by the Commission to assess the                                 measure NN 61/2004. As the Commission is verifying whether Spain has implemented the aid scheme correctly in compliance with                                 the decision by which it was approved in case NN 61/2004, the alternative methodology proposed cannot be accepted.(28)None the less, the Commission notes that there can be observed no trend of persistent overcompensation. Also, when the aid                                 is considered for the whole duration of the scheme, there is no indication of overall overcompensation. The Commission takes                                 note of the explanations provided by Spain (see recitals 18, 19, 20 and 22).(29)In the case of bioethanol, the Commission considers that it was not necessary to make adjustments to remedy the overcompensation.                                 In this case, Spain was able to demonstrate that the overcompensation was remedied, mainly owing to the fact that raw material                                 prices increased significantly after June 2010. Indeed, in 2011 and 2012 no overcompensation can be observed for bioethanol.(30)As for biodiesel, the Commission notes that a small overcompensation of EUR 41,85/1 000 l can be observed for 2012. This overcompensation                                 occurred while the measure and in particular the support level was maintained unchanged. This situation was caused by factors                                 extraneous to the scheme, specifically the big increase in the price of fossil diesel in Spain. The Commission notes that                                 the price of diesel in 2012 was 8 % higher than in 2011, 36 % higher than in 2010 and 71 % higher than in 2009. In comparison,                                 biodiesel production costs in 2012 were at the same level as in 2011, 16 % higher than those registered in 2010 and 25 % higher                                 than in 2009. The Commission also notes that the scheme expired at the end of 2012, and therefore it was not possible to adapt                                 the excise duty exemption to avoid future overcompensation, in accordance with recital 19 of the Commission decision in case                                 NN 61/2004. The Commission notes as well that no aid was granted under the scheme in 2013 or any of the following years. Lastly,                                 as explained in recital 28, if account is also taken of the data for 2012 no overcompensation can be observed for the whole                                 duration of the scheme. This can consequently be considered a sign that Spain could rely on the *ex-ante* calculation method provided for under the scheme.(31)Having considered the additional information provided by Spain, the Commission is of the opinion that Spain has not failed                                 to fulfil its obligations as set out in recital 19 of the Commission decision in case NN 61/2004.(32)Based on the explanations provided by Spain on the application of Directive 2008/118/EC, the Commission accepts that the Spanish                                 authorities reported on all the appropriate companies.

VI.**CONCLUSION**(33)The Commission finds that Spain has implemented the aid scheme NN 61/2004 correctly, in compliance with the Commission decision                                 approving it,

HAS ADOPTED THIS DECISION:

# Article 1U.K.

The state aid scheme NN 61/2004 implemented by Spain is compatible with the internal market within the meaning of Article                     107(3)(c) TFEU and has been correctly implemented, in compliance with the Commission decision in case NN 61/2004.                  

# Article 2U.K.

This Decision is addressed to the Kingdom of Spain.

Done at Brussels, 9 July 2014.

*For the Commission*                            

Joaquín Almunia                            

*Vice-President*                            

## ANNEXU.K.

### *Table 1*

**Bioethanol production costs in Spain**

### *Table 2*

**Biodiesel production costs in Spain**

1

OJ C 37, 7.2.2014, p. 44.                           

2

See footnote 1.

3

OJ C 219, 12.9.2006, p. 3.                           

4

Directive 2009/28/EC of the European Parliament and of the Council of 23 April 2009 on the promotion of the use of energy                              from renewable sources and amending and subsequently repealing Directives 2001/77/EC and 2003/30/EC (OJ L 140, 5.6.2009, p. 16).                           

5

In the case of bioethanol, this amount was EUR 371,69/1 000 litres in the period 2004-2009 and EUR 400,69/1 000 litres in                              the period 2009-2012. As regards biodiesel, the rates applied were EUR 269,89/1 000 litres in the period 2004-2006, EUR 278/1                              000 litres in the period 2007-2009 and EUR 307/1 000 litres in the period 2009-2012.                           

6

The Sugar Price Index starts from the bottom right, and the Cereals Price Index starts from the top right.

7

Council Directive 2008/118/EC of 16 December 2008 concerning the general arrangements for excise duty and repealing Directive                              92/12/EEC (OJ L 9, 14.1.2009, p. 12).                           

8

OJ C 37, 3.2.2001, p. 3.