Communication from the Commission to the European Parliament, the Council, the Economic and Social Committee and the Committee of the Regions on alternative fuels for road transportation and on a set of measures to promote the use of biofuels
Date: 2001-11-07
Institutions: European Commission
Subjects: EU environmental policy, common transport policy, excise duty, mineral oil, road transport, substitute fuel

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 7.11.2001
COM(2001) 547 final

2001/0265 (COD)
2001/0266 (CNS)

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN
PARLIAMENT, THE COUNCIL, THE ECONOMIC AND SOCIAL COMMITTEE
AND THE COMMITTEE OF THE REGIONS

on alternative fuels for road transportation
and on a set of measures to promote the use of biofuels

Proposal for a

DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

on the promotion of the use of biofuels for transport

Proposal for a

COUNCIL DIRECTIVE

amending Directive 92/81/EEC with regard to the possibility of applying a reduced rate
of excise duty on certain mineral oils containing biofuels and on biofuels

(presented by the Commission)

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN
PARLIAMENT, THE COUNCIL, THE ECONOMIC AND SOCIAL COMMITTEE
AND THE COMMITTEE OF THE REGIONS

on alternative fuels for road transportation
and on a set of measures to promote the use of biofuels

1.

INTRODUCTION

Oil production in the EU has been on the increase over the last decade, due to the success of
exploration  in  the  North  Sea.  At  the  same  time  oil  consumption  has  remained  almost
unchanged, primarily due to the phasing-out of oil as an energy source for non-transportation
uses, thus compensating for strong  growth in  transportation  oil  consumption.  In  the  coming
twenty  to  thirty  years  EU  production  is  expected  to  decline,  whereas  consumption  will
increase  as  substitution  possibilities  will  be  exhausted  and  transport  demand  is  likely  to
continue to grow.

During  the  coming  decades  of  increased  import  dependency  world  oil  demand  is  also
expected to show strong growth and the global distribution of known oil reserves leaves the
Middle East OPEC members as the only possible suppliers to this increased demand.

In  addition,  this  scenario  is  out  of  step  with  the  recognised  necessity  of  reducing  global
greenhouse  gas  emissions  and  particularly  with  the  Kyoto  commitments  for  industrialised
countries to initiate their reduction programmes over the coming decade.

This  is  the  backdrop  against  which  the  Commission’s  Green  Paper:  Towards  an  European
Strategy  for  the  Security  of  Energy  Supply  introduces  the  objective  of  20%  substitution  by
alternative  fuels  in  the  road  transport  sector  by  the  year  2020  with  the  dual  purpose  of
improving security of supply and reducing greenhouse gas emissions.

This  objective  poses  a  challenge  well  beyond  what  has  been  asked  from  the  car  and  oil
industry  in  the  past  such  as  drastic  reduction  of  emissions  of  conventional  air  pollutants,
virtual elimination of lead and sulphur from  automotive fuels or significant improvement of
fuel  efficiency  against  developments  that  would  otherwise  have  led  to  increased  fuel
consumption.

Any radical changes in fuel supply or engine technology for road transport faces a number of
problems. The population at large has got used to having at their disposal a car that has over
the  years  become  very  cheap  as  has  the  fuel  (particularly  when  compared  to  disposable
income). Refuelling is necessary only for every 400-600 km (or more) available everywhere
and  done  in  a  few  minutes.  The  car  serves  purposes  from  short  distance  shopping  by  one
person in the local supermarket to taking the family on the annual (or semi-annual) holiday to
the  other  end  of  Europe.  In  addition  virtually  no  safety  restrictions  exist  for  parking  or
otherwise  placing  the  car  in  spite  of  it  carrying  a  large  amount  of  highly  flammable  liquid.
Few people would be ready to compromise much on any of the advantages offered by today’s
car.

Freight  transport  has  different  criteria.  As  an  economic  sector  subject  to  strong  internal
competition,  cost  and  reliability  are  key  factors.  Any  alternative  fuel  or  engine  technology

2

will  have to  be made  competitive in  order  to  penetrate  the  market.  On  the  other  hand,  long
distance road transport is a single functional activity  and refuelling points need not to be as
close together as  for  passenger  transport. However, their  geographical  coverage (throughout
Europe) is essential.

The  penetration  potential  for  any  alternative  fuel  for  the  future  has  to  be  evaluated  against
these  criteria.  Different  alternatives  will  require  different  types  and  levels  of  investment  in
infrastructure and equipment. Replacing a few percent of diesel or gasoline with biodiesel or
ethanol  is  the  simplest,  establishing  plants  to  produce  such  alternative  fuels  being  the  only
“long term” investment. Fuel cells fuelled by hydrogen are the most complicated alternative,
requiring alternative engine technology, as well as large investment in plants to produce the
hydrogen and a totally new distribution system. Shifting to a hydrogen-based transport system
is a major decision, which will only make sense as part of a large-scale, long-term strategy, in
principle extending even beyond the EU.

The  driving  force  behind  long-term  substitution  of  conventional  diesel  and  gasoline  is  the
need  partly  to  improve  the  security  of  energy  supply,  partly  to  reduce  the  environmental
impact, especially climate change, from the transport sector. Any long-term solution will, as a
minimum,  have  to  offer  a  reduction  in  oil  dependency  and  a  reduction  in  greenhouse  gas
emissions,  compared  to  the  most  fuel-efficient  vehicles  running  on  conventional  fuel.  In
addition, it must be required that such alternatives permit a continued reduction in emission of
“conventional” air pollutants from the vehicles.

The combined requirement of comfort and performance of the car, security of supply of the
fuel,  low  environmental  impact  and  high  level  of  safety  and  continued  low  overall  cost  of
driving can in no way be fully met at any time. Future policy development will have to give
higher  priority  to  security  of  energy  supply  and  fuel  efficiency  (lower  greenhouse  gas
emission). An economic growth rate of 2-3% annually allows sufficient margin for transport
cost to increase moderately for those who are not prepared to accept a reduction in car size or
performance. This is particularly important in a  transition period  allowing for a change to a
is
more  sustainable  transport  sector.  Penetration  of  any  new  transport  technology 
fundamentally dependent on broad availability of the fuel. Establishing an area covering fuel
supply systems is very expensive and only justified if there is a sufficiently high demand, i.e.
penetration.  This  “chicken  and  egg”  situation  makes  any  take-off  difficult  and  implies  that
only  on  a  sufficiently  large  level  such  as  the  EU-wide  level  is  it  realistic  to  imagine  the
introduction of alternative fuels with significant market shares.

On the basis of the consideration mentioned above the Commission sees three main potential
alternative ranges of fuels that could each be developed up to the level of 5% or more of the
total automotive fuel market by 2020:

– 

– 

– 

biofuels

natural gas

hydrogen

In addition, the technology of hybrid cars, combining combustion and electric drives, offers a
degree of fuel saving comparable to what alternative fuels may offer. These alternative fuels
and  technology  are  described  below,  along  with  other  alternatives  that  do  not  look  quite  so
promising yet, but might offer more limited contributions.

3

The present communication does not set out to deliver the definitive answers to the challenges
outlined above. It does, however, try to identify an approach to be followed during the coming
years  necessary  to  allow  the  EU  to  achieve  the  medium-term  goals  of  20%  substitution  of
conventional  automotive  fuel  by  2020  and  to  do  it  in  a  way  that  sets  the  direction  for  the
development of road transport systems in the decades following 2020.

2.

THE OPTIONS

2.1 Motor vehicle fuel efficiency

Whereas fuel efficiency as such is not the scope of this communication it must be stressed that
any  cost-effective  strategy  to  reduce  oil  dependency  and  CO2  emissions  from  the  transport
sector will have fuel efficiency as its top priority. This has been officially recognised as part
of  the  EU  Strategy  to  reduce  emissions  and  improve  fuel  economy  since  the  Council's
adoption in 1996 of a CO2 emission target of 120g CO2/km for new cars by 2005 and 2010 at
the  latest1,  corresponding  to  an  average  35%  reduction  in  fuel  consumption  of  new  cars
compared  to  the  1995  level.  This  strategy  has  since  been  mainly  implemented  through  the
commitment  of  the  European  (ACEA)  and  Japanese  (JAMA)  and  Korean  (KAMA)  Car
Manufacturers to achieve a maximum 140 g CO2/km by 2008 (2009 for JAMA and KAMA),
a commitment corresponding to  a  fuel efficiency  of  about  5.8 litre/100 km for  gasoline and
about 5.3 litre/100 km for diesel. The target of 140 g CO2/km has to be achieved mainly by
technological  developments  and  market  changes  linked  to  these  developments.  It  should  be
mentioned that within the monitoring of the commitment only the direct CO2 emissions of the
vehicle are taken into account. The share of biofuels used has therefore no direct repercussion
on the commitment.

There is reason to believe that applying and further developing existing technology will allow
higher  fuel  efficiency  to  be  achieved  in  a  cost-effective  overall  strategy.  The  ACEA
commitment  will  be  reviewed  in  2003  when  the  Commission  will  also  seek  commitments
from the car industry covering the years beyond 2008 in addition to the planned monitoring of
progress versus the 2008 target.

In  addition,  the  Commission  has  initiated  talks  with  the  car  industry  on  how  to  ensure
improved  fuel  efficiency  of  the  categories  of  cars  not  covered  by  existing  agreements.
Particularly,  light  commercial  vehicles  including  “sport  utility  vehicles”  not  covered  by  the
existing agreement are addressed in this connection.

If evaluated against a certain percentage of substitution with alternative fuels, fuel efficiency
improvements offer an advantage beyond what is offered by the measures in their own right.
It  reduces  the  overall  amount  of  fuel  to  be  substituted,  and  since  alternative  fuels  are  more
costly, this will help to keep the overall cost down. That said, probably much more important
in the global picture is the effect world-wide of a strong European drive in car fuel efficiency.
European  car  manufacturers  are  actively  involved  in  car  production  in  several  important
emerging markets (China, Latin America) which nationally have strong  reason to limit their
future dependence on imported oil. The benefit for all economies depending on imported oil,
including the EU, of easing pressure on the global oil market becomes an important priority in
a period of expected increased dependency on imported oil. This issue will be taken up by the
Commission as a priority in the Trans-Atlantic Dialogue.

1

Environment Council of 25.6.1996.

4

                                                
2.2

Biofuels

Ever  since  the  first  oil  crisis  in  1973,  biomass  has  been  considered  –  and  in  some  cases
promoted – as an alternative to fossil fuel as a source of energy. Particular attention has been
given to the potential of using biomass as the basis for production of alternative motor vehicle
fuel (diesel or gasoline) because of the transport sector’s almost exclusive dependence on oil.

Biological material can be used as fuel for road transport in several ways:

– 

– 

– 

– 

Plant  oils  (colza,  soybean,  sunflower,  etc.)  can  be  converted  into  a  diesel  substitute
which  can  either  be  used  in  a  mixture  with  conventional  diesel  or  burnt  as  pure
biodiesel.

Sugar beets, cereals and other crops can be fermented to produce alcohol (bio-ethanol)
which can either be used as a component in gasoline, as motor fuel in pure form, or as
a gasoline component after being converted to ETBE through reaction with isobutene
(a refining by-product). There is reason to believe that future developments will also
make it possible to produce economically competitive bio-ethanol from wood or straw
material.

Organic waste material can be converted into energy which can be used as automotive
fuel:  waste  oil  (cooking  oil)  into  biodiesel,  animal  manure  and  organic  household
waste into bio-gas and plant waste products into bio-ethanol. Quantities are limited in
most cases, but raw materials are free and waste management problems (+cost) will be
reduced.

Technological  progress  indicates  that  in  the  medium  term,  other  liquid  and  gaseous
biofuels produced by thermochemical processing of biomass such as biodimethylether,
biomethanol, biooils (pyrolysis oils) and hydrogen could become competitive.

In principle biofuels offer an ideal alternative since, when based on EU grown crops, they are
practically 100% indigenous and CO2 neutral since their carbon content is captured from the
atmosphere.

On the other hand, biofuels are expensive (EUR 300 or more in additional cost per 1 000 litre
conventional  fuel  replaced)  and  the  direct  and  indirect  energy  consumption  during  growing
the crops and producing the fuels means that up to half, or more than half, of the CO2 benefit
is  offset  in  the  production  process  for  biodiesel  and  bio-ethanol  respectively.  This
disadvantage can be reduced by fuelling the production process with waste material from the
crops (straw), but this will tend to increase the additional cost.

The  EUR 300/1 000 
levels
(approximately EUR 30/barrel).  It  would  take  an  oil  price  around  EUR 70/barrel  to  make
biofuels break even with conventional petroleum-derived diesel and gasoline.

is  based  on  present  oil  price 

litre  additional  cost 

The  maximum  road  transportation  fuel  substitution  through  biomass  is  usually  considered
around  8%  of  present  gasoline  and  diesel  consumption  if  production  of  biofuels  were
restricted to 10% of agricultural land . It is difficult to assess today the availability of land for
energy  crops  or  biofuels  by  the  year  2020  or  beyond,  and  it  should  be  borne  in  mind  that
several crops (rape, wheat, etc.) have a higher energy content than what is used for the biofuel
and thus offers a broader renewable energy perspective than motor fuel substitute. In addition
these  crops  deliver  protein  rich  feedstuff  as  a  by-product.  Currently  the  EU  is  importing
around 30 million tons of oilseeds p.a. mainly for animal feedstuffs.

5

Creating an EU market for biofuels will also offer an opportunity for the Candidate Countries.
On  average  they  have  more  agricultural  land  and  less  diesel  and  gasoline  consumption  per
capita  than  present  EU  Member  States.  Growing  crops  for  biofuels  will  facilitate  the
absorption of the agricultural sector of the new Member States in the Common Agricultural
Policy.

Whereas biofuels will  hardly be  seen  as a long-term high volume substitute  for motor  fuels
because  of  the  limitation  of  available  land,  they  deserve  to  be  exploited  in  the  short  to
medium term because  they can be  used in  the  existing  vehicles and distribution  system  and
thus  do  not  require  expensive  infrastructure  investment.  Present  consumption  of  biofuels  is
still  below  0.5%  of  overall  diesel  and  gasoline  consumption,  mainly  in  captive  fleets  that
operate on pure biofuels, and supported through different tax exemption schemes.

A  significant  increase  in  the  use  of  biofuels  will  require  action  at  EU  level  in  view  of  the
significant additional cost of biofuels, which are not so high at present levels of substitution
but  which  will  amount  to  more  than  EUR 5  billion  annually  with  substitution  moving
above 5%.

Promoting  biofuel  can  be  done  through  different  ways  of  overcoming  the  higher  cost  of
biofuels:

(a)

(b)

(c)

Supporting the non-food agriculture sector

Tax differentiation in favour of biofuels to make it competitive in the market

Specifying a certain amount of biofuel in transport fuels sold

Agriculture policy

The Commission sees little scope for large scale biofuel production under the existing system
of set-aside land, in that the current agreement with the US (Blair House Agreement) implies
various  limitations  for  support  of  rapeseed,  soybean  and  sunflower  .  Furthermore,  public
opinion  will  not  be  supportive  of  a  biofuel  campaign  that  would  be  seen  as  additional
agricultural  subsidies  (whether  justified  or  not).  Finally,  the  Berlin  ceilings  on  the  budget
simply would not allow additional support for agricultural products.

6

Taxation measures

Tax incentives could provide an effective way of promoting the development of biofuels by
helping, through suitable tax schemes, to reduce the differences in production costs with fossil
fuels. That said, the potential for different tax schemes presented by the current legislation2 is
still held in check to some extent by the objectives of the smooth functioning of the internal
market,  controlling  distortion  of  competition,  legal  certainty  for  operators  and  the
Member States and faster development of sectors.

The Commission and the Council therefore have to adopt a plain and transparent framework
in  order  to  reduce  excise  duty  on  biofuels  under  fiscal  control.  This  need  was  already
recognised  in  1992  in  the  "Scrivener"3  proposal  for  a  directive  on  biofuels  of  agricultural
origin, and then again in 1997 in the proposal for a Council directive on the restructuring of
the  Community  framework  for  the  taxation  of  energy  products4,  Article  14(1)(b)  and  (c)
(biomass and waste) of which gives Member States the option of reducing and/or exempting
excise  duty  on  biofuels.  The  Scrivener  proposal  was  not  unfortunately  adopted  by  the
Council5 and the 1997 proposal has been before the Council since it was tabled.

Taxation  as  a  tool  is  often  made  more  effective  where  tax  relief  measures  form  part  of  a
coherent system of technical, regulatory and economic measures. This will happen when two
proposals for directives are established jointly, one to make the sale of a certain percentage of
biofuels obligatory in the Member States, the other giving Member States a flexible economic
instrument for implementing the first proposal, and even going beyond its objectives.

Biofuel Requirement in Marketed Transport Fuel

A requirement for a certain minimum percentage biofuel  of all fuel sold throughout the EU
can be implemented without technical complications and the (modest) costs of such a measure
will be shared by all users. As a first step to a long-term biofuel strategy a minimum biofuel
share  up  to  2%  will  not  have  significant  implications  for  vehicle  technology  or  other
environmental aspects than CO2 reduction. However, it would create a stable market, require
expanding  the  existing  biofuel  production  capacity  by  a  factor  5  in  Europe  and  allow  for
experience  to  be  gathered  before  next  steps  on  further  expansion  become  effective.  The
Commission believes that the simplest way of promoting large-scale biofuel penetration in the
long  term  would  be  through  obligatory  blending  of  a  certain  percentage  of  biofuels  into
gasoline  and  diesel  marketed  throughout  Europe.  This  solution  requires  no  modification  of

2

3

4

5

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

–

–

one,  Article  8(2)(d)  provides  that  "Without  prejudice  to  other  Community  provisions,
Member States may apply total or partial exemptions or reductions in the rate of duty to mineral
oils used under fiscal control: .... in the field of pilot projects for the technological development
of more environmentally-friendly products and in particular in relation to fuels from renewable
resources";

two,  Article  8(4)  lays  down  that  "The  Council,  acting  unanimously  on  a  proposal  from  the
Commission, may authorise any Member State to introduce further exemptions or reductions for
specific policy considerations".

Proposal of 19.2.1992 (COM(92) 36 final, as  published  in  OJ  C  73,  24.3.1992, p.  6),  as  amended  on
1.7.1994 (COM(94) 147 final.
COM(97) 30 final, 12.3.1997.
Proposal withdrawn by the Commission in 1999.

7

                                                
existing vehicles and it takes advantage of the existing distribution system with practically no
additional cost. Such an approach,  however,  would  not recognise the  existing  differences in
agriculture production of raw materials that in some parts of Europe would favour more the
diesel  substitutes  and  in  other  parts  alcohol-based  components.  Moreover,  many  existing
schemes have been based on the pure and/or mixed  biofuels in captive  fleets, often  through
local agreements between producers and municipalities or regions.

Therefore, in order to allow large-scale introduction of biofuels in the most cost-effective way
while at the same time maintaining the momentum given through the visibility of local, pure
biofuels  schemes,  the  Commission  believes  that  the  following  approach  offers  the  desired
solution:

In  a  first  phase  there  should  be  a  general  overall  commitment  for  Member  States  to  ensure
that  a  certain  percentage  –  increasing  with  time  –  of  the  transportation  fuel  sold  on  their
territory  will  be  biofuel.  Such  a  measure  will  achieve  the  double  objective  of  ensuring  a
certain quantity of fuel substitution and allowing the necessary flexibility to continue existing
and planned projects at local or regional level. In a second phase, as dedicated uses of biofuels
will only be able to absorb a limited quantity, further substitution above 5% will necessarily
take the form of a required blended amount of biofuels in each type of fuel marketed.

2.3

Natural Gas

Natural  gas  consists  primarily  of  methane  (CH4)  and  can  be  used  as  a  motor  fuel  in  a
conventional  gasoline  engine.  However,  it  requires  special  storage  and  injection  equipment
and large-scale  use  of natural  gas as  a motor  fuel  would have  to be based  on  cars  specially
built for natural gas rather than on retrofitting existing gasoline vehicles.

Natural gas as a motor vehicle fuel will have to be kept either under high pressure (200 bars)
or in liquefied form at -162°C in order  to  allow vehicles  to  carry  fuel  for a  sufficient  range
(+ 400 km) between refuelling. The high-pressure solution is most likely to be the technically
preferred option.

The  technology is fully  developed  and  proven.  In  Italy 300 000 vehicles run  on  natural  gas
provided  through  a  network  of  300  refuelling  points.  In  addition  50  000  more  vehicles
throughout  Europe  operate  on  natural  gas.  These  vehicles  normally  operate  in  a  limited
geographical area and refuel at one or a few dedicated points.

Natural gas has great potential in principle as a motor fuel. It is a cheap alternative fuel, has a
high  octane  number,  is  clean  and  has  no  problem  in  meeting  existing  and  future  emission
standards.  It  offers  potential  for  a  20-25%  lower  CO2-emission  than  the  energy  equivalent
amount  of  gasoline,  although  no  significant  CO2  advantage  over  the  more  efficient  diesel
engine. When used in buses, natural gas offers a most welcome noise reduction in cities.

Since gasoline and natural gas will both be imported to a large extent in the future, there is no
overall  security  of  supply  advantage  from  natural  gas.  Increased  use  of  natural  gas  would,
however, move the dependency away from the oil market, normally seen as an advantage. By
and large natural gas resources are more evenly distributed world-wide than oil resources, but
making them available is more difficult. Any decision on a large-scale move to natural gas as
a transportation fuel would have to include a serious analysis of the security of supply aspects.
An initial move to 5 or 10% of transport fuel being covered by natural  gas appears to be of
minor concern from a security of supply view.

8

Methane is  a powerful  greenhouse  gas.  The  theoretical  CO2  advantage  over  gasoline  would
disappear with just a few percentage point  losses  of  methane  during  distribution,  storage  or
refuelling.  Experience  from  existing  fleets  indicates  that  the  real  CO2  advantage  is  15-20%
rather  than  the  theoretical  20-25%.  Extended  use  of  natural  gas  must  include  measures  to
minimise  losses.  It  should  furthermore  be  noted  that  if  natural  gas  replaces  diesel,  the
advantage  is  smaller  due  to  the  higher  efficiency  of  the  diesel  engine.  The  energy  used  for
compressing the natural gas to 200 bars represents an additional 4% energy loss.

Carrying  compressed  natural  gas  necessitates  appropriate  safety  measures.  The  fact  that
natural  gas  is lighter than  air  and  has  a  narrow  flammability  range  and  a  high  auto-ignition
temperature  makes  it  less  dangerous  than  gasoline  and  LPG,  and  it  appears  possible  to  let
natural gas vehicles to access anywhere where gasoline vehicles  are  allowed.  Establishing a
sufficient  infrastructure  for  areas  covering  natural  gas  supply  for  motor  vehicles  will  be
moderately costly, benefiting from the existing natural gas distribution system throughout the
EU. A recent study proposes an additional 1 450 refuelling stations in order to create a proper
EU refuelling network at a total investment cost of around EUR 800 million.

2.4

Hydrogen

Hydrogen  has  been  the  subject  of  intensive  research  as  a  potential  fuel  for  motor  vehicles
during  recent  years.  This  is  mainly  due  to  the  requirements  of  US  legislation  for  car
manufacturers to start introducing “Zero Emission Vehicles” onto the market. Hydrogen used
in fuel cells, where the only “combustion product” is water, offers such a possibility.

Use of Hydrogen as a motor fuel is not restricted to fuel cells. Hydrogen is a perfect fuel for a
conventional gasoline engine. Due to the much lower cost of the combustion engine relative
to  the  fuel  cell  this  would  seem  to  be  the  preferred  option  until  future  development  has
reduced significantly the cost of fuel cells and/or improved their energy conversion efficiency.
Used  in  combustion  engines,  hydrogen  gives  rise  to  the  formation  of  NOx  which,  however,
since it is the only pollution formed, can be almost totally decomposed without too much of a
problem. Several large car manufacturers are already investing heavily in hydrogen/fuel cell
technology  and  provided  that  projected  development  brings  the  production  cost  down  by  a
factor  of  10  or  more  for  the  fuel  cell  systems,  one  can  expect  series  production  lines  of
hydrogen-powered passenger cars in three to four years.

It  must  be  stressed,  however,  that  hydrogen  is  not  an  energy  source  but  an  energy  carrier.
Whereas it is regularly stated that hydrogen can be derived from water, correctly in a purely
chemical  sense,  this  is  totally  irrelevant.  Any  generation  of  hydrogen  requires  sources  of
energy, in exactly the way as the other major energy carrier, electricity.

Like for electricity, the advantage of using hydrogen as a fuel, as far as security of supply or
greenhouse gas emission is concerned, depends on how the hydrogen is produced. If produced
with  coal  as  an  energy  source,  it  adds  to  security  of  supply  but  gives  rise  to  higher  CO2
emissions. If produced by non-fossil fuel (nuclear or renewable), it adds to security of supply
and  reduced  CO2  emissions,  but  only  in  so  far  as  the  non-fossil  fuel  source  is  additional  to
what would otherwise be used in electricity production. This means that any assessment of the
virtues of switching to hydrogen as a transportation fuel involves a number of assumptions on
long-term future energy policy developments, which are for the time being quite uncertain.

Hydrogen as a future large-scale energy carrier has the advantage (like electricity) of allowing
generation from any imaginable source of energy and (unlike electricity) of allowing storage
over time.  It  will  however have to  compete with future  electricity  generation  from  the  low-

9

carbon (natural gas) or no-carbon (nuclear, renewable) energy sources, and thus only offer an
advantage if the production of hydrogen is based on additional non-carbon energy resources
and/or  on  additional  natural  gas  supplies.  In  the  latter  case,  it  still  remains  to  be  shown
whether direct use of natural gas as transport fuel or conversion to hydrogen and subsequent
use in a fuel cell offers the biggest overall advantage.

industrial  processes  with 

Large-scale  production  of  hydrogen  from  natural  gas  or  from  electricity  via  electrolysis  are
fully  developed 
technological
breakthroughs or cost reductions. The full advantage of hydrogen as an energy carrier is that it
offers  a flexible link  with  buffering  capacity  to  a decentralised  non-fossil fuel-based energy
market. Pipeline distribution of hydrogen is also a well-proven technology. The establishment
of a broad distribution network is only dependent on a sufficiently large customer base. Until
such point in time distribution via tanks to filling stations seems a more likely alternative.

little  scope  for  significant 

Storage of sufficient quantities of fuel in the car is another problem that has not yet found a
satisfactory solution. Because hydrogen only has 30% of the energy content of natural gas on
a  volumetric  basis,  the  gas  container(s)  needed  to  store  a  sufficient  quantity  becomes  very
large and heavy. Different techniques are being researched on board storage of hydrogen but
so far none have seriously challenged high-pressure (up to 350 bars) containers.

In conclusion, it is obvious that the potential advantages of hydrogen as a motor fuel will only
be achieved after further successful technological development of hydrogen storage and fuel
cell technology and after costly investment in hydrogen production and distribution facilities.
Whereas other alternative fuels can be applied on the basis of one or several of either existing
vehicles  (bio-fuels),  available  fuels  (natural  gas),  or  available  distribution  infrastructure
(biofuels  and  partly  natural  gas),  hydrogen/fuel  cell  technology  requires  everything  to  be
developed  or  established  from  scratch.  Beyond  discussion,  this  is  the  most  challenging
alternative to the conventional  gasoline or diesel powered  car and it  is widely  assumed  that
hydrogen as  a  motor  fuel  will  still  take  a  number  of  years  to  take  off  on  a  full  commercial
scale.

Further  progress  in  hydrogen  and  fuel  cell  related  technologies  could  emerge  from  the
hundreds  of  millions  of  euro  invested  by  the  car  industry  and  supported  through  the  EU
framework  programmes  on  RTD.  Accelerated  market  introduction  will  gradually  become
more  extensive.  The  Commission  is  for  the  time  being  co-financing  a  large  demonstration
project with 30 hydrogen-powered buses in 10 cities throughout Europe in order to help gain
practical  experience  in  this  new  technology.  Broad  commitment  from  EU  governments  to
assist  financially  in  the  introduction  of  hydrogen-powered  vehicles  would  provide  much
needed support for the further development of this technology.

2.5

Other fuels and/or technologies

a.

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

Expectations of a breakthrough development in battery technology, necessary to make
the electric car appealing to a larger segment of buyers, seem to have declined during
recent  years.  Electric  cars  may  still  have  a  niche  market  for  short-distance  transport

10

purposes,  where  no  noise  and  no  emissions  are  essential.  Unless  a  breakthrough  in
battery  technology  changes  the  scenario,  the  Commission  sees  little  prospect  in
maintaining  the  electric  car  on  the  list  of  candidates  for  high-volume  marketable
alternative vehicles.

b.

Hybrid cars

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

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

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

Because  of the semi-continuous loading  of  the  batteries  during  driving,  these  can  be
much smaller (and cheaper) than in an electric car. The two engine systems, and other
technical  sophistication,  such  as  regenerative  breaking,  however,  increase  the  cost
(and weight) of the car. Until now the relatively  few hybrid cars on the market have
been heavily subsidised. It is  difficult to say whether high-volume production would
bring  the  price  down  to  or  in  the  neighbourhood  of  levels  where  the  fuel  savings
would  justify  the  extra  cost.  Fuel  savings  obviously  depend  on  the  circumstances
under which the car is used. A 30% reduction in fuel consumption is often quoted by
the manufacturers of hybrid cars, a reduction level which is only achievable in urban
traffic with frequent breaking and acceleration and the engine operating at low load for
much of the time. Constant driving at high speed in a hybrid car offers no advantage
compared to a traditional car.

c.

Methanol  and  Dimethylether  (DME)  are  both  potential  alternative  fuels,  derived
normally  from  natural  gas.  Methanol  can  be  used  in  a  gasoline  engine,  DME  as  a
substitute for diesel.

Methanol  offers  few  advantages  over  natural  gas,  apart  from  being  a  liquid  and
therefore  easier  to  hold  in  the  car.  The  energy  loss  in  the  conversion  of  methane  to
methanol  results  in  lower  overall  efficiency  and  higher  overall  CO2  emissions  than
natural gas when used directly as fuel. In addition, the high toxicity of methanol makes
it less attractive as a motor fuel. DME has physical properties like LPG; it is a gas at
ambient temperature but  it  liquefies  under  a  pressure  of  a  few  atmospheres.  Being  a
diesel fuel, it offers higher efficiency than fuels for gasoline engines, enough in fact to
compensate for the energy loss in the conversion process from natural gas. For these
reasons, DME burnt in a diesel engine is close to natural gas burnt in a gasoline engine
as far as oil replacement and CO2-emission advantages are concerned.

DME, because it is easily liquefied, offers the possibility of commercialising sources
of natural gas that cannot justify investment in pipeline transportation because they are
too small and/or too remote. An additional advantage of DME is that it burns cleaner
than  diesel  and  poses  less  of  a  problem  for  emissions  control  equipment.  For  this
reason, it has attracted the interest of truck and bus manufacturers.

11

It would be difficult to justify large-scale Community support for methanol or DME,
but  the  Commission  will  monitor  the  commercial  development,  both  inside  and
outside the EU.

d.

Diesel  fuel  produced  from  natural  gas  via  the  so-called  Fischer  Tropsch  synthesis
appears to be a promising addition to conventional diesel. It is particularly attractive in
places where there is no market for the natural gas close to the production site.

The  conversion  of  natural  gas  into  diesel  goes  via  several  conversion  steps  with
significant  energy  consumption  and  corresponding  CO2  emissions.  Consequently,
there  is  no  CO2  advantage  linked  to  Fischer  Tropsch  Diesel.  There  is  however  a
security  of  supply  advantage  since  it  broadens  the  range  of  supply  possibilities  for
motor  vehicle fuel  and  the  diesel  produced  from  natural  gas  has  very  good  blending
properties ( cetane number), giving it a high value.

e.

Liquefied  Petroleum  Gas  (LPG)  has  been  used  as  an  automotive  fuel  for  decades.
LPG originates from refining of oil and as “natural gas liquids”, a  fraction separated
from the methane during natural gas production. Quantities depend on crude oil type,
the type and degree of refining and on the specificity of individual gas fields. It can be
debated to what extend LPG should be considered a “real” alternative fuel.

LPG  is  cheap  and  traditionally  seen  as  an  environmentally  friendly  fuel.  However,
with  gasoline  and  diesel  becoming  much  cleaner  than  in  the  past,  this  advantage  is
rapidly diminishing.

Certain quantities of  LPG are  needed  as  a  raw material  in the chemical  industry and
for  other  specific  purposes.  Conventional  gasoline  also  contains  butane  (an  LPG
component)  in  quantities  as  high  as  vapour  pressure  limitations  permit.  Deliberate
production of  LPG from heavier petroleum fractions makes no sense, neither  from  a
security of supply nor environmental perspective. The challenge therefore is to make
sure that “naturally” available LPG will be used as a motor vehicle fuel rather than as
refinery fuel or other low-value energy source.

There  is  reason  to  believe  that  more  sophisticated  refinery  processing  and  increased
production of natural gas will increase the availability of LPG in the future. This may
allow a limited increase in LPG used as motor fuel. The Commission will monitor the
situation and take appropriate steps where potential quantities of LPG are ignored by
the car industry or consumers

3.

CONCLUSIONS

Out  of  numerous  possible  alternative  fuels  and  engine  technologies  the  following  three
options  would  appear  to  have  high  volume  potential  (each  more  than  5%  of  total  transport
fuel consumption) over the next 20 years:

– 

– 

– 

biofuels

natural gas

hydrogen/fuel cells

12

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

Year

2005

2010

2015

2020

Biofuel

Natural gas, %

Hydrogen, %

Total, %

2

6

(7)

(8)

2

5

10

2

5

2

8

14

(23)

As regards the above figures for biofuel it should be pointed out that the 2% in 2005 results
from the assumption that the current situation in the Member State that are most advanced in
this field can be extrapolated to the other Member States. The 6% in 2010 presumes an active
policy in promoting biofuels and is based on the available potential in agriculture and waste
treatment.  For  the  application  of  natural  gas  a  new  distribution  infrastructure  must  be
established and a change of vehicles will be necessary. As it is unlikely that existing vehicles
will be adapted at a large scale this means that the gradual introduction of this alternative fuel
depends on the sale of new adapted vehicles . Therefore 2% in 2010 and 5% in 2015 seems an
optimitic scenario based on active policy. For the introduction of hydrogen an additional issue
is the production capacity, which makes it unlikely that a substantial market penetration will
take  place  before  2015.  In  addition  the  production  method  is  crucial  for  the  environmental
implications.  It  is  obvious  from  the  previous  chapters  that  these  figures  represent  no  more
than a rough guideline that will have to  be  adjusted  in line  with  experience  gained over the
years to come. It allows some of the alternatives to be less promising while still achieving the
20% substitution target by 2020. As underlined in the text, any alternative fuel strategy has to
be  continuously  monitored  against  developments  in  motor  fuel  efficiency.  Successful
implementation  of  a  strong  fuel  efficiency  regime  makes  high  substitution  percentages  less
necessary  and  may  offer  the  most  cost-effective  CO2  emission  reduction  and  improved
security of supply for quite a long part of the way.

In order to promote the development described above, the Commission will act according to
the following plan of action:

1.

Two  Commission  proposals  are  attached  to  this  Communication  The  first  proposal
concerns a Directive requiring an increasing proportion of all diesel and gasoline sold
in the Member States to be biofuel, announcing, for a second phase, an obligation of a
certain percentage of biofuels to be blended into  all  gasoline  and  diesel.  The  second
proposal  creates  a  European-wide  framework  allowing  Member  States  to  apply
differentiated  tax  rates  in  favour  of  biofuels.  It  should  be  pointed  out  that  the
implications of a gradual introduction of biofuels are well-known and contrary to the
introduction  of  natural  gas  or  hydrogen  there  are  no  objective  reasons  for  further
delay. Biofuels are for the short and medium term the only option, therefore launching
the appropiate policy instruments to promote the introduction of  biofuels  will  give  a
clear signal that the Community is serious about developing alternatives to petroleum
products in transportation.

13

2.

The  establishment  of  a  formalised  contact  group  to  give  advice  on  the  further
introduction of alternative fuels, particularly natural gas and hydrogen over the next 20
years.

For natural gas the group will recommend which types of vehicles would be foreseen
(buses,  trucks,  taxis,  all  types  of  cars),  which  geographical  areas  (dependent  on
availability  of  natural  gas  and  car  intensity),  how  to  establish  refuelling  stations  and
the necessary incentives, including questions related to fuel and vehicle taxation.

For  hydrogen/fuel  cells  the  group  would  analyse  the  feasibility  of  different  concepts
and suggest a strategy to clarify uncertainties while considering different scenarios for
the  energy  mix  to  produce  the  hydrogen  and  their  environmental  implications.  The
steps necessary to allow at least 5% substitution by hydrogen by 2020 should be part
of the strategy.

In addition, the contact group will advice on other potential alternative fuels as it sees
relevant.

The  contact  group  will  be  chaired  by  the  Commission  and  include  important
stakeholders  such  as  the  car  industry,  the  gas  industry,  the  electricity  industry  and
NGOs  in  its makeup.  It  will  deliver  its  first  report  by  the  end  of  2002  and  regularly
(e.g. every two years) thereafter. In accordance with this, the Commission will report
regularly to the Council and Parliament, by mid 2003 for the first time.

Alternative  fuels  or  technologies  not  directly  covered  by  the  action  plan  outlined
above (LPG, DME, electric cars) will continuously be monitored by the Commission
as  part  of  its  overall  commitments  on  security  of  energy  supply  and  sustainable
development.  Any  new  developments  that  might  call  for  a  review  of  the  assessment
given in this Communication will be communicated to the Council and Parliament.

Consumers will be kept properly informed by public information and by information
from car manufacturers about the possibilities of using biofuels.

As  part  of  the  implementation  of  Strategy  to  reduce  emissions  and  improve  fuel
economy,  inter  alia  the  following  actions  will  be  included  in  the  Commission
activities:

The  Commission  will  put  forward  –  as  a  third  pillar  of  the  Strategy  to  reduce
emissions and improve fuel economy – a communication on options for establishing a
reference  framework  for  fiscal  measures  in  order  to  close  the  gap  of  20  g  CO2/km
between  the  Community  objective  and  the  commitment  of  the  car  manufacturers'
associations.

In addition, support for the accelerated introduction of advanced, high efficiency cars
should be considered. A commitment by governments to buy a significant number of
such cars for public services would offer a most useful contribution to test whether the
additional cost can be brought down through large-scale production and could offer a
significant contribution to bridging the gap on fuel efficiency between the Community
target of 120 g CO2/km and the industries' commitment.

3.

4.

(a)

(b)

(c)

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

14

(d)

The  Commission  will  continue  the  discussions  with  the  car  industry  to  take
appropriate measures in order to reduce the CO2 emissions from light duty vehicles.

Although  these  measures  and  activities  are  not  strictly  related  to  the  introduction  of
alternative fuels, they are closely linked to CO2 emission reduction from road transport and to
dependency  on  energy  imports  and  have  therefore  to  be  considered  together  with  any
alternative fuels strategy.

The Commission invites the European Parliament and the Council to endorse the above action
plan  and  to  adopt  the  two  legislative  proposals  for  a  European  Parliament  and  Council
Directive on the promotion of the use of biofuels for transport and the legislative proposal for
a Council Directive amending Council Directive 92/81/EC contained in this Communication,
which  is a coherent  package  for  a  significant  enhancement  of  the  use  of  biofuels  in  the  EU
under transparent and stable conditions.

15

Proposal for a

DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

on the promotion of the use of biofuels for transport

16

EXPLANATORY MEMORANDUM

1.

INTRODUCTION

In  its  Green  Paper  "Towards  a  European  Strategy  for  Energy  Supply"1  the  Commission
highlighted the critical role of the transport sector, with respect to both security of supply and
climate change:

(cid:1)  The  transport  sector  is  practically  100%  dependent  on  oil,  the  energy  source  of  greatest

concern from a security of supply viewpoint.

(cid:1)  CO2 emissions from transport are expected to keep rising, contrary to agreed objectives to
reduce  them.  This  make  it  more  difficult  for  the  Union  to  respond  to  the  challenge  of
climate  change  and  to  meet  its  commitments  under  the  Kyoto  Protocol.  Moreover,  the
commitments made in Kyoto Protocol must be regarded as a first step.

The  Green  Paper  therefore  proposed  an  ambitious  programme  for  that  sector  to  promote
biofuels  and  other  substitute  fuels,  including  hydrogen,  the  aim  being  for  these  fuels  to
account for 20% of total fuel consumption by 2020.

With the Common Agriculture Policy (CAP) being refocused towards more emphasis on rural
economy,  the  production  of  raw  materials  for  biofuels  would  help  to  create  new  sources  of
income and to maintain employment in rural areas. This will have a general beneficial impact
and also tie in better with enlargement.

Consequently, several Member States have already taken measures at national level, mainly in
the  field  of  taxation,  to  promote  the  production  and  use  of  biofuels.  However,  without
coordinated  decisions  on  fiscal,  energy  and  environmental  policies  in  this  field  and  without
clear prospects for the agricultural production and processing industry, it is doubtful whether
biofuels will ever reach a substantial share of the total fuel consumption in the EU.

Actions at Community level in the field of biofuels, including taxation, are therefore needed
in  order  to  create  the  basis  for  the  investment  required  to  promote  sufficient  quantities  of
biofuels.

2.

OBJECTIVE AND SCOPE OF THE PROPOSED DIRECTIVE

The  fundamental  objective  underlying  the  draft  Directive  is  to  provide  for  a  Community
framework  that  would  foster  the  use  of  biofuels  for  transport  within  the  EU.  This  proposal
lays  down  an  obligation  on  Member  States  to  introduce  legislation  and  take  the  necessary
measures to ensure that as from 2005 a minimum share of transport fuel sold on their territory
is occupied by biofuels, while leaving it to the Member States to decide how best to meet this
aim.

The  minimum  percentage  of  biofuels  of  all  fuels  for  transportation  sold  on  the  individual
markets  of  the  Member  States,  will  be  introduced  on  the  basis  of  an  agreed  schedule.
These minimum  percentages  and  schedules  should  be  adapted  by  committee  procedure  on
the basis  of  experience,  environmental  evaluation,  new  technical  developments  and  in

1

COM(2000) 769 final, 29.11.2000.

17

                                                
conformity with other energy and environmental objectives undertaken at national as well as
Community level.

The  measures  taken  to  reach  the  annual  targets  will  be  set  out  in  an  annual  report  to  be
submitted  to  the  Commission  by  the  Member  States.  On  the  basis  of  these  reports,  the
Commission  will  then  assess  the  action  taken  by  Member  States  to  meet  their  quotas  for
biofuels and, if appropriate, make proposals for amending the annex to the Directive.

To  allow  time  to  establish  the  necessary  production  facilities,  a  quantitative  commitment
should not be applied before 2005 when 2% biofuel substitution would appear to be a realistic
target. Increasing the substitution by 0.75% per year will bring substitution to 5% in 2009.

Before  the  end  of  2006  the  Commission  will  examine  the  need  for  mandatory  blending  of
biofuel into petrol and diesel in order to meet the targets for biofuel in the transport sector and
will bring forward a proposal, amending Directive 98/70/EC as appropriate.

3.

CURRENT DISTRIBUTION OF DIFFERENT TYPES OF FUELS IN THE EU AND POTENTIAL
FOR BIOFUELS

3.1

Different types of fuels

Biofuels for transport could be marketed in the form of "pure" biofuels for dedicated
vehicles or in the form of "blend" fuels in such a proportion that it does not affect the
performance  of  motor  vehicles  engines.  These  biofuels  are  mainly  biodiesel,
bioethanol  and  ETBE  (ethyl-tertio-butyl-ether)  produced  from  bio-ethanol.  Other
possible  biofuels  are  biogas,  biomethanol,  biodimethylether  and  biooils.  Technically
they can be used in conventional gasoline or diesel engines, but special containers may
be needed for carrying these fuels.

Bioethanol  can  be  used  as  automotive  fuel  by  itself  or  it  can  be  mixed  with
conventional engine fuels. Most vehicles registered in the EU can technically run on a
blend of fuel of up to 15% bioethanol.

Biodiesel  is  currently  used  in  pure  form  or  blended  with  conventional  diesel.
Currently, Germany, Austria and Sweden use 100% pure biodiesel in adapted vehicles.
In France biodiesel is blended at 30% in captive fleets and also used in blends of 5%
in normal diesel fuel. In Italy it is blended at 5% in normal diesel fuel.

ETBE (ethyl-tertio-butyl-ether) is etherised bioethanol and can be used as a blending
component in gasoline at a rate of up to 15%.

Biogas produced by the anaerobic  fermentation  of  biomass and/or  the  biodegradable
fraction  of  waste  can  be  purified  to  natural  gas  quality  and  used  in  gas  engines  for
transportation.

Biomethanol  produced  from  biomass  and/or  the  biodegradable  fraction  of  waste  is
equivalent  to  fossil  methanol  and  can  be  used  in  the  same  conditions  as  fuel  for
transportation.

Biodimethylether  is  a  diesel  quality  fuel  produced  from  biomass  and/or  the
biodegradable fraction of waste, for use as biofuel.

18

Biooil  is  a  pyrolysis  oil  fuel  produced  from  biomass  and  can  be  used  as  a  normal
diesel fuel.

3.2

The current situation in Europe

The  situation  regarding  biofuels  varies  enormously  throughout  Europe.  Austria  and
France, for example, are the most active countries. A remarkable increase of 93% was
recorded between the production of biofuels in 1997 and production in 1999. Only six
Member States make any real contribution to the total European biofuel production.

The  French  oil  and  protein  plants  sector  endeavoured  to  find  new  markets  for
rapeseed  oils  that  were  under-used  in  the  fuel  sector  in  Europe.  In  1991,  a  major
programme  was  developed  to  involve  the  main  sectors  concerned  in  biodiesel
production:  oilseeds  manufacturers,  oil  producers,  engine  manufacturers,  ADEME2
and public authorities. As a result of this programme and the existing tax relief on pilot
projects  on  rapeseeds  and  sunflowers  esters,  a  5%  biodiesel  was  blended  into  diesel
fuel  by  one  oil  company  on  a  general  basis.  Total  biofuels  contribution  in  1999
amounted  to  0.7%  of  total  oil  products  consumption,  with  approximately  one  third
bioethanol and two thirds biodiesel.

Austria was one of the first countries to establish a bio-energy programme. In 1991,
one  of  the  world’s  first  industrial  biodiesel  production  plants  started  operation  at
Aschach (Province of Upper Austria).

An  important  part  of  the  success  of  the  Bioenergy  programme  in  Austria  is  the
integration of an energy policy in  the  diversification, reorientation and innovation of
agriculture.  In  1999,  Austrian  production  of  biodiesel  was  18  kT.  This  production
increased to 30 KT in 2000.

Germany is currently the second biggest biodiesel producer. Eurostat official statistics
gave  130  kT  produced  in  1999,  which  amounts  to  15%  of  total  EU  biofuel
consumption. In 2001, production is expected to be 250 kT, rising to 500 kT by 2002.

Over the next 20-40 years, the Swedish scenario is to replace 25-50% of today’s fuel
use  based  on  forest  and  agricultural  residues.  The  Swedish  National  Energy
Administration believes it is possible to  attain  a  10% market  share  for biofuel  in  ten
years time.

Production  of  biofuels  in  Sweden  in  the  year  2000  was  about  50  kT.  The  available
surplus  of  wheat  in  Sweden  could  in  the  future  produce  –  with  current  yields  –
500 000  m³  of  bioethanol,  meaning  some  5.6%  of  the  total  annual  consumption  of
gasoline and diesel oil in that country. There are around 300 ethanol fuel buses, most
of  them  in  the  area  of  Stockholm,  and  approximately  600  biogas-fuelled  cars  and
100 heavy-duty vehicles. Wood chips and other ligno-cellulosic sources such as straw
may be a raw material of the future, but for the time being conversion of cellulose into
bioethanol  is  not  yet  competitive.  The  Swedish  government  supports  research  and
development of ethanol from wood biomass, with the objective of making bioethanol
from wood competitive in 2004.

2

Agence de l’Environnement et de la Maîtrise de l’Energie.

19

                                                
Production  in Italy was 96 kT in 1999. The  national  plan  for  the  use  of  agricultural
and  forestry  biomass  anticipates  production  of  bioethanol,  biodiesel  and  ETBE  of
around 1 000 ktoe over the next decade.

Production in Spain was around 50 kT in the year 2000. Liquid biofuels are included
in the national plan,3 with a recognised value for rural development and job creation.
Approximately  500  ktoe  is  anticipated  in  the  year  2010  in  the  context  of  fiscal
measures.

The  following  table  shows  the  relative  share  of  only  biodiesel  in  the  EU
Member States:

Country

All petroleum
products
consumption in
transport (ktoe)
1998-Eurostat

Gasoline
consumption
in transport
(ktoe) 1998-
Eurostat
data

Diesel
consumption
in transport
(ktoe)
1998-Eurostat

Biofuel
production
(kT) in 1998

Biofuel
production
(kT) in 1999

Austria
Belgium
Denmark
Finland
France
Germany
Greece
Ireland
Italy
Luxembourg
Netherlands
Portugal
Spain
Sweden
UK
Total

5 923
9 228
4 574
4 129
47 237
61 351
7 085
3 200
38 647
1 503
13 079
5 523
29 401
7 288
47 791
285 959

2 130
2 514
2 016
1 846
14 554
30 080
3 106
1 307
17 880
541
4 112
2 030
9 018
4 021
21 882
117 037

3 224
4 852
1 711
1 776
26 603
24 834
2 245
1 429
16 138
685
5 067
2 863
16 215
2 374
16 597
126 613

16
/
/
/
319
100
/
/
96
/
/
/
/
/
/
531

30*
/
/
/
344
130
/
/
96
/
/
/
50*
50*
/
570
700*

Conversion factor for biodiesel is 0.812 ktoe/kT (Eurostat source) and 0.6 ktoe/kT for
bioethanol (extrapolation).

* production in the year 2000

3.3

The potential for biofuel in Europe

The following factors will influence the potential breakthrough of biofuels:

(cid:1) 

(cid:1) 

the primary biomass produced and process efficiency (there exist variations from
1  toe  of  biodiesel  produced  per  hectare  in  the  case  of  rapeseed  to  5.6  toe  of
biofuel produced per hectare in the case of sugar beet);

the  economics  of  the  main  process  and  the  production  of  by-products
(secondary biomass);

3

Plan de Fomento de las energías renovables en España, December 1999.

20

                                                
(cid:1) 

technology developments (e.g. the case of ligno-cellulosic crops).

To give some kind of magnitude, the total arable crop area under the CAP which can
be  used  for  the  production  of  cereals,  oilseeds,  protein  crops  is  limited  to  about
54 million  ha.  for  EU-15.  The  obligatory  set-aside  for  2001/2002  amounts  to  about
4 million  ha.  in  addition  to  voluntary  set-aside  of  1.6  million  ha.  i.e.  in  total
5.6 million ha.  Given  this  surface  of  set-aside  and  considering  only  primary  biomass
as a function of the crop grown, between 4 and 15 Mtoe of biofuels would be supplied
for  transport  uses,  making  for  between  1.2  and  5%  of  total  European  petroleum
products consumption. But the extent to which producers may choose to make use of
set-aside  for  such  production  will  depend  upon  price  signals  and,  in  any  case,  be
limited by the Blair House Agreement's constraint on the use of by-products  of  non-
food  production  on  set-aside  –  namely  1  million  T  soya  meal  equivalent.  Moreover,
the  Blair  House  Agreement  also  constrains  oilseed  production  supported  by  a
crop-specific aid to a maximum of some 5 million ha. Thus the decision, taken within
the context of Agenda 2000, to align the oilseed aid upon the cereals aid – and so end
the  crop-specific  aid  for  oil-seeds  –  created  the  basic  condition  for  EU  oilseed
production to be able to respond  significantly to  such demand outside the  context of
set-aside  since  the  possibility  within  set-aside  is  extremely  limited.  Other  sources  of
production for biofuels such as cereals including maize, sugarbeet, or woody biomass
are  not  covered  by  the  Blair  House  Agreement  and  so  are  simply  subject  to  normal
rules of competition.

From  the  predictions  of  the  Green  Paper  on  security  of  supply4,  the  transport  sector
would  grow  some  2%  per  annum  over  the  coming  decade.  If  no  energy  saving
measures  are  applied,  diesel  and  gasoline  consumption  for  transport  would  be
approximately 304 Mtoe in 2010 in the EU  as  a whole. The  contribution of biofuels
predicted in this proposal for 2010 should then be around 17.5 Mtoe.

Finally,  it  should  be  mentioned  that  biofuel  production  is  not  directly  linked  with
agriculture  surface  area.  In  addition  to  the  potential  based  on  primary  biomass,
secondary  biomass  and  residues  or  organic  waste  should  be  considered  as  an
important,  environmental-friendly,  complementary  resource  for  biofuels  production.
Examples  of  the  potential  of  secondary  biomass  are  waste  vegetable  oils  and  fats.
Total consumption of oils and fats in the EU is about 17 Mt (with a rate of increase of
2% per year), three-quarters of which is vegetable oil. As part of its recycling policy,
Austria estimates that 18.5% of the total amount of oil/fat is collectible. Extrapolation
of  this  figure  to  the  rest  of  EU  would  give  a  market  size  of  up  to  3  Mt  of  fats  and
vegetable  oils.  The  use  of  these  fats  and  oils  would  eliminate  the  need  for  dumping
and  its  attendant  environmental  hazards.  Recovery  of  oils  also  avoids  the  cost  of
drainage and landfill disposal.

4.

ECONOMIC CONSIDERATIONS

4.1.

Extra production costs of biofuels

Against  the  backdrop  of  security  of  supply,  reduced  CO2  emissions  and  rural
economy, biofuels would look to have a great future. The dramatic fall in oil prices in

4

COM(2000) 769 final. Green Paper: “Towards a European strategy for the security of energy supply”.

21

                                                
the  early/mid  1980s  and  their  persistently  low  level  since  then  (even  today’s
(cid:2) USD 30/barrel  is  less  than  half  the  price  it  was  in  1980-82  in  real  terms)  means,
however, that biofuels are not competitive.

Biodiesel – currently the most used biofuel – has a production cost of  approximately
EUR 500/1 000-litre, against EUR 200-250/1 000-litre for traditional petroleum-based
diesel  including  the  refinery  cost.  The  production  cost  of  biodiesel  depends  on  a
number of factors, particularly the price of the raw material (usually rapeseed oil), the
size  and  type  of  production  plant,  the  yield  and  the  value  of  by-products
(protein, glycerol).  The  estimate  of  EUR 500/1 000-litre  is  based  on  average  raw
material cost, low production cost of large production plant and glycerine by-product
price  of  EUR 50/1 000-litre  biodiesel  produced.  In  view  of  the  fact  that  it  takes
1 100 litres  of  biodiesel  to  replace  1 000  litres  of  petroleum-based  product,  the
economic  calculation  shows  an  additional  cost  of  at  least  EUR 300/1 000-litre  of
diesel replaced by biodiesel. This additional cost is highly dependent on the crude oil
price and the volatility of market prices of petroleum products.

Crude oil price

"Extra cost" –  100% biodiesel

USD 20/barrel

~ EUR 350/1 000-litre

USD 25/barrel

~ EUR 300/1 000-litre

USD 30/barrel

~ EUR 250/1 000-litre

USD 35/barrel

~ EUR 200/1 000-litre

It  should  be  mentioned  that  the  production  of  biodiesel  from  used  fried  oils  gives  a
more positive picture, as the raw material is more or less free of costs and it forms part
of  a  sound  waste  management  policy.  However,  the  quantity  of  biodiesel  produced
from that source is of course limited.

Bioethanol  can  be  produced  from  different  crops,  normally  sugar  beets  or  cereals
(wheat,  barley).  In  the  US,  corn  (maize)  is  the  main  raw  material,  and  agricultural
waste  products  can  be  used  in  some  cases.  The  same  considerations  apply  to
bioethanol as to biodiesel. The production cost per 1 000 litres may be lower. On the
other hand, it takes 1 500 litres of ethanol to replace 1 000 litres of gasoline.

How  can  the  extra  cost  for  the  medium  term  production  of  biofuels  be  justified  and
which instruments can best offset this extra cost? Paragraphs 4.2 and 4.3 address the
benefits  that  are  most  readily  quantifiable  while  paragraph  5  looks  at  the  qualitative
impact on other policies.

4.2.

The benefits of CO2 avoidance

Avoidance of  CO2 emissions from biofuel depends on the way it  is produced.  CO2
emission  from  fossil  diesel  is  around  3.2  tonnes  CO2/1 000-litre  (including  CO2
emissions  from  production,  transport,  etc.)  used.  However,  even  though  CO2
emission from biofuels is neutral in principle, actual CO2 avoidance is less than the
3.2 tonnes because of the emissions produced in the process of growing the crops and

22

the  conversion  of  raw  material  into  biofuels.  Realistic  CO2  saving  for  biodiesel  is
around 2 to 2.5 tonnes CO2/1 000-litre. Replacement of gasoline by ethanol is put by
ADEME  at  2  tonnes  CO2  /1 000-litre.  If  there  were  no  other  benefits,  such  as,  for
instance, in the agriculture sector and in the security of supply, this would mean that
at current oil prices and biofuel production costs the cost of CO2 avoidance would be
in the range of EUR 100 to EUR 150/tonne CO2, which is above the range for cost-
effective  measures  to  meet  the  EU’s  commitments  during  the  first  Kyoto
commitment period. However, though the use of biofuels at this moment cannot yet
be justified by the benefits alone of CO2 avoidance, it should certainly be considered
as a strategic choice for future climate change policy.

4.3

The benefits of oil substitution for the security of supply

The strength of the oil substitution argument is difficult to quantify but nevertheless
significant. It is clear that a vast number of energy policy measures (energy saving,
oil substitution) in oil consuming countries put an end to the rising oil prices in the
early 1980s.

It  is  difficult  to  predict  the  effect  of  a  single  marginal  reduction  of  oil  demand  on
world oil prices. However, for example, replacing 2% of EU diesel consumption with
biofuel  at  an  additional  cost  of  EUR 250/1 000  litre  would  “cost”  around
EUR 1 000 million/year. The resulting 2% lower demand for OPEC oil would have
a certain  buffering  effect  on  oil  prices  and  the  savings  on  the  approximately
4 billion barrels  of  oil  consumed  annually  in  the  EU  could  (partially)  justify  these
additional costs.

Moreover, the introduction of biofuels could be expected to have a modest effect in
dampening the effect of changes in crude oil prices on prices paid by consumers. For
example, if a EUR 10 rise in the price of a barrel of oil results in an increase in the
price at the pump of 10 cents per litre, blending in 5% biofuels could be expected to
limit this price rise to 9.5 cents, assuming that the prices of biofuels themselves were
not significantly affected by the rise in crude oil prices.

5.

5.1

IMPACT ON OTHER POLICIES

Agriculture

Rural  development  is  an  increasingly  important  part  of  the  Common  Agriculture
Policy. An essential facet of the European  agricultural model, which aims to put in
place  a  consistent  and  lasting  framework  for  guaranteeing  the  future  of  the  rural
community, is the creation of employment.

Increased  production  of  raw  materials  for  biofuels  will  contribute 
the
multi-functionality  of  agriculture  and  provide  a  stimulus  to  the  rural  economy
through the creation of new sources of income and employment.

to 

Agricultural  policy  should  encourage  sustainable  farming  and  afforestation  and  the
avoidance of negative environmental impact. Biomass can be directly processed from
raw material or  be  the  residue  of  another  process  (secondary  biomass).  The  overall
impact will depend on how the raw  material is used and disposed of, and what the
possible  by-products  and  residues  are.  In  many  cases  in  the  agri-food  and  forestry

23

industry  biofuels  could  turn  problematical  waste  production  into  a  sustainable
product.

The  present  proposal  is  compatible  with  the  Common  Agricultural  Policy
management and should not give rise to distortions.

5.2

Employment

Biofuels  are  relatively  labour-intensive,  especially  in  rural  areas  during  the
exploitation phase. Although precise numbers of job creation are difficult to evaluate,
different studies agree on the scale. The German study performed by the Fraunhöfer
Institute5 showed the rate of economic impact to be 16 employees per ktoe/year. The
Spanish  national  plan  for  biofuels  puts  the  figure  at  26  employees  per  ktoe/year  of
biofuels produced (source: IDAE).

Extrapolation of these results would lead to the conclusion that a biofuel contribution
of  around  1%  to  total  EU  fossil  consumption  would  create  between  45 000  and
75 000 new jobs. Most of these jobs would be located in rural areas.

The  employment  impact  can  be  calculated  in  different  ways  with  different  results.
For example, the EUR 2 000 million production cost of 4 million m3 of just biodiesel
will  generate  some  50 000  man-years 
indirect  employment.
Employment  engendered  by  refining  of  the  same  amount  of  conventional  diesel  is
around 2% of that figure.

in  direct  and 

5.3

Fiscal policy

The  fragmentation  of  fuel  tax  systems  in  Europe,  with  different  countries  adopting
specific  tax  exemptions  on  different  fuel  specifications,  creates  a  barrier  to  the
development  of  the  sector  and  of  European  trade.  A  new  legislative  instrument  in
favour of tax differentiation is proposed as a package with this proposal in order to
give  stability  to  the  market  through  greater  European  approximation.  Therefore,  in
parallel  to  the  present  proposal,  a  Commission  proposal  for  a  Council  Directive
amending Council Directive 92/81/EC is presented.

5.4

Environmental considerations

As  regards  the  environmental  impact  of  the  production  of  biofuels,  a  number  of
studies  on  the  energy  and  environmental  efficiency  of  alternative  fuels  have  been
carried  out  since  the  beginning  of  the  1980s.  Most  of  these  studies  gave  rise  to
animated discussions among advocates and opponents, both experts and the general
public  alike.  An  analysis  of  the  most  important  studies  shows  that  the  results  only
differ  slightly. The studies confirm a  positive  energy  balance,  stating  that  with  one
unit of fossil fuel energy, two to three units of renewable fuel can be produced. The
reduction of greenhouse gas emissions is also confirmed. The differences in the CO2
reduction depend on  farming practices  and the chain of  production.  Apart from the
impact on CO2 emissions, the production of crops for biofuels, conversion of the raw
materials  and  subsequent  use  of  biofuels  have  a  number  of  effects  on  the

5

Volkswirschafttliche  Aspekte  einer  Herstellung  von  Biodiesel  in  Deutschland.  IFO-Institut  für
Wirtshaftsforchung – 2nd EU Motor Biofuels Forum/September 1996.

24

                                                
environment  that  could  be  relevant  to  the  attractiveness  of  replacing  conventional
motor vehicle fuels with biofuels.

When  assessing  these  effects  it  is  important  to  be  aware  that  in  principle  what
matters is the difference between the overall impact of fossil fuel production, refining
and use versus biofuel production, conversion and use rather than the impact as such
of the biofuel life cycle.

5.4.1

Vehicle exhaust emissions

It  has  been  claimed  that  biofuels  are  attractive  because  they  generate  fewer
“conventional” car  emissions (CO, NOx, VOC, and  particulate). With conventional
gasoline  and  diesel  becoming  virtually  sulphur  and  lead-free  and  with  emission
norms being tightened to more than 90% reduction of most conventional emissions,
biofuels will offer in theory little, if any, emission advantage over gasoline and diesel
in  the  future.  For  this  reason  it  is  important  that  any  future  mandatory  blending  of
biofuels  into  petrol  and  diesel  should  be  considered  within  the  framework  of
Directive  98/70/EC,  EN  228  &  EN  590  and  Community  type-approval  legislation.
Directive 98/70/EC is based upon Article 100a (new 95) of the Treaty and establishes
harmonised  environmental  specifications  for  all  petrol  and  diesel  marketed  in  the
Community. Moreover, Article 5 of this Directive prevents any Member State from
preventing the placing onto the market of petrol and diesel fuel which comply with
the specifications contained in the Directive.

5.4.2

Groundwater contamination

The  use  of  biofuel  components  such  as  ETBE  could  lead  to  the  occurrence  of
groundwater contamination as has been observed in some Member States by MTBE
due to the leaking of petrol from underground storage tanks at service stations. ETBE
has  very  similar  physical  and  chemical  properties  as  MTBE  and  therefore  could
creates  the  same  risk  for  groundwater  contamination.  After  a  thorourough  risk
assessment for MTBE, undertaken within the framework of the Existing Substances
Regulation  (EEC)  No  793/93),  it  has  been  concluded  that  Member  States  should
apply  widely  best  available  techniques  for  the  construction  and  operation  of
underground  storage  tanks  at  service  stations.  These  measures  will  work  on  ETBE
as well.

5.4.3

Land use agricultural practice

It is clear that the three crops (colza, cereals and sugar beet) are normally grown by
relatively  intensive  farming,  but  at  the  same  time  relevant  EU  legislation  on
pesticides,  biodiversity  and  nitrate  leakage  require  Member  States  to  install
safeguards  against  any  unacceptable  negative  impact.  Should  bio-diversity  be  an
important factor, growing sugar-beet would be a good option since the area required
for the production of a given quantity of biofuel is less than half the area required for
cereals.  On  the  other  hand,  cereals  produce  big  amounts  of  additional  biomass  in
straw, which makes for a better CO2 balance if used for energy generation.

Colza  or  other  oil  seed  crops  require  even  bigger  areas  for  a  given  quantity  of
biofuel,  but  in  this  case  the  value  of  the  protein  from  the  crops  is  important  in
addition to the potential energy value of the plant residues.

25

The  potential  to  produce  biofuels  from  either  ligno-cellulosic  or  thermo-chemical
conversion  of  biomass  in  the  medium  term  can  only  be  achieved  if  traditional
forestry,  short  rotation  forestry  and/or  other  ligno-cellulosic  crops  (such  as
miscanthus)  provide  the  bulk  of  the  raw  material.  Such  crops  have  a  significantly
lesser  impact  on  the  environment  as  they  are  not  based  on  intensive  farming  and
therefore hardly need any fertilisers, pesticides, weed-killers or irrigation.

Environmental  advantages  from  growing  crops  for  biofuels  should  be  promoted
through sustainable farming and afforestation.

Conversion  of  crops  into  biofuels  is  not  subject  to  EU  environmental  legislation,
unlike  oil  refining.  Nevertheless,  some  Member  States,  generally  believed  to  apply
strict environmental legislation, have recently authorised plants for the production of
both bioethanol and biodiesel. This is a strong indicator that it is perfectly possible to
convert crops into biofuels in environmentally acceptable production plants.

In the case of the use of secondary biomass and waste products for the production of
biofuels the environmental impact is positive.

Apart  from  the  obvious  CO2  reduction  advantage,  any  other  environmental  effects
would  appear  to  be  insignificant,  either  positive  or  negative  providing  a  proper
implementation  in  the  Member  States  and  compliance  with  other  Community
legislation.  The  Commission  will  therefore  monitor  developments  closely  and
take additional  measures  where  necessary  to  ensure  that  future  reviews  of  the
Common  Agricultural  Policy  increase  sustainable  practice  in  the  production  of
biofuels.  Technical  progress  in  the  production  of  biofuels  from  ligno-cellulosics
could alleviate most of the negative environmental impact of crops.

5.5

Opportunities for Third and developing countries

Biofuel  development  and  their  use  offer  an  opportunity  for  trade  to  promote
sustainable development. The need for biofuels in the EU, and subsequently in other
countries, could open a new market for innovative agriculture products. In particular,
this  new  market  could  benefit  developing  countries  strongly  dependent  on
agriculture.

Furthermore, the development and use of biofuels would create a spillover effect of
new innovative technologies.  For  example, the leadership EU has had in the use of
renewable energies for electricity production – and the innovations linked to it – has
resulted  in  a  set  of  technology  transfers  all  over  the  world.  A  similar  effect  could
arise from the biofuel initiative.

However, in short term, we expect that benefits arising from technology innovation
and  spill-out  will  be  more  important  than  market  creation  and  imports  in  EU  for
agriculture products as dependency on oil on oil will continue to be is an universal
situation. Even so, in some cases, countries like Ukraine with big cereal production
could see rapid benefits arising from the new market.

Before 1 January 2007, the Commission shall report to European Parliament and to
the Council, in order to asses the trade effects of the proposal and take into account
the relevant international obligations taken by the Community, especially those under
the WTO agreement on technical barriers to trade.

26

6.

6.1

JUSTIFICATION FOR ACTION AT COMMUNITY LEVEL

Current political context

Article 2 of the EC Treaty calls for sustainable development of the economy of the
Community.

the  EC  Treaty 

Article  6  of 
these  objectives  of  sustainable
reinforces 
development by integrating environment policy into other Community policies. The
Cardiff European  Council  in  1998  reaffirmed  the  need  for  integration  of  the
environment into energy policy. Article 175 set the framework for adopting measures
with environmental objectives.

The EU strategy for sustainable development, recently presented by the Commission
to the Gothenburg European Council of 15/16 June 2001, identifies as key priorities:

(cid:1)  Limiting climate change and increasing the use of clean energy
(cid:1)  Addressing threats to public health
(cid:1)  Managing natural resources more responsibly
(cid:1)  Improving the transport system and land use.

One of the main challenges in implementing the strategy will be the development of
renewable energy sources, including for transportation. The present Directive intends
to address some of these challenges by promoting the use of biofuels.

At  international  level  the  UN  Framework  Convention  on  Climate  Change  of  1992
requires  the  parties  to  adopt  policies  and  to  take  measures  to  reduce  and  limit
greenhouse  gas  emissions  consistent  with  the  objectives  of  the  Convention.  This
commitment  has  been  quantified  by  the  Community  by  way  of  the  8%  reduction
commitment  laid  down  in  the  Kyoto  Protocol  of  1997.  Greater  use  of  renewable
energy sources can already substantially contribute to the Community efforts to meet
the Kyoto target in the relatively few years left before 2012. Nevertheless, their role
will  be  even  more  important  in  the  period  beyond  2012,  where  the  Commission’s
proposal for a Sixth Environmental Action Programme foresees a 20-40% reduction
by the year 2020.

The  expected  increase  in  CO2  emissions  if  no  further  measures  are  taken,  and  the
difficulties  that  the  majority  of  Member  States  may  face  in  meeting  their
commitments under the EU burden sharing agreement, call for the reinforcement of
policies and measures at EU level within the overall EU climate change strategy.

On  26  November  1997,  the  Commission  adopted  the  Communication  entitled
"Energy  for  the  future:  Renewable  Energy  Sources"6.  This  White  Paper  identified
bioenergy and transport as those fields where more targeted actions should be taken
to help counter the above problems. A progress report on the White Paper adopted by
the Commission7, concluded that, firstly, the rather low contribution of 452 ktoe of
biofuels registered in 1997 was due to the fact that only four Member States had by

6

7

COM(97) 599 final, 26.11.1997.
COM(2001) 69 final, 16.2.2001.

27

                                                
that time taken specific measures and, secondly, that the production of energy crops
should be given more encouragement and energy taxation revised to favour biofuels.

In  response  to  this  White  Paper,  the  European  Parliament  and  the  Council  adopted
two  resolutions  on  17  June  19988  and  8  June  19989  respectively,  whereby  the
Commission was invited to undertake initiatives, notably in the biofuels sector.

The Council noted that Member States should choose the most appropriate means of
promoting the use of renewable energy sources from, among other, fiscal measures.
The Council also noted that, given the important role to be played by biomass, full
account should be taken of renewables in the development of Community policies on
agriculture and waste management, inviting the Commission to consider the need for
proposals to remove obstacles to the greater use of renewables.

The European Parliament called on the Commission to include in the Action Plan the
promotion of the use of biofuels, with the aim of increasing the market share to 2%
over five years, either through financial aid for the processing industry or through an
obligation  on  the  oil  companies  to  produce  a  minimum  proportion  of  fuel  from
biomass. It  also considered  that  there should be  additional  exemption from  mineral
oil taxes for mixed fuels to aid entry into the market.

At its meeting on 9 September 2000 the informal ECOFIN Council stressed the need
for  faster  implementation  of  EU  action  plans  in  the  field  of  energy-saving  and
diversification in order to reduce the oil dependency of our economies.

In its "Green Paper on the security of energy supply"10, the Commission outlines the
prospective  energy  situation  in  the  EU  for  2010  and  beyond.  One  of  the  essential
observations in this Communication is that the EU will in the short and medium term
have a limited possibility to influence the supply side of energy. However, as the EU
is  one  of  the  main  consumer  areas  it  should  do  its  utmost  to  reduce  its  heavy
dependence on external suppliers.

6.2

Additional impact of action at Community level

There  is  no  doubt  that  promotion  of  the  use  of  biofuels  in  the  EU  is  desired  at
political level for the reasons of sustainable development, CO2 reduction, security of
supply  and  the  additional  positive  influence  on  rural  development  and  agriculture
policy.  These  are  all  issues  of  interest  and  responsibility  at  Community  level,
as borne  out  by  the  numerous  statements  and  acts  at  political  level  highlighted
under 6.1.

The dramatic fall in oil prices in the early/mid 1980s and their persistently low level
since then (even today’s (cid:2) USD 25/barrel is less than half the price in 1980-82 in real
terms) mean that biofuels are not competitive. Bio-diesel  – currently  the most used
biofuel  -  has  a  production  cost  of  approximately  EUR 500/1 000  litres,  as  against
EUR 200-250/1 000 litres for conventional petroleum-based diesel. This means that

8

9

10

Resolution of the European Parliament of 17 June 1998 (A4-0207/98).
Council Resolution of 8 June 1998 on renewable sources of energy, OJ C 198, 24.6.1998, p. 1.
Green Paper ‘Towards a European strategy for the security of energy supply”, COM(2000) 769 final.
Op. Cit.

28

                                                
promotional measures involve costs such as reduced tax revenue, higher price at the
pump, etc., and it is only fair that those costs should be borne to the same extent by
all Member States.

However,  Chapter  3  highlights  the  substantial  differences  in  performance  between
the Member States concerning the  use of biofuels in  transport.  In  addition,  there  is
evidence  that  progress  in  some  countries  is  mostly  due  to  the  impact  of  proactive
measures, both fiscal and promotional, rather than specific circumstances or resource
availability in those countries.

The  Commission  also  considers  that  the  current  situation  in  the  EU  shows  that  the
overall  effort  in  terms  of  economics  and  research  is  provided  by  only  a  few
Member States,  whereas  the  benefits  from  promoting  biofuels  in  terms  of  the
environment, security of supply, emerging technologies and markets profit the Union
as a whole.

Therefore, the proposal for a new legally binding instrument must be seen in the light
of  the  common  objective  of  increasing  the  use  of  biofuels  for  transport  in  all
Member States in the European Union. The proposal also would lead to an increased
demand  for  biofuels  in  the  internal  market,  which  will  provide  EU-wide  market
opportunities for companies.

Nevertheless,  the  proposal  should  at  the  same  time  safeguard  the  internal  energy
market  by  ensuring  that  promotional  measures  will  not  prohibit  trade  in  fuels  that
meet the specifications on fuel quality of Directive 98/70/EC. The proposal therefore
requires that as from 2005 a certain percentage of the fuel sold in each Member State
is biofuel, although it does not impose any particular method of how to meet such an
objective.  This  flexibility  means  that  Member  States  can  leave  the  choice  to  the
companies  concerned  of  how  to  meet  their  quotas,  taking  account  of  local
circumstances. This could be done by blending diesel or petrol with biofuel products
or by promotion of 100% biofuel in captive fleets. It also means that there will be no
legal  barriers  to  the  trade  of  pure  fossil  fuel  in  the  internal  market.  However  it  is
considered to be unlikely that a percentage of biofuels above 4 to 5% can be reached
in any Member State without a systematic blending into all ordinary transport fuels.
Therefore  the  Commission  will  study  this  issue  and  if  appropriate  propose  an
amendment  to  Directive  98/70/EC  to  require  a  mandatory  blending  of  a  certain
percentage biofuels in gasoline and diesel.

The percentages proposed for the total biofuel sold can be adapted to the situation in
the Member States by a Committee procedure.

This Community approach will give a better guarantee of a level playing field for the
agriculture and forestry sectors, consumers, fuel producers and distributors, and the
car industry in the internal market.

7.

RELEVANCE OF THE INITIATIVE TO ACCESSION COUNTRIES

Agricultural activity per capita in accession countries is double the level in EU-15. There is
therefore potential for sustainable farming of biofuels in these  countries. Biofuel production
could contribute to agricultural diversification, help to meet the environmental challenge and
form part of job creation policy.

29

Examples  of  a  developing  biofuel  industry  are  in  the  Czech  Republic  and  in  Slovakia.  The
Czech Republic has already completed a programme for establishing 16 biodiesel plants and
is  the  world  leader  in  the  number  of  plants  per  country.  It  already  has  some  70  000  t
production  capacity,  the  biggest  single  plant,  with  30  000  t  capacity,  being  located  in
Olomouc.  There  is  also  full  tax  relief  for  biodiesel  granted  for  environmental  reasons.
Additionally, the level of VAT on biodiesel is reduced to only 5%.

8.

CONTENTS OF THE PROPOSAL

Article 1 defines the purpose and scope of the proposal.

Article 2 concerns biofuel definitions.

Article 3 obliges Member States to establish a minimum percentage by volume of biofuels to
be sold in their respective markets.

Article 4 concerns reporting by the Member States and the Commission.

Articles  5  and  6  concern  the  committee  procedure  for  adapting  the  annex  of  the  proposed
Directive to technical progress.

Articles 7, 8 and 9 concern the administrative provisions of the proposal.

The Annex to the proposal contains a list of liquid tha are considered to be biofuels and the
schedule for the share of biofuels in the total fuel market.

30

2001/0265 (COD)

Proposal for a

DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

on the promotion of the use of biofuels for transport

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,

Having  regard  to  the  Treaty  establishing  the  European  Community,  and  in  particular
Article 175(1) thereof,

Having regard to the proposal from the Commission1,

Having regard to the opinion of the Economic and Social Committee2,

Having regard to the opinion of the Committee of the Regions3,

Acting in accordance with the procedure laid down in Article 251 of the Treaty4,

Whereas:

(1)

(2)

(3)

(4)

(5)

The  European  Council  meeting  at  Gothenburg  on  15  and  16  June  2001  adopted  a
Community  strategy  for  sustainable  development  consisting  in  a  set  of  measures,
which include the development of biofuels.

Natural  resources,  and  their  prudent  and  rational  utilisation  as  referred  to  in
Article 174(1)  of  the  Treaty,  include  oil,  natural  gas  and  solid  fuels,  which  are
essential sources of energy but also the leading sources of carbon dioxide emissions.

The transport sector accounts  for  more than 30% of final energy consumption in the
Community and is expanding – a trend which is bound to increase, along with carbon
dioxide emissions.

Greater use of biofuels for transport forms a part of the package of measures needed to
comply  with  the  Kyoto  Protocol,  and  of  any  policy  package  to  meet  further
commitments.

Increased use of biofuels for transport is one of the tools with which the Community
can  influence  the  global  fuel  market  for  transport  and  hence  the  security  of  energy
supply in the medium and long term.

1

2

3

4

OJ C
OJ C
OJ C
OJ C

31

                                                
(6)

(7)

(8)

(9)

Promoting  the  use  of  biofuels  in  keeping  with  good  farming  practices  will  create
new opportunities  for  sustainable  rural  development  in  a  more  market-orientated
Common Agriculture Policy.

In  its  resolutions  of  8  June19985  and  of  5  December  2000  the  Council  endorsed  the
Commission's Strategy and Action Plan for Renewable Energy Sources and requested
specific measures in the biofuels sector.

In its resolution of 18 June 19986 the European Parliament called for an increase in the
market  share  of  biofuels  to  2%  over  five  years  through  a  package  of  measures,
including tax exemption and the establishment of a compulsory rate of biofuels for oil
companies.

The  optimum  method  for  increasing  the  share  of  biofuels  in  the  national  markets
depends  on  the  availability  of  resources  and  raw  materials,  on  national  policies  to
promote  biofuels  and  on  tax  arrangements,  and  should  therefore  be  left  as  far  as
possible to the policies of the oil companies and other parties concerned.

(10) National policies to promote the use of biofuels should not lead to prohibition of the
free movement of fuels that meet the harmonised environmental specifications as laid
down in Community legislation.

(11) However, it will be difficult to increase the proportion of biofuel sold above a certain
level without measures to blend it in fossil fuel. Therefore, Member States should aim
at  a  minimum  blending  of  1%  of  biofuel  into  the  mineral  oil  marketed  in  the
Community.  This  percentage  will  be  adapted  on  the  basis  of  the  shares  obtained  by
biofuels among the various fuels marketed in the Member States and based on further
detailed studies.

(12)

(13)

(14)

Since  the  objective  of  the  proposed  action,  namely  the  introduction  of  general
principles  providing  for  a  minimum  percentage  of  biofuels  to  be  marketed  and
distributed,  cannot  be  sufficiently  achieved  by  the  Member  States  by  reason  of  the
scale  of  the  action,  and  can  therefore  be  better  achieved  at  Community  level,  the
Community  may  adopt  measures,  in  accordance  with  the  principle  of  subsidiarity  as
set out in Article 5 of the Treaty. In accordance with the principle of proportionality,
as set out in that Article, this Directive does not go beyond what is necessary in order
to achieve that objective.

Provision should be made for the possibility of rapidly adapting the list of biofuels, the
percentage  of  renewable  contents,  and  the  schedule  for  introducing  biofuels  in  the
transport  fuel  market,  to  technical  progress  and  to  the  results  of  an  environmental
impact assessment of the first stage of introduction.

Since the measures necessary for the implementation of this Directive are measures of
general  scope  within  the  meaning  of  Article  2  of  Council  Decision  1999/468/EC  of
28 June  1999  laying  down  the  procedures  for  the  exercise  of  implementing  powers

5

6

OJ C 198, 24.6.1998, p. 1.
OJ C 210, 6.7.1998, p. 215.

32

                                                
conferred  on  the  Commission7,  they  should  be  adopted  by  use  of  the  regulatory
procedure provided for in Article 5 of that Decision,

HAVE ADOPTED THIS DIRECTIVE:

Article 1

This  Directive  sets  a  minimum  percentage  of  biofuels  to  replace  diesel  or  gasoline  for
transport purposes in each Member State.

1.

For the purpose of this Directive, the following definitions shall apply:

Article 2

(a)

“biofuels” means liquid or gaseous fuel for transport produced from biomass;

(b)

"biomass"  means  the  biodegradable  fraction  of  products,  waste  and  residues
from agriculture (including vegetal and animal substances), forestry and related
industries,  as  well  as  the  biodegradable  fraction  of  industrial  and  municipal
waste;

(c)

"energy content" means the lower caloric value of a fuel.

2.

The products listed in Part A of the Annex shall be considered biofuels.

Article 3

1.

Member  States  shall  ensure  that  the  minimum  proportion  of  biofuels  sold  on  their
markets is 2%, calculated on the basis of energy content, of all gasoline and diesel sold
for  transport  purposes  on  their  markets  by  31  December  2005  and  that  this  share
increases,  aiming  towards  a  minimum  level  of  blending,  in  accordance  with  the
schedule set out in Part B of the Annex.

2.

Biofuels may be made available in any of the following forms:

(a)

as pure biofuels;

(b)

as biofuels blended in mineral oil derivatives taking into account the appropriate
European  norms  describing  the  technical  specifications  for  transport  fuels
(EN 228 and EN 590);

(c)

as liquids derived from biofuels, such as ETBE (ethyl-tertio-butyl-ether), where
the percentage of biofuel is specified in the Part A of the Annex.

3.

Member States shall  monitor  the  effect of  the  use  of  biofuels  in  diesel  blends  above
5%  by  non-adapted  vehicles  and  shall,  where  appropriate,  take  measures  to  ensure
compliance with the relevant Community legislation on emission standards.

7

OJ L 184, 17.7.1999, p. 23.

33

                                                
1.

2.

Article 4

Member States shall report to the  Commission,  before  1  July  each  year,  on  the  total
sales of transport fuel and the share of biofuels in such sales for the preceding year.

the 

latest, 

the
By  31  December  2006  at 
European Parliament and to the Council on the progress made in the use of biofuels in
the  Member  States,  on  the  economical  aspects  and  on  the  environmental  impact  of
further  increasing  the  share  of  biofuels.  On  the  basis  of  this  report,  the  Commission
will propose, where appropriate, an adaptation of the system of targets as laid down in
Article 3.

the  Commission  shall  report 

to 

Article 5

The Annex may be adapted to technical progress in accordance with the procedure referred to
in Article 6(2).

The  schedule  of  Part  B  of  the  Annex  may  be  adapted  in  accordance  with  the  procedure
referred  to  in  Article  6(2),  on  the  basis  of  technical  development  of  biofuel  technologies,
market penetration and applications in means of transport.

1.

2.

3.

1.

Article 6

The  Commission  shall  be  assisted  by  the  committee  instituted  by  Article  4(2)of
Council Decision 1999/21/EC Euratom8.

Where  reference  is  made  to  this  paragraph,  the  regulatory  procedure  laid  down  in
Article  5  of  Decision  1999/468/EC  shall  apply,  in  compliance  with  Article  7  and
Article 8 thereof.

The  period  provided  for  in  Article  5(6)  of  Decision  1999/468/EC  shall  be
three months.

Article 7

Member  States  shall  bring  into  force  the  laws,  regulations  and  administrative
provisions necessary to comply with this Directive by 31 December 2004 at the latest.
They shall forthwith inform the Commission thereof.

When  Member  States  adopt  those  provisions,  they  shall  contain  a  reference  to  this
Directive  or  be  accompanied  by  such  reference  on  the  occasion  of  their  official
publication. Member States shall determine how such reference is to be made.

2.

Member  States shall communicate  to  the  Commission the provisions of national  law
which they adopt in the field covered by this Directive.

8

OJ L 7, 13.1.1999, p. 16.

34

                                                
This Directive shall enter into force on the twentieth day following that of its publication in
the Official Journal of the European Communities.

Article 8

Article 9

This Directive is addressed to the Member States.

Done at Brussels,

For the European Parliament
The President

For the Council
The President

35

ANNEX

A.

LIST OF BIOFUELS AND PERCENTAGE OF RENEWABLE CONTENTS

"Bioethanol": ethanol produced from biomass and/or the biodegradable fraction of waste, to
be used as biofuel;

"Biodiesel": a diesel quality liquid fuel produced from biomass or used fried oils, to be used
as biofuel;

"Biogas":  a  fuel  gas  produced  by  the  anaerobic  fermentation  of  biomass  and/or  the
biodegradable  fraction  of  waste  that  can  be  purified  to  natural  gas  quality,  to  be  used  as
biofuel;

"Biomethanol": methanol produced from biomass and/or the biodegradable fraction of waste,
to be used as biofuel;

"Biodimethylether": dimethylether produced from biomass and/or the biodegradable fraction
of waste, to be used as biofuel;

"Biooil": a pyrolysis oil fuel produced from biomass, to be used as biofuel.

"BioETBE (ethyl-tertio-butyl-ether)": ETBE produced on the basis of bioethanol.

The percentage of volume bioETBE that is calculated as biofuel is 45%.

B.

MINIMUM  AMOUNT  OF  SOLD  BIOFUEL  AS  A  PERCENTAGE  OF  SOLD  GASOLINE  AND
DIESEL

Year

%

Of which as a
minimum in the
form of
blending (%)

2005

2006

2007

2008

2009

2010

2

2.75

3.5

4.25

5

5.75

-

-

-

-

1

1.75

36

IMPACT ASSESSMENT FORM

THE IMPACT OF THE PROPOSAL ON BUSINESS WITH SPECIAL REFERENCE
TO SMALL AND MEDIUM-SIZED ENTERPRISES( SMEs)

DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL ON THE PROMOTION OF

THE USE OF BIOFUELS FOR TRANSPORT

DOCUMENT REFERENCE NUMBER

THE PROPOSAL

1.

Main aims of the proposal is to promote an increased use of biofuels in transport in the
European Union in order to contribute

(cid:1) 

(cid:1) 

(cid:1) 

to security of supply of transport fuel;

to a reduction of CO2 emissions;

to rural development and maintenance of employment in the rural community.

Community legislation is necessary to increase the use of biofuels and the investments in this
sector in all Member States, as benefits of such an increased use are also for the Union as a
whole.

THE IMPACT ON BUSINESS

2.

Who will be affected by the proposal ?

(cid:1) 
(cid:1) 
(cid:1) 
(cid:1) 
(cid:1) 

Oil companies;

Biofuel producers;

Farmers;

Vehicle manufacturers;

Consumers.

3.

4.

Next  to  Oil  companies  and  vehicles  manufacturers,  mainly  the  small  and  medium-
sized producers especially in rural areas of the Community will be affected.

Oil companies will have to ensure that a  share  of their total  gasoline and diesel sold
will be biofuels.

What economic effects is the proposal likely to have?

(cid:1) 
(cid:1) 
(cid:1) 

on employment: positive

on investment and the creation of new businesses: positive

on the competitiveness of businesses: neutral

37

5.

Does the proposal contain measures to take account of the specific situation of small
and medium-sized firms (reduced or different requirements etc)? No

CONSULTATION

6.

Organisations which have been consulted about the proposal:

(cid:1) 
(cid:1) 
(cid:1) 
(cid:1) 
(cid:1) 

Oil companies;

Car manufacturers;

Biodiesel producers;

Trade organisations.

Agriculture organisations.

38

Proposal for a

COUNCIL DIRECTIVE

amending Directive 92/81/EEC with regard to the possibility of applying a reduced rate
of excise duty on certain mineral oils containing biofuels and on biofuels

39

EXPLANATORY MEMORANDUM

1.

INTRODUCTION

In  this  explanatory  memorandum,  a  ‘biofuel’  is  a  product  obtained  from  certain  renewable
resources which is subject to excise duty under Directive 92/81/EEC1. A biofuel can therefore
be used, in its pure or blended form, as a motor or heating fuel.

The  Commission  communication  on  alternative  fuels  for  transportation  and  on  a  set  of
measures to promote the use of biofuels2 identifies two possible courses of action for the latter
purpose3:

–

– 

applying different rate of excise duty in favour of biofuels to make them competitive
in the market;

specifying a minimum percentage of biofuel in motor fuels sold.

The attached proposal for a Council Directive therefore sets out a new framework of taxation
for biofuels. A second proposal for a Directive of the European Parliament and of the Council
will set a statutory minimum biofuel content for motor fuels sold after 20054.

2.

BACKGROUND

2.1

Promoting biofuels

The  Commission  and  the  Council  have  been  encouraging  the  development  of  renewable
energies, and biofuels in particular, since 1985. The Directive relating to oil savings through
the use of substitute fuel components5 stresses the role biofuels can play in reducing Member
States’ dependence on oil imports and authorises the incorporation into petrol of up to 5% of
ethanol  by  volume  and  up  to  15%  of  ethyl-tertiary-butyl-ether  (ETBE)  by  volume.  The
Council  Decisions  of  1993  and  1997  on  promoting  renewable  energies  in  the  Community
(Altener6  and  Altener  II  programmes7)  are  aimed  at  securing  a  market  share  for  biofuels  of
5%  of  total  motor  vehicle  fuel  consumption  by  2005.  The  1997  White  Paper  on  renewable
sources of  energy8 further  recommended  setting  a  production  target  of  18  million  tonnes  of
liquid biofuels by 2010 as part of an overall goal of doubling the share of renewables in EU
energy  consumption  by  the  same  year.  The  communication  on  the  implementation  of  the
Community  strategy  and  action  plan  on  renewable  energy  sources  (1998-2000)9  reinforces

1

2

3

4

5

6

7

8

9

OJ L 316, 31.10.1922, p. 12, as last amended by Directive 94/74/EC (OJ L 365, 31.12.1994, p. 46).
OJ C
Having rejected the possibility of subsidising raw  material  production  under  the  common  agricultural
policy.
OJ C
Council Directive 85/536/EEC of 5 December 1985 on crude-oil savings through the use of substitute
fuel components in petrol (OJ L 334, 12.12.1985, p. 20).
Council  Decision  93/500/EEC  of  13  September  1993  concerning  the  promotion  of  renewable  energy
sources in the Community (Altener programme); (OJ L 235, 18.9.1993, p. 41).
Council Decision 98/352/EC of 18 May 1998 concerning a multiannual programme for the promotion
of renewable energy sources in the Community (Altener II); (OJ L 159, 3.6.1998, p. 53).
COM(97) 599 final, 26.11.1997.
COM(2001) 69 final, 16.2.2001.

40

                                                
these  guidelines.  The  communication  entitled  “A  Sustainable  Europe  for  a  Better  World:  A
European  Union  Strategy  for  Sustainable  Development”10,  presented  to  the  Gothenburg
European Council of  15  and  16  June 2001,  also  highlights  the  important  role  of  biofuels  in
tackling climate change and in the development of clean energies.

Recent work indicates that the development of biofuels would also have a positive impact in
the agricultural sector and on employment.

Lastly, the Commission Green Paper “Towards a European strategy for the security of energy
supply”11 stresses the key role of tax instruments in achieving the objectives set  in  terms of
volumes by reducing the price differential between biofuels and rival products.

2.2

Taxation framework

Energy  products  are  basically  taxed  in  three  ways:  excise  duties,  which  are  specific  duties
(proportional  to  the  physical  quantity  of  the  product),  dedicated  taxes  and  duties  and  VAT,
which is an ad  valorem tax (proportional to the selling price of the product).  At  the  current
moment, there is no Community framework  for  energy products other  then mineral  oils  nor
for taxes other than excise duty and VAT.

In  the  excise  field,  the  Member  States  decided  unanimously  in  1992  to  introduce  a
Community  system  for  the  taxation  of  mineral  oils  based  on  two  Directives,  one  on  the
harmonisation of the structures of excise duties (92/81/EEC), the other on the approximation
of the rates of excise duties (92/82/EEC)12 on mineral oils. The two Directives set a minimum
rate of tax for each mineral oil according to its use (motor fuel, industrial and commercial use,
heating).  In  practice,  excise  duty  is  often  far  in  excess  of  the  minimum  Community  rates,
which have not been adjusted since 1992, and differs enormously from one Member State to
another.

The  Directives  provide  for  a  number  of  compulsory  tax  exemptions13  and  also  allow
Member States  further  specific  excise  duty  exemptions  or  reductions  either  under  fiscal
control  or  subject  to  an  application  to  the  Commission  and  the  unanimous  approval  of  the
Council, acting on a proposal from the Commission.

Such derogations are often introduced out of a fear of seeing certain sectors of the economy
lose  their  competitiveness  when  ambitious  fiscal  reforms  involving  tax  increases  for
environmental purposes are adopted at national level.

However,  there  are  other  reasons  for  the  derogations  too,  in  particular  to  facilitate  the
introduction  of  more  environmentally  friendly  fuels.  Differential  excise  rates,  for  example,
help the market share of low sulphur fuels to develop more rapidly. By allowing products to
be  differentiated  by  environmental  category,  tax  incentives  are  an  effective  method  for
steering  economic  operators  (business  and  consumers)  towards  products  which  promote
sustainable development.

10

11

12

13

COM(2001) 264 final, 15.5.2001.
COM(2000) 769 final, 29.11.2000.
OJ L 316, 31.10.1992, p. 19, as last amended by Directive 94/74/EC (OJ L 365, 31.12.1994, p. 46).
e.g. on fuels used in commercial air transport.

41

                                                
Lastly,  derogations  are  also  aimed  at  the  development  of  public  transport,  particularly  in
urban  centres,  by  allowing  tax  exemptions  or  reductions  on  fuel  used  by  local  public
passenger transport.

2.3

Tax treatment of biofuels

Pursuant  to  Directive  92/81/EEC,  biofuels  blended  into  motor  or  heating  fuel  are  taxed
according to  end product and use.  On  being  added to petrol, for example, ethanol, which is
not a mineral oil within the meaning of Directive 92/81/EEC, becomes a motor fuel subject to
the current rate of excise duty on petrol in the Member State concerned.

Member  States  are  allowed  two  possibilities  by  Directive  92/81/EEC  for  implementing
measures to reduce or exempt excise duties on biofuels.

Firstly,  under  Article  8(2)(d)  of  the  Directive,  “Without  prejudice  to  other  Community
provisions, Member States may apply total or partial exemptions or reductions in the rate of
duty  to  mineral  oils  used  under  fiscal  control:  ...  in  the  field  of  pilot  projects  for  the
technological  development  of  more  environmentally-friendly  products  and  in  particular  in
relation to fuels from renewable resources”.

Secondly,  according  to  Article  8(4)  of  Directive  92/81/EEC,  “the  Council,  acting
unanimously  on  a  proposal  from  the  Commission,  may  authorise  any  Member  State  to
introduce further exemptions or reductions for specific policy considerations”.

In  September  2000,  the  Court  of  First  Instance14  annulled  the  Commission  decision  of
April 1997 which established the compatibility of the state aid scheme15 in France involving
the reduction of excise duty on ethyl-tertiary-butyl-ether (ETBE) on the grounds that the legal
basis  for  the  tax  derogation,  i.e.  Article  8(2)(d)  of  Directive  92/81/EEC,  was  not  relevant
because the manufacture of ETBE in France had gone beyond the pilot project phase.

Prior to the CFI judgment, Member States allowing tax reductions or exemptions for biofuels
had  made  use  only  of  the  option  offered  by  Article  8(2)(d)  of  Directive  92/81/EEC.
Subsequently, in accordance with Article 8(4) of Directive 92/81/EEC, the French, Italian and
UK authorities have applied to the Commission for derogations allowing them to apply excise
duty reductions on biofuels.

3.

OBJECTIVE AND SCOPE OF THE PROPOSED DIRECTIVE

The development of renewable energies, in particular biofuels, is a clear political priority for
the EU in the context of commitments on the reduction of greenhouse gases. Security of EU
energy supply is also becoming of increasing importance.

Tax incentives are an effective tool of both environmental and energy policy. Taxes make up
a significant proportion of the selling price of energy products, in particular motor and heating
fuels.

Appropriate  differentiation  of  excise  rates  would  contribute  to  the  development  of  the
biofuel industry by offsetting the high cost of manufacturing biofuels compared to fossil fuels.

14

15

CFI judgment of 27.9.2000, Case T-184/97, BP Chemicals v Commission.
Decision of 9.4.1997, SG (97) D/3266.

42

                                                
At  a  crude  oil  price  per  barrel  of  between  USD 25  and  30,  the  cost  of  producing  pure
biodiesel, unblended with fossil fuel, is currently EUR 0.25-0.30 more per litre than for fossil
diesel oil16.

The effectiveness of tax instruments is often enhanced if the tax (relief) measures form part of
a coherent package of technical, regulatory and economic measures. This is the case here as
two  proposals  for  directives  have  been  drawn  up  in  conjunction,  one  on  the  compulsory
incorporation  of  biofuel  in  fuels  sold,  the  other  providing  Member  States  with  a  flexible
economic  instrument  to  help  implement  the  first  proposal  or  even  go  further  than  its
objectives.

The  need  to  adopt  a  simple  and  transparent  legal  framework  for  the  implementation  of
reductions in the excise duty on biofuels was already acknowledged in 1992 in the proposed
Directive on excise duties on motor fuels from agricultural sources17 and again in 1997 in the
proposal for a Council Directive restructuring the Community framework for the taxation of
energy products18, Article 14(1)(b) and (c) (biomass and waste) which allows Member States
to  apply  reductions  and/or  exemptions  in  excise  duty  on  biofuels.  Unfortunately,  the
1992 proposal  was  not  adopted  by  the  Council19  and  the  1997  proposal  is  still  on  the
Council table20.

The definition of biofuels in  the  1997  proposal  still  applies  today  subject  to  the  addition  of
water when used, for example, with certain fuels and additives (“aquazole”).

The burgeoning interest in the development of biofuel industries is clearly illustrated by the
tax  incentive  programmes  implemented  by  some  countries  to  promote  biofuels  and  a  close
inspection  of  recent  Member  State  budgets  and  the  ongoing  debates  in  various  national
parliaments.

Despite  variations  in  the  types  of  product  concerned,  the  projects  generally  include  a  tax-
related component: a reduction in excise duties.

Faced  with  the  prospect  of  an  ever-increasing  number  of  individual  applications  for
excise reduction  or  exemption  measures  from  Member  States  under  Article  8(4)  of
Directive 92/81/EEC,  the  Commission  considers  it  in  the  Community  interest  to  establish  a
legislative framework on the basis of Article 93 of the Treaty to provide economic operators
and Member States with the necessary legal certainty required to ensure the development of a
genuine  market  in  these  products.  A  Community  framework  is  conducive  to  better
functioning of the internal market.

The  attached  proposal  for  a  directive  allows  Member  States  to  reduce  excise  duties,  under
fiscal  control,  in  proportion  to  the  percentage  of  biofuel  incorporated  in  the  fuel  or  end
product. This proportional reduction in tax  is consistent  with  the objective of  the regulatory
Directive  as  the  higher  the  percentage  of  biofuel,  the  greater  the  value  of  the  potential
reduction in excise duty on the end product.

16

17

18

19

20

OJ C
Proposal  of  19.2.1992  (COM(92)  36  final,  published  in  OJ  C  73,  24.3.1992,  p.  6),  as  amended  on
1.7.1994 (COM(94) 147 final, published in OJ C 209, 29.7.1994, p. 9). The proposal is often referred to
as the “Scrivener”‘ proposal.
COM(97) 30 final, 12.3.1997.
The proposal was withdrawn by the Commission in 1999.
The current proposal for a directive does not affect the 1997 proposal.

43

                                                
With a view in particular to mitigating the loss of Member State budget resources, however,
the  actual  amount  of  tax  on  the  end  product  may  not  be  less  than  50%  of  the  normal  rate
of excise  duty  for  the  corresponding  propellant.  Transitory  measures  are  foreseen  in  favour
of products solely made up of biofuels, which have been totally exempted from excise duty on
1 January  2001.  Furthermore,  if  required  by  specific  circumstances  at  national  level,
additional  exemptions  or  reductions  may  be  authorised  according  to  the  procedure  of
Article 8(4) of Directive 92/81/EEC.

In order to limit distortions of competition and maintain the incentive of a reduction in costs
for  producers  and  distributors  of  biofuels,  the  proposal  calls  on  Member  States  to  set  up
excise reduction mechanisms which take account of changes in raw material prices so that in
the event of a sustained rise in crude oil prices, for example, the lower tax rates do not over-
compensate for the extra cost of manufacturing biofuels21.

The proposal also contains an additional optional reduction for biofuels used by local public
passenger  transport,  including  taxis,  and  by  public  authority-operated  vehicles  identified  in
the  communication  on  alternative  fuels  for  transportation  as  appropriate  and  setting  a  good
example.

To  take  into  account  the  principle  of  free  movement  of  goods  in  the  internal  market,  only
some  biofuels,  intended  for  use  as  heating  fuel  or  motor  fuel,  have  to  be  integrated  in  the
scope  of  Directive  92/12/EEC,22  on the  general  arrangements  for  products  subject  to  excise
duty and on the holding, movement and monitoring of such products. Implementing measures
are included in order to define what has to be understood by a product “intended for use as
heating  fuel  or  motor  fuel”.  Lastly,  it  is  important  to  ensure  monitoring  of  derogations,  by
limiting their duration.

4.

CONCLUSION

The proposed Directive (amending Directive 92/81/EEC) will not only meet the current need
to align national biofuel taxation schemes but will help Member States establish the necessary
economic and legal conditions to achieve the targets to reduce emissions of greenhouse gases
and  to  achieve  security  of  EU  energy  supply  which  are  stated  in  the  proposed  regulatory
Directive setting the minimum percentage of biofuels in motor fuels sold after 2005.

The  proposed  tax  Directive  helps  to  provide  flexible  instruments  which,  in  line  with  the
subsidiarity  principle,  can be  adapted to the budgetary  constraints,  local  conditions  (e.g.  for
crop growing) and technological choices of each Member State.

21

22

E.g.: the price of pure biodiesel (i.e. of 100% agricultural origin) is approximately EUR 0.35 per litre
higher when a barrel of crude oil is at USD 20 and EUR 0.20 when it is at USD 35.
OJ L 76, 23.3.1992, p. 1.

44

                                                
2001/0266 (CNS)

Proposal for a

COUNCIL DIRECTIVE

amending Directive 92/81/EEC with regard to the possibility of applying a reduced rate
of excise duty on certain mineral oils containing biofuels and on biofuels

THE COUNCIL OF THE EUROPEAN UNION,

Having  regard  to  the  Treaty  establishing  the  European  Community,  and  in  particular
Article 93 thereof,

Having regard to the proposal of the Commission1,

Having regard to the opinion of the European Parliament2,

Having regard to the opinion of the Economic and Social Committee3,

Whereas:

(1)

(2)

(3)

(4)

Article  6  of  the  Treaty  provides  that  environmental  protection  should  be  integrated
into Community policies with a view to promoting sustainable development.

As  a  party  to  the  United  Nations  Framework  Convention  on  Climate  Change,
approved by Council Decision 94/69/EC4, the Community has undertaken to take the
necessary steps to stabilise greenhouse gas concentrations in the atmosphere at a level
that would preserve the climate from any dangerous upheaval.

In  its  resolution  of  8  June  19985,  the  Council  endorsed  the  Community  strategy  and
action plan on renewable energy proposed by the Commission and called for specific
measures on biofuels – that is to say, fuels derived from renewable resources.

The  Communication  of  the  Commission  entitled  “A  Sustainable  Europe  for  a
Better World: A European Union Strategy for Sustainable Development”6, highlights
the important role of alternative  fuels,  including  biofuels,  in  tackling  climate  change
and in the development of clean energies.

(5)

Development of biofuels encourages diversity in the Community’s energy sources and
thereby contributes to the medium and long-term security of its energy supply.

1

2

3

4

5

6

OJ C
OJ C
OJ C
OJ L 33, 7.2.1994, p. 11.
OJ C 198, 24.6.1998, p. 1.
COM(2001) 264 final/2, 15.5.2001.

45

                                                
(6)

(7)

(8)

The  relative  prices  of  energy  products  are  key  factors  in  the  Community’s
environmental  protection,  energy  and  transport  policies.  As  biofuels  are  subject  to
taxation under Council Directive 92/81/EEC of 19 October 1992 on the harmonisation
of the structures of excise duties on mineral oils7, appropriate differentiation of excise
rates would contribute to the development of the biofuel industry by lowering the high
cost of producing biofuels as compared to fossil fuels.

It  is  therefore  desirable  to  establish  a  Community  framework  for  reducing  excise
duties so as to promote biofuels, thereby contributing to the better functioning of the
internal  market  and  affording  Member  States  and  economic  operators  a  suficient
degree of legal certainty.

The tax differentiation measures should form part of a coherent package of technical,
regulatory and economic measures. Directive 2001/.../EC of the European Parliament
and of the Council of ... 2001 [on the promotion of the use of biofuels for transport]8
sets a compulsory minimum percentage of biofuels in all motor fuels sold.

(9)

Member States should be allowed the necessary flexibility to formulate and implement
policies adapted to national circumstances.

(10) Distortions  of  competition  should  be  limited  and  the  incentive  of  a  reduction  in  the
basic  costs  for  producers  and  distributors  of  biofuels  should  be  maintained  through
inter alia the application by Member States of excise reduction mechanisms reflecting
changes in the quoted prices for raw materials.

(11)

(12)

(13)

In some cases, reduced rates of excise duty which are lower than the minimum rates
laid down by Council Directive 92/82/EEC of 19 October 1992 on the approximation
of the rates of excise duties on mineral oils9 should be allowed.

Special measures are required for local public passenger transport, including taxis, and
public authority-operated vehicles. A transitory period should be allowed in favour of
unblended  biofuels,  which  have  been  totally  exempted  from  excise  duty  since
1 January 2001.

Excise differentiation measures achieved under fiscal control may be supplemented by
additional exemptions or reductions according to the procedure under Article 8(4) of
Directive 92/81/EEC. No later than 31 December 2007, the Commission should report
to the Council on these additional measures.

(14)

The  duration  of  reductions  in  excise  rates  should  be  limited  so  as  to  enable  their
application to be monitored.

(15) A multiannual programme of a maximum length of six years is sufficient for planning

investment projects in the sectors concerned.

7

8

9

OJ L 316, 31.10.1992, p. 12; Directive as last amended by Directive 94/74/EC (OJ L 365, 31.12.1994,
p. 46).
OJ L
OJ L 316, 31.10.1982, p. 19; Directive as last amended by Directive 94/74/EC.

46

                                                
(16) Certain biofuels, if intended for use as motor fuel or heating fuel, should be treated as
mineral oils in order to bring them within the scope of Council Directive 92/12/EEC of
25 February 1992 on the general arrangements for products subject to excise duty and
on the holding, movement and monitoring of such products10. Implementing measures
should define at Community level what is to be understood by a product intended for
use as motor fuel or heating fuel.

(17)

(18)

The  provisions  of  this  Directive  shall  be  without  prejudice  to  the  application  of
Article 27(1)(a)  and  (b)  of  Council  Directive  92/83/EEC  of  19  October  1992  on  the
harmonisation of the structures of excise duties on alcohol and alcoholic beverages11,
as regards the compulsory exemption of denatured alcohol and the arrangements for its
distribution,  in  view  of  the  fact  that  the  present  tax  arrangements  should  be  applied
solely  to  the  specific  case  of  denatured  alcohol  used  as  a  fuel  or  fuel  additive  in
accordance with Article 2(3) of Directive 92/81/EEC.

Since  the  measures  necessary  for  the  implementation  of  this  Directive  are  measures
of general scope within the meaning of Article 2 of Council Decision 1999/468/EC of
28  June  1999  laying  down  the  procedures  for  the  exercise  of  implementing  powers
conferred  on  the  Commission12,  they  should  be  adopted  by  use  of  the  regulatory
procedure provided for in Article 5 of that Decision.

(19) Member States should communicate to the Commission, for information purposes, the
national  tax  measures  which  they  adopt  on  biofuels.  The  obligation  to  communicate
this  information  does  not  release  Member  States  from  the  obligation  of  notification
provided  for  in  Article  88(3)  of  the  Treaty.  This  Directive  does  not  prejudice  the
outcome of any future State aid procedure that may be undertaken in accordance with
Articles 87 and 88 of the Treaty.

(20) Directive 92/81/EEC should therefore be amended accordingly.

HAS ADOPTED THIS DIRECTIVE:

Article 1

Directive 92/81/EEC is hereby amended as follows:

(1)

In Article 2(1), the following points are added:

“(m) products falling within CN codes 1507  to  1518, if they  are intended  for use as

heating fuel or motor fuel;

 (n) products falling within CN code 2905 11 00 which are not of synthetic origin, if

they are intended for use as heating fuel or motor fuel.”

10

11

12

OJ  L  76,  23.3.1992,  p. 1;  Directive  as  last  amended  by  Directive  2000/47/EC  (OJ  L  193,  29.7.2000,
p. 73.
OJ L 316, 31.10.1992, p. 21.
OJ L 184, 17.7.1999, p. 23.

47

                                                
(2)

In Article 2a (1), the following points shall be added:

“(f) products falling within CN codes 1507 to 1518, if these are intended for use as

heating fuel or motor fuel;

 (g) products falling within CN code 2905 11 00, which are not of synthetic origin,

if these are intended for use as heating fuel or motor fuel.”

(3)

The following Article 2b is inserted:

“Article 2b

For the purpose of Article 2(1)(m) and (n) and Article 2a(1)(f) and (g), the meaning to
be assigned to products intended for use as heating fuel or motor fuel shall be defined
in accordance with the procedure referred to in Article 9a (2).”

(4)

The following point IIa is to be inserted:

“IIa. Reductions for biofuels

Article 8b

From 1 January 2002 to 31 December 2010, Member States may, without prejudice to
Article 8f,  apply  a  reduced  rate  of  excise  duty  under  fiscal  control  on  the  taxable
products referred to in Article 2 where such products are made up of, or contain, one
or more of the following biofuels:

(a)

products falling within CN codes 1507 to 1518, 4401 and 4402;

(b)

products falling within CN codes 2207 20 00 and 2905 11 00 which are not of
synthetic origin;

(c)

products produced from biomass;

(d) water (CN codes 2201 and 2851 00 10).

"Biomass" shall mean the biodegradable fraction of products, waste and residues from
agriculture (including vegetal and animal substances), forestry and related industries,
as well as the biodegradable fraction of industrial and municipal waste.

Article 8c

1.

2.

The reduction in excise duty  resulting  from  the  application  of  the  reduced  rate
laid  down  in  Article  8b  may  not  be  greater  than  the  amount  of  excise  duty
payable  on  the  volume  of  biofuels  present  in  the  products  eligible  for  the
reduction.

The levels of taxation applied by Member States on the products made up of or
containing  biofuels  referred  to  in  Article  8b  may  be  lower  than  the  minimum
rates specified in Directive 92/82/EEC.

48

However, the level of taxation of these products, if intended for use, offered for
sale  or  used  as  motor  fuel,  may  not  be  lower  than  50%  of  the  normal  rate  of
excise duty applied by the Member State on corresponding fuels.

“Level  of  taxation”  shall  mean  the  total  amount  of  all  indirect  taxes  charged,
except  value  added  tax,  calculated  directly  or  indirectly  on  the  quantity  of
product consumed.

The Member States, which on 1 January 2001 totally exempted products solely
made  up  of  biofuels,  may  continue  totally  to  exempt  those  products  until
31 December 2003.

Article 8d

Products  made  up  of  or  containing  biofuels  referred  to  in  Article  8b,  used  by
local public passenger transport, including taxis, and by vehicles operated under
the responsibility of a public authority may qualify, under fiscal control, for an
additional  reduction  of  a  value  equivalent  to  the  reduction  provided  for
Article 8b.

The limit laid down in the second subparagraph of Article 8c(2) shall not apply
in the case provided for in paragraph 1.

3.

1.

2.

Article 8e

The  reduction  in  excise  duty  applied  by  Member  States  shall  be  adjusted  to  take
account  of  changes  in  raw  material  prices  to  avoid  over-compensating  for  the  extra
costs  involved  in  the  manufacture  of  biofuels  in  the  event  of  a  sustained  rise  in  the
price of crude oil.

Adjustments  shall  be  made  according  to  the  variation  in  crude  oil  prices  over
the previous  twelve  months.  The  price  variations  shall  be  calculated  using  the
‘Brent dated’ monthly average oil price.

Article 8f

1.

2.

The  reduction  provided  for  in  Article  8b  may  be  granted  under  a  multiannual
programme by means of an authorisation issued by an administrative authority to
an economic operator for more than one calendar year. The reduction authorised
may not be applied for a period of more than six consecutive years. This period
may be renewed.

As  part  of  a  multiannual  programme  authorised  by  an  administrative  authority
prior  to  31  December  2010,  Member  States  may  apply  the  reduction  under
Article  8b  after  31  December  2010  and  until  the  end  of  the  multiannual
programme, no renewal being permitted.

Article 8g

Member  States  shall  communicate  to  the  Commission  the  schedule  of  excise  duty
reductions  applied  in  accordance  with  point  IIa  by  31  December  2002  and  every
twelve months thereafter.

49

Article 8h

No later 31 December 2007 the Commission shall report to the Council on the fiscal,
economic,  agricultural,  energy, 
the
reductions granted  in  accordance  with  this  point  IIa.  Additional  exemptions  or
reductions granted in favour of biofuels according to the procedure of Article 8(4) of
Directive 92/81/EEC shall also be reviewed. The Commission shall, if necessary, put
forward proposals for their abolition, amendment or extension.”

industrial  and  environmental  aspects  of 

(5)

Point IV is hereby amended as follows:

(a)

The title is replaced by the following words:

“General and final provisions”;

(b) The following Article 9a is added:

“Article 9a

1.

The  Commission  shall  be  assisted  by  the  Excise  Committee  set  up  by
Article 24(1) of Directive 92/12/EEC.

2. Where  reference  is  made  to  this  paragraph,  the  regulatory  procedure  laid
down  in  Article  5  of  Decision  1999/468/EC  shall  apply,  in  compliance
with Article 7 thereof.

3.

The period provided for in Article 5(6) of Decision 1999/468/EC shall be
three months.”

Article 2

Member  States  shall  bring  into  force  the  laws,  regulations  and  administrative  provisions
necessary to comply with this Directive by 31 December 2002 at the latest.

When  Member  States  adopt  those  provisions,  they  shall  contain  a  reference  to  this
Directive or be accompanied by such a reference on the occasion of their official publication.
Member States shall determine how such reference is to be made.

This Directive shall enter into force on the twentieth day following that of its publication in
the Official Journal of the European Communities.

Article 3

Article 4

This Directive is addressed to the Member States.

Done at Brussels,

For the Council
The President

50