Proposal for a Council Decision authorising France to apply a differentiated rate of excise duty to biofuels in accordance with Article 8(4) of Directive 92/81/EEC
Date: 2001-12-11
Institutions: European Commission
Subjects: France, bio-industry, excise duty, substitute fuel, tariff reduction

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 11.12.2001
COM(2001)744 final

Proposal for a

COUNCIL DECISION

authorising France to apply a differentiated rate of excise duty to biofuels in accordance
with Article 8(4) of Directive 92/81/EEC

(presented by the Commission)

EXPLANATORY MEMORANDUM

1. 

SUBMISSION OF REQUEST

By letter of 17 November 2000 France asked the Commission, under Article 8(4) of Directive
92/81/EEC,  for  authorisation  to  apply  an  exemption  from  the  domestic  consumption  tax  on
vegetable  oil  esters  and  ethyl  alcohol  derivatives  where  the  alcohol  component  is  of
agricultural  origin.  Following  the  Commission’s  requests  for  further  information,  France
supplied the details necessary for examination of the matter in letters dated 18 January 2001
and 21 February 2001.

The  request  is  for  application  of  a  partial  exemption  from  excise  duties  (domestic
consumption  tax  on  petroleum  products  -  TIPP)  on  vegetable  oil  esters  incorporated  into
domestic  heating  fuel  and  diesel,  and  on  ethyl  alcohol  derivatives  (where  the  alcohol
component is of agricultural  origin)  incorporated  into  premium  grade  or  regular  petrol.  The
ethyl  alcohol  derivative  principally  concerned  is  ethyl  tertiary  butyl  ether  (ETBE),  an
oxygenated compound made up  of 47%  alcohol  of agricultural  origin  and  53% isobutene,  a
product resulting from oil refining.

The request follows the annulment by the Court of First Instance1 of the Commission decision
of April 1997,2 (hereinafter “the 1997 Decision”) declaring the compatibility of the state aid
constituted by reductions in the domestic consumption tax on vegetable oil esters and ETBE.
The  CFI  judgment  related  to  an  application  to  annul  the  1997  decision  submitted  by  BP
Chemicals, the main European producer of synthetic ethanol; BP was not, however, engaged
in the production of ethanol of agricultural origin.

The Court dismissed as inadmissible the application against the 1997 decision as that decision
related  to  measures  applicable  to  the  esters  sector.  The  Court  concluded  that  the  measures
relating to the  esters sector  did  not  bring  about  a  significant  change  in  the  applicant’s  legal
situation and consequently did not affect its interests.

In  relation  to  the  measures  applicable  to  the  ETBE  sector,  the  Court  considered  that  the
Commission  had  infringed  Article  8(2)(d)  of  Directive  92/81/EEC  by  deciding  that  the
contested  scheme  was  to  be  regarded  as  a  pilot  project  within  the  meaning  of  that  Article.
Article  8(2)(d)  of  Directive  92/81/EEC  allows  Member  States  to  apply  for  exemptions  or
reductions  in  the  rate  of  excise  duty  applied  to  mineral  oils  used  in  pilot  projects  for  the
technological  development  of  more  environmentally-friendly  products,  in  particular  in
relation to fuels from renewable resources. The Court found that, by infringing Article 8(2)(d)
of Directive 92/81/EEC, the Commission had exceeded the powers conferred on it by Article
93(3) of the Treaty.

Nevertheless, the Court also states that there is no reason why a decision cannot be  adopted
by  the  Council  in  accordance  with  Article  8(4)  of  Directive  92/81/EEC  on  tax  exemption
schemes to promote the market penetration of biofuels. The Court did not therefore find the
exemption illegal on substantive grounds but considered that the procedure in Article 8(4) of
the Directive should be applied.

1

2

CFI judgment of 27.9.2000, Case T-184/97, BP Chemicals v Commission.
Letter SG (97) D/3266 of 28 April 1997.

2

                                                
The  national  legal  arrangement,3  which  came  into  effect  on  1  November  1997  and  was
established in the light of the 1997 Commission decision, will be adjusted in accordance with
the Council’s decision regarding authorisation of the  exemption and the Commission’s final
decision regarding the compatibility of the state aid for biofuels envisaged by France.

The current tax exemption arrangement is not limited in time. Authorisations are granted for
three or nine  years only, from the date of issue (Article 3 of Decree  No 98-309 of 22 April
1997).  The  exemption  requested  under  Article  8(4)  of  Directive  92/81/EEC  is  based  on  the
same arrangement.

Common factors

Vegetable oil esters

Ethyl alcohol derivatives

depends on the number
of requests for
authorisation deemed
eligible by the
Examining Committee

depends on the volume
authorised

Number of
beneficiaries

Amount of
reduction per
beneficiary

Annual budgetary
expenditure
anticipated

Rates of excise
duty actually
applied

Five factories authorised

Three factories authorised

FRF 230/hl or FRF 2601.8/t

FRF 329.5/hl or FRF 1950.5/t

Volume of 350 000 t proposed
at first invitation to tender in
1997: a ceiling of FRF 911
million.

Volume of 270 000 t of ETBE
proposed at first invitation to
tender in 1997: a ceiling of
FRF 527 million.

Authorisations actually granted:
317 500 t; maximum annual
expenditure of FRF 826 million.

Authorisations actually granted:
219 000 t; maximum annual
expenditure of FRF 427 million.

For 2001 (anticipated), further
invitation to tender for
additional capacities of
70 000 t/year.

For 2001 (anticipated), further
invitation to tender for
additional capacities of
155 000 t/year.

Vegetable oil esters
incorporated into diesel in a
proportion of 5%:
FRF 243.68/hl.

ETBE incorporated into
unleaded premium-grade motor
fuel in a proportion of 15%:
FRF 335.20/hl.

On  the  entry  of  biofuels  into  refineries  under  customs  control  (tax  production  or  storage
warehouse)  where  they  are  to  be  incorporated  into  petroleum  products,  an  exemption
certificate is issued to the operator carrying out the operation for an amount corresponding to
the volume received multiplied by the exemption rate. These certificates are then set against
the declarations of release for home use of petroleum products.

3

This legal arrangement is based on Article 25 of the amending finance law of 1997, on Decree No 98-
309 of 22 April 1998 laying down the requirements for participation in the invitation to tender for the
release for home use in France of biofuels giving rise to a reduction in domestic consumption tax, and
on the decision of 22 April 1998 setting up the Committee for the examination of authorisation requests
by biofuel production units.

3

                                                
Where  the  mixing  is  carried  out  in  a  Member  State  other  than  France,  the  document
accompanying the product states that the petroleum product contains a biofuel and specifies
its nature. When the excise duty falls due in France, an exemption certificate is issued for an
amount corresponding to the volume of biofuel contained in the petroleum product multiplied
by the exemption rate.

The French authorities state that the envisaged measure is environmentally friendly on several
counts. In contrast to fossil fuels, the use of biofuels limits greenhouse gas emission through
photosynthesis,  in  which  plants  recycle  the  carbon  dioxide  produced.  The  total  current
production of biofuels in France means an overall net saving of nearly 750 000 tonnes of CO2
per year. Biofuels thus account for around 3% of the commitments made by France following
the Kyoto conference.

The use of biofuels also means less pollutant emissions, in particular hydrocarbon and sulphur
oxide emissions.

Biofuels  are  biodegradable  and  non-toxic  because  of  their  plant  fraction  and  constitute  a
renewable source of energy. In terms of energy policy, biofuel production in France means a
saving of 1% in the consumption of petroleum-based fuels.

2. 

EVALUATION BY THE COMMISSION

Under  Article  8(4)  of  Council  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 of excise duties for specific policy considerations.

France’s  request  concerns  a  partial  exemption  from  excise  duty  on  (i)  vegetable  oil  esters
incorporated  into  domestic  heating  fuel  and  diesel  and  (ii)  ethyl  alcohol  derivatives  whose
alcohol component is of agricultural origin incorporated into premium-grade or regular petrol,
in particular ETBE.

The  request  stems  from  the  partial  annulment  by  the  Court  of  First  Instance  of  the  1997
Commission decision declaring the compatibility of the state aid constituted by domestic tax
reductions on vegetable oil esters and ETBE. The Court considered that the Commission had
infringed Article 8(2)(d) of Directive 92/81/EEC by deciding that the contested scheme was
to  be  regarded  as  a  pilot  project  within  the  meaning  of  that  Article.  The  Court  concluded
accordingly that, by infringing Article 8(2)(d) of Directive 92/81/EEC, the Commission had
exceeded the powers conferred on it by Article 93(3) of the Treaty.

Moreover,  the  judgment  only  annuls  that  part  of  the  Commission  decision  relating  to  the
ETBE sector. The Court dismissed as inadmissible the application against the 1997 decision
as that decision related to measures applicable to the esters sector. According to the Court, the
measures  relating  to  the  esters  sector  did  not  bring  about  a  significant  change  in  the
applicant’s legal situation and consequently did not affect its interests.

The Commission has appealed to the Court of Justice against that judgment.

As  required  by  Directive  92/81/CEE,  the  other  Member  States  have  been  informed  of
France’s request by letter dated 19 February 2001.

4

The  Commission  found  that  the  two-month  deadline  imposed  by  Article  8(4)  of  Directive
92/81/EEC was too short to allow a thorough examination of the scope and consequences of
the specific measures envisaged, so that it was unable to arrive at a decision on the merits of
the request. In order to retain its right of initiative under Article 211 of the Treaty, therefore, it
requested by  letter  dated 19  April 2001, under the third subparagraph of Article  8(4)  of  the
Directive, that the matter be considered by the Council.

Exemptions requested under Article 8(4) of Directive 92/81/EEC must be examined in terms
of their compliance with Community policies.

In that  context,  the  Commission  notes  first  that  the  development  of  renewable  energies  and
biofuels  in  particular  has  been  encouraged  since  1985,  when  it  proposed  that  the  Council
adopt a directive on crude-oil savings through the use of substitute fuel components in petrol.4
That directive 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 ETBE by volume. Under Council Decisions 93/500/EEC5 and 98/352/EC6 and
Decision  646/2000/EC  of  the  European  Parliament  and  of  the  Council,7  the  ALTENER
programme on promoting renewable energies in the Community was adopted with the aim of
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  an
objective  of  the  production  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  Commission’s  Green  Paper  Towards  a  European  strategy  for  energy  supply  security,
published in December 2000, stresses the key role of tax instruments in achieving these aims
by reducing the difference in cost price between biofuels and competing products. Lastly, on
7 November 2001, the Commission adopted an action plan and two proposals for directives9
on encouraging the use of substitute fuels in the transport sector, starting with regulatory and
tax measures designed to promote biofuels. In particular, the aim of the 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,  is  to  allow
Member  States  to  introduce  differentiated  rates  of  excise  duty  on  such  products  under  tax
supervision.

The exemption requested by the French authorities is therefore in line with the Community’s
policy  of  developing  the  biofuel  sector,  in  the  interests  of  protecting  the  environment  and
ensuring the security of energy supply.

Second,  the  Commission  notes  that  the  domestic  tax  reductions  envisaged  by  the  French
authorities  (€35.06/hl  (FRF  230)  or  €396.64/t  (FRF  2601.8)  for  vegetable  oil  esters  and
€50.23/hl  (FRF  329.5)  or  €297.35/t  (FRF  1950.5)  for  ethyl  alcohol  derivatives)  lead  to
effective excise rates which are higher than the minimum Community rates applicable:

4

5

6

7

8

9

Council Directive 85/536/EEC of 8 December 1985, OJ L 334, 12.12.1985, p. 20.
OJ L 235, 18.9.1993, p. 41.
OJ L 159, 3.6.1998, p. 53.
OJ L 79, 25.10.2000, p. 1.
COM(97) 599 final, 26.11.1997.
COM(2001) 547, 7.11.2001.

5

                                                
Vegetable oil
esters

Vegetable oil
esters

Ethyl alcohol
derivatives

Condition of use

Incorporated into
diesel (5%)

Incorporated into
heating fuel (5%)

incorporated into
unleaded premium grade
petrol (15%)

Community minimum10

€245 / 1000 l

€18 / 1000 l

€287 / 1000 l

Effective excise rate applied to
mixture

FRF 2436.8/ 1000 l
€371.8 / 1000 l

FRF 245.0/ 1000 l
€37.4 / 1000 l

FRF 3352.0/ 1000 l
€511 / 1000 l

Third, the Commission proposes quite exceptionally, in view of the specific circumstances of
the  case,  that  the  enacting  terms  of  the  decision  should  refer  to  exemptions  granted  to  the
ETBE sector since the entry into force of the national legal arrangement on 1 November 1997.

The Commission decided on 9  April  1997 that  the domestic tax reductions  on vegetable oil
esters  and  ETBE11  constituted  state  aid  compatible  with  the  common  market.  That  decision
stated  that  the  scheme  qualified  as  a  pilot  project  within  the  meaning  of  Article  8(2)(d)  of
Directive 92/81/EEC. Consequently, the scheme was eligible for the exemption provided for
in Article 8(2)(d)  of  Directive  92/81/EEC.  A  decision  authorising  specific  exemptions  from
excise  duty  based  on  Article  8(4)  of  Directive  92/81/EEC  was  not  therefore  considered
necessary.

In  its  proposal  for  a  directive  restructuring  the  Community  framework  for  the  taxation  of
energy products,12 the Commission also envisages the possibility of an exemption for biofuels
outside  the  context  of  a  pilot  project.  Moreover,  the  aim  of  the  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,  is  to  allow
Member  States  to  introduce  differentiated  rates  of  excise  duty  on  such  products  under  tax
supervision.

The  Commission  accordingly  considers  that  the  economic  operators  receiving  the  domestic
tax reduction can be considered as having acted in good faith.

As  noted  above,  on  20  September  2000  the  Court  of  First  Instance  annulled  the  part  of  the
1997 Commission decision relating to the ETBE sector. It found that the measures relating to
the  ETBE  sector  could  not  be  included  under  pilot  projects  within  the  meaning  of
Article 8(2)(d) of Directive 92/81/EEC. The Commission has appealed to the Court of Justice
against the CFI judgment. However, according to Article 54 of the Protocol on the Statute of
the Court of Justice, signed in Brussels on 17 April 1957,13 such appeals have no suspensive
effect.

10

11

12

13

In  accordance  with  Directive  92/82/EEC  (OJ  L  316, 31.10.1992,  p.19),  as  last  amended  by  Directive
94/74/EC (OJ L 365, 31.12.1994, p. 46).
Decision of 9.4.1997, SG (97) D/3266.
COM(1997) 30, 12.3.1997.
As  last  amended  by  Article  19  of  the  1994  Act  of  Accession  (OJ  C  241,  29.8.1994,  p.  25)  and  the
Council  decisions  of  22  December  1994  (OJ  L  379,  31.12.1994,  p.  1)  and  6  June  1995  (OJ  L  131,
15.6.1995, p. 33).

6

                                                
The  annulment  of  the  part  of  the  1997  Commission  decision  relating  to  the  ETBE  sector
therefore means that that part of the dossier reverts in law to the stage prior to the adoption of
the annulled decision, i.e. in 1997.

Moreover,  even  if  the  Court’s  judgment  of  20  September  2000  does  not  concern  the  esters
sector,  on  account  of  the  inadmissibility  of  that  part  of  the  appeal,  it  follows  on  from  the
judgment that the measures applicable to the esters sector too cannot be part of a pilot project
within the meaning of Article 8(2)(d) of Directive 92/81/EEC.

Accordingly, the application by the French authorities to allow reductions in excise duties, as
described  above,  which  is  based  on  the  scheme  authorised  by  the  Commission  decision  of
9 April  1997,  is  the  logical  consequence  of  the  annulment  of  the  Commission  decision  of
April 1997 insofar as it puts the exemption into the appropriate procedural context.

The  Court  points  out  in  paragraph  78  of  its  ruling  that  there  is  no  reason  why  a  decision
cannot  be  adopted  by  the  Council  under  Article  8(4)  of  Directive  92/81/EEC  on  tax
exemption schemes to promote the market penetration of biofuels. The Court did not therefore
find the exemption illegal on substantive grounds but considered that it was outside the scope
of  a  pilot  project  within  the  meaning  of  Article  8(2)(d)  and  therefore  that  the  procedure  in
Article 8(4) of the Directive should be applied.

Following  the  CFI’s  ruling,  on  29  November  2000  the  Commission  also  initiated  the
procedure  provided  for  by  Article  88(2)  of  the  Treaty  in  the  French  biofuels  case.14  The
French national legal arrangement is being examined in this context with effect from its entry
into force on 1 November 1997.

Fourth, the  Commission  considers that the  arrangement  envisaged  by  the  French  authorities
involves  no  discrimination  as  regards  the  eligibility  of  undertakings  and  no  discretionary
element as regards the choice of beneficiaries and the granting of approvals.

Fifth,  the  Commission’s  practice  is  not  to  authorise  exemptions  unlimited  in  time.  In  this
particular  case,  a  period  of  six  years  is  sufficient  in  economic  terms  to  meet  the  planning
needs of investment projects in this field. The Commission therefore considers that individual
six-year exemptions running  from the date of issue of the  authorisation  could  be  authorised
for biofuel production units. The production units must have received authorisation from the
French authorities by 31 December 2003 at the latest.

Sixth, in order to limit distortions of competition and maintain the incentive of a reduction in
costs  for  producers  and  distributors  of  biofuels,  an  excise  reduction  mechanism  adapted  to
changes in the price of raw materials must be implemented so that in the event of a long-term
rise in crude oil prices, for example, the lesser tax rates do not over-compensate for the extra
cost of manufacturing biofuels.

Seventh and last, as regards the state aid rules and the opening of the Article 88(2) procedure
adopted by the Commission on 29 November 2000, a final decision will be formally taken as
soon as the Council has taken a decision on this proposal.

14

Case C64/2000, OJ C 60, 24.2.2001.

7

                                                
3. 

DECISION

The  Commission  proposes  that,  under  Article  8(4)  of  Council  Directive  92/81/EEC,  the
Council  authorise  France  until  31  December  2003  to  grant  permits  for  the  application  of
differentiated  rates  of  excise  duties  to  mixtures  used  as  fuel  of  “petrol/ethyl  alcohol
derivatives  whose  alcohol  component  is  of  agricultural  origin”,  “diesel/vegetable  oil  esters”
and “domestic heating fuel/vegetable oil esters”.

In view of the exceptional circumstances of the case, the application of the differentiated rates
of excise duties on the above products must run as from 1 November 1997.

The authorisations will be valid for a maximum of six years from the date of issue.

The reductions in excise duty by the French authorities for the period of validity of the permit
may  not  exceed  the  following  amounts:  €35.06/hl  or  €396.64/t  for  vegetable  oil  esters  and
€50.23/hl or €297.35/t for ethyl alcohol derivatives. A mechanism for adjusting the reduction
in excise duty to take account of changes in the price of raw materials must also be introduced
to avoid over-compensating for the extra costs involved in the manufacture of biofuels.

The  rates of  excise duty  applicable  to  the  mixtures  referred  to  above  must  comply  with  the
terms of Council Directive 92/82/EEC of 19 October 1992 on the approximation of the rates
of excise duties on mineral oils,15 and in particular the minimum rates laid down in Articles 3,
4 and 5 thereof.

15

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

8

                                                
Proposal for a

COUNCIL DECISION

authorising France to apply a differentiated rate of excise duty to biofuels in accordance
with Article 8(4) of Directive 92/81/EEC

(only the French text is authentic)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community,

Having regard to Council Directive 92/81/EEC of 19 October 1992 on the harmonisation of
the structures of excise duties on mineral oils,1 and in particular Article 8(4) thereof,

Having regard to the proposal from the Commission,

Whereas:

(1) 

By  letter  dated  17  November  2000,  France  requested  authorisation  to  apply  a
differentiated  rate  of  excise  duty  to  vegetable  oil  esters  incorporated  into  domestic
heating fuel and diesel, and to ethyl alcohol derivatives (where the alcohol component
is of agricultural origin) incorporated into premium grade or regular petrol. The ethyl
alcohol  derivative  principally  concerned  is  ethyl  tertiary  butyl  ether  (ETBE),  an
oxygenated  compound  made  up  of  alcohol  of  agricultural  origin  and  of  isobutene,  a
product resulting from oil refining.

(2) 

Following  the  Commission’s  requests  for  further  information,  France  supplied  the
details  necessary  for  examination  of  the  matter  in  letters  dated  18  January  and
21 February 2001.

(3) 

The other Member States have been notified of this request.

(4) 

(5) 

1

2

The Commission had to ask for the matter to be raised by the Council, by letter dated
19  April  2001,  in  accordance  with  the  third  paragraph  of  Article  8(4)  of  Directive
92/81/EEC.

The  Commission  and  the  Council  have  been  encouraging  the  development  of
renewable  energies,  and  biofuels  in  particular,  since  1985.  Council  Directive
85/536/EEC  of  8  December  1985  on  crude  oil  savings  through  the  use  of  substitute
fuel components2 stresses the role of biofuels in reducing Member States’ dependence
on oil imports and authorises the incorporation into petrol of up to 5% of ethanol by

Directive published in OJ L 316, 31.10.1992, p. 12, as last amended by Directive 94/74/EC (OJ L 365,
31.12.1994, p. 46).
Directive published in OJ L 334, 12.12.1985, p. 20, as last amended by  Directive  87/441/EEC  (OJ  L
238, 21.8.1987, p. 40).

9

                                                
volume and  up  to  15%  of  ETBE  by  volume.  Under  Council  Decisions  93/500/EEC3
and  98/352/EC4  and  Decision  646/2000/EC  of  the  European  Parliament  and  of  the
Council,5  the  ALTENER  programme  on  promoting  renewable  energies  in  the
Community was adopted with the aim of securing a market share for biofuels of 5% of
total  motor  vehicle  fuel  consumption  by  2005.  The  1997  White  Paper  on  renewable
sources  of  energy6  further  recommended  setting  an  objective  of  the  production  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 Commission’s
Green Paper Towards a European strategy for energy supply security7 stresses the key
role of tax instruments in achieving these aims by reducing the difference in cost price
between  biofuels  and  competing  products.  On  12  March  1997,  the  Commission
submitted  a  proposal  for  a  directive  restructuring  the  Community  framework  for  the
taxation  of  energy  products8  which  envisages  the  possibility  of  an  exemption  for
biofuels outside the context of a pilot project within the meaning of Article 8(2)(d) of
Directive 92/81/EEC. Lastly, on 7 November 2001, the Commission adopted an action
plan and two proposals for directives9 on encouraging the use of substitute fuels in the
transport  sector,  starting  with  regulatory  and  tax  measures  designed  to  promote
biofuels.

The  exemption  requested  by  the  French  authorities  is  therefore  in  line  with  the
Community’s policy of developing the biofuel sector, in the interests of protecting the
environment and ensuring security of energy supply.

The French legal arrangement is based on Article 25 of the amending finance law of
1997,  on  Decree  No  98-309  of  22  April  1998  laying  down  the  requirements  for
participation  in  the  invitation  to  tender  for  the  release  for  home  use  in  France  of
biofuels giving rise to a reduction in domestic consumption tax, and on the decision of
22 April 1998 setting up the Committee for the examination of authorisation requests
by biofuel production units.

This arrangement, which has been in force since 1 November 1997, was established on
the basis  of  the  Commission decision of  9  April 199710 (hereinafter  “the  decision  of
April  1997”)  declaring  that  the  domestic  tax  reductions  on  vegetable  oil  esters  and
ETBE  constituted  state  aid  compatible  with  the  common  market.  The  1997  decision
stated that the scheme concerned qualified as a pilot project.

The 1997 French legal arrangement for the differentiation of excise duties (hereinafter
“the 1997 arrangement” is not limited in time. It provides for the issue by the French
authorities  of  an  authorisation  allowing  a  reduction  in  excise  duties  for  approved
warehousekeepers carrying out the mixing of biofuels and mineral oils. Authorisations
are granted for a period of three to nine years from the date of issue.

OJ L 235, 18.9.1993, p. 41.
OJ L 159, 3.6.1998, p. 53.
OJ L 79, 25.10.2000, p. 1.
COM(1997) 599, 26.11.1997.
COM(2000) 769, 29.11.2000.
COM(1997) 30, 12.3.1997.
COM(2001) 547, 7.11.2001.
Letter SG (97) D/3266 of 28 April 1997.

10

(6) 

(7) 

(8) 

(9) 

3

4

5

6

7

8

9

10

                                                
(10)  Details of the 1997 arrangement are given in the table below:

Number of
beneficiaries

Amount of
reduction per
beneficiary

Annual
budgetary
expenditure
anticipated

Common factors

Vegetable oil esters

Ethyl alcohol derivatives

Depends on the number of
requests for authorisation
deemed eligible by the
Examining Committee

Five factories authorised

Three factories authorised

Depends on the volume
authorised

€35.06 (FRF 230) /hl or €396.64
(FRF 2601.8) /t

€50.23 (FRF 329.5) /hl or
€297.35 (FRF 1950.5) /t

Volume of 350 000 t proposed
at first invitation to tender in
1997: a ceiling of FRF 911
million.

Volume of 270 000 t of ETBE
proposed at first invitation to
tender in 1997: a ceiling of
FRF 527 million.

Authorisations actually granted:
317 500 t; maximum annual
expenditure of FRF 826 million.

Authorisations actually granted:
219 000 t; maximum annual
expenditure of FRF 427 million.

(11)  The 1997 arrangement complies with the minimum rates of excise duty referred to in
Articles  3,  4  and  5  of  Council  Directive  92/82/EEC  of  19  October  1992  on  the
approximation  of  the  rates  of  excise  duties  on  mineral  oils,11
  as  indicated  in  the
following table:

Vegetable oil
esters

Vegetable oil
esters

Ethyl alcohol
derivatives

Condition of use

incorporated into
diesel (5%):

incorporated into
heating fuel (5%):

incorporated into unleaded
premium grade petrol
(15%):

Community minimum

€245 / 1000 l

€18 / 1000 l

€287 / 1000 l

Effective excise rate applied
to mixture

FRF 2436.8/ 1000 l
€371.8 / 1000 l

FRF 245.0/ 1000 l
€37.4 / 1000 l

FRF 3352.0/ 1000 l
€511 / 1000 l

(12)  On  the  entry  of  biofuels  into  refineries  under  customs  control  (tax  production  or
storage  warehouse)  where  they  are  to  be  incorporated  into  petroleum  products,  an
exemption certificate is issued to the operator carrying out the operation for an amount
corresponding  to  the  volume  received  multiplied  by  the  exemption  rate.  These
certificates are then set against the declarations of release for home use of petroleum
products.

(13)  Where the mixing is carried out in a  Member  State  other  than  France,  the  document
accompanying  the  product  states  that  the  petroleum  product  contains  a  biofuel  and
specifies its nature. When the excise duty falls due in France, an exemption certificate
is  issued  for  an  amount  corresponding  to  the  volume  of  biofuel  contained  in  the
petroleum product multiplied by the exemption rate.

11

Directive published in OJ L 316, 31.10.1992, p. 19, as last amended by Directive 94/74/EC.

11

                                                
(14)  The  exemption  requested  under  Article  8(4)  of  Directive  92/81/EEC  is  based  on  the
1997 arrangement. However, it will be adapted to take account both of this Decision
and the Commission’s final decision on the compatibility of the state aids to promote
biofuels.

(15)  Exceptionally,  in  view  of  the  specific  and  unique  circumstances  of  the  case,  this
Decision  must  be  applied  with  effect  from  1  November  1997  and  relate  also  to  the
exemptions granted since the entry into force of the 1997 arrangement.

(16)  According to the  decision of  9 April  1997, the domestic tax reductions on vegetable
oil  esters  and  ETBE  constituted  state  aid  compatible  with  the  common  market.  That
decision stipulated that the scheme concerned qualified as a pilot project and therefore
came  within  the  scope  of  Article  8(2)(d)  of  Directive  92/81/EEC  which  allows
Member States to apply for exemptions or reductions in the rate of excise duty applied
to mineral oils used in the field of pilot projects for the technological development of
more  environmentally-friendly  products,  in  particular  in  relation  to  fuels  from
renewable resources. A specific decision authorising differentiated rates of excise duty
based on Article 8(4) of Directive 92/81/EEC was not therefore considered necessary.
In the light of the legal context and the Community legislative policy referred to in the
fifth  recital  above,  therefore,  the  economic  operators  who  received  the  domestic  tax
reductions provided for by the 1997 arrangement can be considered as having acted in
good faith.

(17) 

In  its  judgment  of  27  September  2000  in  Case  T-184/87,  BP  Chemicals  v
Commission,12 the Court of First Instance of the European Communities annulled the
part of the decision of 9 April 1997 relating to the ETBE sector.

(18)  That case related to an application to annul the decision of 9 April 1997 submitted by
BP Chemicals, the main European producer of synthetic ethanol. The Court dismissed
as  inadmissible  the  application  against  the  1997  decision  as  that  decision  related  to
measures  applicable  to  the  esters  sector.  The  Court  concluded  that  the  measures
relating to the esters sector did not bring about a significant change in the applicant’s
legal situation and consequently did not affect its interests. In relation to the measures
applicable  to  the  ETBE  sector,  the  Court  considered  that  the  Commission  had
infringed  Article  8(2)(d)  of  Directive  92/81/EEC  by  deciding  that  the  contested
scheme  could  be  regarded  as  a  pilot  project  within  the  meaning  of  that  Article.  The
Court  concluded  that,  by  infringing  Article  8(2)(d)  of  Directive  92/81/EEC,  the
Commission had exceeded the powers conferred on it by Article 93(3) of the Treaty.

(19)  Paragraph  78  of  the  Court’s  judgment  states  that  there  is  no  reason  why  a  decision
cannot  be  adopted  by  the  Council  in  accordance  with  Article  8(4)  of  Directive
92/81/EEC on tax exemption schemes to promote the market penetration of biofuels.
The  Court  did  not  therefore  find  the  exemption  illegal  on  substantive  grounds  but
considered that the procedure in Article 8(4) of the Directive should be applied.

(20)  As a result of the annulment of the part of the decision of 9 April 1997 relating to the
ETBE sector, therefore, that part of the dossier reverts in law to the stage prior to the
adoption of the annulled decision, i.e. in 1997.

12

Not yet published in ECR.

12

                                                
(21)  Moreover, even if the Court’s judgment does not concern the esters sector, on account
of the inadmissibility of that part of the application, it nevertheless seems logical that
the measures applicable to the esters sector would likewise not be part of pilot projects
within the meaning of Article 8(2)(d) of Directive 92/81/EEC. The current application
by  the  French  authorities  is,  accordingly,  the  logical  consequence  of  the  partial
annulment  of  the  Commission  decision  of  9  April  1997  insofar  as  it  puts  the
exemption into the appropriate procedural framework.

(22)  Following  the  Court’s  ruling,  on  29  November  2000  the  Commission  initiated  the
procedure provided for by Article 88(2)of the Treaty in relation to state aid C 64/2000
(French  biofuels)13  concerning  the  ETBE  sector.  The  French  national 
legal
arrangement is being examined in this context with effect from its entry into force on
1 November 1997.

(23)  Exemptions unlimited in time cannot be authorised. A period of six years is sufficient
in  economic  terms  to  meet  the  planning  needs  of  investment  projects  in  the  case  in
question. Individual exemptions of a maximum duration of six years from the date of
issue  of  the  authorisation  would  be  appropriate  for  biofuel  production  units.  The
biofuel production units must have received authorisation from the French authorities
by 31 December 2003 at the latest.

(24)  Distortions of competition should be limited and the incentive of a reduction in costs
for  producers  and  distributors  of  biofuels  maintained, 
the
implementation  of  excise  reduction  mechanisms  adapted  to  changes  in  raw  material
prices.

in  particular  by 

(25)  The  Commission  regularly  reviews  reductions  and  exemptions  to  check  that  they  do
not  distort  competition  or  hinder  the  operation  of  the  internal  market  and  are  not
incompatible  with  Community  policy  on  protection  of  the  environment,  energy  and
transport,

HAS ADOPTED THIS DECISION:

Article 1

1.

2.

3.

France  is  hereby  authorised  to  grant  permits  for  the  application  of  a  differentiated
rate of excise duty to the fuel mixture “petrol/ethyl alcohol derivatives whose alcohol
component is of agricultural origin”.

France  is  hereby  authorised  to  grant  permits  for  the  application  of  a  differentiated
rate of excise duty to the fuel mixture “diesel/vegetable oil esters”.

To allow a reduction in excise duty on blends incorporating vegetable oil esters and
ethyl  alcohol  derivatives  which  are  used  as  fuel  within  the  meaning  of  Directive
92/81/EEC,  the  French  authorities  must  issue  the  necessary  permits  to  the  biofuel
production units concerned by 31 December 2003 at the latest.

The authorisations will be valid for a maximum of six years from the date of issue.

13

OJ C 60, 24.2.2001, p. 4.

13

                                                
4.

5.

1.

2.

3.

4.

The reduction specified in the authorisation may be applied after 31 December 2003
until the expiry of the authorisation, but may not be extended.

The reductions in excise duties shall not exceed EUR 35.06/hl or EUR 396.64/t for
vegetable oil esters and EUR 50.23/hl or EUR 297.35/t for ethyl alcohol derivatives
used in the mixtures referred to in (1).

The rates of duty applicable to the mixtures referred to in (1) must comply with the
terms  of  Council  Directive  92/82/EEC,  and  in  particular  the  minimum  rates  laid
down in Articles 4 and 5 thereof.

Article 2

France  is  hereby  authorised  to  grant  permits  for  the  application  of  a  differentiated
rate of excise duty to the mixture “domestic heating fuel/vegetable oil esters”.

To allow a reduction in excise duty on blends incorporating vegetable oil esters and
used as fuel within the meaning of Directive 92/81/EEC, the French authorities must
issue  the  necessary  permits  to  the  biofuel  production  units  concerned  by  31
December 2003 at the latest.

The authorisations will be valid for a maximum of six years from the date of issue.

The reduction specified in the authorisation may be applied after 31 December 2003
until the expiry of the authorisation, but may not be extended.

The reductions in excise duties shall not exceed EUR 35.06/hl or EUR 396.64/t for
the vegetable oil esters used in the mixtures referred to in (1).

The rates of duty applicable to the mixture referred to in  (1)  must  comply  with the
terms of Council Directive 92/82/EEC, and in particular the minimum rate laid down
in Article 3 thereof.

Article 3

The reductions in excise duty shall be adjusted to take account of changes in the price of raw
materials  to  avoid  over-compensating  for  the  extra  costs  involved  in  the  manufacture  of
biofuels.

Article 4

This decision shall apply with effect from 1 November 1997.

It shall expire on 31 December 2003.

14

This Decision is addressed to France.

Done at Brussels,

Article 5

For the Council
The President

15