Proposal for a Council Decision authorising Italy to apply a differentiated rate of excise duty to fuels containing biodiesel in accordance with Article 8(4) of Directive 92/81/EEC
Date: 2002-01-08
Institutions: European Commission
Subjects: Italy, diesel fuel, excise duty, fiscal policy, substitute fuel

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 8.1.2002
COM(2001) 813 final

Proposal for a

COUNCIL DECISION

authorising Italy to apply a differentiated rate of excise duty to fuels containing biodiesel
in accordance with Article 8(4) of Directive 92/81/EEC

(presented by the Commission)

EXPLANATORY MEMORANDUM

1.

SUBMISSION OF REQUEST

By letter of 23 April 2001, the Italian authorities applied to the Commission for a derogation
allowing them to apply an exemption from excise duty on biodiesel and other biofuels in
accordance with Article 8(4) of Directive 92/81/EEC.1

In order to obtain the information it required to evaluate the request, the Commission sent
additional questions by letters dated 16 May and 8 August 2001, to which the Italian
authorities replied on 17 July and 28 September 2001 respectively. A meeting was held
between Commission representatives (DGs COMP and TAXUD) and the Italian authorities
on 15 October. A letter from the Italian authorities on 22 October 2001 enabled the
Commission to finalise its evaluation of the application for a derogation.

1.1.

Background

As part of a pilot project covering the period 1 July 1998 to 30 June 2001, Italy conducted a
trial on the conditions for the use of biodiesel. Exemption from excise duty was granted for a
maximum of 125 000 tonnes of biodiesel per year. The implementing conditions were laid
down by decree.2 The State aids which formed part of the scheme were the subject of a
Commission decision not to raise any objections.3

The biodiesel quota eligible for the excise duty exemption was allocated to: nine participating
firms (including seven Italian) during the first year, in respect of 45 597 tonnes of biodiesel
released for home use; eight (including six Italian) in the second year in respect of 69 880
tonnes released for home use; and ten (including seven Italian) in the third year in respect of
the release for home use of the total quota.

Italy concluded from the pilot project that a potential demand exists for biodiesel:

- as a diesel additive, used in quantities of less than 5%;

- as a motor fuel mixed with diesel, in a proportion of approximately 25%, mainly for use by
urban service vehicle fleets;

- as a heating fuel, used in 100% pure form as a replacement for diesel.

Further pilot initiatives might also be undertaken concerning the use of pure biodiesel as a
motor fuel.

1

2

3

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).
Interministerial decree No 219 of 22 May 1998, subject beforehand to the information procedure
provided for in Council Directive 83/189/EEC of 28 July 1983, as amended.
Case N 457/97, decision SG (98) D/235, 13 January 1998.

2

1.2.

Application for a tax exemption on biodiesel

Italy is therefore requesting an exemption from excise duty on biodiesel for a three-year
programme starting on 1 July 2001. This measure is in keeping with a specific policy geared
to compliance with commitments entered into in the Kyoto protocol by promoting the use of
biodiesel in automobiles.

Article 21 of Law No 388 of 23 December 2000 states that the product known as 'biodiesel',
obtained by the distillation of vegetable oils and their derivatives, is used as a motor or
heating fuel, as an additive or as an extender in motor and heating fuels. Biodiesel is
manufactured or mixed with diesel or other mineral oils under
the tax warehousing
arrangements. An annual quota of 300 000 tonnes of biodiesel will be eligible for exemption
from excise duty. The current rate of excise duty on diesel motor fuel is ITL 739 064 (
381.7)
per 1 000 litres.

€

In its letter of 22 October 2001, Italy specifies that, at this stage, it is merely submitting an
application under the procedure laid down in Article 8(4) of Directive 92/81/EEC for
biodiesel used as: (i) an additive to diesel in percentages of less than 5% and (ii) a motor fuel
mixed with diesel in a proportion of approximately 25%, mainly for the use of urban service
vehicle fleets. The Italian authorities are continuing to investigate the conditions for an
exemption from excise duty on pure biodiesel used as a motor fuel. They will provide the
Commission with further information at a later date.

The Italian authorities further indicate that a comparison of the respective costs (including
those of the raw materials) of manufacturing biodiesel and fossil diesel shows that the
proposed excise exemption, which is of limited duration and applicable to a given quantity of
the product, does not result in any overcompensation. Moreover, the reduction in excise duty
will be recalculated each year to ensure that the amount does not exceed the extra cost of
manufacturing biodiesel compared with equivalent products of fossil origin. In the event of
overcompensation,
the amount of the excise duty
the Italian authorities would adjust
reduction when introducing the annual draft Finance Law.

Lastly, pure biodiesel used as a heating oil is not subject to excise duty under Directive
92/81/EEC as it is not a hydrocarbon.

1.3.

Application concerning other biofuels

In its communication of 23 April 2001, Italy also envisaged reductions in excise duty on (i)
bioethanol and ethyl tertiary butyl ether (ETBE), derived from products of agricultural origin,
and (ii) additives and new formulas produced from biomass for lead-free petrol and diesel
(excluding biodiesel). These reductions were part of a pilot project, i.e. in accordance with
Article 8(2)(d) of Directive 92/81/EEC, designed to increase the use of more environmentally
friendly energy sources.

By letter of 22 October 2001, the Italian authorities announced the suspension of these
measures pending finalisation of (i) the ongoing studies into the environmental impact of
these products and (ii) the appropriate regulatory framework.

3

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.

The Italian authorities have applied to the Commission for derogations allowing them to
apply excise duty reductions on biodiesel and other biofuels in accordance with Article 8(4)
of Directive 92/81/EEC.4 Italy's letter of 22 October 2001 states that, at the present stage, the
applications relate only to biodiesel used as an additive to diesel in quantities of less than 5%
and as a motor fuel mixed with diesel in a proportion of approximately 25%, mainly for the
use of urban service vehicle fleets.

As required by Directive 92/81/CEE, the other Member States have been informed of Italy's
request.

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

(1) The development of renewable energies and biofuels in particular has been encouraged
since 1985. Council Directive 85/536/EEC of 5 December 1985 on crude oil savings through
the use of substitute fuel components5 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 volume and up to 15% of ETBE by volume. Under Council Decisions 93/500/EEC6 and
98/352/EC7 and Decision 646/2000/EC of the European Parliament and of the Council,8 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 energy9 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'10 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
2001,11 the Commission adopted an action plan and two proposals for directives 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 Italian authorities is therefore in line with the Community's
policy of promoting the biofuel sector in the interests of protecting the environment and
ensuring security of energy supply.

4

5

6

7

8

9

10

11

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).
Council Directive 85/536/EEC of 5 December 1985, OJ L 334, 12.12.1985, p.20, as last amended by
Directive 87/441/EC of 29 July 1987, OJ L 238, 21.8.1987, p. 40.
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 final, 26.11.1997.
COM(2000) 769 final, 29.11.2000.
COM(2001) 547 final, 7.11.2001.

4

(2) The Commission notes that the tax reductions proposed by Italy are proportional to the
percentage of biofuel contained in the final product and that the effective excise rates are
higher than the minimum Community rates applicable:

Condition of use

5% biodiesel mix

25% biodiesel mix

Community minimum12

Effective excise rate applied to
final product

€

245 / 1000 l

€

362.6 / 1000 l

€

245 / 1000 l

€

286.3 / 1000 l

(3) The Italian authorities have undertaken to recalculate the reduction in excise duty each
year to ensure that it does not exceed the extra cost of manufacturing biodiesel compared with
equivalent products of fossil origin.

(4) The measure is of limited duration. The reductions in excise duty are intended to form part
of a three-year programme.

(5) As regards the State aid rules, a decision on the compatibility of the proposal will be
adopted by the Commission as soon as the Council has authorised Italy's application.

3.

DECISION

The Commission proposes that, under Article 8(4) of Council Directive 92/81/EEC, the
Council authorise Italy to apply differentiated rates of excise duties until 30 June 2004 to
mixtures used as motor fuels containing 5% or 25% of biodiesel.

The reduction in excise duty applied by the Italian authorities 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 reduction in excise duty must 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.

12

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).

5

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,13 and in particular the minimum rates laid down in Article 5
thereof.

13

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).

6

Proposal for a

COUNCIL DECISION

authorising Italy to apply a differentiated rate of excise duty to fuels containing biodiesel
in accordance with Article 8(4) of Directive 92/81/EEC

(only the Italian 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,14 and in particular Article 8(4) thereof,

Having regard to the proposal from the Commission,

Whereas:

(1)

As part of a pilot project covering the period 1 July 1998 to 30 June 2001, Italy
conducted a trial on the conditions for the use of biodiesel. Exemption from excise
duty was granted for a maximum of 125 000 tonnes of biodiesel per year. By letter of
23 April 2001, the Italian authorities applied to the Commission for a derogation
allowing them to apply an exemption from excise duty on biodiesel and other biofuels
in accordance with Article 8(4) of Directive 92/81/EEC, for a period of three years
from 1 July 2001 to 30 June 2004. In order to obtain the information it required to
evaluate the request, the Commission sent additional questions by letters dated 16 May
and 8 August 2001,
to which the Italian authorities replied on 17 July and
28 September respectively. A meeting was held between Commission representatives
and the Italian authorities on 15 October 2001. A letter from the Italian authorities on
22 October 2001 enabled the Commission to finalise its evaluation of the application
for a derogation. Pending approval by the Council of the requested exemption, Italy
has suspended the tax reduction scheme.

(2)

Italy has applied for a differentiated rate of excise duty to be authorised on biodiesel
used as an additive to diesel in quantities of less than 5% and as a motor fuel mixed
with diesel in a proportion of approximately 25%, mainly for the use of urban service
vehicle fleets. In the latter case, in view of the high percentage contained in the
mixture, checks should be carried out on the adjustment of engines to the fuel to avoid
excessive emission of pollutants.

(3)

The other Member States have been notified of this request.

14

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).

7

(4)

(5)

(6)

imports and authorises

The development of
renewable energies and biofuels in particular has been
encouraged since 1985. Council Directive 85/536/EEC of 5 December 1985 on crude
oil savings through the use of substitute fuel components15 stresses the role of biofuels
in reducing Member States' dependence on oil
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/EEC16 and 98/352/EC17 and Decision
646/2000/EC of the European Parliament and of the Council,18 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 energy19 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'20 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 200121, the Commission adopted an
action plan and two proposals for directives on encouraging the use of substitute fuels
in the transport sector, starting with regulatory and tax measures designed to promote
biofuels.

The derogations requested by the Italian authorities are 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 reductions in excise duty proposed by Italy are proportional to the percentage of
biofuel contained in the final product. Moreover, the effective rates of excise duty are
higher than the applicable Community minimum rates, in accordance with Council
Directive 92/82/EEC of 19 October 1992 on the approximation of the rates of excise
duties on mineral oils:22

Condition of use

5% biodiesel mix

25% biodiesel mix

Community minimum

Effective excise rate applied to
(July 2001-June
final product
2002)

€

245 / 1000 l

€

362.6 / 1000 l

€

245 / 1000 l

€

286.3 / 1000 l

(7)

The Italian programme is of a limited duration of three years. An annual quota of
300 000 tonnes of biodiesel will be eligible for the differentiated rate of excise duty.

15

16

17

18

19

20

21

22

Council Directive 85/536/EEC of 5 December 1985, OJ L 334, 12.12.1985, p.20, as last amended by
Directive 87/441/EC of 29 July 1987, OJ L 238, 21.8.1987, p. 40.
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 final, 26.11.1997.
COM(2000) 769 final, 29.11.2000.
COM(2001) 547 final, 7.11.2001
Directive published in OJ L 316, 31.10.1992, p. 19, as last amended by Directive 94/74/EC.

8

(8)

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.

Italy is authorised to apply differentiated rates of excise duty on mixtures used as
motor fuels containing 5% or 25% of biodiesel until 30 June 2004.

The reduction in excise duty 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 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 rate laid down
in Article 5 thereof.

Article 2

The reduction 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.

This Decision shall expire on 30 June 2004.

Article 3

This Decision is addressed to Italy.

Done at Brussels,

Article 4

For the Council
The President

9