Opinion of the Economic and Social Committee on:the Proposal for a Directive of the European Parliament and of the Council on the promotion of the use of biofuels for transport, andthe 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(COM(2001) 547 final — 2001/265 (COD) — 2001/266 (CNS))
Date: 2002-04-25
Institutions: European Economic and Social Committee
Subjects: EU environmental policy, common transport policy, excise duty, mineral oil, road transport, substitute fuel

21.6.2002

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Official Journal of the European Communities

C 149/7

Opinion of the Economic and Social Committee on:

— the ‘Proposal for a Directive of the European Parliament and of the Council on the promotion

of the use of biofuels for transport’, and

— 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’

(COM(2001) 547 final — 2001/265 (COD) — 2001/266 (CNS))

(2002/C 149/03)

On 18 January 2002, the Council decided to consult the Economic and Social Committee, under
Article 80(2) of the Treaty establishing the European Community, on the above-mentioned proposals.

The Section for Transport, Energy, Infrastructure and the Information Society which was responsible for
preparing the Committee’s work on the subject, adopted its opinion on 5 April 2002. The rapporteur
was Mr Wilkinson.

At its 390th plenary session, on 24 and 25 April 2002 (meeting of 25 April), the Economic and Social
Committee adopted unanimously the following opinion.

1.

Introduction

1.1.
The Commission has produced a communication and
two draft directives concerning alternative fuels. All are
contained in (1). The two directives are a proposal to promote
the use of biofuels and another to allow Member States (MS)
to apply a reduced rate of excise duty on biofuels.

1.2.
The reasons given for the proposal to promote alterna-
tive fuels are environmental and to improve the security of EU
energy supplies. The reason for the proposal to allow (but not
force) MS to apply a reduced rate of excise duty is to make
biofuels competitive, since it costs about EUR 300 more per
1 000 litres of diesel for the biofuel to replace it (2). According
to the Commission, to compete on level terms with petroleum-
based fuels, the oil price would have to be about EUR 70 per
barrel (3).

1.3.
It is proposed to oblige MS to ensure that biofuels
provide a certain percentage (initially 2 % of the total, but
increasing with time) of transport fuels sold on their territory
by 2005. Dependent on an examination by the Commission

before the end of 2006, a second phase would oblige them to
ensure that all transport fuels sold contain biofuels. The aim is
to achieve 20 % substitution of conventional fuels by 2020, of
which 8 % would be biofuels (4).

1.4.
The Commission believes that blends of up to 15 %
for petrol and 5 % for diesel could be accommodated by some
cars without them needing significant changes. Vehicles that
can use ‘pure’ biofuel are likely to remain largely limited to
captive fleets, such as public transport and taxis, for some
years (5).

2. General comments

The Committee welcomes the basis for this proposal,
2.1.
namely the replacement of some fossil fuels by alternative
fuels from renewable sources. It notes the considerable variety
of alternative fuels already under development or in use. It
welcomes the possibilities for diversification in agriculture and
for increased employment that are explained in the proposal,
as well as the projected environmental benefits, notably in
combating climate change, and the increased security of
supply.

(1) COM(2001) 547 final.
(2) This figure allows for the fact that it requires some 1 100 litres of
bio-diesel to replace 1 000 litres of normal diesel; for petrol
1 000 litres of bioethanol will replace 1 000 litres of petrol in the
blending conditions authorized in the EU (maximum of 2,7 %
oxygen).

(3) This reflects the current position, but economies of scale should

reduce this over time to about EUR 55 per barrel.

(4) The remaining 12 % is projected to come from natural gas and

hydrogen.

(5) It is encouraging to note that growing numbers of ‘Flexible Fuel
Vehicles’ (FFVs), using a blend of 85 % bio-ethanol, are being sold
in the US and in Sweden, the pilot EU market for Ford. This
could indicate that FFVs will become common with individual
consumers quicker than expected. To be competitive either the
bio-ethanol component must be tax-free or production costs must
be subsidized.

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2.2.
The Committee notes that different studies offer wide
variations in the figures involved, although it recognises the
efforts that the Commission has made to put forward figures
that they can support. The Committee suggests that further
work is required to refine the figures given, to give better
information on the probable costs involved and to clarify
some of the environmental, technical and economic aspects. A
particular concern is the balance of environmental advantage
(using the same methodology in each case) that would result
from the proposals.

The proposal covers a complex area,

2.3.
involving
elements of many EU policies (environment, agriculture, fiscal,
etc.), and also an area where technical developments are
numerous. It will be important to keep a close watch on
developments to ensure that the given aims are met in the best
and most cost-effective way. This last point is of particular
importance because of the costs involved at a time when so
much investment is already planned over the next decade for
the production of sulphur-free fuels (1).

3.1.3. Within the overall context of the EU’s energy policies,
diversity would have the advantage of allowing the possibility
of development and investment in renewable fuels being
spread between several different solutions and market forces
would be able to play a more important role.

3.1.4. While the Commission foresees trading in biofuels
between MS as the way forward, the Committee wonders if, as
one possible way of maximising flexibility, it might be possible
to consider setting targets for each MS (as proposed), but then
following an ‘emissions-trading model’ to allow MS flexibility
in how they met their targets. The overall EU effect would be
the same (on emissions, security and employment) and it
would still be required of each MS that it met its individual
target; but MS would have greater flexibility in how to meet
this target.

The proposal, subject to review in 2006,

3.1.5.
for a
mandatory blend of biofuel in each type of fuel marketed
would reduce flexibility and requires further analysis.

3. Specific comments

3.1.

Flexibility

3.1.1.
As stated above, many types of alternative fuel are
developed or being developed (2). It is not possible to forecast
with any accuracy how fast developments will be in most of
these areas or what the environmental and economic benefits
may be. We therefore welcome the Commissions undertaking
to monitor all developments closely.

3.1.2.
In addition, the current alternative fuel situation is
different from Member State (MS) to MS; their transport fleets
are also very different. Different solutions will favour different
MS. It is therefore important that maximum flexibility be given
to MS in meeting the overall aim. This could include making
allowance for all types of renewable fuels in meeting an agreed
target for each MS, always provided that such flexibility did
not lead to some MS not meeting their targets and provided
that it does not lead to distortions to the internal market.

3.2.

Environmental

3.2.1.
The major benefit, strongly supported by the Com-
mittee, would be the replacement of some fossil fuels by
renewables. The directive should make clear that ‘renewable’
fuels are the key to better environmental results and to security
of supply, rather than ‘alternative’ fuels. There will be some
welcome reductions in waste in niche areas (for example, by
using waste vegetable oils and fats — up to 3 million tonnes
in the EU per year — as secondary biomass).

3.2.2.
will initially be small because of the limited amounts used.

For biofuels, the effect on CO2 and other emissions

(1) It should however be noted that the addition of oleaginous methyl
ester can usefully compensate for the reduction of the sulphur
level in fuels.

(2) Biofuels (from a growing number of raw materials), natural gas
(including diesel from natural gas and the derivatives methanol
and dimethylether), hydrogen and fuel cells, electricity, liquefied
petroleum gas.

There are conflicting views about the balance of
3.2.3.
environmental benefit
from biofuels, although the Com-
mission has found a majority of studies to be positive. Since
the first aim of the proposal is the benefit to the environment,
it is vital to have the best possible information on this aspect
and it needs further study.

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3.3. Agricultural (1)

become EU MS. There would also be many new (but largely
temporary)
jobs involved in creating the necessary new
infrastructure.

3.3.1.
The proposal provides the possibility for most wel-
come agricultural diversity, and with it the stimulation of rural
economies. However, the proposal makes no mention of the
strong possibility of a significant part of the biofuel require-
ment being met from trade with third countries. While some
developing countries may benefit from this, it is probable that
the greatest opportunities will be for the United States and
Brazil; both have considerable capacity in this area and their
scale of production is likely to make their prices attractive.
Such trade could have a marked effect on the extra employment
foreseen. On the other hand, export of EU biofuels could also
become an attractive possibility over time. The Committee
wishes to emphasize that the development of agriculture to
produce more biomass must not be allowed to endanger the
precautions taken in the EU with regard to Genetically
Modified organisms.

3.5.

Security of supplies

3.5.1.
As EU transport fleets grow, the security of fuel
supplies will become more important. The policies proposed
would probably have at best a modest restraining effect on
oil prices (2), although they would certainly help EU self-
sufficiency. It is noted that the EU has an existing surplus of
gasoline (3), which gives reasonable security of supply. The
value of bio-diesel in securing supplies would be most welcome
and deserves every support.

3.3.2.
One other area that is promising in the medium term
is the use of forest residues (and other cellulose containing
raw materials) to produce biofuels. As with other areas of
development, the speed of progress will largely depend on the
resources devoted.

3.6.

Fiscal

Developments in the area of biofuels will, in fact, be
3.3.3.
one part of a much bigger picture,
including the future
development of the Common Agricultural Policy (CAP) and
the EU’s energy policies. This will include balancing the use of
agricultural land for food production and for other uses. Apart
from biofuels, the Committee suggests that the production of
energy from the burning of certain biomass would be a further
way of reducing the consumption of fossil fuels at an economic
cost, while providing benefits to agriculture, the environment
and security of supply.

3.4.

Employment

3.4.1. While the estimates on the employment effect are
widely varied, producing biofuels is relatively labour intensive.
The Commission estimates that each 1 % of total EU fuel
consumption replaced by biofuel should create between
45 000 and 75 000 new jobs, mostly in rural areas (but note
the comment in point 3.3.1 above). The Commission note
that growing crops for biofuels should facilitate the absorption
of the agriculture sector from Candidate Countries as they

(1) See the recent ESC Opinion on New impetus for a plan on plant-

protein crops, (CES 26/2002).

3.6.1. Market forces will inevitably be important in encour-
aging the change to biofuels. It is clear that unless there is the
possibility of price competitiveness for biofuels,
including
blends, in the pump prices paid by consumers, there will be
no incentive to spend the considerable sums that will be
needed to move to more biofuel use. Tax is the only realistic
way to achieve this. However, the Committee doubts whether
the proposed maximum 50 % reduction in taxes will be
enough to achieve this, at least in most MS (4). Nor is the need
for this restriction evident; Finance Ministers will still have full
control over the rates that they choose to set. The removal of
the current agreement to allow ‘tax-free’ pure biofuels will also
be a disincentive.

The Committee considers that the proposal should
3.6.2.
simply authorise MS to apply any rate of excise down to zero
on the biofuel element in fuels sold on their territory. It will be
important that any such incentives are not allowed to distort
the market for ethyl alcohol, which has many industrial uses.

(2) A 2 % lower demand for oil would lower EU consumption by

about 4 billion barrels each year.

(3) Although we note that only some 44 % of crude oil requirements

are met from European production.

(4) The proposal would allow the biofuel component of fuel to be
completely tax-free up to the point that it makes up 50 % of the
product. For fuels whose biofuel component is greater than 50 %
no further concessions would be allowed.

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For real progress in this new industrial sector it will
3.6.3.
be crucial
for them to have stable conditions in which
to operate. The Committee questions whether the six-year
‘planning horizon’ foreseen is adequate to provide this and
consideration should be given to increasing it.

4.2.
It is concerned to make the means of achieving the
objectives from using biofuels as flexible as possible to allow
for the different circumstances in individual Member States.
This would include making due allowance for the various
types of renewable fuels.

3.7.

Promotion

Fiscal

3.7.1.
incentives (see above) are the only specific
promotion measures proposed. The Committee suggests that
the Commission and Member States should undertake an
information campaign to explain the benefits of biofuels, and
other renewable energy sources, to the public.

3.8. Costs

3.8.1.
The proposals do not offer firm information on the
likely costs involved. If they are very significant, this alone
could make the timescale proposed very optimistic. The
Commission should include a proper forecast of costs in their
proposals.

4. Conclusions

The Committee stresses the need to give the new
4.3.
industries necessary to meet the objectives of the EU in this
area a stable environment
in which to develop and an
economic situation that will encourage consumers to use
biofuels.

4.4.
Given the key role that fiscal incentives will play in
the acceptance of biofuels (and other renewable fuels), the
Committee believes that the reduction in excise duties for such
fuel should not be constrained in the Directive, and should be
entirely at the discretion of Member States.

The Committee regrets that so little information on
4.5.
the likely costs involved in the proposals is given and urges
the Commission to provide adequate information to allow
both proper planning and clarification of the cost effectiveness
of the proposals.

4.1.
The Committee strongly supports the aims of the
proposals. In particular it welcomes the expected benefits to
the environment from the greater use of renewable fuels and
the possibilities for further agricultural diversity and for
reducing the extent of set aside under CAP.

4.6.
In view of the doubts expressed by some on the
balance of environmental advantage from the proposals, the
Commission is urged to ensure that all available studies, past
and future, are reviewed to clarify the facts in this respect.

Brussels, 25 April 2002.

The President

of the Economic and Social Committee

Göke FRERICHS