Communication from the Commission - an EU Strategy for Biofuels {SEC(2006) 142}
Date: 2006-02-08
Institutions: European Commission
Subjects: developing countries, energy policy, energy production, energy supply, energy technology, environmental policy, research and development, substitute fuel, trade policy

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 8.2.2006 
COM(2006) 34 final 

COMMUNICATION FROM THE COMMISSION 

An EU Strategy for Biofuels 

{SEC(2006) 142} 

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TABLE OF CONTENTS 

1. 

2. 

2.1. 

2.2. 

2.3. 

3. 

3.1. 

3.2. 

3.3. 

3.4. 

3.5. 

3.6. 

3.7. 

INTRODUCTION.............................................................................................................. 3 

REALISING THE POTENTIAL OF BIOFUELS – A STRATEGIC APPROACH .......................... 4 

First-generation biofuels .............................................................................................. 5 

Second-generation biofuels and beyond ...................................................................... 5 

Biofuels in developing countries.................................................................................. 6 

THE BIOFUEL STRATEGY – SEVEN POLICY AXES .......................................................... 7 

Stimulating demand for biofuels.................................................................................. 7 

Capturing environmental benefits ................................................................................ 9 

Developing the production and distribution of biofuels ............................................ 10 

Expanding feedstock supplies .................................................................................... 11 

Enhancing trade opportunities.................................................................................... 13 

Supporting developing countries................................................................................ 14 

Supporting research and development ....................................................................... 16 

Annex 1: Biofuels Glossary ..................................................................................................... 18 

Annex 2: Biofuels progress at national level ........................................................................... 19 

Annex 3: Policies promoting biofuels in non-EU countries .................................................... 20 

Annex 4: Biofuels market situation.......................................................................................... 22 

Annex 5: Trade in biofuels....................................................................................................... 25 

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1. 

INTRODUCTION 

In the EU, transport is responsible for an estimated 21% of all greenhouse gas emissions that 
are  contributing  to  global  warming,  and  the  percentage  is  rising.  In  order  to  meet 
sustainability goals, in particular the reduction of greenhouse gas emissions agreed under the 
Kyoto Protocol, it is therefore essential to find ways of reducing emissions from transport.  

This  is  not  the  only  challenge.  Nearly  all  the energy  used  in  the  EU  transport  sector  comes 
from  oil.  Known  oil  reserves  are  limited  in  quantity  and  restricted  to  a  few  world  regions. 
New reserves exist, but will mostly be more difficult to exploit. Securing energy supplies for 
the future is therefore not only a question of reducing import dependency, but calls for a wide 
range of policy initiatives, including diversification of sources and technologies1. 

In  the  EU  a  range  of  actions  is  already  being  taken.  Vehicle  manufacturers  are  developing 
new  models  that  are  cleaner  and  more  fuel  efficient,  as  well  as  working  on  new  concepts. 
Efforts  are  also  being  made  to  improve  public  transport  and  encourage  the  use  of 
environmentally-friendly modes of transport where possible2. Further endeavours are needed 
to make reductions in the amount of energy used for transport.  

Developing  countries  face  similar  and  even  greater  challenges  with  respect  to  transport 
energy: rising oil prices are badly affecting their balance of payments; reliance on imported 
fossil  fuels  implies  vulnerability  and  they  too  are  faced  with  the  challenge  of  reducing 
greenhouse gas emissions.  

The  central  importance  of  energy  policy  in  helping  the  EU  meet  the  challenges  of 
globalisation  was  confirmed  by  the  Union’s  heads  of  state  and  government  at  the  informal 
Hampton  Court  summit  in  October  2005  where  the  Commission  was  requested  to  prepare 
proposals  for  the  development  of  a  reinvigorated  European  Energy  Policy.  One  important 
element  of  such  an  approach  would  be  means  to  address  Europe’s  over-dependency  on 
imported  oil  and  gas  and  to  develop  a  coherent  approach,  based  on  a  robust  economic, 
environmental and social impact analysis, on how to progressively reduce this dependency.  

This  communication  looks  at  the  role  biofuels  could  play  in  this  context.  Processed  from 
biomass, a renewable resource, biofuels are a direct substitute for fossil fuels in transport and 
can readily be integrated into fuel supply systems. Biofuels can be used as an alternative fuel 
for  transport,  as  can  other  alternatives  (see  2.1)  and  thus  help  prepare  the  way  for  further 
advanced developments, such as hydrogen.  

Although  most  biofuels  are  still  more  costly  than  fossil  fuels  their  use  is  increasing  in 
countries around the world. Encouraged by policy measures, global production of biofuels is 
now estimated to be over 35 billion litres.  

The  EU  is  supporting  biofuels  with  the  objectives  of  reducing  greenhouse  gas  emissions, 
boosting  the  decarbonisation  of  transport  fuels,  diversifying  fuel  supply  sources  and 
developing  long-term  replacements  for  fossil  oil.  The  development  of  biofuel  production  is 
expected to offer new opportunities to diversify income and employment in rural areas. 

1 

2 

As emphasised in the Green Paper “Towards a European Strategy for the Security of Energy Supply” 
COM(2000) 769 final. 
See the White Paper on the European transport policy for 2010, COM(2001) 370 final. 

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In the context of the review of the Biofuels Directive3 that the Commission is due to carry out 
by  the  end  of  2006,  attention  will  be  paid  to  the  issue  of  cost-effectiveness,  the  level  of 
ambition  after  2010,  and  to  assessing  and  monitoring  the  full  environmental  impact  of 
biofuels.  

The  production  of  biofuels  from  suitable  feedstocks  could  also  generate  economic  and 
environmental  benefits  in  a  number  of  developing  countries,  create  additional  employment, 
reduce energy import bills and open up potential export markets. In particular, the production 
of bioethanol could offer a feasible alternative for some sugar-producing countries affected by 
the reform of the EU sugar regime.  

This  Communication  complements  the  Biomass  Acton  Plan4  and  is  accompanied  by  an 
Impact  Assessment  which  presents  different  policy  options.  Based  on  this  assessment  the 
Communication recommends a regulated market-based approach, corresponding to the Impact 
Assessment’s  option  2,  which  reflects  current  knowledge  and  seeks  to  prepare  the  way  for 
future  developments.  This  option  in  particular  favours  a  balanced  approach  in  trade 
negotiations  concerning  biofuels,  the  use  of  available  instruments  in  agricultural,  rural 
development and cohesion policy, and the development of a coherent assistance package for 
developing  countries.  While  existing  technologies  do  not  at  present  offer  cost-competitive 
solutions  for  the  EU,  the  benefits  of  encouraging  the  development  of  biofuels  should 
outweigh  the  cost.  In  this  context,  the  development  of  second  generation  biofuels,  in  which 
research  and  development  has  an  important  role,  could  further  contribute  to  their  cost-
effectiveness. In view of the complex, cross-cutting and dynamic character of the issues, the 
approach  taken  is  a  strategic  one,  the  impact  of  which  will  be  carefully  monitored.  As  the 
biofuels market evolves, appropriate modifications will be discussed and incorporated into the 
strategy.  

2. 

REALISING THE POTENTIAL OF BIOFUELS – A STRATEGIC APPROACH 

The  recent  Biomass  Action  Plan  has  already  described  various  actions  that  will  be  taken  to 
encourage  the  use  of  all  kinds  of  biomass  for  renewable  energy  production.  This 
Communication now sets out An EU Strategy for Biofuels with three aims:  

•  to  further  promote  biofuels  in  the  EU  and  developing  countries,  ensure  that  their 
production and use is globally positive for the environment and that they contribute to the 
objectives of the Lisbon Strategy taking into account competitiveness considerations;  

•  to  prepare  for  the  large-scale  use  of  biofuels  by  improving  their  cost-competitiveness 
through  the  optimised  cultivation  of  dedicated  feedstocks,  research  into  “second 
generation”  biofuels,  and  support  for  market  penetration  by  scaling  up  demonstration 
projects and removing non-technical barriers; 

•  to  explore  the  opportunities  for  developing  countries  –  including  those  affected  by  the 
reform of the EU sugar regime – for the production of biofuel feedstocks and biofuels, and 
to set out the role the EU could play in supporting the development of sustainable biofuel 
production. 

3 

4 

Directive 2003/30/EC of 8 May 2003 on the promotion of the use of biofuels or other renewable fuels 
for transport (OJ L 123, 17.5.2003). 
COM(2005) 628, adopted on 7 December 2005. 

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2.1. 

First-generation biofuels 

First-generation  biofuels  can  be  used  in  low-percentage  blends  with  conventional  fuels  in 
most  vehicles  now  and  can  be  distributed  through  the  existing  infrastructure.  Some  diesel 
vehicles can run on 100% biodiesel (B100) and “flex-fuel” vehicles are already available in 
many countries around the world. Replacing a percentage of diesel or petrol with biofuels is 
therefore the simplest way for the transport sector to make an immediate contribution to the 
Kyoto  targets,  particularly  given  that  the  benefits  would  apply  to  the  entire  vehicle  fleet. 
Developing a substitute for diesel is of  particular importance  in the European context  given 
that the EU is currently a net importer of diesel, while it exports petrol. 

However,  even  using  the  most  modern  technologies,  the  cost  of  EU-produced  biofuels  will 
make  it  difficult  for  them  to  compete  with  fossil  fuels.  With  the  technologies  currently 
available,  EU-produced  biodiesel  breaks  even  at  oil  prices  around  €60  per  barrel,  while 
bioethanol becomes competitive with oil prices of about €90 per barrel.  

Biofuels  can  be  used  as  an  alternative  fuel  for  transport,  as  can  other  alternatives  such  as 
liquid natural gas (LNG), compressed natural gas (CNG), liquefied petroleum gas (LPG) and 
hydrogen. Nevertheless, encouraging the use of currently available biofuels may be seen as an 
intermediate step to reduce greenhouse gas emissions, to diversify transport energy sources, 
and to prepare the EU economy for other alternatives in the transport sector which are not yet 
mature.  By  actively  embracing  the  global  trend  towards  biofuels  and  by  ensuring  their 
sustainable  production,  the  EU  can  exploit  and  export  its  experience  and  knowledge,  while 
engaging in research to ensure that we remain in the vanguard of technical developments. A 
clear strategy for the EU will also promote lower production costs. 

The  supply  of  feedstocks  is  crucial  to  the  success  of  the  biofuel  strategy.  Some  of  the 
provisions  of  the  Common  Agricultural  Policy  will  therefore  be  reviewed  and  adapted  if 
necessary. The expected increase in the world trade in biofuels will also contribute to stability 
of supply in the EU and other parts of the world.  

The construction of plants to produce alternative fuels, the introduction of new engine types 
and  the  adaptation  of  the  fuel  distribution  system  entail  long-term  investments,  which  need 
stable  prospects  for  market  demand.  This  implies  that  supply-side  measures  need  to  be 
complemented by an effective market-based incentive system. In the medium-term, additional 
investment will be necessary to bring new technologies and feedstocks into use. Forestry and 
waste materials will play an increasing role if “second-generation” processes can be made to 
work effectively in commercial terms.  

To  derive  the  greatest  benefit  from  current  and  future  opportunities,  the  Commission  is 
committed to encouraging the first-generation biofuels market, which will be complemented 
by new technologies as they come on-stream. 

2.2. 

Second-generation biofuels and beyond 

One  of  the  most  promising  second-generation  biofuel  technologies  –  ligno-cellulosic 
processing – is already well advanced. Three pilot plants have been established in the EU, in 
Sweden, Spain and Denmark. Other technologies to convert biomass to liquid biofuels (BtL) 
include Fischer-Tropsch biodiesel and bio-DME (dimethyl ether). Demonstration plants are in 
operation in Germany and Sweden. 

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Synthetic  natural  gas  (SNG)  can  be  produced  from  fossil  as  well  as  renewable  resources. 
Renewable SNG has significant advantages for CO2 reduction and could be a decisive step in 
the development of other gaseous fuels.  

The  CARS  21  High  Level  Group5  has  identified  second-generation  biofuels  as  particularly 
promising and has recommended that their development should be given substantial support. 
The  Group  also  concluded  that  further  policy  developments  should  take  into  account  and 
reflect the differing climate change benefits of different biofuel technologies and production 
processes.  

To  prepare  for  the  large-scale  use  of  cost-competitive  biofuels,  continued  research  and 
development  is  needed  to  make  the  new  technologies  successful.  The  European  Biofuels 
Technology Platform and other Technology platforms can play a vital role in achieving this. 
Work should also be encouraged on the development of dedicated feedstocks and to increase 
the range of raw materials that can be used to make biofuels.  

Partnership  among  all  the  relevant  stakeholders  will  be  necessary  to  promote  best  practices 
and  facilitate  long-term  private  sector investments. In this respect, the  European  Investment 
Bank  could  assist  in  the  development  and  scaling-up  of  economically  viable  projects  and 
technologies.  

Development  will  be  monitored  at  EU  level  with  the  aim  of  providing  support  at  the 
appropriate time for the upgrading of demonstration projects to commercial-scale operations. 
At  the  same  time,  guarantees  must  be  given  as  to  the  environmental  benefits  of  all  new 
processes and any non-technical barriers to their acceptance will have to be removed.  

Advanced  biofuel  technologies  could  also  provide  a  stepping  stone  to  renewably-produced 
hydrogen, which offers the prospect of virtually emission-free transport. However, hydrogen 
fuel cells require new engine technology as well as a big investment in plants to produce the 
hydrogen and a new distribution system. In this context, the sustainability of hydrogen has to 
be carefully assessed. Any shift to hydrogen-based transport would therefore call for a major 
decision, embedded in a large-scale, long-term strategy.  

2.3. 

Biofuels in developing countries 

Biomass productivity is highest in tropical environments and the production costs of biofuels, 
notably  ethanol,  are  comparatively  low  in  a  number  of  developing  countries.  Bioethanol 
produced  from  sugar  cane  is  currently  competitive  with  fossil  fuels  in  Brazil  which  is  the 
world’s  leading  producer  of  bioethanol.  Moreover,  the  fossil  energy  input  for  producing 
ethanol from sugar cane is lower than for ethanol produced in Europe, so the corresponding 
emission reductions are greater. For biodiesel, the EU is currently the principal producer and 
there  is  no  significant  trade.  Developing  countries  such  as  Malaysia,  Indonesia  and  the 
Philippines,  that  currently  produce  biodiesel  for  their  domestic  markets,  could  well  develop 
export potential. 

In  general,  the  production  of  biofuels  could  provide  an  opportunity  to  diversify  agricultural 
activity, reduce dependence on fossil fuels (mainly oil) and contribute to economic growth in 

5 

The  CARS21  High  Level  Group  was  set  up  by  Vice-President  Verheugen  to  consider  the 
competitiveness  challenges  facing  the  European  automotive  industry.  It  adopted  its  report  on 
12 December 2005: http//www.europa.eu.int/comm./enterprise/automotive/pagesbackground/competiti-
veness/cars21finalreport.pdf. 

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a  sustainable  manner.  But  the  differentiated  picture  among  developing  countries  has  to  be 
recognised, while concerns exist regarding environmental, economic and social issues.  

The varying prospects for biofuels production and use in developing countries are related to 
the  types  of  feedstock  produced  and  to  a  range  of  economic  factors.  For  the  domestic 
development  of  biofuels,  the  price  of  oil  on  the  world  market  is  an  important  determinant. 
Other  factors  that  play  a  role  are  (i)  the  potential  scale  of  production;  (ii)  the  size  of  the 
national or regional market; (iii) the infrastructure investments needed; (iv) the supportiveness 
of the policy regime; (v) the options for exports (EU, USA, Japan, China) and (vi) the market 
price of the feedstocks to be used for biofuel production.  

In  countries  where  a  large-scale  expansion  of  feedstock  production  is  likely  to  take  place, 
environmental concerns relate to pressures on eco-sensitive areas, like rainforests. There are 
also concerns regarding the effect on soil fertility, water availability and quality, and pesticide 
use.  Social  effects  concern  potential  dislocation  of  communities  and  competition  between 
biofuel  and  food  production.  These  concerns  need  specific  investigation  and  quantification 
and,  if  necessary,  should  be  addressed  through  strong  regulatory  frameworks.  EU 
development policy will aim to help suitable developing countries capture the benefits offered 
by biofuels, while addressing these concerns in an appropriate way.  

3. 

THE BIOFUEL STRATEGY – SEVEN POLICY AXES  

This  chapter  describes  the  seven  policy  axes,  under  which  are  grouped  the  measures  the 
Commission will take to promote the production and use of biofuels.  

3.1. 

Stimulating demand for biofuels 

The Commission will  

•  bring forward a report in 2006 with a view to a possible revision of the Biofuels Directive. 
This report will inter alia address the issues of setting national targets for the market share 
of biofuels, using biofuel obligations and ensuring sustainable production; 

•  encourage  Member  States  to  give  favourable  treatment  to  second-generation  biofuels  in 

biofuels obligations; 

•  encourage  the  Council  and  European  Parliament  to  give  speedy  approval  to  its  recently 
adopted legislative proposal to promote public procurement of clean and efficient vehicles, 
including those using high blends of biofuels. 

In 2001, the Commission adopted a communication accompanied by legislative proposals on 
alternative  fuels  for  road  transport,  identifying  three  main  fuels  (biofuels,  natural  gas  and 
hydrogen) with a potential for development.6 The legal proposals were adopted, in amended 
form, in 2003.  

6 

Communication on alternative fuels for road transportation and on a set of measures to promote the use 
of biofuels; COM(2001) 547. 

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The Biofuels Directive7 sets “reference values” of a 2% market share for biofuels in 2005 and 
a 5.75% share in 2010. To implement the directive, many Member States are relying on fuel 
tax  exemptions,  facilitated  by  the  Energy  Taxation  Directive.8  A  number  have  recently 
turned  to  biofuel  obligations,  requiring  fuel  supply  companies  to  incorporate  a  given 
percentage of biofuels in the fuel they place on the national market.  

The  2005  target  share  of  2%  biofuels  was  not  achieved.  With  the  objectives  set  by  the 
Member  States,  the  share  of  biofuels  would  have  attained,  at  most,  only  1.4%.  The 
Commission  has  launched  infringement  proceedings  in  seven  cases  where  Member  States 
adopted low targets without due justification. 

In 2006, the Commission will bring forward a report on the implementation of the Biofuels 
Directive with a view to a possible revision. This report will inter alia address the issues of: 

– 

– 

– 

national targets for the market share of biofuels, 

using biofuel obligations, 

requiring that, only biofuels whose production in the EU and third countries complies 
with minimum sustainability standards will count towards the targets.  

Any  system  of  certificates  would  need  to  apply  in  a  non-discriminatory  way  to  both 
domestically produced and imported biofuels and comply with WTO provisions.  

Biofuel  obligations  seem  a  promising  way  of  overcoming  difficulties  with  tax  exemptions. 
They  would  also  make  it  easier  to  give  favourable  treatment  to  biofuels  with  greater 
greenhouse gas savings, which the Commission would like to encourage.  

The  Energy  Taxation  Directive  makes  it  possible  for  Member  States  to  grant  tax 
reductions/exemptions in favour of biofuels, under certain conditions. These tax concessions 
are considered as state aids, which may not be implemented without prior authorisation by the 
Commission.  The  Commission’s  assessment  has  the  aim  of  avoiding  undue  distortions  of 
competition  and  is  based  on  the  Community  guidelines  on  state  aid  for  environmental 
protection9.  These  guidelines  take  into  account  the  beneficial  effects  that  energy  produced 
from biomass may have compared with energy from fossil fuels.  

The assessment also aims to ensure that no over-compensation occurs, which is also required 
by  the  Energy  Taxation  Directive.  As  production  costs  vary,  especially  for  bioethanol,  the 
Commission  is  investigating  to  what  extent  instruments  can  be  refined  to  take  this  into 
account while respecting international trade rules.. 

The compatibility between biofuel supply obligations (in their various possible forms) and tax 
incentives will have to be carefully assessed. It can be expected that obligations would take 
away the need for fiscal support and permit a reduction in the levels of state aid, in line with 
the polluter pays principle and the Commission’s state aid action plan, which focuses on less 
but better aid.  

7 

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9 

Directive 2003/30/EC of 8 May 2003 on the promotion of the use of biofuels or other renewable fuels 
for transport (OJ L 123, 17.5.2003). 
Directive 2003/96/EC of 27 October 2003 restructuring the Community framework for the taxation of 
energy products and electricity (OJ L 283, 31.10.2003). 
OJ C 37, 3.2.2001, p. 3, in particular section E.3.3. 

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Moreover, a framework for incentives linked to the environmental performance of individual 
fuels should be established. This would encourage and promote the use of market-driven and 
demand-side measures for biofuels. Suitable policy measures could include, for example, the 
encouragement of environmental systems for vehicle users, eco-labelling, price differentiation 
through  emission  charges  and  product  levies,  environmental  quality  promotion  through 
educating  and  informing  both  consumers  and  producers,  tradable  permits,  environmental 
performance bonds, funds and environmental risk assessment in banking procedures.  

Fertile  markets  for  the  development  of  biofuel  use  are  offered  by  publicly  and  privately-
owned  vehicle  fleets,  and  by  farm  and  heavy  goods  vehicles,  where  tax  exemptions  or 
reductions have proved particularly successful in encouraging the use of high-blend biofuels. 
At  farm  level,  small-scale  processors  and  seed  press  systems  are  now  available  that  can 
produce biodiesel economically from farm waste or oilseed crops. City and privately-operated 
bus  fleets  generally  have  dedicated  fuel  supplies,  so  can  switch  quite  easily  to  biofuels. 
Another  area  where  the  demand  for  biofuels  could  be  further  stimulated  is  that  concerning 
fishing fleets and vessels which offers a potential market for the use of biodiesel. 

For the public sector, the Commission will continue to encourage the use of biofuels in these 
specific areas. It has tabled a proposal for a Directive of the European Parliament and of the 
Council on the promotion of clean road transport vehicles10, including those using high blends 
of biofuels. 

3.2. 

Capturing environmental benefits 

The Commission will  

•  examine  how  biofuel  use  can  count  towards  the  CO2  emission  reduction  targets  for  car 

fleets; 

•  explore  and,  where  appropriate,  propose  measures  to  ensure  optimal  greenhouse  gas 

benefits from biofuels; 

•  work  to  ensure  the  sustainability  of  biofuel  feedstock  cultivation  in  the  EU  and  third 

countries; 

•  examine the issues of limits on the content of ethanol, ether and other oxygenates in petrol; 

limits on the vapour content of petrol; and limits on the biodiesel content of diesel. 

The  Commission  is  examining  the  scope  for  biofuel  use  to  count  towards  CO2  emission 
targets for car fleets, building on the agreement by carmakers to reduce emissions from new 
cars  in  the  framework  of  an  integrated  approach.  On  the  basis  of  the  CARS21  report11,  the 
Commission is currently examining the various options for this approach.  

To  capture  the  potential  environmental  benefits,  a  biofuel  strategy  has  to  focus  on 
(1) optimising greenhouse gas benefits for the expenditure made, (2) avoiding environmental 
damage linked to the production of biofuels and their feedstocks, (3) ensuring that the use of 
biofuels does not give rise to environmental or technical problems.  

10 
11 

COM(2005) 634. 
See footnote 5. 

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(1) 

(2) 

(3) 

Currently, incentives for biofuels do not take into account the actual greenhouse gas 
benefits of the different biofuels and their production pathways. Linking greenhouse 
gas  benefits  to  encouraging  the  provisions  of  biofuels  would  help  to  increase  their 
benefits  and  send  a  clear  signal  to  the  industry  of  the  importance  of  further 
improving  production  pathways  in  this  respect.  It  would  also  allow  market-based 
signals to be sent to fuel and feedstock producers, to further reduce carbon emissions 
in  the  transport  sector.  To  be  effective,  such  a  mechanism  must  apply  to  both 
domestic and imported products in a non-discriminatory way and comply fully with 
WTO  provisions.  A  multinational  approach  could  also  be  explored,  linked  to  the 
existing Clean Development Mechanism, which would guarantee the involvement of 
trade partners. Incentives covered by the Biofuels Directive will be reviewed in the 
course of 2006. 

It is essential that appropriate minimum environmental standards apply to feedstock 
production for biofuels, adapted to local conditions in the EU and third countries. In 
particular, some concerns have been raised over the use of set-aside land because of 
the  potential  impact  on  biodiversity  and  soil,  and  over  the  growing  of  biofuels  in 
environmentally  vulnerable  areas.  Addressing  these  concerns  requires  attention  to 
where  energy  crops  would  fit  within  rotations  generally,  the  avoidance  of  negative 
effects  on  biodiversity,  water  pollution,  soil  degradation,  and  the  disruption  of 
habitats  and  species  in  areas  of  high  nature  value.  Sustainability  criteria  for  EU 
production  should,  however,  not  be  limited  to  energy  crops,  but  should  cover  all 
agricultural  land,  as  required  by  cross-compliance  rules  established  under  the  2003 
CAP  reform.  These  criteria  should  also  take  into  account  the  advantages  of  energy 
crop  cultivation  in  crop  rotation  systems  and  in  marginal  areas.  Such  criteria  and 
standards  would  need  to  comply  with  WTO  provisions,  be  effective  and  not  over-
bureaucratic.  

In use, different types of biofuels give rise to different environmental and technical 
issues. The Fuel Quality Directive12 establishes specifications for petrol and diesel, 
for environmental and health reasons, e.g. limits on the content of ethanol, ether and 
other  oxygenates  in  petrol.  It  also  limits  the  vapour  pressure  of  petrol.  Standard 
EN590 sets further limits for technical reasons, and states that diesel must contain no 
more  than  5%  biodiesel  by  volume  (4.6%  in  energy  terms).  These  limits  put 
constraints on the increased use of biofuels. 

The Commission has announced that it will review the quantitative limits on ethanol, 
ethers and biodiesel in 2006. 

3.3. 

Developing the production and distribution of biofuels  

The Commission will  

•  encourage  Member  States  and  regions  to  take  into  account  the  benefits  of  biofuels  and 
other bioenergy when preparing their national reference frameworks and operational plans 
under cohesion policy and rural development policy; 

12 

Directive  98/70/EC  of  13  October  1998  relating  to  the  quality  of  petrol  and  diesel  fuels  (OJ L 350, 
28.12.1998), as amended by Directive 2003/17/EC of 3 March 2003 (OJ L 76, 22.3.2003). 

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•  propose  setting  up  a  specific  ad  hoc  group  to  consider  biomass  including  biofuels 

opportunities within national rural development programmes; 

•  ask  the  relevant  industries  to  explain  the  technical  justification  for  practices  that  act  as 
barriers  to  the  introduction  of  biofuels  and  monitor  the  behaviour  of  these  industries  to 
ensure that there is no discrimination against biofuels. 

Many  of  the  regions  assisted  by  the  Structural  and  Cohesion  Funds,  particularly  in  rural 
regions in central and eastern Europe, have the potential to use biomass to generate economic 
growth  and  employment.  Low  labour  costs  and  high  resource  availability  can  give  these 
regions  a  comparative  advantage  in  the  production  of  biofuel  feedstocks.  Supporting  the 
development of renewable and alternative energy sources such as biomass, including biofuels, 
is therefore an important objective for cohesion policy13. Support can be given, for example, 
for  the  retraining  of  farmers,  the  provision  of  equipment  for  biomass  producers  and  for 
investment in facilities to produce biofuels. 

The  Commission  encourages  Member  States  and  regions,  when  preparing  their  National 
Strategic  Reference  Frameworks  and  operational  programmes,  to  ensure  that  the  potential 
benefits of biofuels have been thoroughly taken into account. 

Investment on or near farms, for example in biomass processing, as well as the mobilisation 
of unused biomass by forest holders, can also be supported by rural development policy. The 
Commission  has  proposed  Community  strategic  guidelines  for  rural  development  which 
emphasise renewable energy, including biofuels. It is also proposing a specific ad hoc group 
to consider biomass and biofuel opportunities within national rural development programmes. 

Like fuel tax exemptions, other forms of official support for biofuel production and use must 
obviously conform to provisions on State aid.  

The  Commission  will  ask  the  industries  concerned  to  explain  the  technical  justification  for 
barriers to the introduction of biofuels and will seek the views of other interested parties. It 
will monitor the behaviour of the relevant industries to ensure that there is no discrimination 
against biofuels.  

When  assessing  the  impact  of  policies  and  programmes  to  support  the  production  and 
distribution  of  biofuels,  the  Commission  will  take  into  account  their  possible  effect  on 
traditional ethanol, food, forestry and oil markets.  

3.4. 

Expanding feedstock supplies  

The Commission will  

•  make  sugar  production  for  bioethanol  eligible  for  both  the  non-food  regime  on  set-aside 

land and the energy crop premium; 

•  assess  the  opportunities  for  additional  processing  of  cereals  from  existing  intervention 
stocks into biofuels, to contribute to reducing the amount of cereals exported with refunds; 

13 

as  set  out  in  the  Commission’s  communication  “Cohesion  policy  in  support  of  growth  and  jobs”, 
COM(2005) 299. 

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•  assess the implementation of the energy crop scheme by the end of 2006; 

•  monitor  the  impact  of  biofuel  demand  on  commodity  and  by-product  prices,  their 
availability for competing industries and the impact on food supply and prices, in the EU 
and in developing countries; 

•  finance  a  campaign  to  inform  farmers  and  forest  holders  about  the  properties  of  energy 

crops and the opportunities they offer; 

•  bring forward a Forestry Action Plan, in which the energy use of forest material will play 

an important part; 

•  review  how  animal  by-products  legislation  could  be  amended  in  order  to  facilitate  the 

authorisation and approval of alternative processes for the production of biofuels; 

•  implement  the  mechanism  proposed  to  clarify  standards  for  the  secondary  use  of  waste 

materials. 

The ongoing process of CAP reform started in 1992 has reduced price support and helped to 
increase  the  competitiveness  of  EU  agricultural  production  for  all  possible  outlets:  food, 
animal  feed  and  non-food  use,  including  biofuels.  This  is  particularly  important  for  cereals, 
which  are  currently  one  of  the  major  feedstocks  for  EU  bioethanol  production.  The 
decoupling of income support from production introduced by the 2003 CAP reform will help 
to further facilitate the supply of energy crops. In particular, crops that were eligible for direct 
payments  only  under  the  non-food  regime  on  set-aside  areas  may  now  be  cultivated  on  any 
area without loss of income support.  

The set-aside obligation, which was introduced with the 1992 reform as a tool to balance the 
cereals market, has been integrated into the new single payment scheme. Set-aside land can 
normally  not  be  used  for  any  type  of  production,  but  the  cultivation  of  non-food  crops 
(including  energy  crops)  is  authorised  if  the  use  of  the  biomass  is  guaranteed  either  by  a 
contract or by the farmer.  

Political  agreement  has  recently  been  reached  on  a  major  reform  of  the  Common  Market 
Organisation  for  sugar.  Sugar  beet  grown  for  bioethanol  will  continue  to  be  exempt  from 
quotas. The Commission will pursue its proposition to make sugar beet grown for bioethanol 
eligible  for  both  the  non-food  regime  on  set-aside  land  and  the  energy  crop  premium.  This 
will provide new outlets for sugar beet in the EU. 

Under its market policies, the Commission has made use of the possibility to sell alcohol from 
the  distillation  of  wine  out  of  intervention  stocks  for  energy  purposes.  However,  this 
certainly cannot be seen as a sustainable source for biofuel production. In 2005, for the first 
time,  a  tender  for  rye  from  intervention  stocks  was  opened  specifically  for  bioethanol 
production. The Commission will assess the opportunities for additional processing of cereals 
from existing intervention stocks into biofuels, to contribute to reducing the amount of cereals 
exported with refunds.  

In  addition,  a  special  aid  for  energy  crops  was  introduced  by  the  2003  CAP  reform.  A 
premium of €45 per ha is available, with a maximum guaranteed area of 1.5 million hectares 
as  the  budgetary  ceiling.  If  applications  should  exceed  the  ceiling,  the  premium  will  be 
reduced  proportionally.  This  energy  crop  scheme  is  subject  to  a  Commission  report  by 

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31 December 2006 and appropriate proposals, taking into account the implementation of the 
biofuel targets.  

Biofuels  are  currently  produced  almost  entirely  from  crops  that  can  also  be  used  for  food 
purposes. Concerns have been voiced that, as global biofuel demand grows, the availability of 
food  at  an  affordable  price  could  be  endangered  in  developing  countries.  Biofuels  also 
compete  for  raw  material  with  other  industries.  In  view  of  these  concerns,  the  Commission 
will closely monitor the impact of biofuel demand. 

The Commission is considering financing a campaign to inform farmers and forest holders 
about the properties of energy crops, mobilising the unused potential of forest-based energy 
and the opportunities they offer. 

The Commission is preparing a forestry action plan to be adopted in 2006, in which energy 
uses of forest material will play an important role. This will be particularly important for the 
production of second generation biofuels.  

Organic  waste  from  the  paper  industry,  animal  fats  and  by-products,  recycled  cooking  oils 
and  many  other  sources  are  underused  as  an  energy  resource.  The  Commission  recently 
adopted a thematic strategy for the prevention and recycling of waste14 and a proposal for new 
waste  framework  legislation15.  In  this  the  Commission  proposed  a  mechanism  to  clarify 
standards for the secondary use of waste materials, for instance in biofuel production.  

3.5. 

Enhancing trade opportunities  

The Commission will  

•  assess the advantages, disadvantages and legal implications of putting forward a proposal 

for separate nomenclature codes for biofuels; 

•  maintain market access conditions for imported bioethanol that are no less favourable than 
those  provided  by  the  trade  agreements  currently  in  force,  maintain  in  particular,  a 
comparable  level  of  preferential  access  for  ACP  countries  and  take  into  account  the 
problem of preference erosion;  

•  pursue  a  balanced  approach  in  ongoing  and  future  trade  negotiations  with  ethanol-
producing  countries  and  regions  –  the  EU  will  respect  the  interests  of  both  domestic 
producers and EU trading partners, in the context of the rising demand for biofuels;  

•  propose  amendments  to  the  “biodiesel  standard”  to  facilitate  the  use  of  a  wider  range  of 
vegetable oils for biodiesel production, and allow ethanol to replace methanol in biodiesel 
production. 

As  there  is  no  specific  customs  classification  for  biofuels,  the  exact  amount  of  imported 
ethanol, oilseeds and vegetable oil ultimately used in the transport sector cannot be quantified. 

14 
15 

COM(2005) 666. 
COM(2005) 667. 

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The  Commission  will  assess  the  advantages  and  disadvantages,  as  well  as  the  legal 
implications, of putting forward a proposal for separate nomenclature codes for biofuels.16  

Currently, bioethanol under tariff code 2207 enters duty-free under the following preferential 
trade arrangements: 

–  the Everything But Arms initiative (EBA) for Least Developed Countries, 

–  the Cotonou Agreement with African, Caribbean and Pacific (ACP) countries,  

–  the  new  “GSP  plus”  incentive  scheme  (special  incentive  arrangement  for  sustainable 

development and good governance), 

–  some bilateral preferential agreements, notably the Euro-Mediterranean Agreement.  

Two ongoing negotiations will have an impact on further market opening for bioethanol: 

–  At  multilateral  level,  the  Doha  Round  (DDA):  Bioethanol  will  be  subject  to  tariff  cuts 
following negotiations on agricultural market access. Market access for bioethanol is also 
being discussed in the negotiations on trade and environment, whereas the market access 
negotiations for industrial products are also relevant for some sorts of biofuels. 

–  At regional level, the free trade agreement between the EU and the Mercosur (Argentina, 

Brazil, Paraguay and Uruguay). 

Sugar and bioethanol are Brazil’s main offensive interests and are therefore essential elements 
of these negotiations. 

Given the rising demand for biofuels, the Commission is seeking the appropriate development 
of  both  EU  domestic  production  and  enhanced  import  opportunities  for  biofuels  and  their 
feedstocks and to develop their economic viability. In order to meet the interests of domestic 
producers and EU trading partners alike, the Commission will pursue a balanced approach 
in ongoing bilateral and multilateral trade negotiations with ethanol producing countries. As 
far as current trade is concerned, the Commission will maintain market access conditions for 
imported bioethanol that are no less favourable than those provided by the trade agreements 
now in force.  

Concerning  biodiesel,  an  amendment  of  standard  EN  14214  could  facilitate  the  use  of  a 
wider  range  of  vegetable  oils,  to  the  extent  feasible  without  significant  ill-effects  on  fuel 
performance and respecting the sustainability standards.  

3.6. 

Supporting developing countries 

The Commission will  

•  ensure that accompanying measures for Sugar Protocol countries affected by the EU sugar 

reform can be used to support the development of bioethanol production;  

16 

This  assessment  will  have  to  specify  whether  the  focus  should  be  on  CN  codes  (internal  EU)  or  on 
international  HS  codes.  Creating  a  new  HS  code  requires  international  negotiation,  while  a  new 
CN code may be appropriate for EU statistical purposes.  

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•  develop a coherent Biofuels Assistance Package that can be used in developing countries 

that have a potential for biofuels;  

•  examine  how  the  EU  can  best  assist  the  development  of  national  biofuel  platforms  and 

regional biofuel action plans that are environmentally and economically sustainable. 

The European Union’s internal efforts to promote renewable energy go hand in hand with its 
willingness to strengthen international co-operation in this area, particularly with developing 
countries.  

The  proposal  by  the  Commission  for  accompanying  measures  for  Sugar  Protocol  countries 
affected by the EU sugar  reform is an important cooperation initiative. The accompanying 
measures will support restructuring or diversification in the affected countries, on the basis of 
their strategies to face the consequences of the reform. Within this framework, the EU could 
support the development of the ethanol sector, based on thorough country-specific studies. 

Other  cooperation  frameworks  include  the  European  Union  Energy  Initiative  and  the 
Johannesburg Renewable Energy Coalition (JREC). The EU Energy Initiative focuses on 
policy  dialogue,  in  parallel  with  specific  partnerships  and  actions  on  access  to  energy  and 
poverty  alleviation.  Renewable  energy  is  a  major  focal  area  of  the  Initiative,  which  has 
established  the  EU  Energy  Facility  (budget  €220  million).  This  will  become  operational  in 
2006  and  will  act  as  a  catalyst  for  concrete  investments  in  energy  services  for  those  living 
under  the  poverty  line.  The  JREC  is  a  broad  platform  where  governments  are  working 
together  to  strengthen  renewables.  The  JREC  Patient  Capital  Initiative  follows  up  on  a 
commitment by JREC member countries to identify and bridge financing gaps for renewable 
energy business developers and SMEs, particularly in developing countries.  

To further develop synergies between the different instruments available to promote biofuels 
in development policy, the Commission will develop a coherent Biofuels Assistance Package 
that  will  use  the  current  range  of  instruments  to  support  aspects  of  biofuel  development,  in 
countries and regions where biofuels offer a good option for sustainable poverty reduction. In 
doing  so,  the  Commission  will  assess  how  it  can  best  help  strengthen  smallholder 
involvement  in  biofuel  production:  in  their  relation  to  other  actors  in  the  chain,  through 
dissemination  of  information  and  exchange  of  best  practice  and  in  favouring  South-South 
exchanges, through twinning and business-to-business relations and facilitating private sector 
investment, e.g. through the involvement of the European Investment Bank.  

The EU will ensure that measures proposed for biofuel development are fully coherent with 
its development policy and with national and sectoral development policies. 

In many developing countries policies and strategies for biofuels will need to be developed, 
taking  into  account  national  potential,  national,  regional  and  international  market  prospects, 
technical standards, infrastructure and other economic, social and environmental aspects. The 
development of national biofuel platforms, bringing together all relevant stakeholders from 
private  and  public  sectors  appears  to  be  a  key  step  in  this  process.  At  regional  level, 
economies  of  scale  and  technological  standardisation  increase  the  chances  for  biofuel 
development. Regional biofuel action plans, developed by regional organisations and aiming 
at  regional  market  development,  can  be  instrumental  in  biofuel  development.  The  EU  will 
investigate  how  best  it  can  assist  in  both  these  aspects.  Moreover,  it  will  assist  in  the 

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mitigation  of  environmental  risks  through  case-specific  investigations  and  support  to  the 
development of the effective regulatory framework. 

3.7. 

Supporting research and development  

The Commission will  
•  In the 7th Framework Programme continue its support for the development of biofuels and 

strengthening the competitiveness of the biofuel industry; 

•  Give a high priority to research into the “bio-refinery” concept – finding valuable uses for 

all parts of the plant – and into second-generation biofuels; 

•  Continue to encourage the development of an industry-led “Biofuel technology platform” 

and mobilise other relevant technology platforms; 

•  Support  the  implementation  of  the  Strategic  Research  Agendas  prepared  by  these 

technology platforms. 

Research and technological development in the field of biofuels is expected to result in costs 
falling  by  an  average  of  30%  beyond  2010.  Community-funded  research  has  already  been 
instrumental  in  the  development  and  growth  of  the  EU  biofuels  industry.  For  example,  the 
EUROBIODIESEL  project  launched  in  1992  demonstrated  the  technical  and  economic 
feasibility of producing and using biodiesel without significant technical problems in tractors, 
buses and cars. The recently launched Integrated Projects RENEW and NILE are key actions 
in the development of second-generation biofuels aiming at pilot plant scale production.  

The 
industry-led  European  Biofuels  Technology  Platform  aims  at  providing  and 
implementing a common European vision and strategy for the production and use of biofuels, 
in particular for transport applications. Major European biofuels stakeholders are represented, 
including the agricultural and forestry sectors, food industry, biofuels industry, oil companies 
and  fuel  distributors,  car  manufacturers  and  research  institutes.  Other  technology  platforms, 
such  as  Plants  for  the  Future,  Forestry-based  Sector  and  Sustainable  Chemistry,  will  also 
increase the knowledge base for biofuel production. Actions at European level (ERA-NET) in 
the  field  of  biomass  will  further  increase  the  cost-effectiveness  of  RTD  funding  through 
programme coordination and the initiation of joint activities at national and regional level.  

The  proposal  for  the  Seventh  Framework  Programme  (2007–2013)  gives  priority  to  biofuel 
research  to  further  strengthen  the  competitiveness  of  the  EU  biofuel  industry.  In  the 
Cooperation Specific Programme research activities will concentrate mainly on two themes 
(i)  “Energy”,  aiming  at  bringing  down  the  unit  cost  of  fuels  by  improving  conventional 
technologies  and  developing  second-generation  biofuels  (e.g.  Fischer-Tropsch  biodiesel, 
lignocellulosic  ethanol,  bio-dimethylether)  and  (ii)  “Food,  agriculture  and  biotechnology”, 
applying  life  sciences  and  biotechnology  to  improving  biomass  production  systems.  The 
concept of biorefineries, aiming at the integral use of the biomass and maximising the cost-
effectiveness of the final products, will be a key focus in both themes.  

Other  relevant  activities  include  support  for  the  market  introduction  and  dissemination  of 
proven  biofuel  technologies  through  the  “Intelligent  Energy  –  Europe”  programme  (part  of 
the Competitiveness and Innovation Framework Programme), capacity building for scaling-

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up and demonstration, as well as international cooperation with developed and developing 
countries to further exploit mutual benefits and technology transfer.  

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ANNEX 1 

Biofuels Glossary 

Biofuel 

Biomass 

Liquid or gaseous fuel for transport produced from biomass 

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 

Synthetic 
biofuels 

Synthetic  hydrocarbons  or  mixtures  of  synthetic  hydrocarbons  produced  from 
biomass,  e.g.  SynGas  produced  from  gasification  of  forestry  biomass  or 
SynDiesel  

Liquid biofuels 

Bioethanol 

Biodiesel 

Ethanol produced  from biomass and/or  the biodegradable fraction of waste, for 
use as biofuel 
E5 contains 5% ethanol and 95% petrol 
E85 contains 85% ethanol and 15% petrol 

A methyl-ester produced from vegetable oil, animal oil or recycled fats and oils 
of diesel quality, for use as biofuel (PME, RME, FAME) 
B5 is a blend of petroleum-based diesel (95%) and biodiesel (5%) 
B30 is a blend of petroleum-based diesel (70%) and biodiesel (30%) 
B100 is non-blended biodiesel 

Biomethanol  Methanol produced from biomass, for use as biofuel 

Bio-ETBE 

Ethyl-Tertio-Butyl-Ether  produced  from  bioethanol.  ETBE  is  used  as  a  fuel 
additive  to  increase  the  octane  rating  and  reduce  knocking.  The  percentage 
volume of bio-ETBE calculated as biofuel is 47%. 

Bio-MTBE  Methyl-Tertio-Butyl-Ether produced from biomethanol. MTBE is used as a fuel 
additive  to  increase  the  octane  rating  and  reduce  knocking.  The  percentage 
volume of bio-MTBE calculated as biofuel is 36%. 

BtL 

Biomass to liquid 

Pure 
vegetable oil 

Oil  produced  from  oil  plants  through  pressing,  extraction  or  comparable 
procedures,  crude  or  refined  but  chemically  unmodified,  which  can  be  used  as 
biofuel when compatible with the type of engine involved and the corresponding 
emission requirements. 

Gaseous biofuels 

Bio-DME 

Dimethylether produced from biomass, for use as biofuel 

Biogas 

A  fuel  gas  produced  from  biomass  and/or  the  biodegradable  fraction  of  waste, 
which can be purified to natural gas quality for use as biofuel or woodgas. 

Biohydrogen  Hydrogen produced from biomass and/or the biodegradable fraction of waste for 

use as biofuel. 

Other renewable fuels 

Renewable  fuels  other  than  biofuels  which  originate  from  renewable  energy 
sources as defined in Directive 2001/77/EC and are used for transport purposes 

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ANNEX 2 

Biofuels: progress at national level 

Member 
State 

Market share 
2003 

National indicative 
target for 2005 

Targeted increase, 2003–2005 

AT 

BE 

CY 

CZ 

DK 

EE 

FI 

FR 

DE 

GR 

HU 

IE 

IT 

LA 

LI 

LU 

MT 

NL 

PL 

PT 

SK 

SI 

ES 

SV 

UK 

EU25 

Sources: 

0.06% 

0 

0 

2.5% 

2% 

1% 

+2.44% 

+2% 

+1% 

1.12% 

3.7% (2006) 

+ 1.72% (assuming linear path) 

0 

0 

0.1% 

0.68 

1.18% 

0 

0 

0 

0.5% 

0.21% 

0 (assumed) 

0% 

+0% 

not yet reported 

not yet reported 

0.1% 

2% 

2% 

0.7% 

0.4–0.6% 

0.06% 

1% 

2% 

2% 

+0% 

+1.32% 

+0.82% 

+0.7% 

+0.4–0.6% 

+0.06% 

+0,5% 

+1.79% 

+2% 

0 (assumed) 

not yet reported 

not yet reported 

0 

0.03% 

0.49% 

0 

0.14% 

0.3% 

2% (2006) 

0.5% 

2% 

2% 

+0.3% 

+0% (promotional measures will come into 
force from January 2006) 

+0.01% 

+2% 

+1.86% 

0 (assumed) 

not yet reported 

not yet reported 

0.76% 

1.33% 

0.03% 

0.6% 

2% 

3% 

0.3% 

1.4% 

+1.24% 

+1.67% 

+0.27% 

+0.8% 

2003: national reports under the biofuels directive except Belgium (Eurostat figure for 2002), 
and Italy (EurObserv’ER) 

2005:  national  reports  under  the  Biofuels  Directive.  The  EU25  figure  assumes  linear 
development for CZ, 0 for NL and 0 for the three states that have not yet reported a target. 

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ANNEX 3 

Policies Promoting Biofuels in non-EU countries  

Rising  oil  prices,  pressure  to  reduce  CO2  emissions,  and  the  desire  to  increase  energy  self-
sufficiency,  conserve  valuable  foreign  exchange  and  create  employment  are  motivating 
countries around the world to enact policy measures in support of biofuels. 

Like the EU, a number of countries have set short- and long-term targets for the percentage 
or  quantity  of  biofuels  to  be  incorporated  into  conventional  fuel.  In  certain  countries  a 
percentage blend is mandatory in all or part of the country. In Brazil, which has the world’s 
most developed biofuels industry, a 25% blend is mandatory. Canada has a 3.5% target for the 
incorporation  of  bioethanol  by  2010  but  has  a  mandatory  level  of  5%  for  Ontario,  to  be 
achieved by 2007.  

A  number  of  countries  give  tax  credits  or  incentives  to  biofuel  producers  or  feedstock 
growers,  and  waive  the  excise  and/or  fuel  tax,  making  the  fuel  cheaper  to  buy  than 
conventional petrol or diesel. In some cases government-owned vehicles are required to use 
biofuels.  From  January  2006  India  will  introduce  a  biodiesel  purchasing  policy,  obliging 
public sector oil companies to buy oil produced from jatropha, pongamia and other oil plants 
and sell it in a 5% blend, rising to 20% in 2020. 

In  Brazil  and  Thailand  there  are  tax  exemptions  for  vehicles  able  to  run  on  biofuels. 
Thailand is also supporting the development of domestically-produced “green” vehicles. 

Many countries have grant and loan programmes for the construction of processing plants or 
the  development  of  feedstock.  In  Australia,  seven  new  projects  have  recently  received 
Government backing. 

Brazil’s example is best known and has served as inspiration for a number of other, mainly 
sugar-producing, countries. Brazil has become the world’s largest producer and consumer of 
ethanol, largely thanks to the targeted subsidies under the Proalcool programme.  

The  Proalcool  programme  was  launched  in  1975  as  a  response  to  the  oil  price  shocks  of 
1973/74 and as a means to develop a use for surplus sugar production. It provided incentives 
for  ethanol  producers,  as  well  as  price  subsidies  for  consumers  through  tax  reductions. 
Initially, the programme was very successful: in 1986, 90% of all new cars sold ran solely on 
ethanol,  while  ethanol  production  costs  and  prices  gradually  decreased  due  to  economies  of 
scale and gains in yield.  

In  Brazil  all  petrol  is  still  sold  with  an  ethanol  component  of  20–26%.  In  economic  terms, 
investments  in  agriculture  and  industry  for  the  production  of  transport  ethanol  in  the  period 
1975–89  has  been  estimated  at  close  to  US$  5  bn,  triggering  benefits  in  terms  of  import 
savings with a value of over US$ 52 bn for the period 1975–2002. Although the programme 
lost some of its impact in the 1990s due to a slump in world oil prices and the phasing-out of 
government  incentives,  it  is  seeing  a  resurgence  related  to  current  high  oil  prices,  the 
competitiveness of ethanol as a transport fuel and the emergence of new export markets.  

There are currently no subsidies for ethanol production and the product is very competitive on 
the domestic market: hydrated ethanol is sold for 60–70% of the price of gasohol (a blend of 
90% petrol and 10% ethanol) at the pump. The Brazilian government continues to pay close 

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attention  to  the  biofuels  sector,  however,  by  encouraging  the  sugar  cane  industry  and  the 
provision  of  “flexible-fuel”  vehicles.  In  addition,  new  legislation  on  biodiesel  was 
implemented in January 2004. 

The world’s second largest producer of bioethanol, the United States, has seen an exponential 
rise  in  production  initiatives  over  the  last  year  thanks  to  a  series  of  tax  measures  and 
incentives.  

In 2004 the Energy Tax Act was reworked and renamed the Volumetric Ethanol Excise Tax 
Credit  (VEETC),  meaning  that  the  tax  exemption  now  applies  to  all  levels  of  blending. 
VEETC extended the existing ethanol tax incentive to the end of 2010 at a rate of $0.51 per 
gallon. It also improved the “small ethanol producer tax credit”, which allows a 10 cent per 
gallon tax credit for facilities with a capacity of less than 30 million gallons per year. VEETC 
also introduced a tax credit of $1 per gallon for biodiesel if made from new oil or $0.50 per 
gallon if made from recycled oil. 

Other federal tax incentives include income tax deduction for alcohol-fuelled vehicles and an 
alternative-fuels production tax credit. The American Jobs Creation Act of 2004 (Public Law 
108-357) provides tax incentives for alcohol and biodiesel fuels, available to blenders/retailers 
beginning in January 2005. The credits are $0.51 per gallon of ethanol at 190 proof or greater, 
$1.00 per gallon of agri-biodiesel, and $0.50 per gallon of waste-grease biodiesel. If the fuel is 
used in a mixture, the credit amounts to $0.05 per percentage point ethanol or agri-biodiesel 
used or $0.01 per percentage point of waste-grease biodiesel. 

In  2005,  as  part  of  its  new  energy  bill,  the  United  States  introduced  a  “renewable  fuels 
standard” (RFS), with a target rising from 4 billion gallons in 2006 to 7.5 billion gallons by 
2012. The industry is confident of meeting this target and expects eventually to achieve a 10% 
market penetration. 

A Bioethanol Bill, which would require the blending of bioethanol into commercial gasoline, 
was recently approved by the House of Representatives. Under the bill, all commercial motor 
fuels would be required to have a 5% blend of bioethanol within two years of the act coming 
into force. After another two years, the required blend would go up to 10%. 

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ANNEX 4 

Biofuels Market Situation  

Today, bioethanol is the world’s main biofuel. Biodiesel, which until recently was produced 
almost solely in the EU, is now gaining a foothold in many regions across the world. Biogas 
comes a poor third and has so far made a breakthrough only in Sweden.  

According to EurObservER, the EU’s production of biofuels amounted to 2.4 million tonnes 
in  2004:  0.5  million  tonnes  of  bioethanol  and  1.9  million  tonnes  of  biodiesel.  This  is  an 
increase  of  more  than  25%  compared  with  the  previous  year  and  production  capacities  are 
increasing rapidly.  

For bioethanol, more than 1 million tonnes are expected by the end of 2005 and capacity is 
likely to treble by the end of 2007. For biodiesel, the estimated 66 production sites across the 
EU are scheduled to expand to 75–80 plants by the end of 2005. For mid-2006 an increase in 
total EU25 biodiesel production capacity to 3.8 – 4.1 million tonnes is expected.  

Table 1: EU Production of liquid biofuels 

Czech Rep.
Denmark
Germany
Spain
France
Italy
Lithuania
Austria
Poland
Slovak Rep.
Sweden
UK
from interv. stocks
EU25

source: EurObservER 2005 

2002

5

177
91

66

50

388

Bioethanol
2003
1000 t 

2004

2002

Biodiesel
2003
1000 t
70
41
715
6
357
273

32

1
9

2004

60
70
1035
13
348
320
5
57

15
1
9

69
10
450

366
210

25

1
3

1134

1504

1933

160
82

60

52

70
425

20
194
102

36

52

87
491

In  2004  world  production  of  bioethanol  for  fuel  use  was  around  30  billion  litres.  This 
represents  around  2%  of  global  petrol  use.  Production  is  set  to  increase  by  around  11%  in 
2005. The table17 below shows ethanol production by world region.  

Brazil  has  long  been  the  world’s  leading  producer  of  bioethanol.  The  sugarcane  area  is 
constantly  being  extended,  in  order  to  meet  growing  domestic  and  export  demand.  With 
around  1  million  flex-fuel18  cars  expected  to  be  on  Brazil’s  roads  by  the  end  of  2005,  the 
availability of bioethanol for export could be reduced, at least in the short term. In the United 

17 

18 

It  should  be  noted  that  not  all  ethanol  production  is  for  biofuels.  At  present,  accurate  figures  for 
worldwide fuel ethanol production are not available. 
Flex-fuel cars can run on any combination of gasoline and bioethanol. 

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States bioethanol output is expanding at an unprecedented rate and now nearly matches that 
of Brazil. Canada is a world leader in developing second-generation bioethanol. 

Table 2: World ethanol production (fuel and other uses) 

Ethanol production

Brazil
United States
European Union
Asia
    China
    India
Africa
World

* F.O. Licht's estimate

2005 bio 
litres*
16.7
16.6
3.0
6.6
3.8
1.7
0.6
46.0

2004 bio 
litres
14.6
14.3
2.6
6.4
3.7
1.7
0.6
41.3

In 2004 the European Union, with production of almost 0.5 million tonnes, is estimated to 
have  produced  10%  of  the  world’s  bioethanol.  The  leading  EU  producers  were  Spain  and 
France.  The  leading  consumer  was  Sweden,  with  about  80%  of  the  quantities  imported, 
mostly from Brazil. 

In  Asia,  Thailand is  currently  building  over  a  dozen  ethanol  plants  that  will  use  sugar  cane 
and rice husks. Thailand's ethanol production capacity could rise  to 1.5 billion litres a year. 
Pakistan,  the  world’s  largest  exporter  of  molasses,  is  launching  a  domestic  bioethanol 
programme  to  absorb  some  of  the  country’s  estimated  400 000  tonne  production  capacity, 
following the withdrawal of its special duty free access under Regulation (EC) No 2501/2001, 
which  allowed  it  to  export  ethanol  duty-free  to  the  EU.  Bioethanol  expansion  in  India  was 
slowed  by  a  shortage  of  feedstock,  caused  by  a  drought  affecting  sugar  cane  production. 
Forced to import large quantities of ethanol from Brazil last year, India’s domestic production 
should be back on track this year. It produces more than 1.5 billion litres of ethanol annually, 
of which only a quarter is used for fuel purposes. 

A rapidly growing demand for sugar in the Far East means that increased ethanol production 
has  to  be  balanced  against  a  tight  world  sugar  market  and  strong  export  potential.  China’s 
ethanol  industry  comprises  over  200  production  facilities  in  11  provinces,  capable  of 
producing  more  than  10  million  tonnes  of  ethanol  each  year.  As  food  security  is  a  great 
concern to China, they have also made investments in Brazil, from where they are likely to 
import considerable quantities of ethanol in the future, as will Japan.  

A  number  of  ACP  sugar-producing  countries  are  planning  to  diversify  into  bioethanol,  but 
whether  many  of  them  will  be  able  to  produce  at  sufficiently  low  cost  to  be  competitive  is 
uncertain. However, the potential for biofuel production is not limited only to countries that 
grow sugar cane. Nigeria is considering the use of cassava, of which it is the world’s leading 
producer.  Other  feedstocks,  such  as  sweet  sorghum  (for  bioethanol)  and  jatropha  (for 
biodiesel), require lower fertiliser input, are more resistant to drought and can be grown in any 
region of the world. However, yield volatility may reduce their long-term profitability.  

The EU is the world’s leading region for the production and consumption of biodiesel. EU25 
production  increased  to  almost  2  million  tonnes  in  2004,  with  Germany  the  main  producer, 
followed by France and Italy.  

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Around  the  world,  many  other  countries  have  now  launched  biodiesel  programmes,  using  a 
wide range of different feedstocks, from cassava to used cooking oil. 

The United States’ National Biodiesel Board anticipates that 75 million gallons of biodiesel 
will  be  produced  in  2005,  or  three  times  as  much  as  in  2004.  A  federal  tax  incentive,  state 
legislation  and  a  diesel  shortage  are  all  contributing  to  a  rise  in  demand.  In  Brazil  a  2% 
biodiesel blend will become mandatory in 2008. In addition to developing soya, investments 
are also being made to develop production from castorseed, in particular in the poorer semi-
arid north-east of the country. 

Malaysia, the world’s biggest producer of palm oil, is developing a biodiesel industry, as are 
Indonesia and the Philippines. The first two countries will also supply palm oil to new plants 
in  Singapore,  from  where  biodiesel  will  be  exported.  The  obligation  in  India  to  mix  5% 
biodiesel with normal diesel is expected to create an immediate demand of 2.5 million tonnes 
of  biodiesel,  which  may  increase  to  16  million  tonnes  if  the  mix  is  to  achieve  the  target  of 
20% in 2020.  

Fiji  is  keen  to  replace  10%  of  its  diesel  fuel  imports  with  coconut  oil  from  local  copra 
production. 

Some ACP countries are exploring biofuels options with the help of EU Member States. One 
example is a partnership between a Danish laboratory and the University of Dar es Salaam, 
Tanzania,  which  is  carrying  out  fundamental  research  into  the  production  of  ethanol  from 
lignocellulosic  waste  materials.  The  production  of  bioethanol  from  agricultural  waste  in  the 
developing  world  can  be  envisaged  with  no  danger  that  this  would  detract  from  food 
production.  Feasibility  studies  are  also  being  carried  out  on  using  cotton  oil  as  biodiesel  in 
Brazil and West Africa. 

Production  of  biogas  has  increased  significantly,  but  it  is  used  mainly  for  combined  power 
and  heat  generation.  Although  in  Europe  more  than  500 000  gas-fuelled  vehicles  have  been 
sold in recent years, they mainly run on fossil gas. However, biogas as a transport fuel is used 
in some countries and Sweden has about 50 biogas refuelling stations.  

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ANNEX 5 

Trade in Biofuels 

1. 

Biodiesel 

Biodiesel imports into the EU are subject to an ad valorem duty of 6.5%. However, there is no 
significant  external  trade,  since  the  EU  is  by  far  the  world’s  biggest  producer.  Although 
technical  traits  are  reported  to  be  less  favourable  than  for  rapeseed  oil,  biodiesel  generated 
from  imported  soya  and  palm  oil  can  be  mixed  in  low  percentages  with  rapeseed  biodiesel 
without major problems.  

2. 

Bioethanol – current trade  

There is currently no specific customs classification for bioethanol for biofuel production. This 
product  is  traded  under  code  2207,  which  covers  both  denatured  (CN  2207 20)  and 
undenatured alcohol (CN 2207 10). Both denatured and undenatured alcohol can then be used 
for biofuel production. It is not possible to establish from trade data whether or not imported 
alcohol is used in the fuel ethanol sector in the EU.  

An import duty of €19.2/hl is levied on undenatured alcohol, while an import duty of €10.2/hl 
applies to denatured alcohol.  

Table I 

Imports under code 2207 (in hl) 

Av. 1999–2001 

Av. 2002–04 

% of total (02–04) 

Undenatured alcohol 

Denatured alcohol 

Total 

1 167 935 

279 904 

1 447 839 

2 383 239 

180 988 

2 564 226 

93% 

7% 

100% 

Source: Eurostat Comext database, EU25 since 1999 CN (simulated) – Statistical regime 4 – extracted on 29 July 2005. 

Overall imports of alcohol under code 2207 averaged 2 564 226 hl over the 2002–04 period, 
up  from  1 447 839  hl  over  1999–2001.  Over  93%  came  under  code  2207 10  (undenatured 
alcohol).  

The principal trade trends are summarised in Table II:  

Table II 

Total imports of alcohol under code 2207 (in hl) by duty enjoyed by the exporting countries 

2002 

2003 

2004 

Av. 2002–04  % of total 

Reduced duty  

227 285 

182 940 

288 364 

232 863 

Duty-free  

980 693 

2 027 632 

1 709 282 

1 572 536 

MFN 

TOTAL  

657 011 

494 771 

1 124 699 

758 827 

1 864 989 

2 705 344 

3 122 345 

2 564 226 

100% 

9% 

61% 

30% 

Source: Eurostat Comext database, EU25 since 1999 CN (simulated) – Statistical regime 4 – extracted on 29 July 2005. 

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a) 

b) 

c) 

average  imports  of  bioethanol  increased  by  77%  over  2002–2004  compared  to  the 
previous three-year period (1999–2001), when they totalled 1 447 839 hl;  

over  that  period  70%  of  these  imports  were  traded  under  preferential  conditions,  of 
which  almost  61%  were  duty-free,  while  9%  benefited  from  some  type  of  duty 
reduction; 

30%  of  EU  trade  under  code  2207  takes  place  under  MFN  (most  favoured  nation) 
conditions.  

With respect to the largest exporting countries: 

a) 

b) 

c) 

over  the  2002–2004  period,  Pakistan  was  the  largest  duty-free  exporter  with  an 
average of 501 745 hl, followed, at a distance, by Guatemala with 223 782 hl;  

Brazil  is  the  only  country  capable  of  exporting  large  quantities  as  MFN,  with  an 
average of 649 640 hl over the same period, with the second MFN exporter, the USA, 
on only 20 109 hl; 

one  country  –  Ukraine  –  accounts  for  the  vast  majority  of  imports  at  reduced  duty, 
with 107 711 hl over the 2002–04 period. Egypt came second with over 43 000 hl.  

In  addition,  recent  trends  in  trade  flows  may  require  further  consideration,  given  that 
increasing amounts of imports take place under headings other than 2207 (for instance under 
heading  3824  when  bioethanol  is  blended  with  petrol,  attracting  a  normal  customs  duty  of 
around 6%). Bioethanol is also imported, blended in ETBE.  

3. 

Preferential imports of bioethanol into the EU  

The  EU’s  preferential  trade  basically  comes  under  two  regimes:  the  Generalised  System  of 
Preferences  (including,  among  others,  the  Everything  But  Arms  (EBA)  initiative)  and  the 
Cotonou  Agreement.  The  main  preferences  accorded  under  each  regime  are  summarised  in 
Table III and described in detail in the following sections.  

Import conditions under code 2207 under EU’s main preferential agreements  

Table III 

GSP normal 

Duty 
reduction  

15% up to 
31.12.2005 

0%  as  of 
1.1.2006 

Quantitative 
restrictions  

Beneficiaries  

NO 

All  GSP  beneficiaries  if 
not graduated. 

EBA 

100% 

Cotonou 

100% 

NO 

NO 

LDCs 

ACPs 

GSP+ 

100% 

NO 

Bolivia, Colombia, Costa 
Rica, Ecuador, Guatemala, 
Honduras, Panama, Peru, 
El Salvador, Venezuela, 
Georgia, Sri Lanka, 
Mongolia and Moldova  

3.1. 

GSP 

Council  Regulation  (Regulation  (EC)  No 2501/2001),  in  force  until  31  December  2005, 
classified  denatured  and  undenatured  alcohol  under  code  2207  as  a  sensitive  product. 

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According to Article 7(4) of the Regulation, imports of this alcohol from all GSP beneficiary 
countries qualified for a 15% reduction on the MFN duty19. 

Under the special drugs regime established by Council Regulation (EC) No 2501/2001, which 
was in force from the early nineties until repealed on 30 June 2005, exports from a number of 
countries  (Bolivia,  Colombia,  Costa  Rica,  Ecuador,  Guatemala,  Honduras,  Nicaragua, 
Panama,  Peru,  Pakistan,  El  Salvador  and  Venezuela)  qualified  for  duty-free  access  under 
code 2207.  

The  new  GSP  Regulation  (Council  Regulation  (EC)  No  980/2005  of  27 July 2005),  which 
applies from 1 January 2006 to 31 December 2008, no longer provides for any tariff reduction 
for  either  denatured  or  undenatured  alcohol  under  code  2207  (still  classified  as  a  sensitive 
product).  This  Regulation  put  in  place  a  special  incentive  arrangement  for  sustainable 
development and good governance (the new GSP+ incentive scheme), which has been in force 
on a provisional basis since 1 July 2005 and applies on a permanent basis from 1 January 2006 
to 31 December 2008. This new incentive arrangement grants unlimited and duty-free access 
(suspension  of  Common  Customs  Tariff  duties)  to  denatured  or  undenatured  alcohol  under 
code 2207. It includes all the countries that already benefited from the previous drugs scheme, 
with the exception of Pakistan, which is subject to the full MFN duty.  

The  new  incentive  arrangement  now  also  includes  Georgia,  Sri  Lanka,  Mongolia  and 
Moldova, which have not so far exported bioethanol to the EU.  

Moreover, a special arrangement for the least developed countries (the EBA initiative) under 
the new GSP Regulation offers unlimited duty-free access to denatured or undenatured alcohol 
under code 2207. 

3.2. 

Cotonou Agreement 

Under the Cotonou Agreement, ACP countries qualify for duty-free access for denatured and 
undenatured  alcohol  under  code  2207  with  the  sole  exception  of  South  Africa.  Under 
Regulation  (EC)  2501/2001,  South  Africa  enjoys  a  15%  reduction  in  customs  duties.  From 
1 January 2006 it has to pay full MFN duty.  

3.3. 

Other countries with preferential arrangements  

Egypt  currently  has  unlimited  duty-free  access  to  the  EU  under  the  Euro-Mediterranean 
Agreement. Before that, it qualified for a 15% reduction under the GSP scheme.  

Norway, which ranks among the top ten exporters with a total of 89 375 hl under code 2207 in 
2004,  has  been  granted  duty-free  access  to  the  EU  under  the  system  of  tariff  rate  quotas 
(TRQs) since the mid-nineties. In 2005 the TRQ will total 164 000 hl for exports under code 
2207 10  (up  from  134 000 hl  the  previous  year)  and  14 340 hl  under  code  2207 20,  up  from 
3 340 hl.  

4. 

Trade analysis – ethanol 

Table IV sums up trade under the various preferential arrangements.  

19 

Article 7(4) of Council Regulation (EC) No 2501/2001 of 10.12.2001. 

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Table IV 

Imports under preferential conditions 2002 – 2004 (in hl)  
by duty regime enjoyed by the exporting country 

2002 

2003 

2004 

Av. 2002–04  % of total trade 

2002–04 

GSP normal 

227 285 

182 940 

288 364 

232 863 

GSP+ 

ACP 

EBA 

Others 

553 156 

1 569 005 

1 412 896 

1 178 352 

291 055 

268 784 

154 663 

238 167 

30 018 

86 247 

18 956 

45 074 

106 464 

103 597 

122 768 

110 943 

Total preferential 

1 207 978 

2 210 573 

1 997 646 

1 805 399 

9% 

47.5% 

9% 

1.5% 

4% 

70% 

30% 

Total MFN 

Grand total 

657 011 

494 771 

1 124 699 

758 827 

1 864 989 

2 705 344 

3 122 345 

2 564 226 

100% 

Source: Eurostat Comext database, EU25 since 1999 CN (simulated) – Statistical regime 4 – extracted on 29 July 2005. 

4.1. 

GSP 

Trade data for 2001–2004 show a dramatic increase in bioethanol exports from the countries 
benefiting  from  the  special  drugs  regime  in  previous  years.  Although  these  countries  have 
benefited from the same regime since the 1990s, the unlimited duty-free access enjoyed under 
this scheme at a moment of rising demand for alcohol under code 2207 can be considered the 
single  most  important  factor  underlying  the  doubling  of  bioethanol  exports  from  these 
countries to the EU. All major exporters under code 2207 over the last three years benefit from 
this scheme: Pakistan, Guatemala, Peru, Bolivia, Ecuador, Nicaragua and Panama.  

Altogether, exports of ethanol from the GSP-plus beneficiaries totalled 1 412 896 hl in 2004: 
practically all duty-free exports to the EU and 46% of all exports under code 2207 to the EU 
over the 2002–2004 period.  

Thanks to its lower production costs, Pakistan took a big lead over the other GSP beneficiaries 
with 1 008 656 hl in 2004 (the second largest exporter in the world) followed, at a distance, by 
Guatemala with over 250 000 hl.  

Under  the  new  GSP,  the  exclusion  of  Pakistan  from  the  list  of  countries  having  unlimited 
duty-free access to the EU market will remove from the market one of the most aggressive and 
competitive  producers.  All  the  other  direct  competitors  under  the  GSP  drugs  regime  will 
continue to enjoy duty-free access to the EU market and might be expected to fill the gap left 
by Pakistan, as they have relatively low production costs too.  

Nevertheless,  at  US$14.52/hl,  Pakistan  has  production  costs  closer  to  Brazil’s,  which,  with 
production  costs  of  US$13.55/hl,  still  manages  to  export  substantial  quantities  to  the  EU 
despite paying the full MFN duty. Pakistan might therefore be expected to continue to be able 
to export significant quantities of ethanol to the EU, albeit not at the same pace as before, thus 
utilising the increased production capacity built over the last couple of years.  

By  contrast,  the  15%  reduction  offered  by  the  normal  GSP  regime  provided  access  for 
approximately  9%  of  exports  of  the  same  product  to  the  EU  market.  Unlike  the  obvious 
favourable  impact  of  the  GSP  drugs  regime,  the  impact  of  the  15%  duty  reduction  is  more 
difficult  to  assess.  The  two  largest  exporting  countries  benefiting  from  this  reduction  are 
Ukraine  and  South  Africa.  In  the  case  of  Ukraine,  the  introduction  of  the  15%  reduction 

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coincided with a dramatic increase in exports over the 2002–2004 period. For South Africa, on 
the other hand, the last two years showed exports stable at approximately 50 000 hl, following 
a  dramatic  decrease  over  the  2000–2001  period.  Under  these  conditions,  it  is  difficult  to 
predict the impact of the removal of the 15% import duty reduction, although it seems fair to 
say  that  even  such  a  small  reduction  seemed  to  provide  a  competitive  advantage  over  the 
countries paying full duty.  

4.2. 

EBA 

So far, exports of bioethanol to the EU from countries benefiting from the special arrangement 
for  the  least  developed  countries  (the  EBA  initiative)  under  the  GSP  (EC)  Regulation 
No 980/2005  have  been  negligible  and  have  come  primarily  from  one  country  –  the 
Democratic  Republic  of  Congo  –  which  already  qualified  for  duty-free  access  as  an  ACP 
country.  At  the  moment,  the  Democratic  Republic  of  Congo  is  the  only  LDC  with  sizeable, 
though  erratic,  exports  of  alcohol  to  the  EU  under  code  2207  since  1999.  In  2004  exports 
totalled 18 956 hl after peaking at 86 246 hl the year before.  

It  is  fair  to  recognise,  however,  that  the  EBA  dates  back  to  only  2001  and  some  of  the 
countries  which  did  not  have  duty-free  access  under  other  earlier  regimes  (notably 
Bangladesh, Laos, Cambodia, Afghanistan and Nepal) might find new ways of access to the 
EU in the medium or longer term. 

New opportunities might emerge in these countries – which generally do not produce (or are 
not  very  competitive  at  producing)  sugar  cane  or  any  other  raw  material  for  bioethanol 
production from their own resources – in the form of processing molasses imported from their 
competitive, sugar-producing neighbours. This might be the case with Cambodia, which could 
use  raw  material  from  Thailand,  or  with  Bangladesh  and  Nepal,  which  might  process  raw 
material from India. At the moment it is difficult to quantify future potential production from 
these countries, but investments are known to have been made in some of them, for example 
Bangladesh. 

In  this  respect,  it  is  important  to  stress  that  under  Council  Regulation  (EC)  No 980/2005, 
imports are subject to the GSP rules of origin including regional cumulation. The Commission 
services  are  currently  considering  the  reform  of  GSP  rules  of  origin  in  line  with  the 
orientations  contained  in  the  Commission’s  Communication  COM(2005) 100  of  16  March 
2005 on “The rules of origin in preferential trade arrangements: Orientations for the future”. 
This  aims  at  simplification  and  appropriate  relaxation  of  the  rules.  Inter  alia,  if  favours  the 
principle of using a value-added method for the determination of origin.  

4.3. 

Cotonou Agreement 

•  On the whole, ACP exports to the EU under code 2207 have so far been limited. Over the 
last couple of years, however, they have been fairly stable at 238 167 hl, despite a low of 
154 663 hl in 2004 (excluding South Africa: 48 728 hl). 

Swaziland  and  Zimbabwe  are  by  far  the  leading  exporters  with  an  average  of  85 562 hl  and 
120 261 hl,  respectively,  over  the  2002–04  period.  A  number  of  ACP  countries  are  likely  to 
consider bioethanol production as an alternative to sugar production as part of the restructuring 
resulting from the EU sugar reform. However, bioethanol production from sugar cane might 
remain  relatively  low  and  limited  only  to  countries  where  sugar  production  is  competitive, 
such as Swaziland and Zimbabwe, which have production costs close to Brazil’s and India’s 
and which are already exporting substantial quantities to the EU under code 2207. 

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