European Union’s biofuels subsidies measured

The Size and scope of the European Union’s biofuels subsidies is outlined in a new report from the Global Subsidies Initiative, which recently looked at biofuel subsidies in OECD members.

Taking some of the key findnings

Transfers per tonne of CO2-equivalent removed are estimated to be between 575 and 800 euros for ethanol made from sugarbeat, around 215 euros for biodiesel made from used cooking oil, and over 600 euros for biodiesel made from rapeseed. Purchasing CO2-equivalent offsets on the European Cimate Exchange would be far cheaper.

The report adds

Biofuels benefit from a broad range of public support measures at the EU level and among Member States. Excise tax exemptions account for the largest share of support and amounted to almost € 3 billion in 2006. Because this type of subsidy is directly linked to production or consumption, the cost of this measure (in terms of foregone revenue) is expected to rise significantly in the coming years as biofuels production is boosted to reach the Commission’s targets.

Complementing or replacing favourable tax treatment, some Member States have adopted mandatory blending requirements. In most of these cases, the blending ratios are set to increase progressively over time so as to attain, or exceed, the target for 2010 set by the Commission. Although data limitations prevent accurate quantification of these mandatory blending requirements, it is certain that they represent powerful government interventions in the market for transport fuels and provide significant support to the biofuels industry.
Meanwhile, high tariff barriers (€ 0.102 or € 0.192 per litre, depending on whether it is denatured) continue to protect the European ethanol market against imports from third countries, particularly Brazil. Theses tariffs provide price support to EU producers (of an estimated € 420 million in 2006), preventing access by its consumers to cheaper foreign imports and isolating EU producers from international competition.

Translated into litres of petrol and petroleum diesel equivalent, the rates of support are considerably higher for ethanol than for biodiesel. In the case of ethanol, its level of support on a petrol-equivalent basis is more than twice that of the € 0.46 ex-tax market price for regular unleaded (RON 91) petrol in 2006. Transfers as a share of market value were around 65 percent for biodiesel and between 70 and 110 percent for ethanol. These rates would rise were gasoline and diesel prices to fall.

The GSI says it will be recommending that when the EU changes its biofuels regime at the end of the year it should

1. Resist instituting new consumption mandates for biofuels, at least without first undertaking a thorough examination of the costs and benefits of doing so.

2. Eliminate all tariffs on imported fuel ethanol.

3. Avoid providing new specific subsidies to the industry, and move to re-instate fuel-excise taxes on biofuels where this has not already been done.
Improve the information available on support provided to the biofuels industry, and the effects of
such support, as well as on production, capacity and trade in biofuels.
4. Put in place an evaluation process that can thoroughly assess the cost-effectiveness of each Member State’s support policies in attaining all three of the objectives behind the EU biofuels policy.

This is a good place to start the debate from, I’ll be looking out for national biofuel board’s perspectives in the coming days and weeks. It will be interesgting to see the kind of comporomise that the European Commission reaches.

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