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Production
Estimates and Crop Assessment Division |
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Production
Estimates and Crop Assessment Division |
November 4, 2003
The European Union’s Council of Ministers took an important though expected step in the development of the EU biodiesel industry. The EU Council on October 27 adopted new rules allowing, but not mandating member countries to detax fuels from renewable sources. (Detaxation is a term used in the European Union to signify a reduced level of taxation, in this case compared to petroleum based fuel.)
The development of the biodiesel industry in Europe is an important reason why rapeseed production in Europe has been maintained at current levels despite the reduced support levels for oilseeds under Common Agricultural Policy (CAP) reforms. EU biodiesel production has risen from nearly insignificant levels a dozen years ago to an estimated 1.07 million tons in 2002. This level of production requires the input of an estimated 2.7 million tons of oilseed compared to a current EU total oilseed production level of 13.1 million tons. Member state producers will likely increase rapeseed plantings over time as member states adopt programs to increase biofuel usage to meet target levels, and the biodiesel industry expands to take advantage of those programs. Member state producers are producing virtually all the oilseeds allowable under the WTO on set-aside land. Therefore, further production expansion for biodiesel use will need to be put on food-use area, under the existing WTO agreement.
The new directive allows member countries to adopt taxation rules favorable to renewable fuels, thus it gives them a tool so they can comply with a directive adopted in May. The measure adopted in May established a target for member states to increase the use of biofuels to a minimum of 2 percent of gasoline and diesel sold for transport by 2005 and to 5.75 percent by 2010. Member countries will be obligated to report every two years to explain why they may not have achieved the objectives. Biofuels are seen as not being cost competitive with petroleum fuels unless they are given some level of fiscal support. Motor fuels are generally taxed quite heavily in Europe, and detaxating biofuels may make them cost competitive depending on the level of detaxation and the relative market prices for renewable fuels versus petroleum fuels.
Biodiesel is produced using vegetable or animal based oils, but in Europe it is chiefly produced using rapeseed. It is currently the most widely used biofuel in the European Union. Ethanol produced from wheat or sugar beets is also a widely used biofuel in the European Union. Current detaxation schemes of member countries are a result of special exceptions to EU regulations or are a result of member countries using loopholes in current regulations. The new EU directive establishes pan-EU rules for detaxation of biofuels.
