Carmakers Press EU On Biofuels

By James Mackintosh in London , Financial Times

Published: June 26 2006

Carmakers have begun lobbying the European Commission to do more to promote biofuels by asking member states to introduce graduated tax breaks giving bigger discounts for low-carbon fuels.

The heads of Germany's Volkswagen and Italy's Fiat raised the issue at an informal dinner with several Commissioners, including Günter Verheugen, enterprise and industry commissioner, last week. The European Association of Automobile Manufacturers, currently headed by Fiat, is working on detailed proposals, although its members have yet to agree a particular scheme.

Biofuels such as ethanol and biodiesel, made from plants, can produce less carbon dioxide, the primary gas responsible for global warming, than petrol and diesel. But ethanol produced from European sugar beet or US corn saves less than a third of the carbon versus petrol, against close to 90 per cent for Brazilian sugar cane and some "second generation" technologies currently being developed.

Bernd Pischetsrieder, chief executive of VW, said current tax breaks and requirements for petrol and diesel to contain a certain percentage of biofuel - imposed in Britain and the Netherlands - were encouraging lesscarbon-efficient forms of production.

"We are getting completely the wrong incentives," he said. "Technology with a higher efficiency for biofuels [should be] more incentivised."

However, any move to unify taxes is certain to run up against opposition from member states, with Britain in particular opposed to Brussels interfering in fiscal policy. As a result, carmakers are trying to design a scheme which would give national governments freedom to set rates, but introduce discounts, probably on a percentage basis linked mainly to carbon emissions.

This would be similar to the proposed directive on vehicle taxation, which would force member states to have the same basis for vehicle taxes, even though rates could be different.

Several countries, led by Sweden, give tax breaks to biofuels but none varies the discount according to carbon emissions. This has caused concern in the Commission and among environmental groups that refineries have no incentive to produce biofuels in the most carbon-efficient way.

Britain's Low Carbon Vehicle Partnership, a government and industry funded body, is working on a scheme which would certify biofuels as from environmentally friendly sources.

But the scheme could run into trouble with World Trade Organisation rules if it appeared to discriminate against biofuels from the US - where current production processes mean they have little environmental benefit - or from south-east Asia, where environmental groups fear rainforest is being destroyed to make way for palm oil plantations.

Copyright The Financial Times Limited 2006

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