Select Committee on European Scrutiny Twenty-Second Report


PROMOTION OF THE USE OF BIOFUELS IN ROAD TRANSPORT


(23086)

15500/01

COM(01) 547


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

(b) Draft Directive on the promotion of the use of biofuels for transport.

(c) Draft Council Directive amending Directive 92/81/EEC with regard to the possibility of applying a reduced rate of excise duty on certain mineral oils containing biofuels and on biofuels.

Legal base:(a) —

(b) Article 175EC; co-decision; qualified majority voting

(c) Article 93EC; consultation; unanimity

Department:(a) and (b) Transport, Local Government and the Regions

(c) HM Customs and Excise

Basis of consideration:SEM and Minister's letter of 13 March 2002
Previous Committee Report:HC 152-xix (2001-02), paragraph 3 (13 February 2002)
To be discussed in Council:6-7 June 2002
Committee's assessment:Politically important
Committee's decision:For debate in European Standing Committee A (decision reported on 13 February 2002)



Background

  5.1  Because its own oil production is expected to decline over time as demand continues to grow, the Community has been concerned that its dependence on imported oil, particularly from the Middle East, is likely to increase. A further concern is that any increase in oil consumption is out of step with the need to reduce greenhouse gas emissions, and more particularly with the commitments undertaken at Kyoto. As a result, a Commission Green Paper[12] in November 2000 contained the objective of 20% substitution by alternative fuels in the road transport sector by 2020. The present document, put forward in November 2001, comprises a Communication from the Commission analysing the various issues which would arise in seeking to achieve that aim, accompanied by two legislative proposals — a draft Directive on promoting the use of biofuels in road transport, and a further draft Directive concerning the application of a reduced rate of excise duty on certain mineral oils containing biofuels and on biofuels.

  5.2  More specifically, the first draft Directive would specify the minimum share of biofuels[13] as a percentage of all fuels for transportation sold on the individual markets of Member States from 2005. This would be introduced on the basis of an agreed schedule, rising by 0.75% a year, from 2% in 2005 to 5.75% in 2010 (and including a minimum of 1% in the form of blending in 2009, and of 1.75% in 2010). This schedule could, however, be adapted in the light of experience, environmental evaluation and new technical developments, and in conformity with other energy and environmental objectives undertaken at national and Community level.

  5.3  The second Directive proposes:

  • that Member States should be allowed to reduce excise duties in proportion to the percentage of biofuel incorporated in the fuel or end product;

  • but that, in order to mitigate the revenue loss, the actual amount of tax on the end product should not be less than 50% of the normal rate of excise duty for the corresponding propellant; and

  • that, in order to limit distortions of competition, and to maintain an incentive for producers and distributors of biofuels to reduce costs, Member States should ensure that, in the event of a sustained rise in crude oil prices, the lower tax rates do not over-compensate for the extra cost of manufacturing biofuels.

In addition, Member States would be able to exempt from duty biofuels used by local passenger transport, including taxis, and by certain public authority operated vehicles.

  5.4  In our Report of 13 February 2002, we noted that the Government supported the Commission's broad aims, but that it had a number of reservations, particularly over certain aspects of the proposal to allow reduced rates of excise duty. We therefore recommended the documents for debate in European Standing Committee A, adding that this should take place well before the June Energy Council at which we understand the Presidency hopes to achieve a Common Position. We also said that we expected the Department for Transport, Local Government and the Regions to make available before the debate the Regulatory Impact Assessment which it had promised.

Supplementary Explanatory Memorandum of 13 March 2002

  5.5  The Parliamentary Under-Secretary of State at the Department of Transport, Local Government and the Regions (Mr David Jamieson has now provided with his Supplementary Explanatory Memorandum of 13 March 2002 the promised Regulatory Impact Assessment. This suggests that meeting the target of 5.75% biofuel sales in 2010 could reduce UK emissions of carbon from road transport by 0.3-0.7 million tonnes, providing benefits (albeit ones which are unquantifiable) in terms of climate change. Also, in so far as the UK is projected to become a net importer of oil in the medium term, there could be an improvement in its security of energy supply, although this would depend upon whether the biofuels used were produced in this country. The Assessment suggests that, on the basis of the Commission's own estimates, the extra production costs of achieving these benefits could range from £475 to £875 million a year, but that the impact of these will depend upon which of the three available means of achieving the targets in the Directives is chosen. If this is done by cutting the duty on biofuels, users of those fuels would benefit, with the cost being borne by taxpayers generally, whereas if an attempt is made to increase sales of biofuels for dedicated vehicles or to blend biofuels with conventional fuels, either by legislation or through voluntary agreements, the cost would eventually be borne by conventional fuel consumers. Whichever of these options is chose, it is estimated that the cost effectiveness would range from £675 to £2,900 per tonne of carbon saved, or 12p-21p per litre of conventional fuel saved.

  5.6  In our earlier Report, we also asked for clarification of the subsidiarity implications of the proposal to promote biofuel use. Whilst in general terms the Minister had suggested that Community action in this area "can be appropriate", he went on to give instances where this might be "more problematic". The inference we drew was that this latter description would apply to aspects of the present proposal, but we said that it would be helpful if the Minister could confirm that this was the case, and, if so, indicate which aspects of the proposal would be open to that criticism.

  5.7  The Minister has addressed this in a note attached to his letter of 13 March 2002. He says that, whilst the Government accepts that action at Community level to promote improved security of supply and reduce carbon dioxide emissions in the transport fuels sector is valid, it does not believe that the Commission has adequately justified the approach it has proposed, in relation to leaving as much scope as possible for national decision, taking into account the need for any burden to be minimised, and ensuring that the proposed approach produces clear benefits compared with other alternatives.

  5.8  As regards the focus of the Directive, he says that, by setting mandatory targets only for biofuels, the proposal removes the flexibility of individual Member States to decide how to achieve their security of supply and environmental objectives, given that there are a range of other options, from vehicle technologies to other renewable fuels, which could potentially deliver such goals cost-effectively. Similarly, if the measure were to focus exclusively on fuels, the Government would prefer to see it apply to renewable fuels generally. The Minister adds that the targets themselves leave very little scope for national decision, are likely to be costly to deliver, and do not offer clear advantages over other approaches. He says that mandatory targets will require the creation of a significant biofuels market within a very short timescale, which is likely to lead to market distortions and to the use of biofuels which are not the most cost-effective option; that the annual nature of the targets allows for no short-term changes in the market; and that the costs of the Directive will be borne disproportionately by Member States with less mature biofuels industries (and less scope for developing such industries).

  5.9  Finally, the Minister questions the Commission's suggestion that the approach proposed will send a clear, unambiguous signal to the market of the Community's intention to increase the level of biofuel use. He says that, whilst the UK agrees on the need for a clear signal as regards security of supply and climate change abatement, it considers that this should be done by means which are cost-effective and market-led and take account of the circumstances of individual Member States, as for example in the Renewable Energy Directive (2001/77/EC). He also cites as one example of this latter approach the Government's introduction shortly of a 20p per litre duty differential for biodiesel, and the pilot biogas and biethanol projects it is pursuing through the Green Fuels Challenge.

Conclusion

  5.10  We are grateful to the Minister for this further information, which we are drawing to the attention of the House as being relevant to the debate we have already recommended in European Standing Committee A on these proposals.


12   (22096) 5619/01; see HC 28-xi (2000-01), paragraph 2 (4 April 2001). Back

13   This term covers bioethanol, biodiesel, biogas, biomethanol, biomethylether, bio-oil, and bioETBE (ethyl-tertio-butyl-ether). Back


 
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