Select Committee on European Scrutiny Thirty-Second Report


8. PROMOTION OF THE USE OF BIOFUELS IN ROAD TRANSPORT


(23536)

9041/02


[Amended] Draft Council Directive amending Directive 92/81/EEC with regard to the possibility of applying an exemption or a reduced rate of excise duty on certain mineral oils containing biofuels and on biofuels.

Legal base:Article 93EC; consultation; unanimity
Document originated:22 May 2002
Deposited in Parliament:5 June 2002
Department:HM Customs and Excise
Basis of consideration:EM 10 June 2002 and Minister's letters of 30 May and 6 June 2002
Previous Committee Report:None; but see (23086) 15500/01: HC 152-xix (2001-02), paragraph 3 (13 February 2002)
To be discussed in Council:17 June 2002
Committee's assessment:Politically important
Committee's decision:Cleared


Background

  8.1  On 13 February 2002, the Committee recommended for debate a Commission Communication on alternative fuels for road transportation, 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. The debate was duly held on 1 May 2002.

The document

  8.2  The Spanish Presidency has now provided a compromise text of the Directive to allow reduced rate of excise duty on mineral oils containing biofuels and on biofuels. According to the Minister, the new text has dropped the unacceptable features identified in the original text relating to minimum duty rate for biofuels linked to Member States' current duty rates for the relevant conventional fuels.

  8.3  In his Explanatory Memorandum dated 10 June 2002, the Chief Secretary to the Treasury (Paul Boateng) says:

"The original proposal set out a new framework for taxation of biofuels. It allowed Member States to reduce excise duties in proportion to the percentage of biofuel incorporated into the conventional fossil fuel or end product. But it set a minimum duty rate for biofuels, linked to Member States' current duty rates for the relevant conventional fuel. The exception was biofuels used by local public passenger transport, including taxis, and by certain public authority­operated vehicles, Member States could completely exempt these from duty. The amended Spanish Presidency proposal removes the minimum duty rate. It proposes that:

  • from 1 January 2004 to 31 December 2012, Member States may exempt or apply a reduced rate of excise duty on all biofuels or products containing biofuels;

  • in the case of products containing biofuels, the exemption or reduced rate may apply only to the biofuels element of the mixture;

  • the level of taxation applied on the products may be lower than the minimum rates specified in the mineral oils rates Directive 92/82/EEC; and

  • Member States should inform the Commission annually of duty exemptions or reductions applied under the proposal, and the Commission shall report to the European Council by the end of 2009 on the fiscal, economic, agricultural, energy, industrial and environmental aspects of the duty relief.

"The original proposal made it mandatory for Member States that introduced reduced duty rates for biofuels to adjust them to take account of changes in raw material prices, in particular of crude oil. This was to limit distortions of competition and maintain the incentive of a reduction in costs for producers and distributors of biofuels. In the event of a sustained rise in crude oil prices, the lower tax rates would not over­compensate for the extra cost of manufacturing biofuels. The amended Spanish Presidency proposal modifies the mandatory requirement linking duty reduction to the price of oil so that Member States should adjust the duty reduction to avoid over­compensating for the extra costs involved in the manufacture of biofuels."

The Government's view

  8.4  The Government objected to some aspects of the original proposal. While the Government welcomed the broad principle of allowing Member States to give tax incentives for biofuels without the need for a derogation, it questioned the detail of the original proposal, especially a minimum duty rate for biofuels linked to Member States' current rates, which the Government viewed as inconsistent with the general approach of having a common minimum rate for each product across the Community. As the Minister told us:

"It would have constrained the UK's ability to have the same biofuel duty rate as in other Member States if it had wished to do so, simply because of the UK's higher standard diesel duty rate. Additionally, linking the duty reduction to the price of oil was too prescriptive, would have been difficult to administer, and ran counter to UK policy of deliberately not linking fuel duty directly to the oil price."

  8.5  The Government now considers that the Presidency text meets the UK's most important concerns about the original proposal. The Minister adds:

"The Government believes that the current proposal is acceptable to the UK, as it achieves our primary objective of providing greater freedom to give duty incentives to biofuels without the need for the time­consuming process of applying for individual derogations."

Conclusion

  8.6  The original proposal was cleared on debate along with other documents relating to biofuels. The revised version has dropped the unacceptable features identified in the original text. According to the Minister, the Presidency compromise text meets the UK's main concerns. We are content to clear the revised text.


 
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