Features:

Why some southern European countries are choosing not to drink the profits

25th September, 2007

Northern Europe is renowned for its beer, whereas southern Europe is better known for its wine. But both vineyards and barley fields alike are now attracting the attention of biofuels producers throughout the world.

The reasons for this are largely economic. Grape growers are looking at whether there is more money in ethanol fuel than there is in wine, and the price of beer in Germany looks set to rise by 40% this year as farmers put more effort into growing barley for alternative fuels.

The surge in biofuels production in southern Europe, however, cannot solely be put down to new biofuels feedstock research. Other factors including policy, climate and foreign investment, also play a part.

Hitting targets

Biofuels production in any country is in the most part driven by government targets and legislation. The EU Directive 2003/30/EC aimed for a reference value of 2% blend of biofuels by the end of 2005. This is calculated on the basis of energy content, and is for all diesel and petrol transport use. By the close of 2010, this value will be increased to 5.75%. Stephanie Ho, project manager at the European Biodiesel Board (EBB) explains that the 5.75% from the directive is an indicative, not a requirement. The national indicative targets on biofuels throughout the southern states are generally not being met at the moment, making the 2010 target seem elusive. ‘The main reason for some of these countries producing on a slower scale is because of legislation,’ explains Ho. ‘Without having this in place the industry is not feasible.’

Some countries such as Portugal and Slovenia have progressive targets of around 1% more each year until 2010, while Hungary, Malta and Spain have not yet reached a 1% biofuels replacement of traditional transport fuels, according to the 2005 data. Italy’s national indicative target had caused some controversy, as it was set below the 2% reference value. But the new 2007 budget law from December 2006 brings Italy into conformity with the EU Directive on biofuels. Italy’s national directive is now 2.75% by the end of 2008, and 5.75% by the end of 2010.

Tax incentives

Smaller member states such as Cyprus and Malta focus on biofuels usage primarily for the government, with some support schemes improving incentives for biofuels production. Spain, the largest bioethanol producer in southern Europe, has a total exemption of tax on biofuels in force until a year after the EU Directive deadline.

Italy, the leading biodiesel producer, has particular tax levels for bioethanol and ETBE. New taxation changes mean that the biodiesel tax relief quota has been increased from 200,000 to 250,000 for 2007. The quota was 300,000 tonnes in 2004, reduced to 200,000 tonnes because farmers were not benefiting.

For bioethanol, the 2007 budget law extended the annual benefit for production to 73 million through to 2010. Bioethanol production is to be taxed at less than 50% of the normal rate, but the European Commission has not yet approved this tax plan.

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