BIOFUELS – AT WHAT COST? Government support for ethanol and biodiesel in the European Union – 2010 Update
Biofuels – both ethanol and biodiesel – benefit from large financial support in almost all European Union Member States. A Global Subsidies Initiative (GSI) study found that EU governments provided € 3.7 billion of support for biofuels in 2006, considered at the time to be a conservative estimate. The subsidization of biofuels has continued in recent years as policy makers have sought ways to reduce reliance on fossil fuels, especially petroleum. This update, Biofuels at What Cost? Government Support for Ethanol and Biodiesel in the European Union - 2010 Update, prepared by FiFo Institute for Public Economics (University of Cologne), focuses on the level of support provided by the EU since 2007 and reports important changes in subsidy policies.
The study finds that, in 2008, total transfers in support of biofuels associated with the policies of the EU and its Member States amounted to € 3.01 billion. The decline in support per litre is striking: where in 2006 it was equal to € 0.74 and € 0.50 per litre of ethanol and biodiesel consumed, by 2008 it had decreased to € 0.24 and € 0.22 per litre consumed, respectively. Several factors are responsible for this change. One of the most important is that excise tax exemptions, which represent the largest share of support, have been reduced in several Member States, while mandatory blending targets gained in importance - and the latter are difficult to measure in terms of financial support.
The study concludes with several recommendations for policy-makers at both the Member State and EU level, including:
- Enforce the ‘polluter pays' principle, emphasizing that fossil fuels are accurately priced to take into account externalities;
- Phase out all biofuel support except for research and development (R&D) programs;
- Eliminate all tariffs on imported fuel ethanol; and,
- Insist on more transparency concerning Member States' biofuel policies, so as to allow for the evaluation and assessment of their support measures.