French aid for biofuels ruled illegal

European Court of Justice overrules EU approval of tax breaks for bioethanol production

A French programme to boost the biofuels sector through reduced excise duty on agriculturally-derived "bioethanol" to produce petrol additives has been dealt a blow by the European Court of Justice. In a judgement yesterday, a subsidiary chamber of the court said the European Commission had been wrong to sanction the reduced rates, which are classed as state aid under EU rules.

The court said the Commission wrongly interpreted a clause in the EU's 1992 mineral oils directive, which allows member states to lower harmonised excise rates in order to promote pilot projects that develop more environmentally friendly fuels. It said the plants benefiting from the lower rates were operating established processes and that the aid was thus for economic and industrial rather than technological purposes. In this case, lower duty rates could only have been approved by unanimous ministerial agreement, it said.

In the wake of this month's fuel tax protests, French environment minister Jean Glavany announced two weeks ago that the existing 1992 biofuels subsidy package would be extended. The government wants to stimulate production of 155,000 tonnes of ethyl tertiary butyl ether (ETBE), a petrol additive produced from bioethanol that competes with petrochemically-derived methyl tertiary butyl ether (MTBE). Earlier this year Italy announced similar moves to support biofuels.

The judgement casts doubt over the future of these schemes. It is not known whether the subsidies already paid out will have to be returned, or whether the Commission will defy the court and approve France's new aid proposals, which are expected mainly to benefit bioethanol plants operated by oil company TotalFinaElf.

The legal action was brought by oil major BP, the world's biggest producer of petrochemical ethanol. The company said today that it was pleased with the judgement. A spokesperson stressed that it was not aiming to stop biofuels development but that it feared the subsidies would affect its markets for "traditional" ethanol in applications other than fuels.

Follow Up:
European Court of Justice, tel: +352 43031, a press release and the judgement in case T-184/97; European Commission, tel: +32 2 299 1111; BP, tel: +44 20 74 96 40 00; French agriculture ministry, tel: +33 1 49 55 48 78 and press release.

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