French biofuel subsidies under attack again

EU to scrutinise aid for agricultural production of ethanol following court ruling

The European Commission is to reinvestigate subsidies granted by France to its burgeoning biofuels sector following a European Court of Justice ruling that the aid package should not have been authorised. France will now have to win over all 14 other EU states to maintain the support. The ruling followed a challenge by oil-giant BP, which said the aid risked harming its markets.

Under a programme begun in 1992 and expanded earlier this year, France grants an excise duty exemption to biofuels such as ethyl tertiary butyl ether (ETBE), which is made from ethanol produced from agricultural crops. Under an EU directive of the same year, France applied for, and was granted, clearance for the exemption on the grounds that the aid supported pilot projects to develop specific technologies.

But the court ruled in September that the technology was already mature and that the aid was "economic" in character (ENDS Daily 28 September). Whilst stressing that it continues to support development of biofuels in principle, the Commission now says France must comply with the ruling and has begun a state aid investigation. "The Commission is in favour of energy from renewable sources," competition commissioner Mario Monti said today. "The new inquiry does not in any way signify a shift in that policy."

Meanwhile, in a bid to protect the scheme the French government has reapplied for the exemption under a different provision of the same 1992 directive. This allows governments to lower duties "for specific policy considerations," but must be approved unanimously by the Council of Ministers.

BP says the subsidised agricultural ethanol production risks distorting its markets for petrochemically-derived ethanol - even in non-fuel applications. The firm is now highly likely to lobby governments to reject the French application. It is not clear whether the biofuel industry would have to refund the money if France's bid for approval fails.

Follow Up:
European Commission, tel: +32 2 299 1111, and a press release.

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