Brussels, 13/03/2008 (Agence Europe) - On Wednesday 12 March, the European Commission authorised an Italian tax reduction to stimulate the production and use of biodiesel. The measure modifies and prolongs a previously approved scheme and introduces a supply obligation for biofuels.
The Commission has consistently authorized support schemes for biofuels where it could be demonstrated that the aid did not exceed the difference between the cost of producing the biofuel (including a normal profit margin) and the market price of the corresponding fossil fuel. This method is considered to ensure the absence of overcompensation. However, in the notified measure, the tax reduction coexists with a supply obligation. The Commission feels, therefore, that it could be argued that, if fuel suppliers are obliged to put a certain amount of biodiesel on the market, biodiesel is no longer in direct competition with fossil diesel, and therefore the fossil fuel price is no longer the appropriate benchmark and could lead to overcompensation. In the specific circumstances of this case, the Commission concluded that the risk of overcompensation could be ruled out because the proposed tax reduction did not cover the full difference between the biodiesel production costs and the market price of ordinary diesel. Moreover, only a part of a given producer's biofuel output would benefit from the tax reduction. The Commission has also taken into account the scheme's limited duration to 2010 and the prospect of a transition to a system of pure supply obligation. (O.L.)