France's ethanol sector would collapse if subsidies are cut - highlights case for a Biopact

France's nascent ethanol sector could collapse if the French government goes ahead with plans to slash subsidies key to the survival of the sector, a top industry official said. This is obvious and good news to those who advocate a more rational biofuel market - one in which countries in the South are allowed access to Northern markets to supply biofuels that are far more efficient, do not require subsidies and bring social and rural development.

According to the Global Subsidies Initiative, there is no reason as to why wealthy farmers in the EU and the US should receive massive subsidies for the production of inefficient biofuels that do not really reduce greenhouse gas emissions (previous post), while developing countries could tap their large land and agro-climatic resources to produce much better fuels. This would allow millions of poor farmers to enter a new market that offers, in the words of the UN's Food & Agriculture Organisation's director, a 'historic opportunity' for poverty alleviation.

EU farmers should be not be allowed to keep their colleagues in the developing world in poverty and wreck a chance to mitigate climate change. The case for an alternative situation - a win-win 'Biopact' between the North and the South - is therefor supported by all major think tanks that have studied the biofuels future (the Global Bioenergy Partnership, FAO, the IEA, the OECD, the WorldWatch Institute, the UNIDO, and many others).

Ethanol currently makes up just under a third of French biofuel production. The rest comes from biodiesel, mainly derived from crops like rapeseed. The French ethanol sector is heavily reliant on subsidies in the form of a lower TIPP fuel tax, that makes the fuel competitive with gasoline at fuel pumps. Ethanol currently benefits from a €0.33 per litre discount when sold at petrol pumps, but that amount could soon be halved, said other industry sources.

Alain Jeanroy, co-ordinator of France's ethanol industry group, the talks on upping the TIPP tax are well advanced in the framework of inter-ministerial discussions and are causing great concern.

The lower TIPP fuel tax is just one of the many subsidies and protection measures French farmers enjoy. From the EU they receive subsidies for each hectare of land they devote to growing energy crops. Moreover, they are protected by steep import tariffs on ethanol. Ethanol with an alcohol content of 80 percent is subject to a tariff of €19.20 (27 dollars) per 100 litres. 'Denatured' alcohol, which has a lower content, is taxed at just over half that level (previous post).
energy :: sustainability :: biomass :: bioenergy :: biofuels :: ethanol :: biodiesel :: subsidies :: tariffs :: France ::

In a recent working paper on the impact of biofuels written for discussion by the 'OECD Roundtable on Sustainable Development' (no immediate relation with the OECD), two analysts urged governments in industrialised countries to cut their subsidies for the sector. They called for a liberalisation of the market, which will allow more efficient and competitive producers, mostly found in the poor countries of the South, to supply biofuels to world markets (previous post).

According to analysts, the French government is now considering a cut in the TIFF tax. However, no one from the relevant ministries was immediately available to comment.

"When taking into account commitments taken with industrial investments of close to 1 billion euros and the recent start-up of production units, we would not understand (such a move)," Jeanroy said. France produced 235,000 tonnes of ethanol and 631,000 tonnes of biodiesel in 2006, the French farm ministry said.

France decided to go beyond the EU target and incorporate 5.75 percent of alternative fuels by end-2008, seven percent by end-2010 and 10 percent by end-2015.

According to the latest 'Biofuels Country Attractiveness Index' published by Ernst & Young, France ranked 4th overall for biofuels, and 5th for ethanol, partly due to the strong subsidies and protectionist measures. If some of these are removed, the French ethanol sector will find it extremely difficult to compete with more efficient biofuels produced in the South (previous post).

References:
Guardian: INTERVIEW: Subsidy cuts would wreck French ethanol sector - November 19, 2007.

Biopact: FAO chief calls for a 'Biopact' between the North and the South - August 15, 2007

Biopact: GBEP calls for a Biopact: US/EU must open markets for biofuels from the South - November 13, 2007

Biopact: IISD report challenges EU biofuel subsidies, calls for end to tariff - October 04, 2007

Biopact: Paper warns against subsidies for inefficient biofuels in the North, calls for liberalisation of market - major boost to idea of 'Biopact' - September 11, 2007

Biopact: US tops Biofuels Country Attractiveness Indices for Q2 2007 - September 18, 2007