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Give biofuel a (tax) break

Date: 22 November 2006   |   Author: Guy Bird

The Government must incentivise the use of biofuels if it's serious about meeting the 60% reduction in CO2 by 2050 outlined in its proposed Climate Change Bill, says Guy Bird

It doesn't matter how light-footedly you drive a big car - whether petrol or diesel - you're not going to be doing your bit for the environment in most politicians' eyes right now (or much for your tax or fuel bills either). That's because big cars are made up of heavy bits of metal that need a lot of energy to get in motion, even petrol/electric hybrid ones.

BMW is offering 100 hydrogen-powered 7-series luxury saloons next year for those lucky enough or rich enough (BMW has yet to announce prices or a exact marketing strategy), but there is another more affordable technology available right now. A fuel that could make all cars - including bigger ones like estates or MPVs that many of us like and arguably need if we have families and stuff to haul about - much cleaner. You may have heard of it - it's called biofuel. The key is measuring the whole impact of the fuel from production to use - known as '[oil] well to [car] wheel' (or W2W).

However, although biofuel cars already exist, from the likes of Saab and Ford, the UK refueling network doesn't. This is because the tax breaks on the fuel are not sufficient to encourage a critical mass of people to make the switch (or fuel companies to bother converting their pumps). If drivers use biofuel today in Britain, they lose money on every tank they consume because biofuel is less efficient than petrol or diesel but costs the same to buy.

However, the jewel in biofuel's crown is that it emits less 'W2W' CO2 as it can be made from sustainable crops that absorb CO2 as they grow. On this basis, independent experts say the benefits of using bioethanol E85 (85% ethanol/15% petrol) can result in 50-70% lower CO2 emissions than petrol. But Gordon Brown has yet to reflect this in higher duty rebates or other tax breaks.

Who's down?

The Swedish government has been 'down with biofuel' for several years, offering numerous tax breaks, and now the French are joining in. In 2007, they plan to build 500 biofuel filling stations from scratch and cut biofuel duty to 35% less than petrol - to 0.80 Euros (54 pence) per litre.

“A mere £10 reduction in Vehicle Excise Duty (VED) and a 20 pence per litre tax rebate on biofuels is not enough to stimulate this new market.”

Jonathan Nash, Saab's managing director

The French government is also looking at incentives on flex-fuel vehicle purchases through 50% rebates on registration certificates plus yet-to-be-decided breaks on company car tax and local council parking fees. The administration is even putting its own fleet money where its mouth is by committing to turn 15% of its annual 50,000-strong government vehicle purchases into flex-fuel vehicles and double that percentage by 2008.

Okay, so France has more rural land that could be cultivated than the UK - and they've an eye on the financial benefits for their large farming community and thus their overall economy too - but we've still a few green spaces that haven't been turned into out-of-town retail parks.

The biofuel believers aren't just 'right on' governments, either. Saab, Ford, Morrisons supermarkets, and even just last week Virgin's Richard Branson - who has just taken the keys to a Saab 9-5 BioPower and is looking at biofuel to run his planes - is getting on board. But currently, there's only tokenistic 'tax concessions' from Gordon, as Saab GB's managing director Jonathan Nash said last week. "A mere £10 reduction in Vehicle Excise Duty (VED) and a 20 pence per litre tax rebate on biofuels is not enough to stimulate this new market," highlighted Nash.

What is Gordon saying?

But maybe, Mr Brown is about to change his approach. In his speech at the launch of the Stern Review on the economics of climate change on October 30, the Chancellor suggested biofuel tax breaks were on their way: "We will go further. I can say we will, in future Budgets, also incentivise the next generation of cellulosic biofuels - so that with this and other incentives for reducing emissions.Britain will be at the forefront of achieving a high growth, low carbon economy."

But will the promised tax break be announced in his mini-Budget speech due at the end of November and come into force as early as next March? If he wants 5% of fuels in all vehicles to be biofuel by 2010 he'd better get his environmental skates on. After all the climate change sticks, this would be a welcome and worthwhile carrot.