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Tax breaks for biofuels

Date: 06 December 2006   |   Author: Guy Bird

Biofuel looks set to get some - if not all - the additional tax breaks its lobbyists were asking for to kick-start its widespread use in the UK.

The most promising part of the detail of Chancellor Gordon Brown's Pre-Budget Report is his pledge to look into tax breaks for biofuel within the CO2-based company car tax system. Brown's report stated: "At Budget 2007, the Government will set out the company car tax thresholds for 2009-10. The Government will also consider the case for an incentive in company car tax to support the take-up of 'flex-fuel' vehicles, capable of using high-blend bioethanol E85."

The detail of what form this "incentive" might take has not yet been divulged. However, it would be easiest to implement and perhaps therefore the most likely route to take as a banding percentage discount - similar to the now defunct 3% diesel surcharge waiver for early Euro4-emission standard compliant oil burners. Such a break could give credit for the environmental benefit biofuel offers in 'well to wheel' terms that can't be measured by the current tailpipe-only CO2 company car tax system.

The resulting cost savings to biofuel-driven company car drivers would also go some way to offset biofuel cars' weaker fuel efficiency compared to diesel and petrol.

What Brown didn't explicitly mention in the PBR was a further increase in duty rebate for biofuels to make the fuel significantly cheaper at the pumps than mainstream fuels and thus effectively 'neutralise' its fuel inefficiency - i.e. so it would cost the same to drive the same distance regardless of the fuel used.

All Chancellor Brown did commit to was to "extend" - which in Chancellor-speak means "continue" rather than "expand" - the 20ppl duty rebate for biofuel to the next generation of biofuels and even biogas, such as methane which can be produced from land fill waste, but currently powers no cars that are commercially available. He said: "I am extending the 20 pence per litre discount to include the next generation of biodiesel, a discount we will offer to all new innovative fuels as they develop. I am also consulting prior to a Budget decision on extending the current 40 pence per litre duty discount for biogas."

Key biofuel lobbyist and Ford's director of corporate citizenship, Andy Taylor, told BusinessCar: "These are positive signs. But could have he gone further and could he have made the changes now? Yes he could."