HOW IT WORKS
Bioethanol is a renewable, domestically produced alcohol fuel made from plant material, such as corn, sugar cane, or grasses. In Europe, wheat is the main crop grown for bioethanol production. It is the principle fuel used as a petrol substitute for road transport vehicles. Bioethanol fuel is mainly produced by the sugar fermentation process, although it can also be manufactured by the chemical process of reacting ethylene with steam. Using ethanol can reduce oil dependence and greenhouse gas emissions.
WHAT THE MARKET LOOKS LIKE
Europe can produce vast amounts of ethanol with little or no Indirect Land Usage (ILUC) through the use of low-carbon stock abandoned land, increasing agricultural yields, planting of perennial energy grasses that sequester huge amounts of carbon while yielding feedstock for cellulosic ethanol, and using waste and residues for both conventional and advanced ethanol. Although EU ethanol production and consumption has been continually growing since 2003, Europe remains a relatively modest player globally. At 6.7 billion litres and a market value close to e8 billion the EU is the world’s third largest producer of ethanol.
Since 2005, when the first indicative target of 2% use of biofuels (EC Directive 93/2003) was implemented, European fuel ethanol demand has grown by over 500%. Demand grew through this period as member states, particularly Germany, Netherlands, Spain and the UK, aggressively raised mandates. With EU member states required to incorporate 10% biofuels (energy basis) in all transport fuel by 2020, and required to reduce greenhouse gas emissions by 60% the bioethanol market is on the upswing.
The EU Market is highly protected. The EU imposes a €0.19/liter (around US$ 0.72/gallon) tariff on undenaturated ethanol. The import duty for denaturated ethanol is €0.10/litre (approximately US$ 0.38/gallon). The tariff does not distinguish between the different uses of ethanol (beverage, fuel, industrial).
The first commercial cellulosic ethanol facility in Europe opened in Northern Italy in 2013; other pilot and demonstration facilities are currently in operation, but there are no other prospects for commercial scale cellulosic ethanol in Europe at present.
The U.K. government has followed other EU Member States in moving away from tax incentives towards market based blending mandates. A number of commentators have cited the importance of tax exemptions for U.K. producers. In 2006, Deloitte noted the U.K.’s tax exemptions at that time (23 cents per litre for ethanol and 26 cents per litre for biodiesel) “pale in comparison” to Germany’s 100 per cent tax exemption. A balance of tax incentives and obligations was noted as being required to help develop the U.K. biofuel industry (Deloitte, 2006).