French biofuel aid helps farmers, costs public: study

Reuters News
|
Posted: Jan 24, 2012 10:58 AM
French biofuel aid helps farmers, costs public: study

By Gus Trompiz

PARIS (Reuters) - French state support for crop-based biofuels has brought benefits for farming but also hidden costs for motorists who have ended up having to consume more fuel and pay higher prices, the government's auditor said on Tuesday.

With investments in biofuel production now mostly paid off and these fuels offering modest energy gains and unclear environmental advantages, France should speed up the scaling back of tax breaks that amounted to 2.65 billion euros ($3.46 billion)between 2005 and 2010, the Court of Accounts said.

France's public aid for biofuels has supported targets that go beyond what the European Union requires in the short term.

But biofuels have become the subject of fierce debate over their environmental credentials, with critics saying a full analysis of their life-cycle, including land use, shows they may be even worse than traditional vehicle fuels.

The EU, which has set a target of 10 percent of renewable energy in road transport by 2020, is considering how to take into account indirect effects of biofuels.

"If we put this public policy in the context of its three objectives - agricultural, environmental and energy - its pertinence appears inconsistent depending on the objective," Didier Migaud, the head of the auditing body said at the presentation of a report on French biofuel policy.

"Overall the aid offered to biofuels has been favorable to the farming world, particularly the crop sector by creating new outlets," he said, adding biofuels also generated by-products for livestock feed that reduce dependency on imported soy.

But biofuels contribution to France's energy mix had been modest, with less than 5 percent of fossil fuel saved in road transport over 2005-2010 at a significant cost, and their environmental impact was hard to determine, the auditor said.

"All these observations go in favor of more moderate support for a sector that is now established," Migaud said.

HIGHER PUMP PRICES

The cost of this aid is increasingly falling on consumers, rather than on the government which has recouped a large part of its fiscal support through penalties levied on fuel distributors for not reaching biofuel blending targets, the auditor said.

The burden on consumers, who often do not know that their fuel at petrol pumps contains biofuel, totaled about 2.8 billion euros over 2005-2010, its report estimated.

This is mostly due to the lower energy performance of biofuels, meaning drivers have to consume more per kilometer.

The higher cost of making biofuels compared to traditional fuels, and penalties imposed on fuel distributors were also passed on to the public in pump prices, the report said.

To make the policy more effective, blending targets should be flexible to take account of compatibility of car engines and fuel distribution, as well as crop price volatility, it said.

France has set a target of 7 percent incorporation of biofuels in 2010 but the slow roll-out of some products and technical blending limits have left it shy of this threshold.

Instead of offering tax support, the authorities could help the biofuel sector by pushing for stricter EU controls against unfair import competition, the report said.

The French biodiesel sector had been the main beneficiary of the tax breaks as these were above its investments, which was not the case for the ethanol industry, the report said.

The French biodiesel sector initially enjoyed a quasi-monopoly, although the emergence since 2009 of competition from imports and recycled oil had hurt the industry, it said.

The biodiesel sector in France, which mostly uses rapeseed oil as its feedstock, is dominated by Diester Industrie, a branch of the Sofiproteol group controlled by oilseed farmers.

The French ethanol industry, which uses sugar beet and to a lesser extent maize and wheat, features producers like Tereos, the sugar cooperative that has a subsidiary, Tereos Internacional, listed in Brazil.

(Editing by James Jukwey)