Biomedical Engineering Reference
In-Depth Information
biofuel targets in the European Union).
8
Indeed, many countries have set their
future biofuel strategy up to 2015 (e.g., Canada), 2020 (e.g., the European Union,
Brazil, and the United States), or even 2030 (e.g., Japan). Thus, for instance,
Canada increased the biodiesel blend mandate from 5 % to 7 % and is considering
increasing it further to at least 10 % by 2015 [
38
].
The envisaged maintenance and expansion of mandates over one or two decades
is an important signal toward the biofuel industry. It reduces industry's uncertainty
about future policy changes. It allows biofuel producers to better plan investments
in refiners and research and development in new technologies. It is interesting to
note that developed countries (e.g., Australia, Canada, the European Union) imple-
ment predominantly mandatory blend requirements, whereas some less developed
and developing countries (e.g., Fiji, Kenya, Malawi, Nigeria) tend to rely on
voluntary blends.
Consumption Subsidies
Biofuels are almost perfect substitutes to fossil fuels. Because the latter are gener-
ally highly taxed, especially in oil-importing countries, to support biofuel con-
sumption (and hence production), some countries provide reductions in the fuel tax
for biofuels. Depending on its administration, the consumption subsidies take two
forms: a blender's tax credit and a tax exemption.
9
The two policies have identical
market effects in a closed economy: they raise the market price of biodiesel by the
amount of the subsidy [
12
,
39
]. However, with international trade, their effects
differ, depending on which country and policy determines the biofuel price [see
40
,
41
for details].
The United States was the first country to apply a tax credit by providing a tax
reduction to fuel blenders. The initial stimulus came from the 40 cents per gallon
federal subsidy established by the Energy Tax Act of 1978. It increased early on to
reach 60 cents per gallon with the Tax Reform Act of 1984 but was being gradually
adjusted downward since 1990. The federal blender's tax credit was last decreased
to 45 cents per gallon as of January 2009 to be finally phased out at the end of
December 2011 [
8
]. Until its expiration on December 31, 2011, biodiesel blenders
enjoyed a tax credit of $1 per gallon of biodiesel blended with regular diesel (it was
temporarily suspended in 2010 but reenacted retroactively in December 2010). In
8
The European Union is currently considering introduction of a 5 to 7 percent cap on the amount
of first-generation biofuels in the EU's 2020 transportation mix. This would be a reduction from
the 10 (energy) percent target discussed earlier.
9
Technically, with the tax credit blenders pay the full fuel tax on the fuel sold, regardless of the
biofuel's share. At the end of the fiscal year, they are subsequently reimbursed for the discount on
the biofuel (proportional to the biofuel's share in total fuel volume) provided to the fuel consumers
throughout the year. With the tax exemption, the blender directly collects a lower tax on the
volume of biofuel in the fuel mixture.
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