Germany Phasing Out Price Protection for Biodiesel

Filling the tank with flowers just got a little more expensive for German drivers.

An energy tax law took effect Tuesday, lifting the bonus given to ecologically friendly fuels such as biodiesel by nine euro cents ($0.11) per liter (about a fourth of a gallon). Additional annual increases of six euro cents per liter starting in 2008 will put biodiesel on equal footing with "regular" diesel by 2012.

"It's death in installments," said Karin Ratzlaff of the Association of the German Biofuel Industry (BDV).

Other German environmental groups were less perturbed by the phase-out of the tax break.

Biodiesel tax to bring in 1.6 billion euros

"We do not completely understand the excitement around the tax," Jürgen Resch, head of the German Environmental Help Association, told German public broadcaster ARD. "The taxation of biofuels makes sense when the prices for petroleum products are rising. Not taxing biofuels could allow relatively high profits in the processing chain. That would not be justified."

The cash-strapped German finance ministry also questioned the justification behind biodiesel's exemption from the 45-euro-cent petroleum tax, and said it amounted to too much of a tax advantage in a statement to the press. The ministry said it expects the new law to bring in about 1.6 billion euros in additional revenue.

But renewable energy sources like biodiesel cannot compete with fossil fuels because the newer technology is still faced with higher production costs, Ratzlaff said.

"We are not against a taxation of biodiesel, but we are against taxing it at an equal rate as fossil fuels, because then it can no longer compete," she said. "Customers will only remain interested in biodiesel as long as it is cheaper than fossil fuels."

In their decision to drop the tax break, which became law at the end of June, government officials placed too much emphasis on other emerging environmental fuel technologies, Ratzlaff added.

A focus on undeveloped technology?

"The decision might have come too fast," she said. "The government may have focused on a next generation of biomass, which has a lot of potential, and I think politicians got the impression that this technology would be available tomorrow, but it will still take some time until we are able to use it."

Unlike biodiesel, which is made only from the rape plant's seeds with some of the byproducts used in other agricultural processes, biomass, which is currently being tested on a small scale in Germany, can create energy from a number of sources including the entire rapeseed plant as well as agricultural and domestic waste.

While the new tax will be a new source of income for the government, biofuels could also fulfill other goals, Ratzlaff said.

"The reasons behind using biofuels are to reduce carbon-dioxide levels, to have a secure source of energy production and to promote regional agriculture," she said. "The tax break decision does not help find a way to become increasingly independent of energy imports and leaves behind regional agriculture."

Germany producing and selling more biodiesel than ever

Before the new law came into effect, biofuel use grew steadily in environmentally-conscious Germany and is now available at about 1,900 of the country's 15,000 gas stations.

The German statistics office also reported that 2006's harvest of rapeseed was 6 percent higher than in 2005, largely due to higher biodiesel demand, and that Germany plants more rapeseed than any other country in the world.

Sales of biodiesel have increased because it is less expensive. But in the face of higher production costs, it is the tax break that has made it less expensive for consumers, Ratzlaff said, adding that, in the near future at least, biodiesel is likely to remain less expensive than petroleum-based diesel.

She said she expects producers to pass some of the additional costs on to consumers and to make up the difference by lowering their profit margins.