Cut in Excise duty needed to drive alternative fuels, says analyst

Building medium-sized biodiesel processing plants would not generate worthwhile returns on capital investment without a further cut in Excise duty, according to an economic analysis presented by Brown & Co’s Adam Oliver at the Norfolk Farming Conference.


But shadow agriculture minister James Paice MP disagreed, suggesting the current 20p rebate was enough while oil prices remained high.


At current Excise duty level, which work out at 27p/litre, biodiesel production costs amount to 71p/litre for a plant producing 5000t a year, or 69p/litre for a 10,000t/year plant, Mr Oliver told farmers.


HGCA research suggested customers would be prepared to buy biodiesel at 4p/litre cheaper than current diesel prices, giving a sale price of 72p/litre, not including VAT, he said.


“Pre-finance, the return on capital expenditure for a 5000t plant would be just 5%.


Clearly that is insufficient to drive people to make that investment.”


His figures are based on actual biodiesel production plant costs in Germany, where 2m tonnes of biodiesel are expected to be produced in 2006, compared with just 250,000t in the UK.


Until recently there was no fuel duty on biodiesel in Germany.


“In the last fortnight a €0.10/litre tax has been introduced, similar to what is in place in France.


“Clearly we need a cut in Excise duty.


If it was cut to half way from what it is now and what Germany and France have, the return on investment from a 5000t plant would be 36%, and 64% for a 10,000t plant, which would drive the market,” he suggested.


But Mr Paice, Conservative MP for Cambridgeshire south east, disagreed.


“I don’t believe it is necessary. If oil prices stay high 20p is enough.


It is the uncertainty over future oil prices which deters investment.


That is why we have been calling for a renewable transport fuels obligation to create a guaranteed market.”


He welcomed the government’s autumn announcement that 5% of fuel should be from renewable sources by 2010, but suggested the government should “get off its backside and make some decisions.


“Already we are several months on [from the announcement] and we still do not know how it will work.


It is important because if they get it wrong we will simply suck in bioethanol from Brazil or palm oil for conversion to diesel,” he added.


mike.abram@rbi.co.uk

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