In response to the EU’s goal of lowering road transport carbon emissions, in 2008, the Spanish government set a target for petrol retailers to use a minimum of 1.9% biofuel in their products. The target was however, only voluntary and the impact minimal. To better fight pollution, in 2009, the targets were not only raised, but also became mandatory.
Furthermore, biofuels were also, in many cases, tax exempt. Spanish domestic carbon emission policy was seemingly in line with the rest of the EU, and was making progress towards an overall goal of ‘delivering emission reductions of at least 35 per cent in relation to transport fossil fuels’ by 2016.
However, in the last few years, Spanish policy has begun to change. The tax exemption legislation was left to expire, without being renewed, leaving only the mandated minimum usage of biofuel percentages in place.
This immediately had an impact on biofuel consumption in the country. As the US Department of Agriculture’s ‘Biodiesel Standing report on Spain’ noted at the time, “Since January 2013 the legal incentive for biofuels consumption in Spain is only based in a consumption mandate, as the tax exemption for biofuels expired. The hydrocarbon tax reduction used to represent a higher incentive for blending since it amounted to 0.307 Euros/liter applicable to the share of biodiesel and the cost of the mandate breach prior to 2013 amounted to 0.276. However, according to Resolution by the Secretary of State dated July 8, 2013, since 2013 the mandate breach adds up to 0.602 Euros/liter. Consumption mandates were revised down at the beginning of 2013. The downward revision of consumption targets has contributed to the reduction of Spain’s biodiesel market size.”
Whilst many analysts understood how the need to increase government revenues had led to the tax exemptions being allowed to expire, the decision by the Spanish Ministry of Industry, Energy and Tourism for a downward revision of its mandatory consumption targets for biodiesel from 7 percent to 4.1 percent, seemed glaringly in opposition to EU policy.
The actual history of biofuel compulsory additives is shown here, using the Spanish government’s own figures.
The Ministry’s announcement included some reasoning behind the change in policy, stating that, “It is considered appropriate to revise the mandatory consumption targets for biofuels in 2013 and thereafter, setting targets that minimize the fuel prices and ensure some stability in the sector. These new goals will minimize the price of fuel and [provide] time [to] analyze technological developments necessary to achieve the [EU] targets for 2020 of 10 percent penetration of renewable energy in transport.”
Yet despite the desire to keep petrol costs low to aid the economy, the demand for biofuels soon fell further, such that by 2013 the consumption of biodiesel had fallen by 59% (to 550,000 tons), whilst bioethanol had dropped by 16% (to 330,000 tons). This was a return to levels not seen since 2008, as the government figures shown here indicate.
Whilst the Spanish government’s desire to aid the national economy with cheaper petrol pump prices is understandable, the fact remains that the policies put in place are not in line with other EU member states. Furthermore there is doubt as to whether the newly formed Spanish biofuel industry can withstand the lower mandates for use as additives.
Whilst some investors are already losing faith in the situation and closing bioethanol and biodiesel plants, other analysts believe that the condition of the economy as a whole is a priority. They also feel that a new industry should not be dependent on government tax exemptions or enforced usage of products by consumers to survive.
The impact of these policy changes is discussed further in the next part of this article.