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I.  The Legal Framework 

Germany has encouraged the use of bio-fuels at least since 2002, when it introduced an exemption from the mineral oil tax for bio-fuels that decreases the tax on gasoline and diesel fuels to the extent that these contain bio-fuel.[1]   The German laws, however, have been changed frequently in response to a growing awareness of their effects and also to comply with European mandates.

The tax exemption for bio-fuels that was enacted in 2002 became first available on January 1, 2004 and was scheduled to be effective until the end of 2009.[2]  In a study of the effects of the tax exemption in 2004,[3] however, it had become apparent that the tax exemption was over-compensating the producers of bio-fuel, and Germany changed its legislation to modify the encouragements for bio-fuel. 

First, since August 2006,[4]  the total exemption of bio-fuel from the mineral tax has been gradually lowered to a remaining partial exemption from taxation that will remain effective after 2012.[5]  Second, effective January 1, 2007, quotas of bio-fuel were imposed that have to be added to diesel fuel and gasoline, without the benefit of a tax exemption.[6]  Through these quotas for diesel and gasoline, and the still remaining partial tax exemption for bio-fuels, Germany is living up to the European Union (EU) requirements for the encouragement of bio-fuels that are expressed in a directive of 2003 on the promotion of bio-fuels[7] and another directive of the same year on the taxation of energy products.[8]

In December 2007, the German government introduced a package of measures to improve climate protection.  These are intended to become enacted in 2008 and they include a plan to increase the quotas for mandatory bio-fuel additions to diesel and gasoline to a total of fifteen percent by 2015.[9]  A novelty, however, are planned measures to ensure that bio-fuels will be counted toward these quotas and any existing incentives only if they live up to acceptable criteria of sustainability and greenhouse gas emissions-savings.  For this purpose, a Biomass Sustainability Regulation[10] was drafted under the auspices of the Federal Finance Ministry and it is expected to be promulgated in the spring of 2008.  

Germany’s drafted sustainability regulation may be irreconcilable with the sustainability criteria in the EU Commission’s proposed directive on the promotion of the use of energy from renewable sources that was made public on January 23, 2008.[11]  The German sustainability criteria appear to be significantly more stringent than those proposed by the EU Commission.

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II.   Proposed German Biomass-Sustainability Regulation

The draft of the German Biomass Sustainability Regulation[12] allows for the inclusion of bio-fuels in quotas and tax incentives only if they live up to the criteria of

  • sustainable cultivation of agricultural areas;
  • protection of natural habitats; and
  • significant reduction of greenhouse gas emissions.

The sustainability criteria for domestic products are specified by good agricultural practices as required by German law and by European cross-compliance standards that monitor adherence to rules relating to environmental laws, biodiversity requirements, nature conservancy, food safety, animal welfare and health standards.[13]  For products from abroad, these criteria are met if the producing country has equivalent standards to German and/or EU rules.

For foreign products from countries that do not have equivalent standards, the German sustainability criteria are met if global nature conservancy goals are observed by producing the bio-fuels without

  • increasing the emission of acidifying, eutrophy-causing, ozone-depleting, or toxic substances;
  • impairing soil conditions or soil fertility (counter-acted, for instance, by preserving organic substances, protecting against erosion);
  • significantly impairing water quality and water systems;
  • significantly impairing biodiversity; and
  • causing harm to the environment through improper use of fertilizers and pesticides.

The criteria for protecting natural habitats are met if the biomass has not been produced in designated nature protection areas or in areas of a high nature conservation value.  Such areas have rare ecosystems or habitats for rare animal and plant species.  These areas show one or several of the following characteristics:

  • areas that have a globally or regionally significant number of protection-worthy features for biological diversity (for instance, endemic or rare species, or areas of refuge);
  • areas that are located in globally or regionally rare or endangered ecosystems or contain such ecosystems; and
  • areas that serve protective purposes.

Exceptions from these criteria are made if the cultivation of the biomass does not interfere with the protection-worthy species or ecosystems.  The conversion of forests to agricultural areas or plantations, however, will always be considered as damaging to the environment.  The starting date for disqualifying land use changes is January 1, 2005.  Any land use changes made after that time disqualify the biomass.

By including areas of “high nature conservation value” as protection-worthy, the German Regulation refers to a definition established by the Forest Stewardship Council, an international organization dedicated to nature conservation.[14]  The German Regulation intends to include not only forests but also “high nature value farmland,” as defined by the Council, within the scope of the protective regime.  By relying on these internationally established concepts, Germany expects its restrictions to be in conformity with World Trade Organization requirements.[15]

The lowering of  greenhouse gas emissions is pursued by requiring that bio-fuels that count toward quotas or qualify for incentives must have a greenhouse gas emissions savings potential that is thirty percent lower than that of the otherwise used fossil fuel; and from 2011 on, a forty percent saving will be required.  The calculation of the greenhouse gas emissions savings can either be carried out by calculating the actual emissions savings in accordance with the methods described in Appendix I of the Regulation or by relying on a default values given in Appendix II of the Regulation.

As provided in Appendix I, the principles for the actual computation of emissions savings deal exclusively with carbon dioxide; for consideration of greenhouse gases, including sulfur dioxide and methane, they refer to the rules contained in Appendix A of the Kyoto Protocol.[16]  For carbon dioxide, the German method includes the calculation emissions generated in the production of the biomass, including those generated by the use of equipment, and also by processing, transportation, and the use of the biomass.

Emissions from producing the biomass include a proportional inclusion of emissions generated during an earlier step in the chain of production.  Emissions from production equipment are allocated in proportion to their use, but the environmental cost of producing the equipment is not included.   Thus, the system includes the emissions generated in the production of seeds and plantings, animal feed, fertilizer, pesticides, and fuel for agricultural vehicles, while it dos not include emissions generated from producing machinery or storage facilities.  Similar principles apply for emissions generated in the course of processing, including the processing of waste.

The emissions of transportation are counted beginning when the biomass leaves the production facility until the bio-fuel reaches the German commercial enterprise that is responsible for reporting quotas for bio-fuel additions.  Transportation emissions that occur later are not considered.

Also included must be the emissions generated by land use changes from a highly carbon-storing land use to the less carbon-storing cultivation of bio-fuels.  Land use changes are taken into consideration if they occurred after January 1, 2005. 

As a basis for the comparison with fossil fuels, the median value of the emissions generated by gasoline and diesel in Germany in 2005 are used and these result in reference values of eighty-five kilogram CO2 equivalents per gigajoule (GJ, one billion joule) for gasoline and 86.2 kilogram CO2 equivalents per GJ for diesel.  

The default values of Appendix 2 are given in a table[17] that differentiates between products depending on their raw material and areas of origin.  Values are given in kilogram CO2 equivalents per GJ for the following categories:  change in land use, production of biomass, transport of the biomass processing during conversion level 1, transportation between conversion levels, processing during conversion level 2, and transportation to the refinery plus storage plus admixture to the conventional fuel.  The emissions cost of the fuel is established by adding all the applicable individual values. 

The savings as compared to fossil fuel is established by comparing the total emissions cost for the bio-fuel with the established values for fossil fuels of eighty-five kg CO2 equivalents per GJ for gasoline and 86.2 kg Co2 equivalents per GJ for diesel.  These tables can be used either in their entirety to calculate the total emissions cost of a product, or they can be used as a supplement for the calculation of actual values, if some steps in a calculation are computed according to their actual value while the default tables are used for other steps.  

The application of the German default table shows that land use changes destroy the emissions savings potential of bio-fuels, and, in the case biomass of tropical origin, lead to massive negative emissions balances.  The table also shows that, in the absence of land use changes, the greatest emissions savings can be achieved through the use of Asian palm oil (seventy percent), Latin American sugar cane (sixty-seven percent), and Latin American soy beans; whereas rapeseed from Europe saves forty-seven percent, corn from the United States forty-four percent, and wheat from Europe a mere thirty-three percent.[18]

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The EU Directive

As proposed by the European Commission on January 23, 2008, the Directive on the Promotion of Energy from Renewable Sources[19] requires the member states to increase to ten percent by 2020 their quota for adding bio-fuel to transportation fuels.  The Directive also establishes bio-fuel criteria for greenhouse gas savings and sustainable production.  According to this regime, qualifying bio-fuels are those that save at least thirty-five percent of emissions as compared to the corresponding fossil fuel. 

The greenhouse gas emission savings of bio-fuel must be calculated according to article 17 and Appendix VII of the Directive, either by calculating their actual value in accordance with the methods described in the Directive, or through the full or partial use of default values.  The table of default values appears to set stringent standards.

The sustainability criteria are described in article 15 of the Directive and these are not as stringent as those contained in the German Draft Regulation.  The Directive specifically disallows higher sustainability standards in the member states.  The European Directive merely protects against deforestation and against land use changes of declared nature protection areas and specified high biodiversity grassland.  It does not protect other areas of high nature conservation value.  Moreover, bio-fuels will be disqualified only if the land use change occurred after January 1, 2008. Germany, on the other hand, felt that producers had sufficient warning of impending rules on land use change to allow for a cut-off date of January 1, 2005.[20]

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Prepared by Edith Palmer       
Senior Foreign Law Specialist
January 2008


Appendix 1

German Default Values in kilogram CO2 equivalents per Gigajoule

Biofuel
Biomass
Origin
Ethanol
Wheat
Europe
Ethanol
Corn
North America
Ethanol
Sugar Cane
Latin America

 

Ethanol
Sugar Beet
Europe

FAME[21]
Rapeseed
Europe

 

FAME
Soy
Latin America

 

FAME
Soy
North America

 

 

FAME
Palm oil
South-East Asia

 

Direct Change in Land Use

26.2

19.8

 

158.8

15.6

32.8

289.6

54.5

112.8

Production of Biomass

22.3

17.8

19.5

11.3

29.1

12.9

15.2

6.6

Transport of Biomass

0.7

0.7

1.5

1.7

0.4

0.5

0.5

0.1

Processing Conversion Level 1

--

--

0.8

6.6

7.6

7.3

9.2

6.9

Transport Between Conversion Levels

--

--

--

--

0.2

3.8

3.4

4.3

Processing Conversion Level 2

34.3

25.0

1.0

48.9

7.6

7.7

7.7

7.7

Transportation to Refinery, Storage, or Admixture

0.4

4.8

5.5

0.4

0.3

0.3

0.3

0.3

Total

83.9

68.0

187.1

84.4

78.1

322.0

90.7

138.7

 

 

Biofuel
Biomass
Origin
NatVO[22]
Rapeseed
Europe

 

NatVOO
Soy
Latin America

NatVO
Soy North America

 

NatVO
Palm Oil
South East Asia

Hyd.PltO[23]
Rapeseed
Europe

 

 

Hyd.VO
Soy
Latin America

 

 

Hyd.VO
Soy
North America

 

Hyd.VOl
Palm Oil
South East
Asia

Direct land Use Change

34.2

298.8

56.2

117.4

33.2

293.4

55.2

114.3

Production of Biomass

30.4

13.1

15.5

6.9

29.5

13.0

15.4

6.7

Transportation of Biomass

0.5

0.6

0.6

0.1

0.4

0.8

0.5

0.1

0.1

7.6

7.1

9.0

7.4

7.3

6.8

8.6

7.2

Transportation Between Conversion Levels

--

--

--

--

0.2

3.8

3.5

4.3

Processing Conversion Level

--

--

--

--

9.7

9.7

9.7

9.7

Transportation to Refinery, Storage, and Admixture

0.2

3.9

 

4.4

0.7

0.7

0.7

0.7

Total

72.8

323.5

84.7

136.2

81.1

328.2

93.5

143.1

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[1]  Gesetz zur Änderung des Mineralölsteuergesetzes, Jul. 23, 2002, Bundesgesetzblatt [BGBl, official law gazette of the Federal Republic of Germany]  I at 2778, enacting Mineralölsteuergesetz , Dec. 21, 1992, BGBl I at 2185, as amended, § 2 a.

[2]  Steueränderungsgesetz, Dec. 15, 2003, BGBl I at 2645, 2676.  

[3]  Erster Bericht zur Steuerbegünstigung der Biokraft- und Bioheizstoffe, June, 21, 2005 Deutscher Bundestag Drucksache 15/5816.

[4]  Gesetz zur Neuregelung der Besteuerung von Energieerzeugnissen, Jul. 15, 2006, BGBl I at 1534, enacting Energiesteuergesetz, § 50.

[5]  The producers and sellers of bio-fuel and its production equipment brought a constitutional complaint against this change in the law, alleging that their property rights were violated by the unexpected change in the legislation, but the Second Chamber of the First Senate of the Federal Constitutional court rejected the complaint in a reasoned opinion [Bundesverfassungsgericht, decision of July 25, 2007, docket number 1 BvR  1031/07, available at http://www.bundesverfassungsgericht.de/entscheidungen/rk20070725_1bvr103107.html?Suchbegriff=Biokraftstoff .

[6]  Gesetz zur Einführung einer Biokraftstoffquote durch Änderung des Bundes-Immissionsgesetzes, und zur Änderung energie- und stromrechtlicher Vorschriften (Biokraftstoffquotengesetz), Dec. 18, 2006, BGBl I at 3180.

[7]  Directive 2003/30/EC of the European Parliament and of the Council  on the Promotion of the Use of Biofuels or other Renewable Fuels for Transport, May 8, 2003, Official Journal of the European  Union  [OJ] (L 123) 42.

[8]  Council Directive 2003/96/EC Restructuring the Community Framework for the Taxation of Energy Products and Electricity, Oct. 27, 2003, OJ (L283) 51.

[9]  Bundesministerium der Finanzen, Was ändert sich 2008?, http://www.bundesfinanzministerium.de/lang_de/DE/Aktuelles/074.html (last visited Jan. 29, 2008).

[10]  Entwurf einer Verordnung über Anforederungen an eine nachhaltige Erzeugung von Biomasse zur Verwendung als Biokraftstoff [Biomasse-Nachhaltigkeitsverordnung, http://www.bundesfinanzministerium.de/lang_de/DE/Aktuelles/074.html (last visited Jan. 29, 2008).

[11]  Commission of the European Communities, Proposal for a Directive of the European Parliament and of the Council on the Promotion of the Use of Energy, Jan. 23, 2008, available at http://ec.europa.eu/commission_barroso/president/focus/energy-package-2008/index_en.htm#key.

[12]  Entwurf, supra note 10.

[13]  These rules are based on European regulations including Council Regulation (EC) No 1782/2003 Establishing Common Rules for Direct Support Schemes under the Common Agricultural Policy , Sept. 29, 2003, OJ (L270) 1.

[14]  Forest Stewardship Council, A.C., http://www.fsc.org/en/ (last visited Jan. 28, 2008).

[15]  This is explained in the explanations to section 3 of the Draft Regulation.  See Entwurf supra note 10.

[16]  1997 Kyoto Protocol to the United Nations Framework Convention on Climate Change, Dec. 11, 1997, 37 International Legal Materials 32 (1998).

[17]  A translation of the table is attached as Appendix 1.

[18]  A. Moench, Agrarzeitung Ernaehrungsdienst 4 (Jan. 18, 2008), at Lexis/library News/fileZeitng.

[19]  Commission of the European Communities, Proposal for a Directive of the European Parliament and of the Council on the Promotion of the Use of Energy, Jan. 23, 2008, available at http://ec.europa.eu/commission_barroso/president/focus/energy-package-2008/index_en.htm#key.

[20]  As explained in the Draft Regulation’s explanatory notes.  See Entwurf, supra note 10.

[21]  Fatty Acid Methyl Ester.

[22]  Native Vegetable Oil.

[23]  Hydrogenated Vegetable Oil.

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Last Updated: 02/28/2014