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Italy Cuts Tax Relief for Biodiesel

A new report from the USDA Foreign Agricultural Service’s Global Agricultural Information Network (FAS/GAIN) projects a major decrease in Italian biodiesel production due to legislative changes that cut the amount of biodiesel eligible for tax relief.

Recent Italian legislation cut the amount of biodiesel production eligible for tax relief from 300,000 tons to 200,000 tons per year beginning 2005. The reduction is due to budget constraints and the desire to favor alternative energy sources coming from domestically produced agricultural raw materials. The same legislation allocated 219 million Euros to fund the tax relief for the production of one million hectoliters per year of bioethanol. While biodiesel is obtained mainly from imported oils (rapeseed and soybean oil), bioethanol will be obtained mainly from surplus distilled wines, as well as sugarbeets and corn produced in Italy.

Biodiesel consumption had been growing rapidly in Italy— from 70,000 tons in 2000 to 310,000 tons (approximately 6,400 barrels per day) in 2004—and had surpassed the amount capped for tax relief.

Most observers were expecting the trend to continue, and that this year the quota would have been raised to at least 400,000 tons, following the rising concerns about pollution and its impact on human health.

The effect of this developing production of biodiesel fuel on Italian agriculture, however, has been minimal.

Because most agricultural raw materials used in the production of biodiesel are imported, Post believes pressure was put on the Italian Government and Parliament to switch the budget allocations from biodiesel to bioethanol produced from domestic inputs.

The report concludes that while “smog and air quality concerns have grown dramatically in recent years...the use of alternative energy sources seems to have been under valued by Italian authorities. “

Italy is one of the EU countries which has yet to supply a target for biofuel use this year as required by the EU directives. (Earlier post).

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