Bio-fuels: European Communities fiscal initiatives

This paper first reviews the influence that European Communities fiscal policies have had in the past on the development of more environmentally compatible fuels such as unleaded gasoline. It then discusses which directions fiscal policy makers should take in order to create appropriate financial incentives encouraging the production and use of biomass derived fuels - methanol, ethanol and pure and transesterified vegetable oils. An assessment is made of the efficacy of a recent European Communities proposal which calls for the application of excise tax reductions on bio-fuels. Attention is given to the net effects due to reduced sulfur and carbon dioxide emissions characterizing bio-fuels and the increased use of fertilizers necessary to produce biomass fuels