David Stanton (Cork East, Fine Gael)
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Question 137: To ask the Minister for Finance the supports and initiatives in place to encourage the development and use of biodiesel and ethanol as additives or replacements for diesel and petrol; the cost since such initiatives were introduced; if such initiatives extend to imported vegetable oils; his plans to develop and support such substitution; and if he will make a statement on the matter. [6264/06]

Brian Cowen (Laois-Offaly, Fianna Fail)
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A relief from mineral oil tax was introduced in the Finance Act 2004 for biofuels produced or used in certain pilot projects. The pilot projects could be for the production of biofuel or for testing the technical viability of biofuel as a motor fuel. The relief was confined to pilot projects approved by the Minister for Finance. Following an invitation to tender from the Department of Communications, Marine and Natural Resources, relief was granted to eight pilot projects for a period of two years. The cost of the relief is estimated at €3 million in each year, covering, over the two-year period, a total of 12 million litres of pure plant oil, 2 million litres of biodiesel and 2 million litres of bioethanol.

I am making provision in this year's Finance Bill for a significantly expanded five year scheme of mineral oil tax relief to commence in 2006 and end in 2010. The scope of the relief will be extended to projects which are not of a "pilot" nature. Based on the biofuel market penetration targets of the Department of Communications, Marine and Natural Resources, the measure is estimated to cost €20 million in 2006, €35 million in 2007 and €50 million in each of the following three years. This relief scheme, when fully operational, is expected to support the use and production in Ireland of some 163 million litres of biofuels per year.

I also announced in the budget that provision is being made in this year's Finance Bill for a VRT relief of 50% for flexible fuel vehicles. The scheme is intended to encourage the purchase of series production flexible fuel vehicles able to use bioethanol — a blend of a minimum of 85% ethanol and petrol. This scheme will operate for a two year period from 1 January 2006 to 31 December 2007. The cost of the scheme is estimated at €1 million in 2006.

It is clear that it would not be possible for any scheme providing excise duty exemption for biofuels to make such exemption conditional upon the biofuel concerned being produced only in Ireland. This would be in contravention of Ireland's duty under EC competition law not to distort competition in the common market. Inclusion of any such condition in the new scheme would lead to refusal of our application for EU state aid approval for the exemption scheme. As for vegetable oil from non-EU countries, World Trade Organisation rules apply to its importation. The WTO principle of national treatment prohibits discrimination between national and foreign products but internationally agreed tariffs may apply to particular products.

Notwithstanding this, one of the aims of the new biofuels scheme is to create, in so far as is possible, the development of biomass or feedstock production in Ireland to support the development of a sustainable domestic biofuels industry and we must try to reflect this in the new scheme.