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Tax credits and incentives
Tax credits are common policy instruments that are used in the biofuel policy framework. Tax credits are given to blenders for each litre of biofuel that is blended into the fuel mix with the other fuels (FAPRI, 2009). Tax exemption instruments represent a means for stimulating the demand for biofuels and these are among the most widely-used instruments that can dramatically affect the competitiveness of biofuels (FAO, 2008).
Various countries use tax credits and other incentives in order to make biofuel production more financially feasible. The US in its 1978 Energy Tax Act provided an excise tax exemption for alcohol fuel blends at 100 % of the petrol tax, which at the time translated into 4 US cents per gallon (1 US¢/l). In 2004, the Job Creation Act of 2004 introduced a Volumetric Ethanol Excise Tax Credit of around 51 US cents per gallon (13 US¢/l) for ethanol blenders and retailers. The 2005 Energy Policy Act extended this policy until 2010 and includes biodiesel which qualifies for a US$ 1.00 per gallon (26 US¢/l) tax credit and biodiesel from waste grease which in turn qualifies for a tax credit of 50 US cents per gallon (13 US¢/l) (FAO, 2008). The 2007 US Farm Bill reduces tax credits for maize ethanol, which was previously at 51 cents per gallon to 45 US cents per gallon (13 US¢/l to 11 US¢/l) but focuses on the production and support of cellulosic ethanol by introducing a tax credit of US$ 1.01 per gallon (26 US¢/l) (FAO, 2008).
The EU has an Energy Taxation Directive which has the function to control and set the minimum rates of taxation applicable to energy products when used for motor, heating or electricity purposes. The objective of the directive is to reduce distortions of competition between energy products and it encourages more efficient use of energy in order to reduce the dependence of imported energy products and limit greenhouse gas emissions (Swinbank, 2009). There are two good examples in the EU as to how the taxation rates are being applied and, in recent times, even reversed due to their impacts on the market. In the United Kingdom (UK), the incentive from the Energy Taxation Directive was used to stimulate the industry by allowing an abatement of 20 pence per litre of ethanol and biodiesel for road transport, which the government has promised to maintain until at least 2010 (HM Government, 2009).
The conditions for obtaining this tax reduction are strict in that the producer needs to pay the appropriate duty to the HM Revenue and Customs and, only after proving that the fuel indeed complies with the definition and sufficient tests have been carried out to prove this, will the tax rebate be allocated (Swinbank, 2009). Germany, on the other hand, has always showed good support for renewable energies and, as a result, B100 was for a long time completely exempt from any duty. In 2004, this duty concession was extended to include other fuels, such as B5, which in turn had an expanding impact on the market (Swinbank, 2009). The introduction of mandatory blending rates has led to a reduction in the tax relief for biofuel producers and it is planned that the relief will be completely phased out by 2012. This entails that the biofuel duty will increase from a level of € 0.09 per litre in 2007 to the full € 0.45 per litre in 2012 (Agra Europe, 2006).
CHAPTER 1: INTRODUCTION
1.1 Background
1.2 Problem statement and justification for research
1.3 Statement of hypothesis
1.4 The general objectives
1.5 Methods and procedures
1.6 The outline of the study
CHAPTER 2: POLICY USE AND DEVELOPMENT IN WORLD BIOFUEL PRODUCTION
2.1 Introduction
2.2 Biofuel policy instruments
2.3 The biofuel policy development process
2.4. Rethinking biofuel policies
2.5 Conclusion
CHAPTER 3: GAME THEORY: GOVERNMENT GAMES .
3.1 Introduction
3.2 Game Theoretic Applications
3.3 The Department of Energy
3.4 Department of Agriculture, Fisheries and Forestry .
3.5 Department of Land Affairs
3.6 The Model .
3.7 The Game
3.8 The Game – replayed
3.9 Conclusion
CHAPTER 4: GAME THEORY: INDUSTRY INVESTMENT DECISIONS
4.1 Introduction .
4.2 Application .
4.3 The Biofuels industry development game
4.4 The model
4.5 The game
4.6 The Game – new version .
4.7 Vertical integration and contracting in the biofuel supply chain
4.8 Implications, conclusions and limitations
CHAPTER 5: DECISION TREE: SOUTH AFRICAN BIOFUEL CASE STUDIES
5.1 Introduction
5.2 The South African biofuels industry
5.3 A descriptive feasibility assessment
5.4 Level 1: Preferential areas of investment: South African and European Union
legislation
5.5 Level 2: Supply and local market price dynamics
5.6 Level 3: Analysis of the profitability of biofuel plants in South Africa .
5.7 Level 4: Projects facing possible success or failure
5.8 Level 5: Conclusion and discussion .
5.9 Conclusion
CHAPTER 6: POLICY OPTIONS AND CONCLUSION
BIBLIOGRAPHY.
