From: Reuters
Published December 14, 2007 04:00 AM

Japan Plans Tax Benefits on Green Auto Fuels

By Risa Maeda

TOKYO (Reuters) - Japan plans to reduce the tax on prices of "green" auto fuels and make free of duty imports of the plant-origin gasoline additive ETBE, both effective from April, to meet Tokyo's commitments to make more use of such fuels.

The tax exemption by 3 percent for the five years to March, 2013, and duty free on imports of ethyl tertiary butyl ether (ETBE) for one year would initially help the oil industry, a Ministry of Economy, Trade and Industry official in charge of the fuel policy said on Friday.

Japan's ruling bloc has announced a list of tax reform proposals for the next fiscal year starting in April, which included these plans. The proposals are to be discussed in a parliamentary session starting in January.

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The 3-percent tax cut from April reflects the content of biomass-origin ethanol in the two types of the "green" fuel currently both on a test sale in Japan.

In an effort to combat global climate change under the Kyoto Protocol framework, the Japanese government has decided to replace 500,000 kiloliters a year of gasoline, or just 0.8 percent of annual gasoline sales, with biofuels by 2010.

The oil industry has said it would share 210,000 kl of the total by selling gasoline blended with ETBE, a popular alternative fuel in Europe.

The ministry official said the industry now makes losses to provide the green fuel to a government-led test sale which started in April, 2007, as it costs about 7 yen ($0.6) a liter more than gasoline.

The green fuel, which is so far made from imported ETBE only, includes 3 percent of biomass-origin ethanol.

Another way to reduce greenhouse gas emissions from auto fuel in Japan is to use gasoline mixed directly with up to 3 percent plant-origin ethanol.

A test sale of this fuel started in October in Osaka, western Japan, using ethanol from wood waste provided by the country's first cellulosic ethanol plant in Sakai city.

The environment ministry has supported the project and plans to do so next fiscal year as well.

In addition, three new ethanol plants, subsidized by the farm ministry, are to run operations in the next fiscal year, using domestic farm produce, such as high-yielding rice.

In fact, these tax benefits would do little to lower the retail prices of green auto fuels from around 155.5 yen a liter currently, government officials said. Both types are sold almost at the same prices as regular gasoline.

But the tax to be exempted from the retail prices of around 1.6 yen a liter would at least help such green fuel providers to narrow their production costs, government officials said.

The oil industry this year imported a total 15,700 kl of ETBE from Europe on which a 3.1 percent duty was imposed.

The test sale, subsidized by the trade ministry, started in April of gasoline blended with 7 percent of ETBE at 50 plump stations in Tokyo and surrounding areas.

The test sale is extended into next fiscal year, with the number of stations rising to 100.

(Reporting by Risa Maeda; Editing by Ben Tan)

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