Another common policy instrument to promote biofuel use and consump­tion is exemption from excise taxes or mineral spirits taxes. Excise taxes are commonly used in the transportation sector and are designed to fill the gap between property and income taxes. These types of taxes can be imposed on the sale or use of certain articles, including fuels, and on certain transac­tions and occupations. In many cases, these taxes are not itemized in sales receipts and cannot be easily detected, and thus result in a hidden cost to the consumer [81,82]. As shown previously in Table 1, excise tax rates for the countries under consideration range considerably.

In North America, excise taxes have been used as a tool to support renew­able biofuels for some time. The federal governments of both Canada and the USA offer an exemption on bioethanol, which results in a slightly reduced tax rate for E10 blends. In addition, some state and provincial governments also offer exemptions. The largest North American exemption on excise taxes is currently offered in Manitoba, although that status is dependent upon the value of Canadian and American currency.

In Fig. 4, the excise tax exemptions are shown for the USA, and are re­lated to bioethanol production capacity. The federal and state exemptions are illustrated by the shading on the map, with blue indicating the base fed­eral exemption, and shades of red from light to dark indicating increasingly higher state-level exemptions. Bioethanol production capacity in 2005 is in­dicated by the size of the yellow circles, increasing on a logarithmic scale as shown in the legend. Expected additional bioethanol capacity for 2007 is shown by the dark orange circles.

In the USA, Idaho offers the largest combined exemption on E10 fuels at US $ 0.021 L-1, but has no active production of bioethanol. Of the largest bioethanol-producing states, South Dakota and Iowa are the only two produc­ing states that offer an additional exemption on state excise taxes. It may be inferred that excise tax exemptions provide a benefit for producers, but are

■ >$0 20 SO 16-SO 20 $0 14-SO 16

SO 14 (base US Federal exemption)

■ SO 073 (base Canadian Federal exemption)

Fig. 4 Geographic distribution of North American federal and state/provincial-level ex­cise tax exemptions (2005), existing bioethanol production capacity (2005), and projected bioethanol production capacity (2007) [15,17,21,22,69,81] not the deciding factor in determining where to install capacity for produc­tion.

Similarly, exemptions on excise taxes cannot be simply related to bio­ethanol production in Canada or Europe. In Canada, Manitoba offers com­bined exemptions that are higher than any offered in the USA. Combined federal and provincial excise tax exemptions on E10 reach as high as US$ 0.0256 L-1 in Manitoba, as compared to US$ 0.0181 L-1 in Ontario. At the current time, however, Ontario continues to lead Canada in the amount of bioethanol produced, while Manitoba currently lags behind jurisdictions such as Saskatchewan (which has individual incentives) and Quebec (where exemptions are limited to the federal level). In Europe, high excise taxes mean that exemptions for bioethanol (and other biofuels) are very significant and orders of magnitude larger than those found in North America. France offers the largest incentive in the form of tax exemptions, but has focused pro­duction of biofuels on ETBE, while Spain produces a significant amount of bioethanol under a significantly lower excise exemption regime, as indicated in Table 1 [35,43].

In Fig. 5, the level of excise tax exemptions are plotted against bioethanol production capacity and the correlation between the two is examined, using bioethanol production capacities for 2003 and 2005. The two years of data are differentiated by the shaded and white circles. In 2003, no correlation was found between state-level excise tax exemptions and bioethanol pro­duction capacity (r2 = 0.01). This may be evidence that the federal level exemption, which applies to all states, is a sufficient incentive for produc­ers, and that additional incentives are not required to spur development of bioethanol capacity. It could thus be concluded that this is a less effective policy tool for state-level planners. By 2005, the changes in production cap­acity has slightly changed this correlation, but not to any significant extent (r2 = 0.04). It may be postulated that excise tax exemptions have far less in­fluence over the development of bioethanol capacity than does the amount of funding available to capital projects, feedstock availability, or other market influences. Follow-up analyses compared excise tax exemptions to estimates of bioethanol consumption [83,84] and indicate that in the same period, no correlation (r2 < 0.01) could be found between the use of bioethanol in gaso­line blends and state-level excise tax exemptions. This indicates that excise tax exemptions do not serve as a particularly effective tool in enforcing the use of renewable fuels, and that there is no clear cause-and-effect relationship between the level of these exemptions and the establishment of the industry within individual jurisdictions. While excise tax exemptions are undoubtedly an important economic component of a bioethanol producer’s business plan,

they would seem to have less effectiveness as a policy tool to create biofuel capacity or increase its consumption.

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