French ethanol makers welcome reduction of tax hike

PARIS (Reuters) - French ethanol producers welcomed on Friday the government's decision to reduce a planned tax increase for biofuels from next year.

In an amendment approved by the lower house of parliament on Thursday to the 2009 finance bill, the government said it would cut tax breaks for biodiesel and ethanol over the next three years by less than announced previously.

The revised text also drops plans to eliminate the tax breaks completely from 2012.

"The government has listened to us," Alain Jeanroy, coordinator of a French ethanol industry group, told Reuters.

He added that a revision clause is planned for 2010 and 2011 that would allow France to take into account a forthcoming European directive on the taxing of biofuels.

The original tax changes for biofuels, announced in the draft budget at the end of September, were condemned by industry representatives as going back on commitments to support the expansion of the fuels as part of national environment targets.

The government, which had hoped to save 401 million euros ($505 million) next year by reducing the tax breaks, had argued that the need for fiscal support was declining.

The authorities had always planned to phase out the tax advantages, but the size and timing of the cuts were a blow for producers of crop-based fuels, faced with criticism over their environmental impact and contribution to rising food prices.

However, French President Nicolas Sarkozy gave a boost to the ethanol industry last week at the Paris auto show by announcing measures favoring the fuels, while reaffirming a national target of 7 percent biofuel incorporation in 2010.

French producers are currently exempt from paying 0.22 euros per liter of the TIPP fuel tax for biodiesel and 0.27 euros per liter for ethanol.

Under the budget amendment, the tax reduction for biodiesel will fall to 0.15 euros a liter in 2009, 0.11 in 2010 and then 0.08 in 2011.

For ethanol, the tax break will be cut to 0.21 euros a liter in 2009, 0.18 in 2010 and 0.14 in 2011.

The initial budget proposal called for the tax exemptions for biodiesel and ethanol to be cut to 0.135 and 0.17 euros a liter respectively next year, before being reduced to zero in 2012.

(Reporting by Valerie Parent; writing by Gus Trompiz, editing by Anthony Barker)