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Japan's Biofuel Drive Gets More Fuel
[Analysis] The nation is set to introduce preferential tax and tariff measures in FY2008
Hisane Masaki (hmasaki)     Print Article 
Published 2007-12-16 03:35 (KST)   
This is the third part of a three-part article. Read the second part.  <Editor's Note>
In addition to the dispute between the petroleum industry and the Environment Ministry over how bioethanol should be mixed with gasoline, there are at least two other major roadblocks to reaching the goal of saving 500,000 kiloliters of crude oil through the use of biofuels by 2010.

One is a currently negligible volume of domestic bioethanol production and almost-complete reliance on imports, and the other is slightly higher production costs of bio-gasoline than those of ordinary gasoline.

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The government is seeking to boost domestic annual production of bioethanol to 6 million kiloliters by 2030. This amount is equivalent to about 10 percent of annual gasoline consumption at present.

The recently inaugurated joint council of government agencies, universities and 16 major firms will aim to develop innovative, cost-efficient technologies for mass-producing cellulosic bioethanol by 2015.

The joint council will specifically aim to produce bioethanol from rice straws, rice husks and used construction materials, such as waste wood and wood chips, at a cost of 100 yen (US88 cents) per liter.

At present, it costs about 2,000 yen (US$17.65) to produce one liter of bioethanol from used construction materials. Production of bioethanol even from sugar cane, seen as the most cost-effective material, currently costs about 140 yen ($1.24) per liter.

The joint council will also aim to develop a further-reaching technology for turning out bioethanol from silver grass, or "susuki" as the common grass in the country is called in Japanese, at a cost of 40 yen (35 cents) per liter, a level considered to be internationally competitive.

The 40-yen target has been set after taking into consideration a US plan to slash bioethanol production costs to around 30-40 yen (26-35 cents) per liter in 2012. The US and Brazil are major producers of bioethanol.

Cellulosic materials are gaining a growing attention as they do not compete with food. While the production of bioethanol is expanding worldwide, concerns are growing globally about sharply higher food prices resulting from the diversion of food crops to fuels.

Cellulosic materials are particularly attractive for Japan, the world's largest net food-importing country, buying from abroad 60 percent of its food consumed domestically on a calorie basis.

Meanwhile, the Ministry of Economy, Trade and Industry (METI) and the Environment Ministry, along with the Ministry of Agriculture, Forestry and Fisheries, have been jointly pushing for the introduction of a new preferential tax system in fiscal 2008 to promote a wider use of biofuels in automobiles.

Prime Minister Yasuo Fukuda's ruling coalition compiled its taxation system revision outline for fiscal 2008 on Thursday, which includes the introduction of such a preferential tax system for biofuels.

Under the planned tax system, biofuels mixed with gasoline will be exempted from the gasoline tax -- currently 53.8 yen (47.5 cents) per liter -- in proportion to the amount of biofuels included. For example, gasoline that contains 3 percent of bioethanol will be taxed 1.61 yen (1.42 cents) -- 3 percent of 53.8 yen -- less per liter than pure gasoline. At present, there is no tax break for gasoline mixed with biofuels, regardless of the ratios involved.

The government is also expected to make imports of ETBE tariff-free staring in fiscal 2008.

The Council on Customs, Tariff, Foreign Exchange and Other Transactions, an advisory panel to Finance Minister Fukushiro Nukaga, compiles a package of recommendations for fiscal 2008 as early as Thursday, which includes removing the current 3.1 percent import tariff on ETBE.

In response to the panel's recommendations, the government will submit to the next ordinary session of parliament convening in January a bill to revise the Temporary Tariff Measures Law to make ETBE imports tariff-free in fiscal 2008.

Although the planned tariff removal is expected to be introduced as a temporary measure, effective for only one year, it will likely be extended in fiscal 2009 and beyond.

The expected removal of the 3.1 percent import tariff on ETBE is aimed at promoting the distribution of gasoline blended with ETBE by lowering the production cost of the bio-gasoline, which is now about 3 yen (3 cents) higher than that of ordinary gasoline per liter.

With the government and the petroleum industry jointly shouldering the difference, however, the bio-gasoline is being sold at the same price levels as ordinary gasoline.
Hisane Masaki is a Tokyo-based journalist, commentator and scholar on international politics and economy. This is the third -- and last -- part of a rewritten and updated version of an article that originally appeared on Asia Times.
©2007 OhmyNews
Other articles by reporter Hisane Masaki

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