A Swiss tax exemption for biofuels that meet certain environmental and labour standards, which had been reserved for domestic producers, has been extended to include imports. In order to qualify for the exemption, importers must prove that their fuels emit 40% less CO2 than the fossil fuel alternative on a life-cycle basis; harm neither tropical forests nor biodiversity; and meet ‘socially acceptable conditions’ for production.

The tax exemption, which was passed into law on 1 July 2008, amounts to 0.72 CHF (US$ 0.67) per litre of biodiesel and 0.74 CHF (US$ 0.71) per litre of ethanol.

Under the new legislation, importers of biofuels into Switzerland must submit a wide range of information about their production methods in order to qualify for the tax exemption, including the history of the land’s use, the quantities of plants, fertilizer, pesticide, energy, by-products and waste used and/or produced, and how far and by what means the fuel was transported to the consumer.

Biofuel importers must also show that their fuel was produced in accordance with employment law at the place-of-production or the fundamental conventions of the ILO.

The requirements for proving these criteria were released in June and are open for comment until August, when the criteria will be reviewed and finalized. Any companies importing in the meantime will then be reimbursed – if they have passed the certification criteria.

Switzerland is a relatively minor consumer of biofuels, consuming around 10 million litres (ML) of biodiesel and 3 ML of fuel ethanol in 2007. Germany, by comparison, consumed 1,954 ML of biodiesel and 286 ML of ethanol in 2005. Even so, the law may be seen as a precedent which should be challenged before it is mimicked by more sizeable markets. Similar certification schemes are being considered by Brazil, Canada, the Netherlands, the U.K. and Germany, as well as the European Union as a whole.

Notably, the Swiss legislation appears to explicitly disqualify biofuels derived from certain materials, stating that “it is considered that fuels made from palm oil, soya or grains do not fulfill the minimum requirements.” This would effectively discriminate against much of the biofuels produced in as Indonesia and Malaysia, for example, as well as corn-based and wheat-based ethanol from other European countries and North America.

It remains to be seen whether this will lead to challenges at the WTO, where trade law has traditionally taken a dim view of barriers based on factors not reflected in the final characteristics of a product. A challenge could also potentially be made on the basis that biofuels and certified biofuels are “like” products, in which case discrimination between foreign and domestic goods would be forbidden by GATT Article III.

Finally, there is the question of ‘socially acceptable conditions’ for production, a distinct issue which could prove harder to defend. It is not specific to biofuels as a product and, unless applied to all goods entering the economy, could be viewed as additional discrimination in favor of domestic production.

For more information about the Swiss government’s policies towards biofuels, see the Global Subsidies Initiative's report, “Biofuels at What Cost? Government support for ethanol and biodiesel in Switzerland,” to be released at the end of August 2008.