The Global Subsidies Initiative (GSI), the publishers of this newsletter, has released the most comprehensive account to date of Switzerland's government support to biofuels, as part of a multi-country effort by the GSI to characterize and quantify subsidies to biofuels production, distribution and consumption, as well as the subsidies to producers of key factor inputs.

Last October the GSI released a similar report on subsidies to biofuels in the United States, and reports on Australia, Brazil, Canada, the European Union, Indonesia and Malaysia will be released over the next several months.

The GSI's report, Biofuels At What Cost? Government Support for Ethanol and Biodiesel in Switzerland, finds that government support to biofuels amounts to some CHF 12 million a year in Switzerland. That is significantly less than many of its neighbours in the European Union, particularly Germany, Italy and France, the largest producers of biofuels in the EU. Nonetheless, Swiss government policies, among other factors (notably prices for petroleum fuels), have played an important role in determining the scale and evolution of the industry.

The largest source of support from the Swiss government is the exemption that biofuels enjoy from the "mineral oil tax", Switzerland's main volumetric excise tax on fuels. That tax is currently undergoing some reform, which could see a continuation of tax breaks for biofuels if they meet certain environmental and social standards. The new tax regime is expected to go into effect in January 2008, although details of how the law is to be implemented remain to be worked out.

Chief among these outstanding details is how imported biofuels will be treated. The amended Mineral Oil Tax Law will likely give priority to biofuels produced in Switzerland, by taking into account the amount of domestically available biofuels before establishing the quantity of imported biofuels that can be exempted from the fuel tax at the time of the importation. Moreover, imported biofuels may have to meet minimum environmental and social standards - i.e., requirements that relate to processes and production methods that do not ultimately affect the characteristics of the product (non-product-related PPMs).

In setting these standards, Switzerland might prove to be a pioneer, given that such environmental production standards on imported biofuels are also being debated within the EU. Yet such standards could prove problematic at the World Trade Organization, where non-product related PPMs have in the past been successfully challenged. The report's authors, Ronald Steenblik and Juan Simón, urge the Swiss government to consult with the WTO in drawing up its criteria for implementing the Mineral Tax Law amendments in order to ensure that they are compatible with WTO rules, less Switzerland leave itself exposed to challenges by suppliers of biofuels from developing countries.

Like the other GSI reports on government support to biofuels, the Swiss study also analyzes whether subsidies to biofuels are a cost-effective way of displacing green-house gas emissions. This is done by calculating the levels of support per unit of CO2-equivalent avoided, and comparing that figure with the cost of purchasing carbon credits.

The study concludes that buying GHG reductions by subsidizing biofuels production in Switzerland is not very efficient, costing over CHF 750 (€ 475) per tonne of CO2-equivalent avoided in the case of rape methyl ester, a form of biodiesel made from virgin rapeseed (canola) oil. The most cost-effective is biodiesel made from recycled cooking oil, which comes to some CHF 315 (€ 200) per tonne of CO2-equivalent avoided. Even at that price, the Swiss government could have purchased up to 17 tonnes of CO2-equivalent offsets on the European Climate Exchange (assuming a price of under € 18 per tonne of CO2-equivalent).