Mineral Oil Tax on liquid substitute fuels including biofuels

Mineral Oil Tax (MOT) law provides that fossil fuels, such as petrol, diesel, kerosene, and marked gas oil (MGO) are subject to taxation. Liquid products other than those specifically outlined in MOT law may also be used as fuels. These liquid products are called substitute fuels. Liquid biofuels, which are produced from biomass of vegetal or animal origin, are a particular type of substitute fuel. All substitute fuels are subject to MOT.

The MOT rate that applies to a substitute fuel depends on its use and whether it is a biofuel. Fuels of non-biomass origin, such as synthetic fuels, are taxed as follows:

• at the MOT rate for petrol when used in place of petrol as a propellant
• at the MOT rate for auto-diesel when used in place of auto-diesel
• at the reduced MOT rate that applies to MGO when used for purposes such as heating, in agricultural tractors or in construction equipment.

Biofuels produced from biomass, such as bioethanol, fatty acid methyl esters (FAME), and hydrotreated vegetable oil (HVO), are also taxed according to their use. However, biofuels differ from other substitute fuels as they are relieved of the carbon component of MOT. This means that only the non-carbon components of the relevant MOT rates apply to biofuels, and they are taxed as follows:

• at the MOT non-carbon component rate for petrol when used in place of petrol as a propellant
• at the MOT non-carbon component rate for auto-diesel when used in place of auto-diesel
• at the MOT non-carbon component rate for MGO when used for purposes such as heating, in agricultural tractors or in construction equipment.

The table below details current MOT rates applying to substitute fuels of non-biomass origin, and to substitute fuels made from biomass (biofuels).

Some biofuels, such as HVO, can be used as a direct substitute for fossil fuels. In such cases, the MOT carbon component relief applies to all the biofuel. For blended fuels the relief applies to the biofuel portion.

The relief from the MOT carbon component that applies to biofuels is operated at source. The oil supplier at the top of the supply chain applies the relief. This means that biofuels, and biofuel blends, purchased at wholesale and retail level are already relieved of the MOT carbon component.

The table below details the MOT rates that apply to fossil diesel, a fuel blend containing 9% biofuel, and a pure biofuel.