The Government is failing to do enough to promote investment in the production of green fuels, according to one of Britain’s leading experts on renewable energy investment.

Jonathan Johns, head of Ernst & Young’s renewable energy group and an adviser to the US Senate, said that British politicians had lagged behind European neighbours in introducing regulations to encourage production, thus providing a reason for investors to seek out investment opportunities elsewhere. He added that, while British producers benefit from lower duty rates on green fuels, including biodiesel, a substitute for diesel, and ethanol, a petrol substitute, other countries were providing greater incentives. Lower duty rates help to offset higher production costs.

“The regulatory framework is more a pat on the head than an agenda-shifting policy,” Mr Johns said.

Biofuels are produced using crops and are an environmentally friendly alternative to standard fuels for road vehicles. Biofuel producers pay 20p less in duty for every litre of fuel they produce or import into the country than they would if they were producing standard fuels.

Gordon Brown, the Chancellor, extended the benefit until 2010 in his March Budget. However, German producers have benefited from a duty discount of about 30p per litre for some years, encouraging investors to build biofuel production capacity in the country. The discount was reduced recently, but only to 25p a litre.

Mr Johns’s comments came as he revealed a new index created by Ernst & Young to monitor the attractiveness of different countries to potential investors in the biofuels industry.

The UK is sixth in the table, behind a string of European neighbours including Germany, France and Spain.

Mr Johns said that the country’s attractiveness was undermined by its slow progress in bringing in targets for the use of green fuels.

The Road Transport Fuel Obligation (RTFO) will require fuel suppliers to show that a percentage of all fuel they sell is green fuel from April next year. By 2010 about 5 per cent of all UK fuel sold will need to be from a renewable source. However, the RTFO compares with a similar scheme in Germany that is targeting 6¾ per cent by 2009 and 8 per cent by 2015.

In addition Germany already requires fuel suppliers to blend fuels from renewable sources with conventional fuels for a set proportion of supplies. Spain has introduced a tax-exemption scheme for companies investing in biofuels up to 2012, while other countries have similar tax-relief schemes.

The United States is the most attractive country in which to invest in biofuels, underpinned by President Bush’s enthusiasm for the exploitation of biofuels, especially ethanol, as a means to help to cut greenhouse gas emissions.

Times Recommends

• Minister in talks with Saudis to protect creditors
• Premier Inn hits back in £29-a-room row
• Bankers hit back at 'populist' bonus supertax