The pre-Budget statement said that the reduction in tax was to 'allow the UK to benefit from the reduced greenhouse gases and lower levels of pollutants that this fuel can offer.'
Bioethanol would therefore cost about 52p per litre, with petrol 20p more expensive.
British Sugar, the largest buyer of arable products in the UK (the material from which the fuel is produced) believes it is in a prime position to make bioethanol, but has estimated that duty reduction would need to be between 26-30p per litre due to higher production costs than petrol.
The company's political affairs director, Chris Carter, said: 'We are pleased that the Government has recognised the significant environmental and economic benefits that the development of a UK-based bioethanol industry would bring, however our feasibility studies clearly show that a greater reduction will be necessary to encourage investment into this exciting new area. We will continue to endeavour to present the case for increased support for bioethanol and hope that the government will recognise this in time for the Spring 2003 Budget.'
According to British Sugar, blending all petrol with bioethanol would reduce UK CO2 emissions by three million tonnes a year, and create 20,000 new jobs.
What is bioethanol?