The European Commission has authorised an Italian tax reduction to stimulate the production and use of biodiesel.
The measure modifies and prolongs a previously approved scheme and introduces a supply obligation for biofuels.
The co-existence of a supply obligation and a tax reduction is a novelty and it cannot be predicted at this stage how it will affect the market.
Competition Commissioner Neelie Kroes said: "I am happy to approve aid that promotes biodiesel without over-compensating suppliers.
"Italy is now a step further on its way to implement the EU targets on the use of renewable energies for transport."
Under the notified scheme an annual quota of 250,000 tonnes of biodiesel would benefit from an excise duty rate of 20% of the rate applicable to diesel oil used as automotive fuel.
Any producer of biodiesel in the EU would be able to enrol in the programme and be eligible for the excise duty reduction.
The tax-reduced quota would be shared among producers in proportion of their actual production figures, so that only a fraction of each producer's total biodiesel output would benefit from the tax reduction.
The budget for the tax reduction over the scheme's total duration of four years (2007-2010) is estimated at €384 million.