Italy '07 biodiesel output seen down 40 pct

By Svetlana Kovalyova

MILAN (Reuters) - Italy's output of biodiesel, a "green" fuel made from vegetable oils, is set to fall 40 percent to 450,000 tons hit by regulatory hurdles on the domestic market and export problems, said an industry body source.

"This year is very particular. It is a year of transition, of preparing conditions for the market relaunch. The Italian market has been at a standstill in the first seven months because of regulatory changes introduced from January 1," the senior source at Italy's Assobiodiesel told Reuters.

Assobiodiesel expects Italy's biodiesel output to fall to 450,000 tons this year, with two thirds earmarked for export, from 750,000 tons in 2006. Assobiodiesel has previously forecast at least a 27 percent output fall in 2007.

"This year were are not out of the woods yet. But we hope the market demand will really take off in 2008," said the source who requested anonymity.

The source said Italian biodiesel capacity was likely to rise by 400,000 tons in 2008 and another 350,000 tons in 2009 as operators invested in building new capacity, driven by Europe's enthusiasm for green fuels.

The European Union has set a target for biodiesel and bioethanol to make up 10 percent of EU vehicle fuel use by 2020 as part of the bloc's efforts to combat climate change.

REGULATORY HURDLES

This year, only about 850,000-900,000 tons of production capacity was used to make biodiesel in Italy, out of a total installed capacity of over 1,300,000 tons a year, due to uncertainty about sales rules and tax regime, the source said.