Boondoggling biodiesel - How Uncle Sam subsidises the EU motorist

A shipload of biodiesel derived 100% from palm oil arrives at a Texan or Georgia port, Houston or Savannah - it holds say 9 million gallons , add , say 9,000 gallons (0.1% of the total) of traditional diesel (1 US gallon =3.8litres) what they call in this grubby trade "splash and dash" and it is transformed into B99 biofuel blend. Hey presto! The entire load is eligible for the Federal US blenders tax credit.

The US importer of the load applies to the Internal Revenue Service for the credit – a dollar for each of the 9 million biodiesel gallons (approx Euros 20 cents per litre) and then the ship hightails it for Rotterdam. (Guess it gets well mixed at sea)

European biodiesel manufacturers complained in March about these heavily subsidized imports and the US biodiesel industry complained a month later and the House Ways and Means Committee, is ...er ... looking into it.

The origins of this crazy anomaly result from the US JOBS Creation Act which President Bush signed into law in October 2004 - which inlcuded a biofueld tax incentive - due for expiry on 31st December 2006 - however as part of the Energy Bill of August 2005 the federal excise tax credit was extended until 2008.

Raffaello Garofalo, Secretary General of the European Biodiesel Board, wrote a letter on March 19th to the European Trade Commissioner a man wholly unacquainted with graft, the twice sacked and disgraced Mr Peter Mandelson.

"In Jan 2007 the amount of B99 biodiesel imported into the EU has risen to approx 30,000 tonnes per month. In most cases B99 blends are then sold in the market as "pure biodiesel". If B99 import acceleration coninues throughout the year it may lead to over half a m illion tonnes of B99 imports by end 2007"..."This competition is price setting and is preogressively disrupting the margins of EU biodiesel producers, putting out of business manu EU biodiesel prodcuers..."

This absurd subsidy has ballooned so much that that Europe is now awash in US biodiesel. Now a third form of imported biodiesel is reportedly hitting European shores – at US taxpayer expense. European biodiesel producers themselves are shipping fuel to US ports to get the US blenders credit and then bringing it back to Europe for sale.

But US biodiesel manufacturers and Congress may not be in a hurry to close the loophole, some insiders say. That's because the blenders credit not only benefits splash-and-dash traders, it also gives US producers of soybean-based biodiesel a distinct export advantage, industry insiders say.

Also there is a stand off between those who want to close a tax credit loophole and those responsible for trade issues.

Currently everything is being debated under the Energy Bill and the Farm, Nutrition and Bioenergy Act of 2007, commonly called the Farm Bill which will make many changes to the way federal taxes are pumped into the US biofuels industry - at present nothig is resolved and it is even uncertain that President Bush will veto the Bill.

How much is this boondoggling worth ?

Keeping track of the tax dollars involved is not easy the US Department of Agriculture does track exports of US vegetable and animal oils, a category that is mostly biodiesel, experts say. In 2005 9 Mn gallons were exported, 2006 it had jumped 4 fold to 36 Mn gallons - if biodiesel is 80% of that then the uS taxpayer has subsidised the EU motorist by US$30Mn. in 2006 alone.

The European Biodiesel Board, has tracked 50-plus shipments from the US to Europe totaling about 60 million gallons in the first four months of 2007. Most of those shipments originated in Houston; Savannah, Ga.; or New Orleans and arrived in the ports of Rotterdam, Netherlands; Bilbao, Spain; or Hamburg, Germany.

What is good news for motorists is bad news for the new and growing European biodiesel producers - subsidized fuel is flooding their markets, cutting into their domestic biodiesel business and lowering prices. See post on Biopetrol last week and the sad tale of Hull based Biofuels plc. - all that is green is not golden.

Argentine - not just good at Rugby

If this wasn't bad enough the Argentinians also distort the market as they impose import taxes of 25% or more on soya beans and meal, but not on biofuel derived from soya, a sort of B99 blend that creates effectively an export subsidy, contrary to WTO rules agreed at Hong Kong. The impact on the EU market is small currently but helps in keeping biofuel prices down for EU producers.

It does however have an impact on the US bio-diesel in dustry -the 19 percent Differential Export Tax (DET) provides an incentive worth 43 cents per gallon for Argentina’s soybean processors to convert soybean oil into biodiesel prior to export. “The whole bean is taxed more than double what biodiesel is in Argentina,” says Rick Ostlie, a Northwood, N.D., farmer and member of the American Soybean Association (ASA). “They're building plants all over the place, really trying to grow their industry.”