US House of Representatives votes to extend biodiesel tax credit to 2009, close “splash and dash”

In Washington, the US House of Representatives passed HR 6049, the Energy and Tax Extenders Act of 2008, which extends the biodiesel blending credit of up to $1 per gallon through December 2009, while closing the “splash and dash” loophole that allows fuel from foreign countries to claim the credit for fuel shipped to other countries.

The European Commission’s chief US representative said that US taxpayers are “effectively subsidizing European motorists to the tune of around $300 million“, referring to “splash and dash” exports to Europe by US biodiesel producers picking up a $1 blending credit in the US. “You have to look for every market you can find,” the chairman of Western Iowa Energy told the Shreveport Times, while Bruce Babcock, an economist at Iowa State University, called splash-and-dash “kind of bizarre” and said it put upward pressure on soybean oil prices and hurt US taxpayers.

The European Biodiesel Board said that US exports of subsidized biodiesel threaten the existence of the global biodiesel industry. US exports surged to 80,000 tonnes per month last year from an average of 20,000 in 2006. The EBB has lodged an anti-dumping complaint with the European Commission. European mandates are expected to create a market of up to 28 million tonnes of biodiesel by 2020.

In response to EBB complaints, Manning Feraci, Vice President of Federal Affairs for the National Biodiesel Board (NBB), issued the following statement on behalf of the NBB:

“The U.S. and European biodiesel industries have a long-standing tradition of working together to promote the increased production and use of biofuels as a way to reduce petroleum consumption and address critical climate change issues. It is unfortunate that EBB is advocating a course of action that could hinder this progress, and in the interest of continued trans-Atlantic cooperation, we hope that cooler heads will prevail on this matter.

“The biodiesel industry – both in the U.S. and in Europe – is facing similar challenges. Dramatic increases in feedstock costs have created difficult market conditions for biodiesel producers. We believe that this, in tandem with policy changes in EU member states, are the main causes of the problems facing the European biodiesel industry.

“It is in the mutual interests of both the U.S. and European biodiesel industries to enhance global trade in biofuels. In fact, senior EU officials have publicly noted that if Europe is to meet its goal to increase biofuels use, the EU will have to import fuels such as biodiesel. U.S. produced biodiesel yields a 78% reduction in carbon lifecycle emissions and can play a constructive role in the global effort to reduce greenhouse gas emissions.

“The U.S. biodiesel industry remains open to working with our counterparts in Europe to not only promote trade in biofuels, but to stop unintended abuses of existing biofuels incentives. For example, the NBB has strongly denounced so-called ‘splash and dash’ transactions where fuel produced outside the U.S. is transshipped through the U.S for the sole purpose of claiming the U.S. blenders excise tax credit before being sent for final use in Europe. We believe this practice may be more widespread than is being acknowledged by the EBB, and NBB is aggressively promoting efforts in Congress to end this practice. As has always been the case, we hope the EBB will recognize our genuine efforts to address this issue.

“Again, it remains the sincere desire of the NBB to constructively address these issues in a manner that does not harm the positive working relationship that has existed between the U.S. and European biodiesel industries.”

The National Biodiesel Board (NBB) maintains that no anti-dumping or anti-subsidy proceedings should be initiated under European Union (EU) law without sufficient evidence of dumping and subsidization causing actual material injury or threat of injury to the EU industry. No anti-dumping or anti-subsidy measures can be imposed unless these are in the broader Community Interests, including not only those of importers and users but also EU citizens at large. None of these conditions are met in the case of imports of US biodiesel into the EU.
Imports into the EU of US biodiesel have not caused material injury. Any difficulties that the EU biodiesel producers may have experienced are caused by other factors. In addition, 2008 and the following years will be critical in terms of the development of the biodiesel industry and the broader Community’s Interests. The important issues to be addressed in the year ahead must, therefore, be approached in a constructive and collaborative spirit. NBB refers in particular to the following:

• Factors other than imports explain the difficulties portrayed by EU biodiesel
producers. These factors include capacity that is not being utilized because
consumption targets established by the European Union are not being met. In
addition, EU member states have rescinded favorable tax structures and other
incentives that encouraged production and use of biodiesel. Excess capacity in the
EU biodiesel industry will be utilized as new consumption targets are implemented.
• While biodiesel producers around the globe currently face high feedstock prices, the EU biodiesel industry has been more affected by the trend, given its members’
reliance primarily on rapeseed and rapeseed oil. EU producers have been reported to face shortages of supply of rapeseed, and prices for rapeseed and rapeseed oil are consistently higher than for other inputs favored by producers elsewhere.
• Senior EU officials have readily acknowledged that going forward, biofuels will have to be imported if the European Union is to meet its ambitious goals in terms of biofuels use. Trade remedy investigations and the potential implementation of
punitive trade remedies would be directly contrary to this and would have a severely negative impact on the development of demand for biodiesel in the EU.
• The US biodiesel tax incentive can be claimed on both imports and exports.
Accordingly, it does not discriminate against EU biodiesel and is consistent with the United States’ WTO commitments. That being said, the US biodiesel industry has conveyed its willingness on multiple occasions to work with both the EBB and US government authorities to avoid potential abuses associated with the structure of the US biodiesel tax incentive.

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