Subsidy inaction, trade suspicions vex US biodiesel

Oct. 4, 2010
Creatures of government lead strange lives. Biodiesel, for example.

Creatures of government lead strange lives. Biodiesel, for example.

When the Environmental Protection Agency in July confirmed a statutory mandate that 800 million gal of biodiesel be sold in the US next year, industry leaders said producers can meet that need with existing capacity. But will they?

A $1/gal biodiesel tax credit enacted in 2005 expired last December, and the latest effort to extend it retroactively failed this month in the Senate. An important production incentive remains in suspense.

In the first 5 months of this year, biodiesel output totaled 159 million gal, according to the Energy Information Administration. At that rate, production would fall well shy of this year's mandate of 650 million gal.

Biodiesel producers must hope the mandate stimulates buying and pushes up the biodiesel price enough to coax idle production back into use—this year and next if Congress doesn't get around to extending the subsidy.

Meanwhile, biodiesel has stirred trade discontent between the US and Europe.

Until 2008, businesses could earn a federal tax credit by mixing imported biodiesel with a small amount of petroleum diesel at a US port. The blend would be exported, usually to Europe.

Congress supposedly closed the loophole and ended the practice, called splash-and-dash, but not before the European Commission imposed countervailing duties.

The European Biodiesel Board continues to suspect mischief. It thinks US biodiesel blends are moving through Canada or Singapore en route to Europe to dodge tariffs targeted at the US. The US National Biodiesel Board rejects the claims.

EIA says net biodiesel exports through May this year totaled 45.8 million gal, about half of net exports for the same period last year, when they represented 57% of domestic production. While down, exports still were 29% of production in January-May this year.

Lawmakers might not have had export rates like those in mind when they made extension of domestic oil supply a reason to subsidize biodiesel. With political energy, though, you never know.

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