EU pursues legal action against U.S.-subsidized biodiesel

By Sarah Smith | January 17, 2008
If the road to hell is paved with good intentions, a blenders tax credit meant to stimulate the domestic biofuels industry has headed down a devilish path. The European Union recently announced that it will sue the United States for unfair trade practices to prevent U.S.-subsidized biodiesel from flooding its markets, fueling its cars and undercutting its status as world leader in biodiesel production.

A loophole in the American Jobs Creation Act of 2004, unofficially called the "splash and dash" provision, authorized a tax credit intended to stimulate biodiesel growth by paying $1 for every gallon of biodiesel blended in the United States. However, the loophole inadvertently allowed foreign biodiesel producers to capitalize on the tax credit by importing biodiesel into the United States, adding a small amount of petroleum-based diesel and sailing to another foreign port with the tax credit in tow. Producers have honed in on Europe, where the miniscule 0.1 percent blend of petroleum in vegetable oil then capitalizes further on European subsidies. That's what rankles the Europeans. U.S. taxpayers are subsidizing the tax credits, estimated at $30 million last year and rising.

The loophole has a sunset clause expiring at the end of 2008, but the European Biodiesel Board has no intention of waiting it out. EU biodiesel representatives unanimously agreed in November to lodge anti-dumping and anti-subsidy complaints with the European Commission. EBB Secretary General Raffaelo Garofalo said the complaint would be filed in February, following an intensive information-gathering process.

One early version of the energy bill would have closed the loophole with language inserted into the Energy Advancement and Investment Act of 2007. The final bill, the Energy Independence and Security Act of 2007, which was signed into law Dec. 19, omitted the tax package. That disappointed not only the Europeans, but the National Biodiesel Board, too.

"There is no policy justification for 'splash and dash,' and the NBB has consistently backed efforts to close this loophole," said Manning Feraci, NBB vice president of governmental affairs. "We anticipate that energy tax issues will again be considered next year, and when they are, the NBB will continue to work with the U.S. Congress and the Bush Administration to end 'splash and dash.'"

The NBB has called the policy "indefensible" since foreign producers are subverting U.S. profits and energy security benefits.
In March 2007, Garofalo called the subsidy a growing threat. European biodiesel producers even began shipping fuel to the United States, qualifying for the blenders credit and then returning to Europe.

Once the EBB complaint has been filed, the European Commission has 45 days to examine its validity. If deemed acceptable, the commission will launch an investigation and could impose duties on U.S. biodiesel imports.
 
 
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