Editor's Note

'Splash-and-dash' controversy still unresolved
By Tom Bryan | August 03, 2007
There's a cluster of important policy initiatives on the U.S. biodiesel industry's plate this summer. Topping the list are efforts to extend the biodiesel excise tax credit through 2010, establish a "Biodiesel Incentive Program," redefine renewable diesel's eligibility for the blender's credit and possibly create an "alternative diesel standard." Another urgent legislative issue-still unresolved at press time-is closing the so-called loophole in the blender's credit that's allowing importers, some of them U.S.-based companies, to cash in on a practice dubbed "splash-and-dash."

Splash-and-dash, a variation of "touch-and-go" trade, is the name given to the practice of shipping large volumes of foreign biodiesel into U.S. ports, topping biofuel-laden tankers off with a "splash" of petroleum diesel and "dashing" off to Europe where more subsidies await. Adding just one-tenth of a percent of petroleum diesel allows the importer-acting as the blender-to qualify for the U.S. federal biodiesel excise tax credit of 1 cent per percentage of biodiesel blended with diesel.

Importers started taking advantage of the loophole last year, topping off tankers in port cities like Houston; Savannah, Ga.; and New Orleans, where vessels can receive a splash of diesel from dockside fuel suppliers. The ships stay just long enough to legitimize the credit before pushing off for ports in the Netherlands, Spain or Germany.

Critics of the practice say the U.S. blender's credit was intended to promote the use of biodiesel blends in the United States-not necessarily in other countries. The National Biodiesel Board (NBB) has called the practice "indefensible," and the association fully supports efforts to shut down pure splash-and-dash transactions. Meanwhile, the European Biodiesel Board (EBB) is up in arms over the practice, and pressing hard for change. Its leaders say cheap B99 imports could have a ruinous effect on the European biodiesel market, and principally hurt farmers.

According to the EBB, U.S.-subsidized biodiesel is entering the European market at the same price that European Union (EU) producers are paying for feedstocks like rapeseed oil. The EBB claims the practice is literally putting its producers out of business. Reports of ridiculous transactions taking place-like one account of European biodiesel producers shipping their product from Europe to the United States and back to Europe just to get the U.S. blender's credit-illustrate the upside-down, unsustainable nature of splashing and dashing.

At press time, language that would close this loophole was tucked into pending legislation in the U.S. Senate Finance Committee. If passed, the new law would basically make the blender's credit available to only fuel being blended for use in the United States. The bill would also disallow domestically produced fuel sold for export to qualify for the tax incentive, and that's not something everyone readily agrees on. The NBB supports the elimination of true splash-and-dash activities, but some of its members would probably like to maintain the applicability of the blender's credit for U.S.-produced biodiesel that is exported. That's not going to cut it for the Europeans. The EBB made a public plea to the EU's trade commissioner in March, telling him that subsidized U.S. imports have been flooding the European market. The letter said the U.S. trade practice is "clearly breaching" World Trade Organization (WTO) rules and "represents a serious threat to the fair trade of biofuels."

The EBB has threatened to go to the WTO if the United States doesn't remedy the problem itself. If that doesn't work, some Europeans say the only remaining option would be to put a countervailing measure in place to cancel out the competitive advantage that U.S. exporters currently enjoy. This is a big international issue that's simply hard to take sides on. The September issue of Biodiesel Magazine will include a comprehensive feature on the splash-and-dash controversy, and right now, you can go to www.biodieselmagazine.com and tell us how you feel about it by answering our "Question of the Week."
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