Subsidizing Big Oil

Oil tanker Omala in Rotterdam, Picture by Danny Cornelissen from the portpictures.nlWhat do you get when you mix bio-diesel, American tax subsidies and Rotterdam? The ultimate proof that oil and water don’t really mix; especially if funded by US tax dollars.

The trick is called “splash and dash” and was highlighted back in June in the Christian Science Monitor.

Created under the 2004 American Jobs Act [hint: Republican congress], the “blenders tax credit” was supposed to boost US production of biodiesel by encouraging US diesel marketers to blend regular petroleum diesel with fuel made from soybeans or other agricultural products. It succeeded, perhaps too well.

Attracted by the $1-per-gallon subsidy, US diesel-fuel marketers mixed away, setting off a nationwide boom in biodiesel refinery building. But no one anticipated splash-and-dash.

The maneuver begins with a shipload of biodiesel from, say, Malaysia, which pulls into a US port like Houston, says John Baize, an industry consultant in Falls Church, Va. Unlike domestic diesel-biodiesel blends, which typically contain from 1 to 10 percent of biodiesel, the Malaysian fuel starts off as 100 percent biodiesel, typically made from palm oil.

Then, the vessel receives from a dockside diesel supplier a “splash” of US petroleum diesel. It doesn’t take much to turn it into a diesel-biodiesel blend that is eligible for US subsidies.

I know. It’s hard to believe that American taxpayers might actually be spending tax dollars to credit oil companies. It’s not like they are similiar to big tobacco or have anyone high up in the current administation sympathetic to their cause.

The Europeans are upset because they have spent 10 long years trying to grow (sorry, bad pun) a local biodiesel industry. Splash and dash is destroying it. As a matter of fact I heard one supplier comment that it would be more cost effective to ship his oil to America, have it refined there, get the tax credit and ship the resulting fuel back to Europe. He’d still make money.

There is one thing the CS article get’s wrong though; European drivers aren’t benefiting, it’s the oil companies.

In Germany, locally produced bio-diesel costs about € 0.70; imported fuel costs about € 0.60 and is selling for about € 0.98. Seeing absolutely no reason to pass that savings on to the consumer during times of high demand, the oil industry has simply been skimming the profits off the top. (Gee. Imagine that.)

In order to put an end to this practice which was annoying everyone except the people who are profiting, the Renewable Energy and Energy Conservation Tax Act of 2007 (H.R: 2776, pdf) has been introduced into the House. It includes language that would restrict this tax credit solely to biodiesel produced inside the U.S. for consumption in the U.S. It would hopefully put an end to “splash and dash.”

There are only two problems remaining. Will this actually solve the problem or would it simply be better to give tax credits to people who drive cars which run on bio-diesel – instead of taxing them? In other words, will the oil companies find a loop hole in the plug.

Second, will this language survive into the final bill? Start writing your Congresspersons now! I’m sure the lobbyists are busy as I type.

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