Lesson In Unintended Consequences #2
The government likes to support biodiesel. It has all the buzzwords. “Recycling”. “Sustainable”. “Environmentally-friendly”. So they subsidize efforts to blend diesel with biodiesel.
One main problem here. Americans don’t use much diesel. So they’re subsidizing foreign, not domestic, use. In fact, they’re simply sending money for non-American-produced diesel that won’t be consumed on American soil to foreign fuel companies:
The problem began when Sen. Chuck Grassley (R., Iowa), the friend of farmers, inserted the so-called “Blenders’ Credit” into the Jobs Act of 2004. The idea was to increase biofuels production and consumption in the U.S., as biofuels were thought to be environmentally friendly and a viable alternative to fossil fuels. The credit provides $1 for each gallon of biodiesel that is mixed with regular diesel in the United States. The provision has not dramatically increased domestic consumption, but it has increased production and exports to Europe’s thriving and subsidized diesel markets.
Under World Trade Organization rules, the U.S. government cannot extend the credit only to American companies or to fuels produced in America. Thus, foreign companies are eligible whenever they bring their biodiesel stateside for mixing. But the limited American market for the fuel has given birth to an unintended consequence known as “Splash and Dash.”
Rep. John Shadegg (R., Ariz.) demonstrated the concept’s simplicity last week by referring to an article that received little attention when it was published last year. It works like this: A foreign tanker carrying 9 million gallons of biodiesel from Brazil or Malaysia sails to an American port. While it waits, 9,000 gallons of American diesel is added — that’s right, a .1 percent blend — so as to earn the blender a $9 million tax credit. The tanker heads to Europe, where diesel cars are far more common and biodiesel is further subsidized.
In some cases, tankers have reportedly made round trips from Europe to the U.S. simply to collect the subsidy. Thus we “import” and “export” the same fuel from and to the same country.
“Just think of it,” said Shadegg. “If I produce biodiesel anywhere in the world where the cost of shipping it to the United States before shipping it to the end consumer is less than a dollar a gallon, then I’m going to take advantage of this subsidy.”
Does lowering the cost of fuel for Europeans really seem like a great use of our tax dollars (and those of our children/grandchildren, since we’re borrowing the money anyway)? Now, you’d think that this program would be universally opposed in the United States…
But you’d be wrong:
Last week, Shadegg proposed a bill (H.R. 5713) to end “Splash and Dash” by limiting the blenders’ tax credit to biodiesel that is actually consumed in the United States. But domestic producers are already upset by this idea: Although they resent foreign firms’ use of “Splash and Dash” to take away their competitive advantage, they still want their subsidy for the biodiesel they export to Europe. Grassley, the original author of the tax credit, wants to make Splash and Dash less profitable but continue those subsidies for American exporters that have so angered the Europeans.
Of course oil producers don’t worry that much about ending the subsidy to foreigners. While an infintesimal proportion of their tax dollars support the foreign subsidy, a far greater amount of our tax dollars go right into their own pockets.
But hey, I’m sure if we just elect Obama/McCain/Barr/Cthulhu, he’ll solve all these problems and “reform” the government!