Biofuel credit leads to 'splash and dash'

A Volkswagen Jetta TDI with a biodiesel sticker at the Biofuel Oasis in Berkeley, Calif.


KAI RYSSDAL: As big oil was getting raked over the coals by the Senate Judiciary Committee today the House was voting to renew billions of dollars in tax breaks for clean energy, like solar and wind. The bill also includes a specific credit for biodiesel. Supporters are pushing the plant-based alternative fuel as a cleaner way to wean us off petroleum products. But Sarah Gardner reports from the Marketplace Sustainability Desk, there's a loophole that's giving the biodiesel subsidy a bad rap.

SARAH GARDNER: Congress passed the biodiesel tax credit in 2004 to encourage U.S. production and consumption of this alternative fuel. Biodiesel is usually sold as a blend, say, 20 percent modified soybean oil, 80 percent conventional diesel. The U.S. currently subsidizes biodiesel to the tune of $1 a gallon. Trouble is, Congress had no idea how far some would go, literally, in order to claim that biodiesel credit.

JOHN SHADEGG: I said, "You got to be kidding me. That can't be accurate."

That's House Republican John Shadegg of Arizona. He's talking about his initial reaction when he found out about the so-called "Splash and Dash" scam.

It's a perfectly legal practice, but critics say it exploits the biofuels subsidy and rips off American taxpayers.

Here's how it can work: A tanker with a shipload of, say, Malaysian biodiesel, stops at an American port. The foreign-made fuel is then blended or "splashed" with a token percentage of U.S. diesel and "dashes" off again.

RICK KMENT: The way the law is now, all of that product is able to qualify for the blender's credit.

Biofuels analyst Rick Kment says the tanker usually "dashes" off to Europe, currently the world's biggest market for biodiesel. There the fuel is ultimately sold to European drivers, often at a lower price, because it's benefited from an American subsidy.

Congressman John Shadegg:

SHADEGG: As soon as American taxpayers realize that they are paying out hundreds of millions of dollars to lower the price of diesel outside the United States, I think they're going to say that's outrageous.

Also outrageous, perhaps, is the increase in greenhouse gas emissions from all this shipping, say critics. According to European officials, a few European companies are even shipping their own biodiesel, destined for their own domestic markets, to the U.S. first. That way they take advantage of the subsidy. It's called the "U-boat" trade because the ships make such quick stops in U.S. ports.

Congress is struggling to shut down the loophole.

Manning Ferraci speaks for the American biodiesel industry:

Manning Ferraci: What the bill that the House will consider does is say fuel produced outside the United States, for use outside the United States, does not qualify for the biodiesel tax incentive. That would effectively shut down a splash-and-dash transaction.

Some splash-and-dash critics, like Congressman Shadegg, want to go further. He wants to limit the subsidy to biodiesel consumed in the U.S. That would hurt American biodiesel exporters, of course. But Shadegg says Europe's already furious over U.S. biofuel subsidies. Producers there say the U.S. subsidies are driving some of them out of business.

I'm Sarah Gardner for Marketplace.

About the author

Sarah Gardner is a reporter on the Marketplace sustainability desk covering sustainability news spots and features.
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i dont understand why the american people arn,t up in arms over this law. whats wrong with the us tax payers ,why want they stand up for whats wright.

I was told by someone who should know that low sulphur diesel is only produced for US market and only produced here. There are only a few refineries making the stuff so it is in low supply.
This question deserves a Marketplace story, I think.

Thanks Cuntry boy. Brilliant insight, I am so much more enlightened now. Will you also share your infinate knowlege as to why diesel costs so much currently? I mean it is much cheaper to produce and it can use the lower grades of oil.

Any body can explain to me, so big and growing gap between prices of gasoline and diesel fuel. USA is the only country in the world with so expensive diesel fuel.
Of course if we compare to gasoline prices.
Is this the way to make majority of drivers in US using gasoline not so upset at the gas station pump?

Bio fuels are a just a scam. Make $$ for the farmers. The green nutjobs won't let us convert our vast coal and shale reserves into diesel. Let's just give all our money to the frikkin' A-rabs. Then they can put the squeeze on us, come over here and chop off all of our heads. Will you greenies be happy then?

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