The U.S. Congress has closed a controversial loophole that allowed foreign-produced biofuels consumed outside the U.S. market to, nevertheless, benefit from U.S. subsides.  The new provision, added by the House of Representatives to the US$ 700 billion financial system bailout legislation, would end the biodiesel credit for fuel “produced outside the US for use as a fuel outside the US”.

The provision will be applied retroactively to claims for the blenders’ credit made on or before 15 May 2008. Over the last two years the House of Representatives passed legislation on three separate occasions which would have closed the loophole, but each time failed to convince the Senate to take similar action.

As reported in the July edition of Subsidy Watch, the U.S. Volumetric ‘Blenders’ Tax Credit, adopted in 2004, grants a tax credit of US$ 1 per gallon (over US$ 300 per ton) to biodiesel blended in the United States.

A loophole in the policy allows U.S. refiners to import biodiesel from foreign producers, blend it in the U.S. with a ‘splash’ of diesel to benefit from the subsidy, and then ‘dash’ the resulting B99 biodiesel to foreign markets, such as Europe.

The European Biofuels Board (EBB), an industry group representing major EU producers, claims that the practice helped flood the EU market with cheap subsidized biofuels. In May, the EBB was successful in getting the European Commission to launch an inquiry into what it claimed amounted to illegal dumping practices.

In a 16 October press release, the EBB acknowledged the closing of the splash and dash loophole, but said that subsidized biofuels from the United States will continue to be a problem. The EBB complains that biofuels produced in the U.S. and exported to Europe will still benefit from the blenders’ credit.  This subsidized biofuel represents 90% of the volume entering Europe, and so the core of the problem remains, said the EBB.

The group is now asking the European Commission to independently apply retroactive countervailing measures against US B99 imports, which it says the EC can do under EU trade law on the grounds that US biodiesel imports have surged during the EC’s investigation period.