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NEWS ADMIN

Mahamad Rodzi Abdul Ghani

DATE

18/05/2001

NEWS PROVIDER

Mahamad Rodzi Abdul Ghani

NEWS SOURCE

NULL

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HEADLINE

ASA lobbies for $1.50/gallon biodiesel subsidy
ASA lobbies for $1.50/gallon biodiesel subsidyUSA, 5/17/2001(Soyatech.com) - Oxy-Fuel News via NewsEdge Corporation :The American Soybean Association (ASA) told Congress recently that itwants a hefty tax subsidy for biodiesel that would be mandatorily blendedinto petroleum diesel.Under the proposal, 2% of all diesel would have to contain biodiesel,which could come from soybean oil. But the entire 98% diesel/2% biodieselblend would get a 3 c/gal reduction from the federal diesel excise tax.The net effect is a $1.50/gallon subsidy for every neat biodiesel gallongoing into the final diesel/biodiesel blend, as explained to Oxy-Fuel Newsby ASA Executive Committee member Ron Heck, who earlier testified before aU.S. House agriculture subcommittee meeting (see Oxy-Fuel News, 4/30/01).Given current U.S. Department of Agriculture Commodity Credit Corporation(CCC) subsidies for soybean-based biodiesel, that would just about wipeout 100% of the producer cost of soy-based biodiesel. That's because somesoy-based biodiesel producers today are quoting neat-biodiesel costsaround $1.40 to $1.75/gal with the CCC subsidy, not including freight ortaxes.Without the CCC subsidy, soy-based biodiesel producer cost is over$2/gallon, Heck told us. The CCC program is only temporary, so the newexcise tax subsidy eventually would put soy biodiesel producer cost atabout 50 c/gal for the neat biodiesel portion of the blend, Heckexplained.The proposed $1.50/gallon excise tax subsidy is about three times the sizeof the current 53 c/gal subsidy given ethanol producers for their portionof the ethanol going into 10% ethanol blends. Gasohol gets a 5.3 c/gal taxbreak on the entire blend, which gives ethanol producers an effective 53c/gal subsidy on their portion of the blend."If 100 million gallons of biodiesel were used under this program, itwould be blended at 2% per gallon into 5 billion gallons of diesel fuel,"Heck explained in his congressional testimony. "At a [biodiesel blendexcise tax exemption] cost of 3 cents per gallon, the cost of the program[to taxpayers] would be $150 million."Since the U.S. diesel market is approaching 40 billion gal/year, ratherthan 5 billion gallons in the ASA example, the actual cost to taxpayerseventually could be up to eight times ASA's estimate: about $1.2billion/year, not $150 million.If, however, soybean prices rise because of new demand for soybean oil forbiodiesel, then it could become possible to reduce current soybeanmarketing loan program costs from another CCC soybean subsidy program, hesaid. These CCC loan program savings would be passed back to the HighwayTrust Fund to compensate for the biodiesel excise tax break, under the ASAproposal."Using a conservative 13 cents per bushel impact on [soybean] price, thecost savings on this year's estimated 3 billion bushel soybean crop wouldbe $390 million," Heck said. "As a result, the [biodiesel tax break]proposal will save more than $2 for each dollar it costs." Left out ofthis calculation is the possibility of biodiesel mandates stimulating moresoybean production, which could push soybean prices back toward today'smarket prices.