Opinion

The Biodiesel Import Tax Loophole is Begging to be Fixed

Ask former members of Congress to reflect on legislative successes and we’ll tell you the bills we sponsored on Capitol Hill and managed to pass into law are like young children. We watch them mature and if the legislation is implemented as intended — we marvel at the positive impact in making the world a better place.

One such example for me is legislation I introduced just over a decade ago with Rep. Earl Pomeroy, D-N.D., to incentivize biodiesel, a clean renewable fuel made from a variety of fats and oils. At the time, biodiesel was barely an industry. The U.S. was producing only small amounts of it at a handful of facilities around the country.

But with the right policies in place, the future looked bright. And the need was evident. Fuel prices in the early 2000s were on the rise, and lawmakers in both parties felt an urgency to do something about our dependence on petroleum — specifically petroleum from foreign sources.

Fast forward to 2016 and biodiesel has blossomed into a nationwide industry with plants in almost every state in the country. While it is still a relatively young and small industry, Americans used more than 2 billion gallons of this clean, renewable fuel last year. The domestic production of biodiesel and resulting economic activity support nearly 50,000 jobs in manufacturing, agriculture, transportation and other sectors.

I am immensely proud to have played a role in this success. The tax credit — which has since been extended with the support of other legislative champions — has played a significant role in biodiesel’s growth. Congress has a long history of supporting other energy industries with favorable tax treatment as part of our national energy policy. Congress should not pull the plug on this promising industry.

Admittedly, the law we passed in 2005 wasn’t perfect. Biodiesel is typically blended with petroleum diesel — in fact many of the diesel cars and trucks on the road today are using 5 percent to 20 percent biodiesel blends. The tax incentive was structured as a “blender’s” credit, meaning that any biodiesel blended in the U.S. qualifies, regardless of where it was actually produced. The blender’s structure worked well for years, but now we are seeing unintended consequences: Foreign biodiesel producers are exploiting our law by shipping their product to our shores to be blended here just so it qualifies for our tax incentive.

This is an obvious problem. Foreign biodiesel often already receives some sort of subsidy in its home country. The foreign fuel is then sent to the U.S. where it receives another incentive from the U.S. Treasury. This gives imported biodiesel a tremendous advantage over our U.S. biodiesel producers. I don’t think it’s a stretch to say that most Americans would recoil at the idea of Congress directing tax incentives to foreign manufacturing — whether it’s fuel, furniture, textiles or anything else.

The cost of this loophole is impossible to ignore. Last year, foreign biodiesel producers imported 670 million gallons to the U.S., accounting for almost one-third of the U.S. market. Presumably all of those gallons received the $1-per-gallon tax incentive. Back when we wrote the legislation, imports were nonexistent. Even just a few years ago foreign imports of biodiesel were less than 100 million gallons.

As one of the original authors of the biodiesel tax incentive, I can assure you it was not our intent that the credit be used to reward foreign production. As I highlighted in my floor speech in the House introducing the bill a decade ago, the incentive was designed to help develop a new American fuel industry that would actually reduce our dependence on foreign fuel, while creating jobs and economic activity here at home. The import loophole is directly at odds with those bipartisan goals.

Fortunately, there is an easy fix that Congress can pass tomorrow. Legislation to change the incentive to a domestic producer’s credit is pending in the House and Senate, sponsored by Sens. Chuck Grassley (R-Iowa) and Maria Cantwell (D-Wash.) and Reps. Kristi Noem (R-S.D.) and Bill Pascrell (D-N.J.) along with more than two dozen others. It has strong bipartisan support, and passed the Senate Finance Committee without objection just last year.

I have yet to hear any lawmaker voice opposition to this solution; it is precisely the kind of bipartisan, problem-solving approach American voters want. Like any proud parent, I want to see this tax incentive continue to succeed, and I urge my former colleagues in Congress and on the Ways and Means Committee to get on board with this common-sense reform.

 

Kenny Hulshof is a former Republican congressman from Missouri and member of the House Ways and Means Committee. He is currently vice chairman at Kit Bond Strategies, whose clients include the National Biodiesel Board.

Morning Consult welcomes op-ed submissions on policy, politics and business strategy in our coverage areas. Submission guidelines can be found here.