In this supercharged political climate, two candidates, Donald Trump and Bernie Sanders, have gained traction in part because they are advancing a message of economic inequality. Trump has been especially vocal in arguing that the United States should stop selling itself short on foreign trade deals. It has become a cornerstone of his campaign for the simple reason that it resonates resoundingly with many Americans.
Most attention has been paid to the U.S. trade deals with Mexico and China, because they number in the hundreds of billions of dollars, but one economic issue, which numbers in the hundreds of millions, is vitally important to the renewable energy industry. In 2005, the U. S. Congress passed the Renewable Fuel Standard, which required that all transportation fuel sold in the U.S. contain a minimum amount of renewable fuel. This meant blending renewable fuel with traditional fuel in amounts that would increase annually over time. The RFS was intended to reduce the U.S. dependence on foreign oil and to curb air pollution caused by carbon emissions.
One of the renewable fuels was biodiesel. As defined by the U.S. Department of Energy, biodiesel "is a domestically produced, renewable fuel that can be manufactured from vegetable oils, animal fats, and recycled restaurant grease for use in diesel engines. Biodiesel's physical properties are similar to those of petroleum diesel, but it is a cleaner-burning alternative." Biodiesel can be used for transportation, powering cars and trucks, and heating.
To encourage refineries, both large and small, to blend biodiesel with traditional diesel Congress passed, as part of the Energy Policy Act of 2005, a tax credit, whereby a $1-per-gallon credit is applied to the taxes owed by the company that blends the biodiesel with the traditional diesel.
As a result of the tax credit, over the last decade, the biodiesel industry has become vibrant. "There is a clear correlation between the tax incentive and increased biodiesel production," to quote one industry source, "which has grown from about 100 million gallons in 2005 when the tax incentive was first implemented, to almost 1.8 billion gallons in 2014." The industry now supports 60,000 jobs nationwide in some 200 plants in most of the 50 states.
But there has been an unintended consequence. Because of the tax credit, foreign biodiesel imports have grown dramatically, displacing biodiesel produced in the U.S. Indeed, in 2015, imported biodiesel accounted for $600 million in tax credits. In many cases, in places like Argentina, Indonesia, and the European Union, the biodiesel already receives notable subsidies in its home country. In Argentina, for instance, manufacturers are given incentives under the country's Differential Export Tax.
Here is the problem, at least for U.S. producers. Many countries where the imported biodiesel originates have protections preventing U.S. biodiesel from entering into their markets, contributing to the trade imbalance. The European Union, to name one case, levies large duties on U.S.-produced biodiesel, essentially blocking it from entry into Europe.
To counteract this imbalance, domestic producers proposed that the tax credit shift from the blenders to the producers. "Shifting from a blender's credit to a producer's credit," an industry source argues, "would restrict the ability of foreign subsidized biodiesel -- often coming from countries that do not allow reciprocal access to their markets for U.S. biodiesel -- to displace domestically produced biodiesel in our own market."
Obviously, Congress did not create the tax credit to maximize the importation of foreign-produced biodiesel into the U.S. Because of this, Senator Chuck Grassley of Iowa and Senator Maria Cantwell of Washington championed an effort to shift the tax credit, for the years 2015 and 2016, to domestic producers when it was renewed as part of an omnibus spending package last year, but their efforts came up short. Foreign manufacturers praised keeping the tax credit for blenders, while domestic producers vowed to continue the political pressure until the credit is changed.
Grassley and Cantwell appear committed to maintaining their fight to change the biodiesel tax credit in 2017, even though they face a battle with entrenched political opposition. But if Congress is paying attention to Donald Trump, and his success with voters tired of Washington favoring foreign interests over American interests, maybe this time will be different. Maybe Congress will side with American biodiesel producers instead of helping foreign producers get rich off the U.S. tax code.