“Splash and dash” – or why a free market would be an improvement over what we have now

American biofuels have been in the news recently. You may have heard them discussed in the context of inadequate world food production, dramatic increases in the price of staples such as rice and grains, and subsequent riots in parts of Africa and Asia.

So have you ever wondered how biofuels subsidies actually work? David Freddoso of the once conservative but now increasingly neoliberal rag the National Review has given us an example in the form of the so-called “blenders’ credit” devised by Senator Chuck Grassley from Iowa. This wheeze provides $1 of taxpayers’ money for each gallon of biodiesel mixed with regular diesel.

According to World Trade Organisation rules, the subsidy must in all fairness be extended to foreign companies, and this has given rise to what is known as “splash and dash”:

“It works like this: A foreign tanker carrying 9 million gallons of biodiesel from Brazil or Malaysia sails to an American port. While it waits, 9,000 gallons of American diesel is added — that’s right, a 0.1 percent blend — so as to earn the blender a $9 million tax credit. The tanker heads to Europe, where diesel cars are far more common and biodiesel is further subsidized.

“In some cases tankers have reportedly made round trips from Europe to the US simply to collect the subsidy. Thus we ‘import’ and ‘export’ the same fuel from and to the same country.”

See here and here for a European take on this farcical state of affairs. There are also calls in the US to close down this tax loophole, but as with Europe the motivation across the pond appears to be more to protect domestic markets than remedy an environmental and economic injustice.