IISD concerned over U.S. tax credit for biodiesel; US$2 billion price tag for taxpayers

GENEVA — January 4, 2013 — Lawmakers in the United States have revived a US$1 per gallon tax credit for biodiesel, at a cost of over US$2 billion to American taxpayers, with doubtful economic or environmental benefits.

"This would be an irresponsible move at the best of times, but is scandalous when Americans are preoccupied with a ballooning budget deficit," said Mark Halle, vice-president, international, of the International Institute for Sustainable Development, a public policy think-tank.

The biodiesel tax incentive expired on December 31, 2011, but the U.S. Congress revived it on January 1, 2013, as part of its year-end fiscal package. The incentive is now due to expire at the end of 2013 and will be applied retroactively to 2012. Applying the tax credit retroactively will merely reward producers, many of whom were subsidized by individual U.S. states, with a US$1 billion windfall. It will create no additional biodiesel production. 

IISD is one of many non-partisan organizations that have long warned that U.S. government support to fuel ethanol and biodiesel come at a high economic and environmental cost. The institute's landmark series of studies, Biofuels – At What Cost?, showed biofuel subsidies to be an extremely expensive way to address climate change — a purported policy objective.

To test the effectiveness of biofuel subsidies as a way to address climate change concerns, IISD's Biofuels – At What Cost? reports estimated the average subsidy cost for each one tonne reduction in greenhouse gas emissions (expressed in CO2–equivalents) and found the cost to be at least 33 times more expensive than purchasing the equivalent amount of carbon offsets on the Chicago Climate Exchange.

Most subsidies to biofuels are linked to production or consumption, and the biodiesel tax credit is open-ended. Therefore subsidies rise in proportion to the growth of the biofuels industry. As the sector expands, so does the cost to taxpayers.

"Concern over biofuel subsidies is one of the few issues that unite a wide range of interested parties, from fiscal conservatives to environmentalists," said Peter Wooders, senior economist at the IISD's Global Subsidies Initiative. "Nor is the problem unique to the United States; we've also been concerned with the policies in Europe — where subsidy policy is being revisited owing to concerns on impacts both in Europe and globally — and elsewhere."*

IISD urges governments to assess their full range of energy subsidies to fossil fuels, biofuels, nuclear power and renewables, and to reform those that frustrate efforts towards sustainable development.

"There is no shortage of evidence to demonstrate that subsidies are often misused, or outlive their purpose, and the energy sector is a prime example," said Halle. "While political challenges to reform are major hurdles to subsidy reform, there is a growing body of experience of how countries  have made progress at all stages of development."

* For analysis of biofuel subsidies in over 10 countries, and a review of the global state-of-play in 2012, visit: http://www.iisd.org/gsi/biofuel-subsidies

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For more information, contact Damon Vis-Dunbar in Switzerland: email [email protected], cell +41 78 818 0501 or +41 22 917-8848, or Nona Pelletier in Canada on cell +1 (204) 962-1303+1 or (204) 958-7740.