Statement of the American Soybean Association

The American Soybean Association (ASA) appreciates the opportunity to present written testimony to the House Ways and Means Subcommittee on Select Revenue Measures regarding our proposal to provide a partial exemption to the diesel fuel excise tax to diesel fuel suppliers who use blends of biodiesel. The amount of the exemption would be three cents for diesel fuel containing two percent biodiesel. We also propose to provide 20 cents for diesel fuel containing twenty percent or higher blends of biodiesel.

This approach is similar to the partial tax exemption for ethanol, which provides a 5.4-cent exemption for gasoline that contains ten percent ethanol. Biodiesel and ethanol are complementary renewable fuels, since they are sold in separate fuel markets.

One of the first concerns with excise tax exemptions is the lost revenue to the Highway Trust Fund. ASA is very sensitive to the needs of highway users, and proposes to reimburse the Trust Fund with USDA’s Commodity Credit Corporation (CCC). The cost to the CCC would be offset, at least initially, by savings realized in the cost of the soybean marketing loan program brought about by higher soybean prices from the increased use of soybean oil in biodiesel.

For example, if 100 million gallons of biodiesel were used under this program, it would be blended at two percent per gallon into five billion gallons of diesel fuel. At a cost of three cents per gallon, the cost of the incentive would be $150 million.

Soybean oil is a primary feedstock for biodiesel production. Assuming soyoil use in our example, reduced soybean oil surpluses will result in higher soybean prices, which will reduce CCC outlays under the soybean marketing loan program. Using a conservative 13 cents per bushel impact on price, the savings for this year’s estimated 2.75 billion bushel soybean crop would be $357 million. Our proposal will save more than two dollars for each dollar it costs.

The Congressional Budget Office (CBO) baseline released in December 2000 estimated that the CCC would incur the following costs (in billions) by fiscal year for the soybean marketing loan program:

These figures indicate that sufficient CCC funds will be available to offset the cost of our proposal to the Highway Trust Fund. It also is clear that stimulating demand for biodiesel through a tax incentive and thereby reducing farm program costs by more than two dollars for every dollar spent under the tax incentive is good fiscal policy. Additionally, development of the biodiesel industry and the further use of biodiesel in fuel will help address our nation’s future energy needs.

Mr. Chairman, the biodiesel industry believes that the timing is right for this proposal. For the last ten years U.S. soybean growers have invested in the research, development and commercialization of biodiesel. Biodiesel is a mono-alkyl ester-based oxygenated fuel. It contains no petroleum but can easily be blended with petroleum. Biodiesel is typically blended at the 20% level with diesel or at the 2% or lower levels. It can be used in compression-ignition, diesel engines with no major modifications. Biodiesel in its neat or pure form is biodegradable and nontoxic, and is the first and only alternative fuel to meet EPA’s Tier I and II health effects testing standards. Biodiesel is renewable and domestically produced from agricultural resources, including soybean oil.

Biodiesel has many environmental and operational benefits. However, I would like to highlight the fuel’s lubricity benefits. Even at very low blends, biodiesel contributes operational and maintenance benefits to diesel engines. This is even more significant when using ultra-low sulfur diesel.

The Administration has decided to move forward with an EPA proposal to reduce the sulfur content of highway diesel fuel by over 95%, from its current level of 500 parts per million to 15 ppm. Biodiesel has no sulfur or aromatics, and tests have documented its ability to increase fuel lubricity significantly when blended with petroleum diesel fuel, even at less than one percent.

Soybean growers began to invest in biodiesel because of the economics of the soybean industry. Soybeans are widely produced for the protein feed provided by in soybean meal. It is the plant protein of choice in the pork and poultry industries, leaving soybean oil as a valuable but abundant co-product. Because of large supplies of vegetable oils in the world market, we have a large surplus of soybean oil in the domestic market, which depresses the price of the whole soybean.

Several years ago, ASA recognized that the traditional approach of riding out a depressed market by storing surplus soybean oil until better times was not going to work. The industry had to do more. It needed to be proactive and aggressive in developing new markets. Through our state and national check off programs soybean growers began investing in the development of new uses of soybean oil. Several of the products are widely accepted in the marketplace, such as soy ink, and others are just reaching acceptance, such as biodiesel, solvents, lubricants and other fluids.

While biodiesel as a fuel is relatively new to our country, it is widely accepted and utilized in Europe, where motorists consume 250 million gallons annually. Our biodiesel industry leaders have worked closely with the European industry by sharing research, performance data and consumer information. The European biodiesel industry is strongly supported by government and by agribusiness. In fact, several major U.S. oilseed processors are producing biodiesel in Europe.

While biodiesel offers environmental, energy security, and economic development benefits, it is not yet cost-competitive in the U.S. Public support is needed to help the industry develop. ASA strongly believes that our nation needs an aggressive energy policy that includes renewable fuels and power generation as well as significant domestic production of oil and natural gas.