The American Soybean Association (ASA) is pleased that the Bush Administration’s National Energy Policy Report released today recognizes biodiesel for its positive contributions to the nation’s energy supply, the environment and the economy. However, the Association is disappointed that it did not contain specific recommendations that would facilitate increased biodiesel utilization.

To facilitate biodiesel reaching its potential, ASA is calling for the Administration and Congress to support ASA’s two-pronged approach. ASA’s plan would require up to three percent of all motor fuels sold in the United States in 10 years to be either biodiesel or ethanol, and provide a tax exemption that would make biodiesel more price competitive.

“The Administration made an important statement about the value of biodiesel and other renewable fuels,” said ASA President Tony Anderson, a soybean producer from Mount Sterling, Ohio. “It is now key for the Administration and Congress to work together to take the specific actions that will help the biodiesel market grow to benefit the nation, the environment and farm prices.”

Earlier this week, Senator Chuck Hagel (R-NE) and Tim Johnson (D-SD) spearheaded a letter from 18 Senators to Vice President Richard Cheney in support of biodiesel and ethanol in the National Energy Policy Report. The Senators stated that biodiesel and ethanol could meet 3 percent of the U.S. motor fuel market within 10 years-providing energy, environmental and economic benefits for the nation. A 3 percent market share for biodiesel and ethanol would displace about 9 billion gallons of motor fuels annually or between 500,000 and 600,000 barrels of crude oil each day.

Biodiesel is commonly produced from soybean oil, which is currently in surplus and depresses the price of soybeans and other oilseeds. It contains no petroleum, but it can be blended easily with diesel. Biodiesel is popular in Europe where motorists use 250 million gallons annually. According to the National Biodiesel Board, U.S. biodiesel producers are expected to manufacture 20 million gallons in fiscal year 2001, a fourfold increase from last year.

Strong public support is essential to develop the biodiesel market since traditional U.S. usage and policies are focused on petroleum products. Therefore, ASA and the National Corn Growers Association are supporting a flexible and user-friendly national fuels program that would gradually increase the percentage of biodiesel and ethanol used in the national fuel market.

ASA’s recommendation for a biodiesel tax incentive would provide a partial exemption to the diesel fuel excise tax similar to the partial tax exemption for ethanol. The amount of the exemption would be three cents for diesel fuel that contains two percent biodiesel. This approach is similar to the partial tax exemption for ethanol, which provides a 5.4 percent exemption for gasoline that contains ten percent ethanol. (Biodiesel and ethanol are complementary renewable fuels since they are sold in separate fuel markets.)

The proposal would boost farm prices and save taxpayer dollars. Every 100 million gallons of biodiesel requires 760 million pounds of a feedstock, such as vegetable oils, recycled grease or animal fats. If soybean oil were the only feedstock used, 100 million gallons of biodiesel would reduce by one-third the current surplus of 2.1 billion pounds of soy oil. Reducing soy oil supplies by this amount would increase the U.S. soy oil price by an estimated 1.5 cents per pound. With 11 pounds of soy oil in a bushel of soybeans, this would raise U.S. soybean prices by as much as 16.5 cents per bushel.

The initiative would save taxpayer dollars because ASA is proposing to reimburse the Federal Highway Trust Fund through USDA’s Commodity Credit Corporation (CCC). The cost to the CCC would be offset, at least initially, by the savings from increased biodiesel sales that would reduce government expenditures under the soybean marketing loan program.

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 program would be $150 million. Reduced soybean oil surpluses will result in higher soybean prices, and raising soybean prices in the marketplace would reduce CCC outlays under the soybean marketing loan program. Using a conservative 13 cents per bushel impact on price, the cost savings on this year’s estimated 3.0 billion bushel soybean crop would be $390 million. As a result, the proposal will save more than two dollars for each dollar it costs.

Furthermore, biodiesel users and the public would benefit from the fuel’s many operational and environmental benefits. In particular, biodiesel can increase the lubricity of diesel, which will be of great benefit when the sulfur content of diesel is reduced. Independent studies also show that the use of biodiesel in conventional diesel engines results in a substantial reduction of harmful emissions, including carbon dioxide. Additional information on the attributes of biodiesel is available at www.biodiesel.org.