The American Soybean Association (ASA) presented testimony to Congress today that proposed a two-pronged approach to support biodiesel. ASA is asking that as much as 2 percent of all motor fuels sold in the United States be required to include either biodiesel or ethanol, and proposing a tax exemption that would make biodiesel more price competitive.

“Our initiative would provide the United States with more homegrown energy and help our nation’s farmers by fostering markets for our surplus commodities, such as vegetable oil,” said ASA Executive Committee Member Ron Heck of Perry, Iowa, who gave the testimony before the House Agriculture Conservation, Credit, Rural Development and Research Subcommittee. “ASA’s two-part plan supports cleaner-burning fuels for everyone, reduces dependence on foreign energy sources and provides a much-needed boost to farm prices and rural economies.”

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 to offer environmental, energy security and economic development benefits. 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 four-fold increase from last year.

Strong public support is essential to develop the biodiesel market since U.S. culture and policies are focused on petroleum products. Therefore, ASA and the National Corn Growers Association are proposing that renewable fuels, such as biodiesel and ethanol, should constitute as much as 2 percent of the U.S. motor fuel market over the next 10 years. The policy would be part of a flexible and user-friendly national fuels program that would gradually increase federal renewable fuel content requirements.

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 3 cents for diesel fuel that contains 2 percent biodiesel. This approach is similar to the partial tax exemption for ethanol, which provides a 5.4 percent exemption for gasoline that contains 10 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 proposal would save taxpayer dollars because ASA is proposing to reimburse the Federal Highway Trust Fund through the U.S. Department of Agriculture’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 2 percent per gallon into five billion gallons of diesel fuel. At a cost of 3 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 is of particular 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 pollutants, including carbon dioxide. Additional information on the attributes of biodiesel is available at www.biodiesel.org.