'Splash and Dash' Biofuel Scam Costs Americans Millions, Lawmakers Say

This is part of the America's Future series that will air on FOX News over the next several weeks that looks at the country's energy challenges.

CHICAGO — A lawmaker says U.S. taxpayers are being bilked to the tune of millions of dollars by a biofuel subsidy that helps to lower gas prices in Europe, and he's leading the charge to close the apparent loophole.

“In 2007 this subsidy cost the American taxpayer $300 million, and it’s projected to cost the American taxpayers $600 million next year,” said Rep. John Shadegg, R-Ariz.

The scam — as Shadegg and others call it — is known as “splash and dash.” It stems from an existing $1 subsidy for every gallon of biodiesel fuel blended with regular diesel in the United States.

Here’s how it works:

Biodiesel is produced abroad using South American sugar cane or Asian palm oil and shipped to the United States, where it’s blended with just a “splash” of regular diesel.

A typical tanker-load of about 9 million gallons of biodiesel requires just 9,000 gallons of American diesel to make it qualify for the subsidy. But every gallon in the shipment garners a buck. The ship then makes a “dash” for Europe, where its fuel is sold below market rates.

That means each tanker-load that makes the dash nets importers about $9 million dollars in tax credits from the IRS. Lawmakers have estimated its cost to Americans at tens — or even hundreds — of millions each year.

And while Congress and the National Biodiesel Board say they know the loophole is being exploited — as America is exporting much more biofuel than it's producing — they’ve been unable to identify the guilty companies.

“Ultimately when you dig down it gets to the point that you would have to have access to IRS information,” said Manning Feraci, vice president of federal affairs at the National Biodiesel Board. “Taxpayer information is confidential, so we can’t have access to it.”

“We really haven’t found out the names of the companies who are profiting from it,” Shadegg told FOX News. “I think the bad actors are the members of Congress who are allowing this to happen.”

Shadegg wants to end “splash and dash” by eliminating the subsidy for any biodiesel exported from the United States, which he says harms energy independence. Shadegg is pushing his bill in the House, which has already passed measures to stop the scam.

Farmers in the Midwest, however, want a narrower solution that would continue to allow them to grow crops for use in biodiesel that could be exported to Europe.

And Feraci says “the 'splash and dash' loophole is completely indefensible,” but his board is hoping to maintain the overall subsidy, which he says aids American farmers.

“We’re creating jobs in rural America. We support over 20,000 jobs. And these are green jobs that are helping to address our energy security needs,” he told FOX News.

Whether the subsidy stays or goes, the push to end splash and dash may come from Europe — which is threatening a trade war over America’s biodiesel subsidy.

The E.U. trade commissioner wants an investigation and has asked for retaliatory tariffs if Congress doesn’t end the subsidy, which is making things tight for European sellers of biodiesel.

“Taxpayers should be outraged because they are subsidizing foreign consumers of biodiesel,” said Shadegg. “That is insane, and it’s a ridiculous burden to put on American taxpayers.”

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