EU wants quick end to US biodiesel incentive

WASHINGTON (Reuters) - U.S. tax breaks for biodiesel exporters undercut competitors in Europe and undermine trans-Atlantic trade ties, the European Union's ambassador in Washington said on Monday.

"We don't really believe it's the job of U.S. taxpayers to subsidize European motorists," Ambassador John Bruton told Reuters in an interview.

"We don't think it's the best use of US tax funds; we also believe it is likely to damage to European biodiesel industry," Bruton said, naming U.S. biodiesel incentives as one of the "negative developments" that threaten to cloud an otherwise strong U.S.-EU commercial relationship.

The EU supports its biodiesel with excise duty reductions to consumers, but it is rankled by the U.S. policy on blended biodiesel -- which it calls "splash and dash" -- which permits companies to claim a tax credit on biodiesel, including exports, with even a small percentage of conventional fuel.

The European industry blames the policy for the recent explosion of low-cost biodiesel imports blended in the United States. Bruton cited a 30 percent price differential.

Those imports grew tenfold in 2007, the EU says, to 1 million tonnes, and now comprise up to a fifth of the European market. The EU estimated the United States was spending $200 million to $300 million a year to support that trade.

The European Biodiesel Board was expected to lodge an anti-dumping complaint with the EU against the U.S. policy, but it has yet to take that step.

Dan Rotenberg, an agricultural counselor at the EU mission in Washington, said U.S. taxpayers were shelling out to support lower fuel costs in Europe and "and even third countries' producers, as this tax credit is applicable to biodiesel produced in third countries."

But the National Biodiesel Board, a U.S. industry group, argues that the imports from the United States are not the greatest threat to producers there.

Their woes, the U.S. industry believes, instead should be blamed on more expensive European feed stocks and changes to the EU's own biodiesel support.

EU officials were disappointed when Congress failed to include changes to biodiesel incentives in an energy bill passed last year.

But they hope lawmakers will give it another go in the 2008 farm bill, an omnibus agriculture bill now working its way through Congress.

Bruton said the policy also hurt the United States, a top energy consumer, as the world struggles to find new, sustainable fuel sources.

"If our objective is global energy security, we need to have diversity in the biodiesel and renewable sector," and any policy that stunts nascent renewable industries on either side of the Atlantic is a bad idea, he said.

The National Biodiesel Board is also seeking to limit the tax credit to apply only to U.S.-origin biodiesel

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(Additional reporting by Doug Palmer; Editing by Christian Wiessner)