July 17, 2005 Washington, D.C. - It's a rule of Washington politics:Enact a subsidy and someone you didn't expect will come looking for it.

Last year, U.S. soybean growers finally won a subsidy for biodiesel thatis similar to the one that ethanol has enjoyed for two decades. Thesubsidy has worked. Sales of biodiesel, made mostly from soybean oil, arebooming.

But now farmers are concerned that a cheaper foreign product could cutinto their market. The product is palm oil, which is grown on giantplantations carved out of the rain forests in Malaysia and Indonesia.

Palm oil is one of the world's cheapest vegetable oils, and it is widelyused in Europe and elsewhere as a food ingredient. Recent press reportssuggest it could become a major source for biodiesel in Europe as well.

There's little indication that palm oil is headed here for fuel useanytime soon, and there are questions about how well it would work infuel. Still, palm oil now costs several cents a pound less than soybeanoil, and that has farmers worried.

"In a very unpredictable marketplace, some people may see that as anopportunity," said Mark Palmer, a lobbyist for the American SoybeanAssociation.

His group and the National Biodiesel Board are concerned about a potentialloophole in the law that set up their long-sought-after subsidy - a taxcredit that knocks $1 per gallon off the price of biodiesel made fromsoybeans, canola or other crops.

The problem lies with one word: "including."

The law says the tax credit applies to "virgin oils, including . . . oilsfrom corn, soybeans, sunflower seeds, cottonseeds" and so forth.

Palm oil isn't in the list, but that pesky word "including" suggests thatthe oils named in the law are examples of what products qualify for thetax credit, not the only ones that qualify.

The two groups wrote the U.S. Internal Revenue Service in June asking fora ruling that palm oil does not qualify for the tax credit. The groupssaid that Congress clearly intended to exclude any oils not listed in thelaw.

Allowing palm oil to qualify for the tax credit would put soybean farmersat a "severe competitive disadvantage," the groups said in their letter.

So, what if the IRS doesn't go along? The options are limited, Palmersaid.

Congress could rewrite the law to exclude palm oil, but that could runafoul of World Trade Organization rules. Such a change would appear - forgood reason, some would probably say - as protectionist.

It is estimated that palm oil could supply up to 20 percent of theEuropean Union by 2010, according to a recent Reuters report. MostEuropean biodiesel now comes from rapeseed oil.

Whatever answer the IRS comes up with, U.S. biodiesel use is finallytaking off after years of idling.

Last year, the U.S. industry produced about 20 million gallons. This year,there are estimates that production could hit 100 million gallons, saidJim Duffield, an energy analyst at the U.S. Agriculture Department.

Biodiesel is even starting to catch on with truckers, with a little pushfrom singer Willie Nelson, who has been promoting biodiesel around thecountry.

"They think it's good for farmers. They think it's good for energysecurity," said Duffield.

But could it also be good for Asian palm plantations?