Biodiesel Economics

Biodiesel's limited horizons raise the question of whether the fuel is worth subsidizing. Compared with other energy and agricultural subsidies, the cost of the federal biodiesel tax credit is a drop in the bucket, but because it's indexed to consumption, the subsidy will grow with biodiesel output. While actual fuel costs per gallon are difficult to determine because buying arrangements differ among companies, calculations using the at-cost numbers show that moving to a B20 biodiesel blend would increase both average cost per trip and average cost per stop by approximately 6.3% for both broadliners and systems distributors. To restate the obvious, the economics are not there, nor are they expected to be any time soon.

Hackett gave this breakdown of biodiesel economics: in December 2007, soybean oil on the Chicago Board of Trade averaged 48 cents per pound, or $3.60 per gallon (one gallon equals 7.5 lbs.) compared with the average spot price for diesel fuel of $2.60 per gallon at the same time. Refining soybean oil into biodiesel costs about 50 cents a gallon. The dollar a gallon tax break brings pure biodiesel at cost to only 50 cents a gallon higher than petroleum diesel. Factoring in the blend, using B20, at 20% biodiesel and 80% petroleum, the approximate cost is 10 cents higher per gallon (20% of 50 cents equals 10 cents). Safeway decided to go ahead despite the higher cost. In line with the document, biodiesel (the domestic demand is estimated at more than 2 million tonnes a year) will be produced with a 5% additive of biofuel what will allow to save around 300 thousand tonnes of oil a year. The country is set to build the capacities to produce 100 thousand tons of methyl ether a year. According to specialists, such facilities can be created at Grodno Azot and Mogilevkhimvolokno which produce methanol which is necessary for bio-fuel production. The cost of the project is estimated at approximately $50 million.

Other articles:
Biodiesel Facts - Biodiesel Conversion Kit

Bottom line here is that biodiesel, like ethanol, is no panacea to petroleum dependency. It's role should be understood, like ethanol's, to be a regional one and also one of many alternative fuels that will in combination help lower but not eliminate dependence on petroleum. Only drastically reduced demand for petroleum fuel can truly help accomplish that.