The Biodiesel Industry: Feedstocks, Capacity, and Subsidies

Abstract

Concerns over global climate change, national security and limited petroleum resources have heightened US interest in renewable fuels in recent years. Biodiesel made from plant oils and animal fats is one such alternative. In 2007, the United States passed the Energy Independence and Security Act, setting new goals for the production of biofuels. In order to analyze the ability of the biodiesel infrastructure to meet the Renewable Fuel Standards outlined in the recently-passed Energy legislation and to determine the importance of current government subsidies in meeting these standards, I examined current and potential demand for biodiesel, possible feedstocks, and capital costs. Current US biodiesel refinery capacity exceeds the amount of production mandated, but production has only reached approximately one fourth of this capacity. With future capacity expected to double by 2009, biodiesel refineries will be able to produce the required biodiesel by 2012 at prices that are competitive with conventional diesel assuming subsidies remain above $0.72. The importance of the subsidy and the potential of the biodiesel industry are both based on assumptions about two volatile prices: the price of vegetable oils and the price of diesel. These prices are the key factors in determining the success of the industry and the public and private costs of meeting the Renewable Fuel Standard.