Biodiesel is Gaining Momentum

By Mark Seamon, Michigan State University Extension

Biofuels are catching on in the United States with the use of ethanol as an alternative to gasoline and biodiesel as a replacement for petroleum-based diesel fuel. There are many reasons for the popularity of alternative fuels including the associated reduction in greenhouse gas emissions, high petroleum costs and federal government policy. The amount of ethanol being blended with gasoline has leveled off recently as it nears 10 percent of the volume of gasoline used in the United States. EPA has established a limit on the percentage of ethanol that can be burned in many automobile engines at 10 percent. This is what many experts refer to as the ethanol blend wall.

While biodiesel has its own limitations, it does not face the issue of a limited market based on policy or regulation. Biodiesel production and use reached record levels in 2013 with production nearing 1.7 billion gallons.

The U. S. Renewable Fuels Standard has established mandated volumes for the use of alternative fuels through 2022. These mandates are categorized into segments based on anticipated reductions in greenhouse gas emissions associated with each fuel. This strategy benefits biodiesel as it is categorized as an advanced biofuel, meaning that greenhouse gas emissions from burning biodiesel are reduced more than 50 percent compared to an EPA base level.

As a new alternative product in a well-established market, biodiesel has struggled to achieve economic feasibility as compared to fossil fuels. A blender’s tax credit of $1 per gallon has helped to overcome this issue, but the credit has not been consistent, causing disruptions in the market. After a lapse, the credit was reinstated in 2013 and reinforced by an increase in the mandated annual biodiesel volume to 1.28 billion gallons. Another issue affecting the profitability of biodiesel is the fact that its cost is closely tied to feedstock costs. The primary biodiesel feedstock is soybean oil with about 25 percent of total U.S. soybean oil production dedicated to this use. Increasing supplies of soybeans in the United States and around the world have pushed prices to the lower side. If soybean production and supplies stay strong and petroleum prices remain high, biodiesel feasibility should be maintained or improved.