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Economics of
Biodiesel
The primary cost of biodiesel is
the oil feedstock. It takes
about 7.3 pounds of soybean oil
to produce one gallon of
biodiesel. The price of soybean
oil varies widely but over the
last few years has tended to
stay in the range of $0.15 to
$0.25/lb. This means the
feedstock cost will be between
$1.10 and $1.83/gallon. Most
estimates of biodiesel
production costs are $0.20 to
$0.50 per gallon, with large
plants on the low end of the
range and small plants on the
high end. Prices for new
construction of a biodiesel
plant are approximately $1.00
per gallon of annual capacity.
One of the co-products of the
transesterification process is
glycerin which can have a high
value if it is refined. The
value of the glycerin
essentially cancels the cost of
the alcohol and catalyst. The
price of glycerin is currently
stable but if a large biodiesel
market develops, there is likely
to be a glut of glycerin with
much lower prices. The selling
price of biodiesel must exceed
the feedstock cost to cover
processing, packaging,
transportation, distribution and
profit. Subsidies through the
USDA Commodity Credit Corp. (CCC)
have been available since 2000.
The Federal Government has
authorized the U.S. Department
of Agriculture to make direct
payments to producers of ethanol
and biodiesel to offset part of
their cost to buy commodities to
produce these fuels. The current
authorization level is $150
million per year through 2006.
The program is described in the
following website:
www.fsa.usda.gov/daco/bio_daco.htm.
The CCC program
will pay biodiesel producers for
40% of the cost of purchasing
soybeans (or other oil seeds
such as corn, grain sorghum,
sunflower seeds, rapeseed,
canola, cottonseed, and others),
if the beans are processed to
produce biodiesel. In the case
of soybeans, the producer can
still sell the soybean meal and
the 40% CCC payment may actually
be greater than the value of the
oil in the beans. Current
versions of the CCC program also
include greases from rendered
animal fats and recycled
restaurant frying oils. However,
the subsidy rate on these
products depends on their price
relative to soybean oil.
The high price of biodiesel is
the major obstacle to market
development. The most promising
approach to lowering the price
is to use other, less expensive,
feedstocks to provide a portion
of the biodiesel supply. These
other feedstocks could include
spoiled soybeans, beef and pork
tallow, waste restaurant frying
grease (yellow grease), and
by-products from other processes
involving soybean oil, such as
soapstock. While the quantities
of these feedstocks are not
sufficient to supply a large
market, they can be used as
blending agents to lower the
overall costs. Some of these
alternate feedstocks are
considered to be disposal
problems and can be obtained at
very low cost.
While not
lowering the price of
biodiesel, another
government program has
provided incentive for some
groups to purchase and use
biodiesel. The
Energy Policy Act (EPAct)
is a law that requires
government fleets to
purchase alternatively
fueled vehicles. While
biodiesel can be considered
to be an alternative fuel,
its use in blends was not
initially allowed. More
recently, the Dept. of
Energy allows 20% biodiesel
blends (B20) to be used in
heavy duty vehicles in order
to satisfy EPACT
alternatively fueled vehicle
purchase mandates. If a
fleet uses 450 gallons of
biodiesel in blends of 20%
or higher, they can get
credit for one alternatively
fueled vehicle.
All biodiesel producers who
make fuel for sale to the
on-highway vehicle market
must be registered with the
Environmental Protection
Agency. To become
registered, producers are
required to submit detailed
data about the health
effects of their products.
Collecting these data is
very expensive. Instead of
collecting their own data
the producer can join the
National Biodiesel Board
who make the data available
to all of their dues-paying
members at no charge.
Additional information about
EPA registration is
available by
clicking here .
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