The Drought Is No Reason to Reverse Course on American Fuel

Posted on August 14th, 2012

For the first time in history, our nation is making meaningful progress in the drive for energy independence. This is thanks in no small part to strong federal policy that has made developing American-made fuels a priority. The federal Renewable Fuels Standard – 2 led the U.S. into a record year of biodiesel production and use, at just more than 1 billion gallons in 2011. This is genuine progress in the quest for energy security, and it brings with it jobs, economic development and additional fuel refining capacity that this nation sorely needs. These benefits are tangible and real.

To be sure, the drought’s grip on the U.S. is also real, and threatens crops. However, the biodiesel industry has worked with policy makers through the years to set responsible, attainable goals for biodiesel growth. That includes being ready for unforeseen circumstances, like the current drought. We should not let one year of drought threaten to undo meaningful momentum in the rise of American fuels. Here’s why:

Biodiesel’s feedstock diversity allows for flexibility and will relieve market pressures.

Biodiesel is made from an increasingly diverse mix of feedstocks, including recycled cooking oil, agricultural oils such as soybean and canola oil, and fats. Most biodiesel producers today have the flexibility to jump from one feedstock to another if prices rise or supplies are short. Therefore, the industry’s impact in commodity markets is significantly reduced.

RFS flexibility protects market strength.

On top of a diverse feedstock base, biodiesel demand is also flexible. The RFS, for example, allows up to 20 percent carryover production from one year to the next to avoid any supply and demand pressures that could develop. This built-in flexibility means that producers can work within short-term market conditions to meet obligations.

Soybean oil stocks will likely be steady.

While soybean yields in some areas will be lower due to the drought, total acres planted this year were larger than last year. At the same time, biodiesel production is likely to be flat or possibly down from the record production in 2011 of nearly 1.1 billion gallons, and again will be spread among a variety of feedstocks. Demand for soy protein, which is not used in biodiesel, will be up (as other protein sources will not be as widely available), however the demand for oil is not expected to significantly increase due to weak values for crude petroleum and price competitiveness around the world with other vegetable oil supplies.

Demand for oil drives dairy and meat prices down.

In the soybean oil sector of the biodiesel market, biodiesel requirements benefit many food markets stressed by drought. Soybean oil used in biodiesel production allows soy protein meal prices used to feed livestock to be lower they would otherwise be. In addition demand for animal fats, biodiesel demand for feedstocks improves the value per head for livestock and reduces price pressures on consumer meat and dairy products. As a result, a number of livestock production groups are on record supporting biodiesel production.

Dependence on foreign oil is the real culprit.

Along with natural causes such as drought, the real driver of rising food costs continues to be increased oil and fuel prices. Until we have diversity in our fuel supplies, we will always be vulnerable to inflated global oil prices and the endless cycle of price spikes that we are experiencing.

Biodiesel protects water resources.

Biodiesel protects water resources in several ways. One of the most significant environmental benefits of biodiesel is a reduction in greenhouse gas emissions. Biodiesel is the best option for powering our trucks, buses, tractors, and diesel cars while minimizing the carbon dioxide and other greenhouse gases that are building up in our atmosphere causing extreme weather and climate change.

Biodiesel also makes wise use of valuable water resources. Biodiesel production reduces wastewater production by 79% and reduces hazardous waste production by 96% compared to petroleum diesel production. Biodiesel is nontoxic and biodegradable. Preventing contamination is the best way to protect our natural resources.

Don Scott serves as the Director of Sustainability for the National Biodiesel Board.