Sunday, June 08, 2008

It's Not Easy Being Green

You can lose your shirt these days on biofuels:
Biodiesel, which can be used in most existing diesel engines without major modifications, is made from the oils in soybeans and other crops. Another biofuel, corn-based ethanol, has become a widely used gasoline additive, now present in millions of U.S. vehicles.

The rush to produce biodiesel was a gamble, assuming that skyrocketing petroleum prices would soon make veggie fuels reasonably cheap by comparison.

And as oil prices soared past $100 per barrel in recent months — and a new closing record of $138.54 on Friday — the region's biodiesel industry should have been awash in cash.

But to the surprise of the industry and its supporters, the cost of making biodiesel has outpaced the rise in fossil-fuel prices.

Soybean oil, the main raw material for U.S. biodiesel, nearly doubled in price — partly because the consumption of soy has risen globally, and partly because U.S. farmers have been switching land to more profitable corn crops, from which ethanol is made. Demand from biodiesel producers has also lifted prices, and other biodiesel crops such as canola and palm oil have quickly caught up in cost.

It now costs about $4.66 to buy enough soybean oil to make a gallon of the renewable fuel. After adding manufacturing expenses and subtracting a $1-per-gallon tax credit, a gallon of nearly pure biodiesel retails at local stations for close to $6.

Conventional diesel, meanwhile, currently sells for about $4.80 per gallon.

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