Congress allowed a crucial $1.00/gal tax credit to expire, resulting in U.S. biodiesel production capacity dipping to around 15%.

Fortunately for biodiesel producers, the gravitational pull between politicians and bailing out unprofitable industries is among the strongest forces in the universe.

According to the Department of Energy, in early March, the wholesale price for diesel in the U.S. was around $2.00/gal.  This means that biodiesel producers must be able to produce biodiesel at a cost of $1.84/gal to break even with the wholesale cost of diesel, given that biodiesel only contains 92% of the amount of energy as diesel on a btu basis.

Unfortunately, even with the $1/gal subsidy, soybean biodiesel is still uncompetitive with diesel.  Soybean biodiesel is not the only game in town; a number of companies are using waste vegetable oil and animal tallow as feedstocks. These products generally have a better cost profile than soybean oil and do not compete with food supplies.  Yet, the ability to scale waste feedstocks remains limited, due to the logistical challenges of sourcing and collecting discarded waste from restaurants and factories (see Biofuels 2010: Spotting the Next Wave).

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