Study Show Little Price Impact from Biodiesel

May 21, 2001

Truckers and other highway users of diesel fuel could see their energy costs decline if diesel is blended with a soy-based fuel, according to a new report by a University of Minnesota economist. The report claims that blending petroleum diesel fuel with a 2% level of soy-based biodiesel has only a six-tenths-of-a-cent impact on the retail price of diesel fuel. If a proposed federal biodiesel tax incentive were in place, economist Douglas Tiffany's analysis shows retail diesel blended with the soy-based alternative fuel could save highway diesel fuel users money.

"Current figures demonstrate that the cost of diesel at the retail level will remain fairly steady if it contains a low-level blend of soy-based biodiesel," says Tiffany, a research fellow in the Department of Applied Economics. "When the price of regular diesel increases relative to the price of soy-based biodiesel, the replacement of just 2% has less and less of a per-gallon impact on the retail price. With a proposed federal tax exemption for biodiesel, the retail price of diesel blended with the soy-based alternative will go down, making biodiesel even more economical than it already is."

Tiffany's biodiesel analysis, funded by the soybean checkoff, factored in a three-tenths-of-a-cent value for soy-based biodiesel's lubricity when blended at 2-5% levels with petroleum diesel. The Environmental Protection Agency (EPA) wants to curb petroleum diesel's harmful emissions by significantly reducing the level of its sulfur content by 2006. Sulfur in diesel helps lubricate engines. EPA acknowledges its action will drive up the cost of refining petroleum diesel by up to a nickel per gallon and accelerate diesel engine wear.

"I conclude that any additional expense of blending soy-based biodiesel will help reduce those costs when EPA's regulations on sulfur go into effect," says Tiffany. "Petroleum-based additives could serve the same purpose, but not without the risk of overdosing diesel fuel supplies, which may harm engines. A low-level blend of soy-based biodiesel and regular diesel effectively avoids that potential problem."

The University of Minnesota economist's report on soy-based biodiesel also demonstrates significant benefits to soybean farmers in the form of increased utilization of soybeans. United Soybean Board Chairman Doug Magnus, a soybean farmer from Slayton, MN, said, "Once again, everyone is being forced to struggle with rising petroleum prices. At the same time, we're also struggling with low soybean prices. Studies like this one have repeatedly demonstrated that soy-based biodiesel not only helps us reduce our reliance on foreign oil but can also substantially increase soybean utilization. And production of biodiesel will increase fuel supplies because it returns three units of energy for every unit used to produce it. "

Tiffany's analysis also uses published data by the Food & Agricultural Policy Research Institute at the University of Missouri to predict the per bushel soybean price impact of blending soy-based biodiesel with regular diesel. For example, if all diesel fuel sold in Minnesota contained just 2% biodiesel, the economist says demand for soybean oil, which is used to make biodiesel, would raise the price of soybeans 5-9 cents per bushel across the nation. If the Minnesota diesel fuel supply contained 5% biodiesel, Tiffany says soybean prices would rise 12-18 cents a bushel nationally.

"Soy-based biodiesel provides multiple benefits for everyone," says Tiffany. "Low-level blends can lessen our reliance on foreign oil, improve our air quality, increase U.S. soybean utilization, strengthen our rural economies and improve diesel engine performance by reducing engine wear."