Response #6: "Who Wants My Biofuel?"

The article “Who Wants My Biofuel?” by Rebecca Buckman illustrates the difficulties faced by biodiesel producers in the U.S., and implies that Congress is largely to blame. Although the government provided the incentives which encouraged the production of biodiesel, the producers are largely responsible for their own situation because they were counting on subsidies from the government, a low market price for vegetable oil, and government regulations requiring the use of biodiesel.

According to the article the biodiesel producers are facing economic difficulties because “they thought they had a deal with Congress.” The deal they implied was a combination of a federal subsidy, and regulations mandating that a portion of diesel consumption must be biodiesel.

However, it is hard to blame the economic difficulties on the government, when it did nothing to create them. The biodiesel producers took a risk, as with any economic endeavor, and lost. Even more to the point, the risk they took was an ill calculated one, as I will discuss.

Their first mistake would be to rely on government subsidies for a profit. As far as I could tell from the article, the subsidies are still in effect. There is no guarantee that a subsidy will always be available, though. Because of this, any business model which relies on one for a profit, is not a sound model.

Their second mistake was to assume that the price of vegetable oil would remain favorable. Admittedly, market price is hard to predict, but if it is not economically feasible without the aforementioned subsidy, then the oil prices would have to drop to create an economically sound plan. However, the prices did not drop, and now it is not feasible even with the subsidy.

Finally, the biodiesel producers were relying on government regulations to ensure a market for their product. The regulations would require a portion of diesel consumption to be biodiesel, but only if the EPA determined that biodiesel actually reduced emissions of greenhouse gases. This was during a time when the environmental benefits of biofuels were still controversial.

While I applaud their attempt to do something good for the environment, biodiesel producers made some risky assumptions and as a result landed in financial difficulty. The U.S. Government cannot really be blamed for that.

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