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Biodiesel: The Pros and Cons

Aug 25, 2008
No company and/or industry today are immune from the escalating cost of crude oil. In an effort to address this growing concern, companies are seeking alternative, cost-effective ways to make every drop of fuel count. Although biodiesel is not a new type of fuel, its use has not been widely considered up until now. Today, its popularity is rapidly growing as an alternative to petroleum-based fuel that can be used in various blends in unmodified diesel engines.

Biodiesel comes from vegetable oils that undergo transesterification, a chemical process that extracts methyl or ethyl esters from the oil. This extraction can be used as fuel, either in a pure or blended form. The oils come from renewable, organic sources, such as coconut, soybean, grape seed, jatropha, or from waste vegetable oil.

In an effort to promote the development and use of alternative fuels, the United States government provides incentives and tax credits to producers and users of renewable and alternative fuel, such as biodiesel. For example, the U.S. Department of Energy (DOE) has been drafting policies that will mandate private fleets and government vehicles to replace their vehicles with those that are ready for alternative fuel (read: diesel vehicles must be biodiesel ready).

The Pros - Biodiesel is commercially available at many pumps throughout the United States as a blend with petroleum diesel. Proponents say blends of up to 20 percent (B20) may be used in most conventional diesel engines, before costly modifications are needed. Advocates assert that there is no significant difference between biodiesel and petroleum diesel when it is blended properly. In fact they argue that biodiesel provides the same mileage, torque, and horsepower that petroleum diesel provides.

Proponents stress the many advantages of using biodiesel in vehicles. For starters, it is a cleaner fuel that reduces carbon dioxide emissions up to 80%. With new regulations, biodiesel has almost zero sulfur dioxide content. Studies also suggest that lower blends of biodiesel are more fuel efficient, which makes car engines last longer. In addition, biodiesel is less of a noise pollutant in diesel engines because of its high octane ignition rating. This means biodiesel can make cold starting easier since it heats up more easily than petroleum diesel.

The beneficiaries of biodiesel will be fleet vehicles and the public transportation sector. As oil prices have increased dramatically over the past year, biodiesel is becoming a more appealing alternative because it is cheaper to produce and is more environmentally sound. In addition, the price of biodiesel may be more stable than petroleum diesel. For example, lower blends of biodiesel (B2, B5, and B10) can cost less than petroleum diesel. B20 is sold at almost a similar price to petroleum diesel, but prices are expected to decrease as petroleum prices increase in the world market while local producers and supply of biodiesel increase.

The Cons - Opponents stress that biodiesel has different solvent properties that can break down deposits in the fuel lines where petrodiesel has been used. If and when gas stations start offering biodiesel, opponents say they will need to replace fuel lines. Opponents expand their argument by stating that biodiesel can also degrade rubber components, which means that rubber fuel pumps and seals will also need to be replaced with a synthetic rubber. This is not great for consumers whose warranty may not apply if they convert to biodiesel.

One of the problem advocates gloss over, however, is that although there are good number of biodiesel suppliers in some states, other states still do not have enough suppliers and producers of biodiesel to justify the switch to biodiesel vehicles. Currently, northern central states like Minnesota, Michigan, North and South Dakota, Nebraska, Iowa, Illinois, Kansas, and Missouri have several suppliers of biodiesel. In other states, only selected suppliers provide biodiesel to local pumps, suggesting that the proposed government mandates do not realistically consider the impact and consequences of this mandate on states where suppliers and producers are low.

Investors are quick to point out that there must be a growing demand in other states in order for businesses to justify investing in distribution facilities in other locations. That said, with petroleum prices expected to continue to rise, proponents believe that consumers will consider switching to biodiesel and other alternative fuel, thus creating a demand. With rising demand, gas stations are expected to install more pumps that carry biodiesel.

While the conversion to using more biofuels appears to be inevitable, some question how the conversion will be executed. Timing and associated costs of the changes are still not clear. There is also the issue about the direct and indirect costs of converting compounded by the question of which groups will benefit and which groups will suffer. With congressional leadership favoring the acceleration of greener energy that clearly benefits their constituents and lobbyists, there will definitely be winners and losers.

In the final analysis, the biodiesel debate points to the urgency for businesses to begin planning NOW for the inevitability of a greener world, with its intended and unintended consequences. Will you be prepared?
About the Author
Bottom line? - Apply this information to improve your profitability, reengineer business models, and strengthen or gain competitive advantage in the marketplace. And apply the free Fiscal Test at http://fiscaldoctor.com/fiscaltest.html.
From Gary W Patterson, www.FiscalDoctor.com Copyright 2008
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