Friday, August 8, 2008

Why is Biodiesel Still So Expensive?

In my recent article for The Nation, I wrote that the U.S. biodiesel industry is operating at only 20% of capacity and focused on one of two main reasons for that: the lack of facilities at wholesale terminals for blending the biofuel with petroleum diesel.

The other big reason is the price of soybeans and soybean oil, the primary feedstock used to produce biodiesel in America. Even with petroleum diesel selling at even higher prices than gasoline--hovering around $5 a gallon where I live on Long Island, in New York--soybean biodiesel is still even more expensive.

And that, says Dr. Mark Cooper, research director for the Consumer Federation of America, has a lot to do with speculation. 

Many news reports in mainstream media keep quoting industry experts who deny that speculation has driven up the price of commodities including crude oil, corn and soybeans, but the fact is that they have no real evidence to prove their assertion. In testimony two months ago to the Senate Commerce Committee, Cooper pointed out that much of the trading in oil and commodities now takes place outside of regulated exchanges. Therefore, we really don't have the information we need to know who is trading and how much they are trading because these transactions are hidden from public view. That's why there's such disagreement about the role of speculation in driving up these prices.

But we do know that people like biodiesel producers--who actually want to use the physical commodities to make something real--have been priced out of the market. "Public policy has made speculation much more attractive than investment in genuinely productive enterprise," concludes Cooper. 

 His prescription is "vigorously enforced registering and reporting requirements(that) will chase the bad actors out of the commodity markets" and "margin and tax policies (that) will direct capital out of speculation and into productive long term uses."

That sounds eminently sensible, but will Congress listen and the President sign corrective legislation?

Seems to me we'll have to wait until we have a new President and a new Congress.

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