Regulation of Fuels and Fuel Additives: Renewable Fuel Standard ...

production costs using prices for soy oil, methanol, chemicals and the byproduct glycerol.
The models estimate the capital, fixed and operating costs associated with the production
of soy based biodiesel fuel, considering utility, labor, land and any other process and
operating requirements.
Each model is based on a medium sized biodiesel plant that was designed to
process raw degummed virgin soy oil as the feedstock, yielding 10 million gallons per
year of biodiesel fuel. USDA estimated the equipment needs and operating requirements
for their biodiesel plant through the use of process simulation software. This software
determines the biodiesel process requirements based on the use of established
engineering relationships, process operating conditions and reagent needs. To
substantiate the validity and accuracy of their model, USDA solicited feedback from
major biodiesel producers. Based on responses, they then made adjustments to their
model. The NREL model is also based on process simulation software, though the
results are adjusted to reflect NREL’s modeling methods.
The production costs are based on an average biodiesel plant located in the
Midwest using soy oil and methanol, which are catalyzed into esters and glycerol by use
of sodium hydroxide. Because local feedstock costs, distribution costs, and biodiesel
plant type introduce some variability into cost estimates, we believe that using an average
plant to estimate production costs provides a reasonable approach. Therefore, we
simplified our analysis and used costs based on an average plant and average feedstock
prices since the total biodiesel volumes forecasted are not large and represent a small
fraction of the total projected renewable volumes. The production costs are based on a
plant that makes 10 million gallons per year of biodiesel fuel.
The model is further modified to use input prices for the feedstocks, byproducts
and energy prices to reflect the effects of the fuels provisions in the Energy Act. Based
on the USDA model, for soy oil-derived biodiesel we estimate a production cost of $2.06
per gallon in 2004 and $1.89 per gal in 2012 (in 2004 dollars) For yellow grease derived
biodiesel, USDA’s model estimates an average production cost of $1.19 per gallon in
2004 and $1.10 in 2012 (in 2004 dollars). In order to capture a range of production costs,
we compared these cost projections to those derived from the NREL biodiesel model.
With the NREL model, we estimate biodiesel production cost of $2.11 per gallon for soy
oil feedstocks and $1.28 per gallon for yellow grease in 2012, which are slightly higher
than the USDA results.
With the current Biodiesel Blender Tax Credit Program, producers using virgin
vegetable oil stocks receive a one dollar per gallon tax subsidy while yellow grease
producers receive 50 cents per gallon, reducing the net production cost to a range of 89 to
111 cents per gallon for soy derived biodiesel and 60 to 78 cents per gallon for yellow
grease biodiesel in 2012. This compares favorably to the projected wholesale diesel fuel
prices of 138 cents per gallon in 2012, signifying that the economics for biodiesel are
positive under the effects of the blender credit program, though, the tax credit program
expires in 2008 if not extended. Congress may later elect to extend the blender credit
program, though, following the precedence used for extending the ethanol blending
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