Cost of biodiesel production

Jul 2007

To keep the refining market tight and gasoline prices and profits high, Big Oil is now threatening to scale back modest plans to expand refining capacity.
Keeping the refining sector tight is not the only way Big Oil battles against ethanol: the oil companies have substantial market power over the distribution of alternative fuels.
The US Senate has voted to institute programs to triple the production of biofuels by 2022. This would add the equivalent of 2.3 million barrels a day of refining capacity to the nation’s liquid fuel supply. The Senate also adopted increases in the fuel economy standard for cars and light trucks to 35 miles per gallon by 2020. This would cut consumption by almost an additional 2 million barrels per day. Combined, these two programs are exactly what the President called for in the State of the Union address, when he asked for 20 in 10 – a twenty percent reduction in oil consumption in 10 years.
Big Oil has reacted aggressively against the expansion of ethanol production, suggesting that it perceives the growth of biofuels as an independent, competitive threat to its market power in refining and gasoline marketing. This paper explores the market fundamentals that underlay Big Oil’s reaction to policies to expand ethanol production.

By: M. Cooper (Consumer Federation of America)

 
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