Biodiesel Boondoggles

Who would have believed that if the government created an industry out of whole cloth, it wouldn't have any consumers?

Two-thirds of U.S. biodiesel production capacity now sits unused, reports the National Biodiesel Board. Biodiesel, a crucial part of government efforts to develop alternative fuels for trucks and factories, has been hit hard by the recession and falling oil prices.

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"If your investors are losing money in first-generation biofuels, I guarantee you they'll be more reluctant to put money into more biofuels, including next-generation fuels," says Tom Murray, global head of energy for German bank WestLB, one of the leading lenders to ethanol and biodiesel makers.

Domestically produced biofuels were supposed to be an answer to reducing America's reliance on foreign oil. In 2007, Congress set targets for the U.S. to blend 36 billion gallons of biofuels a year into the U.S. fuel supply in 2022, from 11.1 billion gallons in 2009. That would increase biofuels' share of the liquid-fuel mix to roughly 16% from 5%, based on U.S. Energy Information Administration fuel-demand projections.

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The business models for most biofuel companies were predicated on a much higher price of crude oil, making biofuels more attractive. A government-guaranteed market was also central to business plans.

Now I can't quite put my finger on it, but I'm starting to suspect there's an obvious reason for biodiesel's problems.

Click over to read the very comprehensive article, including senators begging Obama to save the industry from "looming bankruptcies." IOW, another bailout.

posted by Gabriel Malor at 11:34 AM

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