Thursday, December 4, 2008

Biodieseling: the mirage of energy independence.

In May 2005, President Bush signed legislation creating federal subsidies for domestic biodiesel production. Along with supporters of biofuels, the President argued:
“... every time we use homegrown biodiesel, we support American farmers, not foreign oil producers.”
The reduction of baseline oil imports was a goal of the $1 per gallon tax credit, funded mainly though debt and the income tax payments. However, as is the case with most government-induced price distortions, unforeseen consequences came into play.

In 2007 almost 60% (291 million gallons out of 490 million gallons) of domestic production was exported. In the first eight months of 2008, an estimated 511 million gallons out of the 600 million gallons of biodiesel were exported rather than consumed domestically.

This means that $600 million was spent to replace 89 million gallons of oil. Since we import about 60% of our oil, we reduced our "foreign oil dependence" by 52 million gallons or a cost of about $11.54 per gallon, which seems to be hardly cost-effective.

HT: The Houston Chronicle

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