The U.S. biodiesel use mandate and biodiesel feedstock markets

Studies of individual biodiesel feedstocks or broad approaches that lump animal fats and vegetable oils into a single aggregate straddle the true case of imperfect but by no means inconsequential substitution among fats and oils by different users. United States biofuel policy includes a biodiesel use mandate that rises to almost 4 hm3 by 2012, calling for biomass feedstock analysis that recognizes the complex interdependence among potential feedstocks and competition for food and industrial uses. We model biodiesel input markets to investigate the implications of the mandate for quantities and prices with and without a provision disallowing biodiesel made from soybean oil. Findings suggest a hierarchy of price effects that tends to be largest for cheaper fats and oils typically used for industrial and feed purposes and smallest for fats and oils traditionally used exclusively for direct consumption, with the cross-commodity effects and other key economic parameters playing a critical part in determining the scale in each case. Although sensitive to the exact parameters used, our results argue against overly simplifying feedstock markets by holding prices constant when considering the economics of a particular feedstock or if estimating the broader impacts of rising biodiesel production on competing uses.