Economic Impact of Allocating Vegetable Oil to Biodiesel
It’s no secret that our planet has started its journey towards an almost inescapable issue concerning energy shortage. This is also adding to the already occurring issue of environmental pollution. To make thing even worse, the average price of gasoline in the United States is seeing a constant increase.
In May, the price stood at around $3.043; up from $2.872 in April. A year ago, the price stood as low as $1.908. In fact, according to the U.S. Bureau of Labor Statistic’ Consumer Price Index (CPI), the price consumers pay for goods and services saw an overall increase of 4.2% in April 2021 as compared to April 2020.
“The 4.2 percent increase in April is the largest increase over a 12-month period since a 4.9-percent increase for the year ending September 2008,” say a spokesperson from the agency. “Over the longer period from January 2020 (prior to the COVID-19 pandemic) to April 2021, consumer prices increased 3.5 percent.”
Of all the commodities that the CPI takes into consideration, the prices of energy commodities saw the biggest spike. In the span of April 2020 and April 2021, the energy prices saw an overall increase of a whopping 25.1%.
Use of Biodiesel
To help solve both the economic and the environmental issues, it is being considered to implement used cooking oils (UCO) for the production of biodiesel. The price of raw material adds up to about 75% of the overall production cost of biodiesel. Using recycled material instead can help cut down the cost to a large extent.
Biodiesel is more environment-friendly source of fuel, as it sustainable and renewable. Therefore, it has been considered to be used as a substitute for petroleum and other sources of energy to cut down the cost and environmental impact.
As the ingredients for biodiesel oil are altered from expensive unprocessed raw materials to low-cost UCO, it can help neutralize the monopoly held by petroleum diesel in the industry. The oil from restaurants, food processors, and even homes – which would otherwise most likely end up in sewer pipes or landfills – can be collected to be used in the production of biodiesel.
It was estimated in 2017 that just the hotels and restaurants in the United States generated about 3 billion gallons of UCO per year. If all of this is converted into biodiesel, we can generate enough energy to meet the current domestic demand of diesel in the country.
A simple chemical reaction known as transesterification can be used to convert UCO into biodiesel. A variety of catalysts can be used for this purpose, including basic, acidic, and enzymatic. The catalysts can also be divided into two categories; heterogeneous or homogeneous. The cost, energy consumption, feasibility, and complexity of the biodiesel depends on the type of catalyst used in conversion.
This makes it seem like biodiesel can be a viable option to substitute for other forms of energy that are expensive to produce and more harmful to the environment. However, things aren’t as simple as that. Or else, biodiesel would have already replaced all other sources of energy.
The Issues with Biodiesel
While UCO is cheap and easily accessible, the production of biodiesel presents some unique challenges. One of the major issues is that the feedstock needs to be filtered beforehand in order to get rid of the suspended particles that may have been left over due to the cooking.
Most oils also contain a high fatty acid content. If it is more than 2%, the oil will need to undergo an addition process known as esterification reduce the formation of soap when it is being reacted with an alkaline catalyst. High amount of FFA may also result in injector coking, piston ring sticking, and severe engine deposits.
Due to this, UCO derived from canola, corn, or sunflower oil, are preferred for this process, as they have a much lower content of FFA.
However, with a little effort, these issues can still be fixed. But the production of biodiesel is giving birth to a much bigger concern…
Conversion of Vegetable Oil to Biodiesel
Since the use of biodiesel is raising everyone’s curiosity at the moment, more and more vegetable oil is being allocated for this purpose. This includes fresh vegetable oil that hasn’t been used. This means that a lot of the oil being used to produce biodiesel at the moment has not been recycled.
This has contributed to the United Nation’s vegetable oils price index to rally 70% since last June. This is a nine-year high, after the labor shortages at Asian palm plantations, as well as bad weather in key soybean sunflower, and rapeseed hubs pinched edible oil output. It has also cut inventory to the lowest it has been in the past 10 years.
This run up in the prices of edible oils has contributed to a rise in the broader food price index of the UN to its highest since 2014. As a consequence, it has stung consumers in developing countries and poses a challenge to policymakers who are trying to boost economic growth.
This issue wasn’t as extreme during the pandemic, as the COVID-19 lockdown had caused a lot of hotels and restaurants to shut down – effectively reducing the amount of vegetable oil being used in the food industry.
However, there has been a steep recovery in the demand of edible oil as the lockdown has softened and businesses as well as consumers have started restocking the oil. This has aggravated the situation, as the vegetable oil that is being currently produced isn’t enough to meet both of these demands.
“Vegetable oil prices are touching the higher range with mostly bullish factors priced in. However, with production expected to be stronger in 2021, further recovery in vegetable oil needs relatively strong demand to counteract higher production,” explained Anilkuman Bagani. “Government policies will be key in 2021 as vegoil prices will render inflation an issue. It will also be difficult for the Indonesian government to subsidize the biodiesel mandate, with the 2021 allocation announced at 9.2 million KL [kiloliter], due to the unfavorable spread of palm oil over gasoil.” Kambani is a research head at consultancy known as Sunvn Research based in Mumbai.
In addition, Joe Biden’s promise of the ‘Clean Energy Revolution’ following his election win indicates an ignition in the demands of biodiesel oil.
Dorab Mistry, a leading analyst of edible oils, explains, “There’s been a new factor, which has come after the election of President Biden, that has projected higher demand for soy oil, which is 100% biodiesel. Four refineries have already said that they will terminate refining fossil fuel (and) instead start producing vegetable oil based fuel.”
All of this has caused a sharp increase in the prices of all edible oils, but has had a higher impact on vegetable varieties. Animal based fat can also be used to produce biodiesel, but due to its high FFA content, it requires an extra step of purification, which leads people to consider it as a second option.
Either way, both of these oils are a huge part of the regular diets of billions of people around the world. Since it is a crucial ingredient required to prepare most foods, the price hike has already started affecting a lot of consumers.
The palm oil prices in Myanmar have seen a 20% rise since only February. According to the World Food Program, the military coup may be one of the troubling signs that the people out there are in a vulnerable condition.
Another area being affected by this is India. If you’ve ever had Indian food, you’d know they love oil to the core. All Indian dishes are dripping with oil. In fact, India is the biggest buyer of vegetable oil in the world.
And yet, the high price and less availability of vegetable oil is stifling the demand in India. They are expected to curb imports as the consumers are forced to cut back, despite active actions being taken to reopen the economy following the lockdown caused by COVID-19.
“We were expecting a recovery in demand after the country opened up, but India’s edible oil imports will remain at last year’s level at 13.2 million tonnes,” said Sandeep Bajoria, chief executive officer of Sunvin Group. “Earlier, 2021 imports were forecast at 14 million tonnes but higher prices are leading to demand destruction.”
India’s palm oil import has seen a 27% fall in imports between the span of February 2020 to February 2021. This has been the lowest for the country in 9 months.
As you can see, the production of biodiesel isn’t the most feasible option at the moment. There is a long journey ahead before it can actually be used as a substitute for major sources of gas such as petroleum or gasoil.
Food vs. Fuel
It seems like the world has inevitably found itself at a strange two-way street: food or fuel? While food may sound like the obvious answer, things can be a little more complicated than that.
“There is this age-old argument about food versus fuel but no one dare talk about it as it is all about green energy now,” Mistry, a director at Godrej International, explains. “It will take a long time, and noises from the developing countries, before people actually try to slow down the rate at which green energy is being produced.”
Mistry further added, “We are also told by people who ship palm oil packed in tins that the demand from Africa has slowed down.” This shows how it is impacting the whole world.
What Happens Now?
Ultimately, how things shape from here on depend on how President Biden decides to move forward. On 22nd April, President Biden celebrated Earth Day by announcing he aimed to achieve a 20-52% reduction in the economy-wide green hose gas (GHS) pollution by 2030.
In order to achieve this goals, the addition of biodiesel to the plan was extremely crucial.
In fact, the Renewable Fuels Association (RFA) praised the climate-plan Biden made. “We are pleased to see the inclusion of renewable fuels in President Biden’s plan for reducing U.S. greenhouse gas emissions, and we agree that efforts to deploy larger volumes of ‘very low carbon’ renewable fuels should be a key component of our nation’s commitment to reduce emissions from the transportation sector under the Paris Agreement,” said Geoff Cooper, president and CEO of the RFA.
He further added, “However, renewable fuels can do far more than decarbonize aviation and other off-road markets. Just since 2008, nearly 1 billion metric tons of GHG emissions have been prevented from entering the atmosphere due to the increased use of renewable fuels to meet Renewable Fuel Standard obligations.”
“In addition, recent research by scientists affiliated with Harvard, Tufts, and MIT shows that today’s average corn ethanol is reducing GHG emissions by almost 50 percent compared to gasoline. And with the adoption of carbon capture and sequestration, carbon-efficient feedstock production practices, and other new technologies, corn ethanol can be a ‘net-zero,’ carbon-neutral fuel by the end of the decade.
The issue is that there needs to be a way to make this work without affecting the edible oil industry. If there are no contingencies to prevent that, the plan may not run in the long run. For that, it important to see how President Biden goes about his plan and what policies he introduces to keep vegetable oil affordable for the average person.