Understanding the Life-Cycle Costs and Environmental Profile of Biodiesel and Petroleum Diesel Fuel

The use of a soy-based diesel fuel (biodiesel) has potential advantages over the use of a conventional petroleum diesel fuel including:

• Reduced dependence on foreign petroleum
• Lowering of greenhouse gas emissions
• Less air pollution and related public health risks in urban areas

A life cycle study performed by the U.S. Department of Energy's National Renewable Energy Laboratory, the U.S. Department of Agriculture's Office of Energy and Ecobalance (completed in May 1998) helped to quantify the environmental benefits of the “cradle-to-grave” production and use of biodiesel. The study showed, for example, that substituting 100% biodiesel for petroleum diesel in urban buses reduced the life cycle emissions of carbon dioxide (CO₂) by 78%. The study also pointed out some trade-offs of using biodiesel including increased life cycle hydrocarbon and NOx emissions.

Regardless of its environmental benefits, one of the major hurdles in the use of biodiesel is that its cost is higher than that of petroleum diesel fuel. An attempt was made to assess the full costs of using either biodiesel or petroleum diesel fuel in an urban bus, where both the direct and indirect (or external) costs were computed. These external costs, also called “externalities”, are environmental costs imposed on society, individuals and the environment for which an organization is not currently held financially accountable. The cost analysis study found that existing external cost data was extremely variable. However, targets could be defined to determine a breakeven point where the use of biodiesel was cost competitive.