The Power of the Soybean: The diesel engine is most often powered by petroleum. But that’s changing.

Jul 1, 2002

Rudolf Diesel might be amazed at all the hoopla. When the late German engineer demonstrated his new high-compression engine at the 1900 World’s Fair, he powered it with peanut oil. Nowadays, peanut oil is sooner found in a restaurant deep fryer than in the fuel tank of a truck or tractor. Though the diesel engine was designed to run on vegetable oil, it’s most often powered by petroleum.

But more than a century after Diesel’s high-compression engine made its debut, vegetable oil is gaining ground. 

Proponents of so-called biodiesel, vegetable oil that’s blended with petroleum, have redoubled efforts to win a bigger share of the nation’s fuel market. First and foremost, they’re pushing tax incentives on Capitol Hill, in Springfield and in other state legislatures in an effort to make their product more economically competitive. And they’ve stepped up their campaign to sell the idea to farmers, trucking companies and local governments that own and operate diesel-powered equipment. 

They’ve made headway. Backers of biodiesel — and its cousin, the gas-and-corn-blended ethanol — point to the environment, the economy and foreign policy to make their case. They argue that biodiesel burns cleaner, reducing sooty exhaust and other toxic emissions. They say it burns more efficiently because it contains more oxygen. They say it could help reduce dependence on oil from the Middle East, though diesel fuel typically is blended with only 1 percent or 2 percent of the additive. And they say increased demand for biodiesel would eliminate a surplus of soybean oil — typically used in biodiesel — and boost soybean prices. 

This last point is of particular interest in Illinois, which runs neck-and-neck with Iowa each year for the highest soybean production in the nation. 

“As the industry grows, the soybean farmer is betting on more and more soybeans being used in the production of biodiesel,” says Dave Loos, manager of the alternative energy development program in the Illinois Department of Commerce and Community Affairs.

For the moment, there’s a huge surplus of the oil. American soy oil stocks are around 2.5 billion pounds, about four times “normal” levels, according to the National Biodiesel Board, an advocacy group. Jenna Higgins, the board’s communications director, says, “Biodiesel is the No. 1 way to use up the glut of soybean oil on the market. And as more biodiesel is used, that’s obviously going to increase the value of soybean oil, and that in turn will increase the value of the entire bean.” 

No question, if biodiesel’s proponents realize their goal, Illinois farmers stand to gain. The U.S. Department of Agriculture calculates the price of a bushel of soybeans, which was trading at $4.98 in mid-June, would increase by 17 cents each year over the next decade if demand for soy biodiesel is at 200 million gallons during each of those years. That’s an extra $1.70 per bushel in a state that produces about 480 million bushels of soybeans per year.

Closer to home, if the 1.8 billion gallons of diesel fuel consumed in this state each year contained 2 percent biodiesel, annual gross farm income in Illinois would increase by at least $18 million, according to an analysis by the National Biodiesel Board. That figure would increase to $183 million if the fuel contained 20 percent biodiesel. This higher blend, though not as common, is marketed to those diesel consumers who are trying to drastically reduce emissions.

As for environmental concerns, the board’s analysis suggests that using the 2 percent blend statewide would reduce emissions of particulate matter by 154,000 pounds, unburned hydrocarbons by 205,000 pounds and carbon monoxide by 1.8 million pounds — reductions the board says would improve air quality and protect the earth’s ozone layer. If all diesel was blended at 20 percent soybean oil, emissions of particulate matter would be reduced by 1.5 million pounds, unburned hydrocarbons by 2 million pounds and carbon monoxide by 18 million pounds. 

There are drawbacks. For starters, biodiesel is more expensive. The cost of one gallon of diesel fuel generally increases by 1 cent for each percentage point of soy blend. 

Further, engines may need to be modified to run on the higher blends. 

There are political considerations, too. The petroleum industry, which stands to lose if alternative fuels gain, fiercely opposes efforts to subsidize the evolving biodiesel industry. 

David Sykuta, executive director of the Illinois Petroleum Council, says biodiesel is still in the early developmental stages. State lawmakers, he argues, shouldn’t rush to subsidize a nascent industry. “Frankly, if this was anybody other than a bunch of heavily subsidized Illinois farmers, they’d be laughed at,” he says. “Everybody suspends disbelief because they so want the family farm to be OK. 

If this was a bunch of chemical companies coming in and saying, ‘We’ve got a chemical formula that will do this and this,’ [regulators] would laugh out loud.”

Market forces can have unexpected consequences. If, for example, demand for biodiesel explodes, and the price of soybeans skyrockets, the alternative fuel could become less desirable to consumers who already are reluctant to pay for the more expensive product. 

But that’s precisely where government subsidies come in. Proponents say such subsidies would help keep prices down. Additionally, they contend, any increases would be couched in the inevitable rise in the price of all fuels.

Such arguments have been getting politicians’ attention. Both chambers of Congress approved legislation that would reduce the tax on blenders when the diesel is blended with up to 20 percent of biodiesel made from virgin vegetable oil. In mid-June, federal lawmakers were preparing a joint Senate-House conference committee to consider this proposal and a broader House energy measure backed by the White House.

Biodiesel proponents also have been successful in Minnesota. In March, that state enacted the nation’s first biodiesel mandate, requiring nearly all diesel fuel sold there to contain at least 2 percent biodiesel by 2005.

In Springfield, though, state legislation to subsidize the biodiesel industry has languished in the Illinois House Rules Committee. 

The measure, sponsored by Rep. Julie Curry, a Mt. Zion Democrat, would establish a tax exemption for the sale of biodiesel. The same exemption would apply to the sale of gasoline blended with 85 percent ethanol, the corn-based fuel additive used in automobiles. As part of a compromise between corn and soybean groups, the proposal would reduce the current tax exemption on the sale of gasoline blended with a small percentage of ethanol. Proponents, including the Illinois Soybean Association, vow to push the measure during the legislature’s fall veto session.

The proposed subsidies are designed to make biodiesel economically competitive, but consumers do have the option of buying it in Illinois. Beginning this year, Growmark Inc., a Bloomington-based agricultural cooperative, is marketing and distributing the additive to farmers and retailers in this state, Indiana, Iowa, Michigan, Ohio and Wisconsin. Mike Lockart, Growmark’s marketing manager for alternative fuels, estimates the coop has sold 300,000 gallons of biodiesel in Illinois — enough to put 2 percent in 15 million gallons of petroleum diesel — since March, when the campaign gained speed. “We would certainly have a very aggressive goal to triple or quadruple those figures [in 2003],” he says.

Indeed, more Illinois consumers are turning to biodiesel. According to Darwin Burkhart, mobile source programs manager at the Illinois Environmental Protection Agency, such municipalities as Palatine and Downers Grove increasingly are fueling their vehicle fleets with biodiesel blends. “Many of them are doing it in combination with other fuels so we’ve had some that are using 85 percent ethanol in their sedans or pickup trucks and now they’re saying, ‘Hey, we’ve had good luck with ethanol, so let’s try biodiesel,’” he says. “And if they’ve been using biodiesel, now they want to try ethanol.”Further, Illinois is home to two biodiesel manufacturers, with the potential for a third. 

Northfield-based Stepan Co. and Chicago-based Columbus Foods Co. manufacture biodiesel from soy oil. Archer Daniels Midland Co., the Decatur-based agricultural behemoth, is studying whether to manufacture biodiesel in the United States. The nation’s largest soybean processor and ethanol manufacturer, ADM already is manufacturing biodiesel at two plants in Germany.

Vegetable oil may yet be a routine ingredient in diesel fuel, and Illinois is positioned to help satisfy any increase in demand. 

“Biodiesel is not the answer to the energy crisis or greenhouse gas or all that,” says Jeffrey Nelson, business development manager at Stepan. “But it’s something we can implement today because we have all the infrastructure for growing, harvesting and processing soybeans. Biodiesel will be one of a thousand answers.” 

Illinois Issues,July/August 2002