Can Soybean Oil Replace Petroleum?

In some uses, yes, and that’s a good thing. Yesterday saw two articles on using vegetable oil as fuel, one at National Geographic and one at the New York Times. Using vegetable oil to create biodiesel fuel would reduce carbon monoxide, hydrocarbon, particulate, and sulfur emissions relative to petroleum, according to the National Renewable Energy Laboratory.

Two things. One, vegetable oil continues to be more expensive than petroleum oil, so the economic viability for widespread substitution is currently limited. However, we may well be on the brink of a soybean oil glut, as the NY Times article points out. That would shift the margin between the two. Second, what’s the energy intensity? Do you get the same amount of energy out of a gallon of vegetable oil that you do out of a gallon of petroleum-based fuel? You have to incorporate that energy intensity difference into any analysis comparing the two.

BUT … the National Geographic article makes a subtle and important point. These vegetable oil products can substitute for petroleum products for lubricants. In fact, the whole reason why folks were hopping around the world in the early 19th century looking for oil was not as a fuel source, but because of the enormous need for lubricants for all of those spiffy new machines in the factories and homes of the industrial revolution. Technically speaking, if veggie oil lube substitutes for petroleum lubes, then the demand for petroleum lubes becomes more elastic, demand substitution occurs, producers respond by producing less petroleum lube, which frees up crude oil to be an input into other processes. That’s one way, albeit small, to increase oil supply for the things that oil does best relative to other fuels — make vehicles go.

Now, replicate that innovation and substitution process for petrochemicals, for nylon, etc. All of these dynamic changes push out the constraint of the oil supply, making it binding further in the future and giving us more breathing room to work analytically and sensibly toward economically viable, net-energy-producing renewable fuel systems.

I think this is a great illustration of Arnold Kling’s observations about the benefits of an elastic economy.