Some unexpected news: The Olympianis reporting that biodiesel is now cheaper than regular diesel.

Until now, biodiesel consumers have had to pay a premium at the pump; making highway fuel from vegetable oil was more costly than pumping it out of the ground. But thanks to rapidly rising crude prices, that’s no longer true.

  • Of couse, biodiesel still gets a $1 per gallon federal tax credit. Without that credit, biodiesel would be no bargain, even with petroleum-based diesel topping $3 per gallon.

    But as biodiesel proponents point out, the subsidy may be just a way of levelling the playing field. Petroleum benefits from hidden subsidies, ranging from favorable tax treatment for domestic production; environmental costs of pollution and that are borne by society at large rather than oil consumers; and military and security costs.

    It’s hard to pin down the precise value of the hidden petroleum subsidies, so it’s not completely clear how the $1 subsidy for biodiesel compares. (See here for a somewhat out-of-date look at the subject.)

    Subsidies aside, this still seems like a significant landmark. Of course, I expect that if diesel prices rise, the price of biodiesel will follow suit. Once truck fleets start thinking of biodiesel as a bargain, they’ll start blending more in with the regular diesel; and as biodiesel demand rises, so will the price.