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Energy and agricultural experts in the United States are discussing a bold proposal aimed at insulating global vegetable-oil prices from U.S. biofuel policy, thereby eliminating incentives for further deforestation.
This initiative comes as federal requirements for 2026 mandate that over 10% of diesel used in the US be biofuel. To meet this target, Americans will need to use nearly 7 billion gallons of biomass-based diesel (BBD), a significant increase from 4.3 billion gallons in 2025. Unlike corn-based fuels, most BBD is made from vegetable oils such as soybean or palm. This mandate stems from the Renewable Fuel Standard (RFS), a 2007 law requiring some gasoline and diesel to be replaced with biofuels.
A recent research paper by Tzu-Hui Chen, Rich Sexton, and Aaron Smith indicates that using vegetable oils for biofuel production has generated higher carbon emissions than regular diesel due to 'induced deforestation'. Smith explains that while biofuels cycle carbon from the atmosphere back into it (through growth and burning), the biofuel system is not entirely circular and adds emissions from farming and processing. Crucially, this initial view overlooks the impact of 'land-use change'; when forests are cleared for crops, carbon stored in trees and soil is released into the atmosphere. This shift makes soybean-based BBD worse for the climate than regular diesel, especially after accounting for induced deforestation in Indonesia and Malaysia.
The core issue, Smith argues, is that U.S. biofuel policies are often driven by agricultural interests seeking to raise crop prices. Smith proposes a solution: a tax on the use of vegetable oils in food, with the proceeds sent to farmers. The tax would need to be substantial enough to reduce food consumption by the same amount as the increased biofuel use, thereby stabilizing total demand and preventing price increases. This would remove the incentive to clear land for increased vegetable oil production.
Implementing such a policy would require knowledge of vegetable oil demand elasticity. Estimates for US soybean oil demand elasticity are around -0.1, implying that a 10% reduction in demand would necessitate a 100% price increase. In 2025, the US utilized 23.5 billion pounds of crop-based vegetable oil for food and 19 billion pounds for biofuel. The USDA projects an additional 5 billion pounds for biofuel use in 2026. To offset this increase, food demand would need to decrease by the same 5 billion pounds (approximately 10% of total consumption).
Based on a 2025 vegetable oil price of 50 cents per pound, a 50-cent per pound tax on food use could generate an estimated $12 billion annually. The tax would need to be levied on all oils to prevent consumers from switching to alternate oils like palm to avoid the tax, which could, in turn, drive producers of those oils to deforest land for increased production.
While acknowledging significant political and administrative hurdles, this proposal lays bare the trade-offs inherent in biofuel policy. Smith concludes that vegetable oil-based biofuels can indeed benefit the climate, but 'only if we let them take food out of our mouths'. Source: Energy Institute Blog