Understanding U.S. Biodiesel Industry Growth using System Dynamics Modeling

The production capacity of the biodiesel industry is experiencing exponential growth. Demand is driven by environmental, social, and economic factors and helped along by government mandates and incentives. Suppliers are having difficulty keeping up with demand. The U.S. production capacity has grown by a factor of ten in the past two years, and between thirty and forty new plants are currently in or near construction phase. Continued strong growth of biodiesel production capacity depends on producer/supplier profitability, which will be influenced by several factors such as biomass oil feedstock prices, product/co-product prices, production technologies, and government regulations/incentives. How, why, and to what extent will the growth of the biodiesel industry be influenced by these factors? To explore possible answers to these questions, we describe the formulation of a system dynamics model of the U.S. biodiesel marketplace. The construction and use of this model will provide a framework for understanding the causal-loop/feedback structure and dynamics of this industry and how changes in key variables (e.g. feedstock price or change in government incentives) impact growth. Using system dynamics modeling, we envision and put into perspective the possible growth behavior scenarios for this industry over the next decade