See link above - its a good read. Basically fat is converted to ketones for fuel. Excess ketones are released through your breath and urine.
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Read Chapter 21 of Good Calories, Bad Calories. In short, your body uses fat for all the work of the body, except a modest amount for brain, which the liver can get by converting protein. In the absence of all the sugar and starch, which nature did not prepare our bodies to have all the time, we preferentially burn fat. That in part explains why, since fat has most calories, 9 per gram, viz 4 per gram of protein and sugar. Any not used is excreted in several ways as ketones. If you eat all the calories you need, then your weight won't move much. If you eat less than your body needs, then your stored fat is released. As with sugars, we can get all caloric sources with an ease that was unknown to early humans.
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If all excess fat that was not needed by our bodies was excreted as ketones, couldn't we eat unlimited fat?
You can definitely store dietary fat as fat.
yeah, i mean, pretty much eating in excess creates excess. kwim?
but, fat is -- in general -- a better food source than carbohydrates. more vitamins are fat soluble, they are the precursors to our hormones, they don't create insulin spikes, etc etc etc. good stuff.
does that mean we want to go zero carb? i don't think so. but it does mean that we can get more nutrition from less volume if we go for fat with our foods.