Economic reasons have been one of the major obstacles in the use of biodiesel. Diesel fuel (DF) derived from vegetable oils is more expensive than petroleum-based DF. The feedstock for biodiesel is already more expensive than conventional DF. For example, in the United States, a gallon of soybean oil costs approximately two to three times as much as a gallon of conventional DF. However, in the case of conversion of vegetable oils or fats to their esters, the resulting glycerol co-product, which has a potential market of its own, may offset some of the costs.

In most European countries, however, transportation fuels are so heavily taxed that tax incentives can be applied to encourage the use of biodiesel in the form of lower or no taxes on the biofuel and higher taxes on the petroleum-based fuel (3,4). This subsidy artificially cheapens the biodiesel to make it competitive. In many developing countries, the overriding concern is to become independent of the imported commodity petroleum. In the United States, the tax mechanism is inapplicable because of the comparatively low taxes on transportation fuels. Artificially regulating the demand for fuels from specific sources by means of taxation is currently politically not feasible.

Nevertheless, biodiesel is attractive for other reasons. Besides being a renewable resource and therefore creating independence from the imported commodity petroleum and not depleting natural resources, health and environmental concerns are the driving forces overriding the economic aspects in some cases. These concerns are manifested in various regulatory mandates of pollutants, particularly CAAA (Clean Air Act Amendments of 1990) and EPACT (Energy Policy Act of 1992) in the United States, which present opportunities for alternative fuels such as biodiesel. A life-cyle analysis of biodiesel (5) has shown that it is competitive with other alternative fuels such as compressed natural gas (CNG) and methanol in the urban transit bus market.

It is generally recognized that biodiesel has lower emissions, with the exception of nitrogen oxides (NOJ, than conventional petroleum-based DF. For example, due to its lack of sulfur, biodiesel does not cause S02 emissions. The lower emissions have caused biodiesel to be used in urban bus fleets and to make it especially suitable for other niche markets such as mining and marine engines. Besides environmental and health reasons with accompanying Government regulations, focusing on the use of biodiesel in niche markets is rendered additionally attractive because not enough vegetable oil is produced to supply the whole diesel market with biodiesel.

Numerous reports exist showing that fuel economies of certain biodiesel blends and conventional DF are virtually identical. In numerous on-the-road tests, primarily with urban bus fleets, vehicles running on blends of biodiesel with conventional DF (usually 80% conventional DF and 20% biodiesel; for a list of most biodiesel demonstration programs in the United States, see Ref. 6) required only about 2-5% more of the blended fuel than of the conventional fuel. No significant engine problems were reported as discussed later.