Most people will answer ‘Ethanol’ to the question, but I say Biodiesel is a worthy adversary. Modern upcoming Biodiesel refineries can produce biodiesel that meets or beats all diesel standards, has lower sulfur and is biodegradable. Also diesel cars have upto 40% better fuel economy and to top it all biodiesel can be made from waste. Currently biodiesel is manufactured from plant based oils but Nova Biofuels, a startup (I own a few shares which got hammered today after NBF posted it’s 10Q results) has constructed refineries which accept a variety of feedstocks to produce high quality biodiesel. Currently biodiesel is only used as an additive to petroleum derived diesel, however if you can make a biodiesel that can’t be differentiated from the petroleum kind and it costs the same, why not? Many big corporations are also investing in Biodiesel, including ADM (I also own stock in ADM – one of the very few stocks I own that has not been severely beaten in the last few months).
The problem with biodiesel, you ask? So far only commercial and military vehicles use diesel. There are very few diesel cars in the US. But that is probably about to change as more manufacturers, including Honda (2009 Honda Accord Diesel) and GM plan to launch diesel cars. There are rumors that the 2009 Accord diesel will get 52mpg! So even though diesel prices have hit a national average of nearly $4/gallon, diesel might make sense. And cheap biodiesel may just be the answer. There is already a network of crazies who home-brew their own diesel and will probably be ready to buy diesel cars?