A new crop of biodiesel producers have anxiously awaited a new standard for B20 biodiesel to spur confidence among automakers and to help transform their image from "mom and pop" fuel makers to global energy players. But diesel consumers shouldn't expect any price drops or immediate impact on biodiesel supplies as a result - at least in the short term.

In a June 19 decision, the American Society for Testing and Materials International (ASTM) committee voted to approve three new standard specifications for commercial biodiesel fuels - including the first standard for fuel blends containing a 6 to 20 (B20) percent biodiesel component mixed with petroleum diesel.

With the cost of vegetable oils and waste grease - the primary feedstocks for biodiesel - rising along with the price of food and the fuel to produce it, the new B20 standard won't have much impact on biodiesel prices, says Tony Raddich, an economist with the Energy Information Administration specializing in alternative fuels.

"The barrier isn't confidence in the fuel, it's is very high cost (of feedstocks)," Radich says.  "Requiring a new product standard gives buyers more confidence, but it doesn’t do anything to make a product cheaper."

William Thurmond, president of energy research firm Emerging Markets and author of a recent global biodiesel projection study titled Biodiesel 2020, says economic growth of biodiesel depends on its price being competitive with petroleum diesel.

"As long as the price of biodiesel feedstocks (soy) remain above $4.50 per gallon, then economic growth in biodiesel will remain slow - even with new ASTM standards," Thurmond says. "B20 is a standard, not a mandate, so it will make little difference except to truck fleets that are willing to pay for it if their trucks are under warranty for B20."

According to the National Biodiesel Board, Caterpillar, Cummins, John Deere and New Holland are all currently accepting blends of B20 or higher.

The introduction new non-food feedstocks will have the biggest impact on biodiesel pricing and eventually on consumer acceptance, Thurmond says.

"When the arrival of algae-biodiesel occurs in the next two to three years and the price of biodiesel becomes less expensive than petroleum diesel (based on $3 or $4 per gallon biodiesel from algae), then the B20 standard will open a gateway for customer acceptance as a price-competitive fuel," he says. "Then the B20 standard will see some real traction compared to prohibitively expensive soybean oil for biodiesel today."

Last month, algae-to-biodiesel startup Solazyme announced its algae-feedstock biodiesel will meet the ASTM standards, declaring itself the first algae feedstock company to do so.

In 2007, the U.S. consumed 491 million gallons of biodiesel while using 39 billion gallons of diesel, according to the EIA. The 2008 energy bill signed by President Bush calls for the production 500 million gallons of renewable biodiesel to supplement the total diesel supply in 2009, increasing that to 1 billion gallons in 2012. It also mandates 20.5 billion gallons of biofuels annually by 2015 - with 15 billion of that supplied by corn ethanol, 1 billion gallons of biodiesel and the rest coming from non-food sources.

There are 1,400 biodiesel pumps serving up blends ranging from B2 to B99 and B100 the US. The B20 standard will help state regulators to verify the consistency of the fuel blend, says Don Scott, the technical and regulatory engineer with the National Biodiesel Board.

"It's going to make it much easier for state regulators to enforce fuel quality analysis," Scott says. "Previously, when we had B100, it was difficult to do an analysis, you had to rely on a paper chain. ... The auto companies now have a blended fuel specification for which to design their engines.

"Each state is going to be different and the B20 standard has 18-19 physical or chemical compounds (regulators will) be looking for," Scott adds. "State regulators will look at measuring the percentage of biodiesel and it matches what’s labeled on the pump."

Both Volkswagen and Chrysler have committed to validating diesel vehicles for B20 once a standard had been ratified, as well as providing warranty coverage on those powertrains.

Max Gates, environmental spokesman for Chrysler, says the automaker plans to begin B20 engine testing very soon and expects to have results in about 6 months.

"We’re hopeful this standard will begin to let us waranteeing these engines," Gates says. "We need to do some testing for all the fuels that meet this standard and determine if there are any modifications that are needed. We think this is a real important step … we’re very much hopeful we can warranty this for all American vehicles. We want to move forward on this as quickly as we can."

William Craven, a general manager for Mercedes-Benz USA, says Mercedes recommends drivers only fill up with B5 - for now. But he too hopes that will soon change.

"The reality is that there are still a lot of mom and pops out there in this business (referring to biodiesel production)," Craven says. "Even though there is a standard, our concern is the standard may not be met or if met it's not clear to consumers. Biodiesel degrades very quickly and these machines (modern clean diesels) are highly refined and if you put bad fuel in there it will cause problems. What we look forward too is second generation biodiesel, like SunDiesel made from wood chips, that's a real sustainable path. First generation is nice but there is a lot challenges that can come along with it.  We hope the quality will be there. There are states like Minnesota that are mandating B20 and you just cringe. We hope we can keep the quality up."

Craven says the automaker is "rooting" for biodiesel industry supplies and blends to stabilize with the goal of supporting B20 officially.

"We want it to happen, because that helps dilute and gives a greater supply and will bring down the prices of diesel. It's in all of our interests," he says.

Additional reporting from Sam Abuelsamid.

JULY 2008