Automaker Volkswagen and grain processor Archer Daniels Midland on Monday said they formed a research venture to develop and use biodiesel fuels for the auto industry.
Biodiesel refers to fuel mixtures made by combining diesel petroleum with soybean oil or other vegetable oils and fats.
Biodiesel, which can power conventional diesel engines, substantially reduces emissions of carbon monoxide and particulate matter, the companies said in a statement.
The pact is the first between one of the world's leading automakers and a global agribusiness company to develop next-generation clean renewable fuels, they said.
"This agreement represents Volkswagen's commitment to introducing clean burning and renewable fuels into the automotive industry," said Volkswagen Chairman Bernd Pischetsrieder.
ADM Chairman G. Allen Andreas predicted that "advances in biodiesel will benefit the automotive industry, the driving public, farmers and the environment as a whole."
Volkswagen is one of the world's largest producers of passenger cars and Europe's largest automaker. ADM is the largest U.S. producer of corn-based ethanol and the largest U.S. processor of soybeans, the main source of biodiesel.
Biodiesel has become the fastest growing alternative fuel in the United States, largely without incentives, but it is still more costly than petroleum diesel, according to the National Biodiesel Board.
Use is booming
The United States currently consumes about 20 million gallons of biodiesel each year, up from 500,000 gallons in 1999. More than 350 fleets, ranging from school buses to vehicles at military installations to national parks, now use biodiesel.
A U.S. Department of Agriculture report concluded that an additional 100 million gallons of biodiesel demand would increase revenue for U.S. soybean farmers by more than $112 million, NBB said.
A tax incentive of one penny per percentage point of blended biodiesel was included in the latest U.S. energy bill that stalled in the U.S. Congress last November.