The yellow furnace in the basement of Richard Grady's Massachusetts home puts the retired engineer at the forefront of an environmental revolution. It's stoked by fuel derived from soybeans. Grady and a growing number of homeowners in the U.S. Northeast are taking a stand against record oil prices, American dependence on Middle East oil and climate change by turning to biofuels to heat their houses during the cold winter months. "We've got to do what's right," said Grady, 67 in the Boston suburb of Westwood. "If I don't do it then who is?"

Massachusetts Gov. Deval Patrick is trying to speed up the trend, having proposed a bill on November 5 that would require all home heating oil and diesel fuel contain at least 5 percent of the cleaner-burning fuel by 2013, a big step in the U.S. Northeast, where 32 percent of homes use oil to stay warm in winter.

The bill would make Massachusetts the first U.S. state to require home heating oil to contain biofuels, beginning with 2 percent renewable fuel alternatives by 2010 and increasing to 5 percent by 2013. Leaders in the state legislature back the bill, though it has yet to go to a vote. "Biofuel makes people talk and it kind of bonds people because it's more for a cause than just heating your home," said Elizabeth Warren, who runs Mass Biofuel, a distributor of fuel refined from virgin soybean oil or used vegetable oils.

She now has about 400 customers who blend traditional heating oil and biodiesel, up from seven just three years ago. Tightening world oil supplies put the spotlight on biodiesel, a form of biofuel usually made from soybeans, animal fats or waste cooking oil from restaurants.

When blended with conventional oil, it cuts toxic emissions -- from sulfur oxide to carbon dioxide and particulate matter, the small particles that cause smog and respiratory problems. Worldwide biofuel capacity and demand are expected to double by 2010, driven by government policies to fight against energy dependence and climate change.

The boom is greatest in the United States and Europe, where backing includes tax credits, import tariffs plus minimum blending rules. In March the European Union (EU) set a target to source 10 percent of transport fuel from biofuels by 2020. But biofuels aren't without their problems.

In Europe and the United States they largely depend on subsidies to compete with oil, and an expansion in biofuel output worldwide is competing for land with tropical rainforests and food crops.

Environmental groups say palm oil plantations are driving rainforest slash and burn in Indonesia, raising carbon emissions and threatening endangered species, while the U.N.'s food body says biofuel plantations globally are competing with crop land and driving up food prices. Studies also show that biodiesel generates a small increase in emissions of a potent greenhouse gas called nitrous oxide, also known as laughing gas. Armond Cohen, executive director of the Boston-based nonprofit Clean Air Task Force, said the Massachusetts biofuel bill could do more harm than good to the climate.

INDUSTRY HURDLES
In the United States, about 175 companies distribute a blend known as bioheat, according to the National Oilheat Research Alliance in Virginia, even though it costs about 10 to 20 cents more per gallon than regular heating fuel. But for distributors like Warren, biofuel is not yet a profitable enterprise because of transportation costs. "If we had availability of the biofuel around here then it would actually be a cheaper product, but because we have to buy it from the Midwest, we have to bring it on rail car which jacks up the prices for us," she said.

Warren absorbs the extra costs. Her company, part of century-and-a-half-old oil distributors Fisher-Churchill Oil Co. run by her father, sells heating oil mixed with 20 percent biofuel at the same price as conventional heating oil. She says it's an important marketing tool. "Half of our customers switched over from other companies," she noted.

New York has 33 distributors of biofuel, the country's largest number and up from just a handful a few years ago. Many are selling to buildings that hope to reduce emissions of soot and carbon dioxide. From next year, New York City plans to use a biodiesel blend to heat city-owned buildings. Vermont's Sugarbush ski resort uses a 20 percent blend of biodiesel for its snow-making and mountain-grooming machinery, citing the threat to ski resorts from global warming. "It's currently a niche area but there's potential for growth, especially given the overall production surplus of biofuels in the United States," said Sander Cohan, oil market analyst at Energy Security Analysis Inc.

Some significant hurdles remain, including the difficulty harnessing existing U.S. petroleum pipelines, a step that would give the biofuel industry a huge boost by allowing for faster, cheaper transportation from big producers in the U.S. Midwest. Recent tests show that biodiesel leaves residue that can corrupt products that share the pipeline such as jetfuel.

"The sensing equipment on the pipelines has to be able to sense how much biodiesel is left in the pipeline," said Jenna Higgins Rose, spokeswoman at the National Biodiesel Board, a Missouri-based U.S. lobby group. "And the sensing equipment doesn't seem to be sensitive enough to give an accurate reading," she added. "In Europe they do move biodiesel through the pipeline but in the United States that's one of the things that appears to be holding it up."

(By Jason Szep and Gerard Wynn, Reuters, 03/12/2007)