Biodiesel is a fuel made from fats, either vegetable oil or animal fat (tallow, lard). There are two main processes used.
The most common at present is transesterification with methanol. All fats are esters between a fatty acid and glycerin. Transesterifcation replaces the glycerin with three methanol molecules to create three fatty acid methyl ester (FAME) molecules. The biodiesel created by this process can mixed with petroleum derived diesel fuels and burned in many diesel engines. The primary advantages of biodiesel are:
1) It has natural lubricating properties and thus eliminates the need for synthetic lubricating additives in ultra low sulfur diesel fuels
2) It is essentially sulfur free and has a very high cetane number (a measure of diesel fuel quality). Thus it burns very clean reducing the production of soot.
The primary disadvantages of FAME based biodiesel are:
1) FAME is a solvent and will attack many of the plastics used in conventional diesel engine fuel systems. Thus, most diesel engines can only handle fuels with 10% or less FAME in the mix.
2) It is more expensive to produce than conventional diesel oil, largely due to the fact that the feed stocks (fats) cost more than petroleum (this is true even of waste fats when you add in the costs of collection transportation and pre-processing).
The other process for producing biodiesel is through a conventional petroleum refining process known as hydroprocessing. In this process, the fat is mixed with conventional diesel oil and reacted with hydrogen in a catalytic reactor. This breaks the fatty ester and removes the oxygen in the fat molecules. The product are hydrocarbons that are chemically the same as those found in conventional diesel oil.
Biodiesel produced by this method is sulfur free and has a high cetane number but it lacks the lubricating properties of FAME. It also lacks the solvent properties and can be burned in any diesel engine at any precentage. It is still more expensive than petroleum based diesel.
Incidentely, you can also make gasoline from fats by feeding them to a different refinery process. The bio-gasoline produced in this method is sulfur free and has a high octane number, but it is more expensive than gasoline made from petroleum.