This post from Green Car Congress is a bit technical, but gives a nice overview of soy biodiesel production (which traditionally involves some nasty chemicals). Scientists at the USDA are experimenting with a new process that "eliminates the use of an air-polluting chemical," but, of course, it's quite a bit more expensive as "the new method used considerably more methanol than typically needed, driving up the cost."
Technorati tag: biodiesel