This was actually answered here: http://greenanswers.com/q/182153/transportation/engine-technologies/diesel/why-do-diesel-engines-get-better-mpg#210189
The gist of the answer is that diesel engines produce more power when the fuel is ignited because it is forced into a compressed air chamber. This hot, compressed air produces more power than the spark ignition that regular gas is ignited through. Diesel charges way more efficiently than using a spark plug would. More power is produced as a result, which means that even though its a bit dirtier, less fuel is needed than for regular gas vehicle.
Diesel engines can also be converted to run on biodiesel. This increases the efficiency of their output, in terms of total environmental life-cycle, four-fold according to a study carried out by the National Renewable Energy Laboratory for the US Department of Energy and Department of Agriculture in May 1998. This study had a particular focus on “those benefits related to biodiesel energy’s balance, its effect on emissions of greenhouse gases, and its effects on the generation of air, water and solid waste pollutants”. It basically breaks down like this, for every standardized unit of fossil fuel consumed, biodiesel produces 3.2 units of product energy. Standard diesel produces .83 units of product energy for the same amount consumed, making biodiesel 4 times more efficient.
In addition, diesel oil is more efficient than gasoline because it contains a higher energy density: One gallon of diesel has about 147,000 British Thermal Units (BTUs), while one gallon of gasoline contains 125,000 BTUs.
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