CHICAGO (Reuters) - Minnesota on Thursday became the first U.S. state to require that diesel contain a portion of biodiesel, a clean-burning fuel made largely from soybeans, part of a worldwide drive to encourage use of "green" fuels. Minnesota Gov. Tim Pawlenty signed the legislation as Americans faced soaring gasoline prices, which topped $3 a gallon in many parts of the country after Hurricanes Katrina and Rita stalled production at the U.S. Gulf Coast. The surge in energy costs has renewed U.S. consumer interest in alternative fuels like biodiesel and ethanol, which is made from such crops as corn and sugar cane and blended with gasoline to reduce tailpipe emissions from cars and trucks. "Today, Minnesota takes another step toward reducing our dependence on foreign oil while improving our environment and our rural economy," Pawlenty said at a school bus garage in St. Paul, Minnesota as he kicked off the biodiesel campaign. "Greater use of renewable fuels means that more of our energy comes from farm fields rather than oil fields," he said. "Biodiesel is another tool in our arsenal." With the world facing finite supplies of fossil fuels, interest in the use of biodiesel is growing quickly in Europe while other major economic powers, including Brazil and China, are fast increasing production of ethanol. The new Minnesota law requires diesel sold in the state to contain at least two percent biodiesel. Increased use of renewable fuels in the United States stands to benefit the country's farmers, who already grow the world's largest corn and soybean crops. Businesses in the United States, the world's largest consumer of energy, recognize the potential in such fuels and have been stepping up investments in the sector. Biodiesel consumption by the end of 2005 is projected to reach at least 50 million gallons, double that of 2004, according to the National Biodiesel Board, which promotes biodiesel use. Board spokeswoman Jenna Higgins said 45 biodiesel plants in the United States had the capacity to produce 180 million gallons of the fuel a year. She said 54 plants were expected to come online in 2006 or 2007, raising capacity to 750 million gallons. Illinois Governor Rod Blagojevich signed a law in July that requires state government, county and local authorities, school districts, universities and community colleges and mass transit agencies to blend their diesel with 2 percent biodiesel. New York State passed legislation this month that provides a refundable tax credit to producers of biodiesel and ethanol. From January, the federal government for the first time began offering a $1 per gallon rebate to blenders of biodiesel to make diesel prices more competitive. Biodiesel accounts for a small portion of the overall U.S. energy market, but it is making inroads into the home heating market in the Northeast and as fuel for boats.