Updated on February 11, 2008.

ENVIRONMENTALLY-CONSCIOUS CAR buyers are turning to hybrids more than ever, but soon, a new (and rather surprising) contender will join the green line-up at dealerships: diesel.

An earth-friendly diesel may sound like an oxymoron to those who remember Detroit's first attempts with these engines back in the 1980s. General Motors' diesel Oldsmobiles were "smelly, noisy and horribly unreliable," says John O'Dell, senior editor of Edmunds.com's Green Car Guide.

It's no surprise then that Americans have stayed away from diesel ever since. First impressions, after all, last. Despite its fuel efficiency on average 20% to 40% better than gasoline, according to industry trade group, Diesel Technology Forum less than 1% of all registered vehicles on the road today are powered by diesel.

That should soon change. In October 2006, clean, ultra-low sulfur diesel was introduced that has enabled auto makers to work on improving pollution-cutting technologies and creating diesel engines that are 95% cleaner than their predecessors, according to Rich Kassel, director of the Clean Fuels and Vehicles Project at the Natural Resources Defense Council.

The result: clean, green, fuel-efficient diesel cars that are set to hit dealerships in every state as soon as this year. Here's what you need to know about the "new" diesel and whether it merits a spot in your garage.

Cleaning up diesel's act

The problem with diesel used to be simple: garbage in garbage out, explains Kassel. "You had an extremely dirty, high-sulfur fuel going into an efficient, but unsophisticated engine," he says. "That resulted in high-toxic emissions that have been known to cause asthma attacks, cancer, and literally thousands of premature deaths each year."

Those issues are now history. The diesel fuel that's currently in use has 97% less sulfur than the stinky, sooty, carcinogenic diesel that was offered at the pump up until last year. That, in turn, has enabled auto makers to add special filters, fuel catalysts that reduce emissions and other pollution-cutting technologies that didn't work well with the old diesel. As a result, diesel cars that meet the stringent emission requirements of all 50 states will soon hit the dealerships.

Meeting those standards is no small feat. Eight states, including California and New York, enforce such stringent emissions requirements that they've practically banned auto makers from selling new diesel cars, explains Edmunds.com's O'Dell. California alone accounts for 12% of all new car sales and the eight states together add up to one-third of all cars sold nationwide.

Barely a dozen diesel-powered models are available today, most of them in the SUV, heavy truck and pickup categories. But over the next couple of years, a wave of new models will become available to consumers, says Allen Schaeffer, executive director of the Diesel Technology Forum. Among the auto makers that have announced plans to introduce diesels by 2010 are General Motors, Hyundai (the Veracruz Crossover), Nissan (Titan by 2009, Maxima by 2010) and Honda, according to data compiled by the industry group. Volkswagen's 2008 Jetta diesel will hit the streets as early as this spring. BMW has made a commitment to unveil a 50-state certifiable diesel by 2009, says Schaeffer, while Mercedes-Benz will make its current lineup of E320, E350, GL, ML and R-series diesels 50-state certifiable by 2009 or 2010.

While the diesel cars on the road today still emit roughly 30% more smog-producing nitrogen oxide than gasoline cars, Schaeffer says, the new 50-state certifiable diesels will be as clean as their gasoline counterparts.

The cost-to-own advantage

Like hybrids, the environmental benefits of diesels come at a price. To buy a diesel car now, you can expect to pay just below a $1,000 to more than $2,000 premium above its gasoline counterpart, says Schaeffer. The new 50-state certifiable diesels may be even more expensive because of the technology improvements, he notes.

But even with those extra costs, diesels pay for themselves faster than most hybrids, according to a recent Edmunds.com study. Thanks to its 25% mileage improvement, for example, the Mercedes-Benz R-Class diesel would break even after three years of ownership. Meanwhile, a Lexus GS 450 hybrid, with a 14% mileage improvement over its gas counterpart, would take 9.4 years to make up for the price differential over its gasoline-using cousin. (For more examples, see the table.)

That said, car owners can also expect to have lower maintenance costs with a diesel than a hybrid, O'Dell says. "You don't have to deal with a battery, battery disposal and replacement," he notes. In addition to that, diesel engines typically outlive regular gas engines because they have fewer revolutions per minute, or RPM (2,000-3,000 for diesel vs. 8,000 for gasoline), so the process isn't as hard on the engine and the moving parts. "Diesels are built stronger and they don't work as hard," he says.

And for the time being at least, diesel car owners enjoy slower depreciation. That's due to a strong used-car market for diesels in California and other states where new diesels aren't allowed to be sold and registered. Once a car has 7,500 miles or more, it can be sold in those states. (When the 50-state certifiable models come on the market, however, that slower depreciation rate may change.)

Diesel or hybrid?

Hybrid cars are on the way to record sales this year. An estimated 351,000 hybrids were sold in the U.S. in 2007, a 28% increase since 2006, according to J.D. Power and Associates. Still, they accounted for only 2.2% of auto sales. In other words, they're still far from becoming mainstream.

To find one in your area, use Mapquest's gas prices search tool

But that doesn't mean diesel is going to send hybrids into extinction. "There's room for both," Kassel says. For some drivers, hybrids will be a better fit. If you live in the city and do a lot of stop-and-go driving, a hybrid will give you more bang for the buck because stop-and-go driving contributes to hybrids' fuel economy. If you live in the suburbs and drive mostly on highways, a diesel will be a better choice.

Size will also come into play. Diesel is perfectly suited for large vehicles like minivans and trucks, Schaeffer says, while hybrids tend to be tailored to smaller SUVs.

"You can safely say that diesel can, and most likely will, give hybrids something to compete against," O'Dell says. And when it comes to innovation, variety and pricing, competition's always a good thing.