Australia's Chief of Navy Vice Adm. Ray Griggs and U.S. Secretary for Navy Ray Mabus signed the Statement of Cooperation which recognizes that research into alternative fuels could bring significant benefits.
The agreement, made on board the U.S. aircraft carrier USS Nimitz, acknowledges the importance of the alternative fuel for the environment and for national security, a statement from Australia's Department of Defense said.
"All of us have a responsibility to be more environmentally aware," Australian Fleet Cmdr. Rear Adm. Tim Barrett said. "As things stand today, biofuel remains too costly to use across our fleet. However, this project could lead to a cheaper alternative fuel."
Australia will focus on how the U.S. Navy adapts to a general use of 50/50 blended biofuel by 2020.
Biofuel is a clean-burning combustible product that has no petroleum element.
In the case of biodiesel, the fuel is made of renewable sources including soybean oil and used as normal diesel. It can also be made from other vegetable oils, recycled frying oils and animal fats, the Biodiesel Blend Handling Guide published by the Minnesota Department of Agriculture.
Collecting and processing the pure biofuels to a suitable quality level can be costly, which pushes up the price of the fuel.
Biodiesel "can be blended with petroleum diesel in any percentage. Blends from 2 percent to 20 percent can be used in most diesel equipment with no, or minor, modifications," the guide says.
"We are making sure that we look to the future so that we can continue to operate with the United States as we do around the world," Barrett said.
As part of the signing event, an Australian navy Seahawk helicopter landed on the Nimitz and refueled with a biofuel blend -- the first time an Australian aircraft has flown with a biofuel blend, the Australian Department of Defense said.
Australia increasingly is moving toward the use of biofuels and blended biofuels.
Volvo Bus Australia issued a note in May last year that its engines are capable of using a 30 percent blended biodiesel, meaning a petroleum-based diesel fuel containing 30 per cent biodiesel.
In January, Boeing Research and Technology-Australia announced a deal with CSIRO to evaluate the potential for growing new biofuel feedstocks in northern Australia and turning them into sustainable aviation biofuels.
CSIRO, the Commonwealth Scientific and Industrial Research Organization, is Australia's national science agency.
"Aviation fuels made from biomass have been certified and are being used on commercial and military aircraft, so the challenge now is to find the right way to scale up feedstock production so these new fuels are both environmentally and economically sustainable," Michael Edwards, general manager of Boeing RTA, said.
Australian-produced biofuels could reduce the country's dependence on imported aviation fuel by around $2 billion a year, he said.